<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 11, 1997
REGISTRATION NO. 333-37719
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------
HERMES EUROPE RAILTEL B.V.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
NETHERLANDS 4813 NONE
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Numbers)
</TABLE>
TERHULPSESTEENWEG 6A
1560 HOEILAART, BELGIUM
(322) 658-5200
(Address, including ZIP code, and telephone number, including area code,
of registrant's principal executive officers)
CT CORPORATION SYSTEM
1633 BROADWAY
NEW YORK, NY 10019
(212) 664-1666
(Name, address, including ZIP code, and telephone number,
including area code, of agent for service)
------------------------
Copy to:
JOHN D. MORRISON, JR., ESQ.
SHEARMAN & STERLING
599 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022
(212) 848-4000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED EXCHANGE OFFER:
As soon as practicable after this Registration Statement becomes effective.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAW OF ANY SUCH JURISDICTION.
SUBJECT TO COMPLETION, DATED DECEMBER , 1997
PROSPECTUS FILE NO: 333-37719
[HERMES EUROPE RAILTEL LOGO]
HERMES EUROPE RAILTEL B.V.
OFFER TO EXCHANGE
11 1/2% SENIOR NOTES DUE 2007
FOR
ALL OUTSTANDING 11 1/2% SENIOR NOTES DUE 2007
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK TIME ON
, 1997, UNLESS EXTENDED, PROVIDED IT MAY NOT BE EXTENDED BEYOND
, 1997.
Hermes Europe Railtel B.V., a company organized in the Netherlands ("HER" or
the "Company"), hereby offers, upon the terms and subject to conditions set
forth in this Prospectus (the "Prospectus") and the accompanying Letter of
Transmittal (the "Letter of Transmittal"; together with the Prospectus, the
"Exchange Offer"), to exchange up to an aggregate principal amount of
$265,000,000 of its registered 11 1/2% Senior Notes due 2007 (the "Exchange
Notes") for up to an aggregate principal amount of $265,000,000 of its
outstanding unregistered 11 1/2% Senior Notes due 2007 (the "Outstanding
Notes"). The form and terms of the Exchange Notes are identical in all material
respects to those of the Outstanding Notes, except for certain transfer
restrictions and registration rights relating to the Outstanding Notes and
except for certain interest provisions related to such registration rights. The
Exchange Notes will be issued pursuant to, and entitled to the benefits of, the
Indenture (as defined) governing the Outstanding Notes. The Exchange Notes and
the Outstanding Notes are sometimes referred to collectively as the "Notes."
The Exchange Notes will be general unsecured obligations of the Company and
will rank senior in right of payment to all future Indebtedness (as defined)of
the Company that is expressly subordinated in right of payment to the Exchange
Notes and pari passu in right of payment with all existing and future unsecured
liabilities of the Company that are not so subordinated. The Exchange Notes will
be effectively subordinated to all secured liabilities of the Company to the
extent of the assets securing such liabilities. In addition, the Exchange Notes
will be structurally subordinated to all liabilities (including trade payables)
of the Company's subsidiaries. As of September 30, 1997, the Company had no
Indebtedness other than the Outstanding Notes, and the Company's subsidiaries
had $19.0 million of total liabilities reflected on the Company's balance sheet.
During and following the Exchange Offer, the Company intends to transfer all or
substantially all of its assets and liabilities (other than the Exchange Notes)
to its subsidiaries. After such transfer, the Company will be a holding company
with limited assets and will operate its business through subsidiaries. See
"Capitalization" and "Description of the Exchange Notes."
The Company will accept for exchange any and all Outstanding Notes which are
properly tendered in the Exchange Offer prior to 5:00 p.m., New York time, on
, 1997, unless extended by the Company in its sole discretion (the
"Expiration Date"). The Exchange Offer will not in any event be extended to a
date beyond , 1997. Tenders of Outstanding Notes may be withdrawn
at any time prior to 5:00 p.m., New York time, on the Expiration Date. If the
Company terminates the Exchange Offer and does not accept for exchange any
Outstanding Notes with respect to the Exchange Offer, the Company will promptly
return the Outstanding Notes to the holders thereof. The Exchange Offer is not
conditioned upon any minimum principal amount of Outstanding Notes being
tendered for exchange, but is otherwise subject to certain customary conditions.
The Outstanding Notes may be tendered only in integral multiples of $1,000.
Interest on the Exchange Notes will be payable semiannually in cash on
February 15 and August 15 of each year, commencing February 15, 1998. Holders of
the Exchange Notes will receive interest on February 15, 1998, from the date of
initial issuance of the Exchange Notes, plus an amount equal to the accrued
interest on the Outstanding Notes from the later of (i) the most recent date to
which interest has been paid thereon and (ii) the date of issuance of the
Outstanding Notes, to the date of exchange thereof. The Exchange Notes will
mature on August 15, 2007. The Exchange Notes will be redeemable, in whole or in
part, at the option of the Company, at any time on or after August 15, 2002 at
the redemption prices set forth herein, plus accrued and unpaid interest to the
date of redemption. In addition, on or prior to August 15, 2000, the Company may
redeem Exchange Notes at a price in cash equal to 111.5% of the principal amount
thereof, plus accrued and unpaid interest to the date of redemption with the net
cash proceeds of one or more Public Equity Offerings (as defined) or Strategic
Equity Investments (as defined); provided, however, that at least two-thirds of
the principal amount of Exchange Notes originally issued remains outstanding
after each such redemption. Upon the occurrence of a Change of Control (as
defined), each holder of Exchange Notes will have the right to require the
Company to purchase such holder's Exchange Notes
(continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE> 3
(Cover Page Continued)
at a price in cash equal to 101% of the principal amount thereof, plus accrued
and unpaid interest to the date of purchase.
The Exchange Notes are being offered hereunder in order to satisfy certain
obligations of the Company contained in the Registration Rights Agreement dated
August 19, 1997 (the "Registration Rights Agreement") between the Company and
Donaldson, Lufkin & Jenrette Securities Corporation, UBS Securities LLC and
Lehman Brothers Inc., as the initial purchasers (the "Initial Purchasers") with
respect to the initial sale of the Outstanding Notes. The Outstanding Notes were
sold by the Company (the "Offering") on August 19, 1997 to the Initial
Purchasers who placed the Outstanding Notes with certain institutional investors
in reliance on certain exceptions under the Securities Act of 1933, as amended
(the "Securities Act"). Based on positions taken by the staff of the Securities
and Exchange Commission (the "Commission") that have been enunciated in
no-action letters issued in Exxon Capital Holdings Corp. (available April 13,
1989) and Morgan Stanley & Co. Inc. (available June 5, 1991), among others, the
Company believes that the Exchange Notes issued pursuant to the Exchange Offer
in exchange for Outstanding Notes may be offered for resale, resold and
otherwise transferred by the respective holders thereof (other than any such
holder which is (i) a broker-dealer who purchased such Outstanding Notes
directly from the Company to resell pursuant to Rule 144A or any other available
exemption under the Securities Act or (ii) an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act), without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that the Exchange Notes are acquired in the ordinary course of such holder's
business and such holder has no arrangement with any person to participate in
the distribution of such Exchange Notes and is not engaged in and does not
intend to engage in a distribution of the Exchange Notes. However, the
Commission has not considered the Exchange Offer in the context of a no-action
letter and there can be no assurance that the staff of the Commission would make
a similar determination with respect to the Exchange Offer. Holders of
Outstanding Notes wishing to accept the Exchange Offer must represent to the
Company that such conditions have been met. Holders who tender Outstanding Notes
in the Exchange Offer with the intention to participate in a distribution of the
Exchange Notes may not rely upon the Morgan Stanley or similar no-action
letters. Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of the Exchange Notes received in exchange for Outstanding Notes if
such Exchange Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration Date, it will make this
Prospectus available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution."
Any Outstanding Notes not tendered and accepted in the Exchange Offer will
remain outstanding and will be entitled to all the rights and preferences and
will be subject to the limitations applicable thereto under the Indenture.
Following consummation of the Exchange Offer, the holder of Outstanding Notes
will continue to be subject to the existing restrictions upon transfer thereof
and the Company will have no further obligation to such holders to provide for
the registration under the Securities Act of the Outstanding Notes held by them.
If the Company has exchanged Exchange Notes for all Outstanding Notes validly
tendered and not withdrawn in accordance with the terms of the Exchange Offer
and the Registration Statement remains effective until the expiration date of
the Exchange Offer, none of the Notes will be entitled to the contingent
increase in interest rate provided pursuant to the Registration Rights
Agreement.
Prior to the Exchange Offer, there has been no public market for the
Exchange Notes. There can be no assurance as to the liquidity of any markets
that may develop for the Exchange Notes, the ability of holders to sell the
Exchange Notes or the price at which holders would be able to sell the Exchange
Notes. The Company does not intend to list the Exchange Notes for trading on any
U.S. national securities exchange or over-the-counter market system, but the
Outstanding Notes are eligible for trading in the Private Offerings, Resales and
Trading through Automated Linkages ("PORTAL") market and the Company expects to
list the Exchange Notes on the Luxembourg Stock Exchange. Future trading prices
of the Exchange Notes will depend on many factors, including among other things,
prevailing interest rates, the Company's operating results and the market for
similar securities. Historically, the market for securities similar to the
Exchange Notes, including non-investment grade debt, has been subject to
disruptions that have caused substantial volatility in the prices of such
securities. There can be no assurance that any market for the Exchange Notes, if
such market develops, will not be subject to similar disruptions. The Initial
Purchasers have advised the Company that they currently intend to make a market
in the Exchange Notes offered hereby. However, the Initial Purchasers are not
obligated to do so and any market making may be discontinued at any time without
notice.
To comply with the securities laws of certain jurisdictions, it may be
necessary to qualify for sale or register the Exchange Notes prior to offering
or selling such Exchange Notes. The Company has agreed, pursuant to the
Registration Rights Agreement and subject to certain specified limitations
therein, to register or qualify the Exchange Notes held by broker-dealers for
offer or sale under the securities or blue sky laws of such jurisdictions as any
such holder reasonably requests in writing. Unless the Company is so requested,
the Company does not intend to take any action to register or qualify the
Exchange Notes for sale in any such jurisdictions.
The Company will not receive any proceeds from the Exchange Offer. The
Company has agreed to pay certain expenses incident to the Exchange Offer.
i
<PAGE> 4
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS OF OR EXCHANGE FROM, HOLDERS OF OUTSTANDING NOTES IN ANY JURISDICTION
IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR A SOLICITATION
IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS, NOR ANY
DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN
THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
EXCHANGE NOTES MAY NOT BE OFFERED IN THE NETHERLANDS OR ELSEWHERE TO THE
ACCOUNT OF ANY PERSON OR ENTITY OTHER THAN TO PERSONS OR ENTITIES WHO OR WHICH
TRADE OR INVEST IN NOTES IN THE CONDUCT OF A PROFESSION OR BUSINESS WITHIN THE
MEANING OF THE SECURITIES TRANSACTIONS SUPERVISION ACT 1995 (WET TOEZICHT
EFFECTENVERKEER 1995) AND ITS IMPLEMENTING REGULATIONS (WHICH INCLUDES BANKS,
BROKERS, PENSION FUNDS, INSURANCE COMPANIES, SECURITIES FIRMS, INVESTMENT
INSTITUTIONS, OTHER INSTITUTIONAL INVESTORS, AND OTHER PARTIES INCLUDING INTER
ALIA TREASURIES AND FINANCE COMPANIES OF LARGE ENTERPRISES WHICH TRADE OR INVEST
IN SECURITIES).
ii
<PAGE> 5
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-4 (the "Registration
Statement," which term shall include all amendments, exhibits, annexes and
schedules thereto) under the Securities Act, and the rules and regulations
promulgated thereunder, covering the Exchange Notes being offered hereby. This
Prospectus does not contain all the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and the Exchange Notes offered hereby, reference is made to the
Registration Statement, including the exhibits thereto, and financial statements
and notes filed as a part hereof. Statements made in this Prospectus concerning
the contents of any document referred to herein are not necessarily complete.
With respect to each such document filed with the Commission as an exhibit to
the Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference. The Registration Statement and the
exhibits and schedules thereto and reports and other information filed by the
Company with the Commission may be inspected at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, or at its regional offices located at the Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center,
13th Floor, New York, New York 10007. In addition, reports and other information
filed by the Company can be accessed via the Commission's Internet home page at
http://www.sec.gov/. Copies of such material also can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
The Company has agreed to file with the Commission, to the extent
permitted, and distribute to holders of the Exchange Notes reports, information
and documents specified in Section 13(a) and 15(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), so long as the Exchange Notes are
outstanding, whether or not the Company is subject to such informational
requirements of the Exchange Act.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Any statements that express, or involve discussions as to, expectations,
beliefs, plans, objectives, assumptions or future events or performance (often,
but not always, through the use of words or phrases such as "will likely
result," "are expected to," "will continue," "is anticipated," "estimated,"
"intends," "plans," "projection" and "outlook") are not historical facts and may
be forward-looking and, accordingly, such statements involve estimates,
assumptions and uncertainties which could cause actual results to differ
materially from those expressed in the forward-looking statements. Accordingly,
any such statements are qualified in their entirety by reference to, and are
accompanied by, the factors discussed throughout this Prospectus, and
particularly in the risk factors set forth herein under "Risk Factors." Among
the key factors that have a direct bearing on the Company's results of
operations are the potential risk of delay in implementing the roll-out of the
Company's Network (as defined), the Company's substantial leverage and the
Company's need for substantial additional capital requirements. These and other
factors are discussed herein under "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business" and
elsewhere in this Prospectus.
The risk factors described herein could cause actual results or outcomes to
differ materially from those expressed in any forward-looking statements of the
Company made by or on behalf of the Company, and investors, therefore, should
not place undue reliance on any such forward-looking statements. Further, any
forward-looking statement speaks only as of the date on which such statement is
made, and the Company undertakes no obligation to update any forward-looking
statement or statements to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time, and it is not possible for
management to predict all of such factors. Further, management cannot assess the
impact of each such factor on the Company's business or the extent to which any
factor, or combination of factors, may cause actual results to differ materially
from those contained in any forward-looking statements.
iii
<PAGE> 6
SERVICE OF PROCESS AND
ENFORCEABILITY OF CIVIL LIABILITIES
The Company is a Netherlands company and substantially all of its assets
are located outside the United States. In addition, certain members of the
Supervisory Board of the Company are residents of countries other than the
United States. As a result, it may not be possible for investors to effect
service of process within the United States upon such persons or to enforce
against such persons or the Company judgments of courts of the United States
predicated upon civil liabilities under the United States federal securities
laws. The Company has been advised by its Netherlands counsel, Loeff Claeys
Verbeke, that since there is no treaty between the United States and the
Netherlands providing for the reciprocal recognition and enforcement of
judgments, United States judgments are not enforceable in the Netherlands.
However, a final judgment for the payment of money obtained in a United States
court, which is not subject to appeal or any other means of contestation and is
enforceable in the United States, would in principle be upheld by a Netherlands
court of competent jurisdiction when asked to render a judgment in accordance
with such final judgment by a United States court, without substantive
re-examination of the merits of the subject matter thereof; provided that such
judgment has been rendered by a court of competent jurisdiction, in accordance
with rules of proper procedure, that it has not been rendered in proceedings of
a penal or revenue nature and that its content and possible enforcement are not
contrary to public policy or public order of the Netherlands. Notwithstanding
the foregoing, there can be no assurance that United States investors will be
able to enforce against the Company, or members of the Management or Supervisory
Boards, or certain experts named herein who are residents of the Netherlands or
other countries outside the United States, any judgments in civil and commercial
matters, including judgments under the federal securities laws. In addition,
there is doubt as to whether a Netherlands court would impose civil liability on
the Company or on the members of the Management or Supervisory Boards in an
original action predicated solely upon the federal securities laws of the United
States brought in a court of competent jurisdiction in the Netherlands against
the Company or such members.
The Company is organized in the Netherlands and the Company's executive
offices are currently located at Terhulpsesteenweg 6A, 1560 Hoeilaart, Belgium,
and its telephone number is 32-2-658-5200.
CERTAIN DEFINITIONS
As used in this Prospectus, "HER" or the "Company" means Hermes Europe
Railtel B.V., a Netherlands corporation. References to "guilders" or "NLG" are
to Dutch guilders or any other substitute currency in the Netherlands,
references to "ECU" are to European Currency Units, references to "BF" are to
Belgian Francs and references to "dollars," "US$" or "$" are to United States
dollars.
Certain terms used in this Prospectus are defined in the "Glossary."
iv
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Capitalized terms used and not otherwise defined
in this summary have the meanings given to them elsewhere in this Prospectus.
Unless otherwise indicated, industry and market data in this Prospectus are
based on or derived from sources that the Company believes are reliable. There
can be no assurance, however, as to the accuracy of such industry or market
data.
THE COMPANY
Hermes Europe Railtel B.V. is developing an approximately 18,000 kilometer,
pan-European high capacity fiber optic network (the "HER Network" or the
"Network") designed to interconnect a majority of the largest Western and
Central European cities. HER's objective is to become the leading pan-European
carriers' carrier by providing centrally managed cross-border telecommunications
transmission capacity to telecommunications companies including traditional
Public Telecommunications Operators ("PTOs") and new entrants, such as
alternative carriers, global consortia of telecommunications operators,
international carriers, Internet backbone networks, resellers, value added
networks and other service providers ("New Entrants"). HER intends to offer
these target customers a better transport system than is currently available in
Europe with a higher and more consistent level of transmission quality,
redundancy, network functionality and service at lower prices.
HER began initial trials of the Brussels-Amsterdam portion of the Network
in the third quarter of 1996 and commenced commercial service in November 1996.
The Company expects to continue to roll out full telecommunications transport
service linking the cities of London, Rotterdam, Amsterdam, Antwerp, Brussels,
Paris, Dusseldorf and Frankfurt (the "initial five country network") in the
second quarter of 1998. The initial five country network is expected to consist
of 2,900 kilometers of fiber optic cable covering countries which, in 1995,
originated over 60% of all outgoing calls and terminated over 60% of all
incoming calls in the countries to be served by the Network. Network coverage is
planned to be expanded to include Geneva, Zurich and Milan in the third quarter
of 1998. Additional extensions of the Network to be completed in phases through
the year 2000 will be built out into Scandinavia, Southern and Central Europe.
The HER Network is expected to have points of presence in at least 32 cities in
15 European countries (the "HER Geographical Area" or "HERGA"). HER is deploying
the Network along the rights-of-way of several of its rail-based shareholders as
well as the rights-of-way of a variety of alternative sources, including
motorways, waterways, pipelines and utilities.
The European telecommunications market has historically been dominated by
monopoly PTOs. This system has ensured the development of broad access to
telecommunications services in Europe, but it has also restricted the growth of
high quality and competitively priced pan-European voice and data services. The
current liberalization occurring in Europe is intended to address these
structural deficiencies by breaking down PTO monopolies, allowing new
telecommunications operators to enter the market and increasing the competition
within the European telecommunications market. In March 1996, the European
Commission ("EC") adopted a directive (the "Full Competition Directive")
requiring the full liberalization of all telecommunications services in most
European Union ("EU") member states by January 1, 1998. The Company expects that
full liberalization in these European countries will lead to the emergence of
New Entrants with new and competitive service offerings. These New Entrants will
seek to provide a more diverse offering of telecommunications services that are
priced competitively, that offer higher value added services to customers, and
that are accompanied by a high level of customer service. The Company expects
this increase in competition will result in lower prices and a substantial
increase in the volume of traffic and range of telecommunication services
provided. The Company believes that as a result of the increased call volume and
growth in value added services, participants in these markets will require
significant amounts of new cross-border telecommunications transport capacity to
provide their services.
The HER Network will offer PTOs and New Entrants an attractive alternative
for the transport of cross-border European telecommunications traffic. In the
traditional system, PTOs own and control circuits only within their national
borders, and as a result, cross-border traffic must be passed from one PTO to
another PTO at the national boundary. No one PTO therefore owns or controls
end-to-end cross-border circuit capacity. Consequently, the tariff for
cross-border switched voice traffic is determined by a series of bilateral
settlement agreements between PTOs. This system, known as the accounting rate
mechanism (the "ARM"),
1
<PAGE> 8
is highly complex and has kept the price of cross-border calls at levels
significantly higher than the underlying cost of transport and terminating
calls. Increasing competition, however, is forcing PTOs and New Entrants to
explore alternative means of transporting switched voice traffic across borders.
Full liberalization in 1998 will allow the PTOs and New Entrants to transport
this traffic across borders using dedicated circuits such as those provided by
the Company. The alternative for the transport of this traffic will be for these
competing carriers to build their own transport capacity or use International
Private Leased Circuits ("IPLCs") which are provisioned by combining
half-circuits on the networks of two or more PTOs. The Company believes that
there are a number of problems with these options that will make the Company's
service offering attractive to these carriers. In particular, building own
transport capacity is unlikely to be an attractive option for most carriers
because of the high traffic volumes required to justify the expense, the need to
focus resources on marketing and customer service, the time commitment and the
regulatory and administrative complexities involved. Significant among these is
obtaining the rights of way along which to construct fiber optic cable across
national borders as these typically do not meet at the border crossing. Those
that do meet are often not available on both sides. Likewise, IPLCs provided by
the PTOs also have a number of disadvantages, including high prices, lack of
end-to-end quality control, lack of redundancy, low quality due to diversity of
network systems and equipment, limited availability of bandwidth and long lead
times for provisioning.
The Company intends to address these deficiencies by creating a single
pan-European fiber network that will provide cross-border wholesale transport
services exclusively to the carrier market. The Company believes it is the only
operator currently developing such a network for this purpose. The HER Network
will provide the following advantages: the Network will (i) be wholly controlled
and operated by HER, allowing full end-to-end quality control, (ii) operate on a
low cost structure, which, combined with its ability to carry traffic from a
large number of carriers, will allow the Company to offer highly competitive
pricing, (iii) feature a network architecture and technology platform that will
allow for flexible network availability, full redundancy, high bandwidth speeds,
and low error performance and (iv) allow the Company to provide tailored
innovative service offerings to individual customers, allowing them to maximize
the efficiency of their own networks. The Company believes that these features
combined with the Company's early entry into the market, its carriers' carrier
strategy and the Company's current agreements and relationships with rail-based
entities will provide it with a sustainable competitive advantage.
The Company's target customers carry a mixture of switched voice traffic,
data traffic and multimedia/image traffic. In 1995, the HERGA is estimated to
have generated in excess of 13 billion minutes of switched voice traffic with an
estimated value of approximately $9.4 billion, and to have required
approximately 5,900 E1 equivalents of circuit capacity. The market for switched
telecommunications traffic grew at 12% per annum from 1984 to 1992. The Company
expects this growth rate to continue through the year 2000 due to increased
demand for such services resulting from lower prices and the availability of new
services. Demand for switched voice capacity is expected by the Company to reach
11,300 E1 equivalents of circuit capacity by the year 2000. The market for data
traffic (which is currently carried primarily over IPLCs) is estimated to have
required approximately 250 E1 equivalents of circuit capacity in 1995. The
Company expects this market to grow at approximately 30% per annum due to the
increase in managed data network and other data services and to reach some 930
E1 equivalents of circuit capacity by the year 2000. The market for multimedia
and image traffic (primarily Internet traffic) is estimated to have required
approximately 180 E1 equivalents of circuit capacity in 1995. The Company
expects this market to grow at approximately 40% per annum primarily due to the
increase in Internet users and the increase in demand for high bandwidth
services and to reach some 970 E1 equivalents of circuit capacity by the year
2000.
The Company has entered into agreements for the construction and/or lease
of the fiber optic routes for the initial five country network, except for some
of the routes in Germany which are currently under negotiation. The Company has
completed the construction of two undersea cables connecting the United Kingdom
to the Netherlands and to Belgium, which were placed in commercial service in
January 1998. In France, the Company has reached agreement with an operator of
motorways for the use of approximately 600 kilometers of infrastructure in
northern France, and has agreements with other providers to complete the French
segment of the initial five country network. The Company expects to start
commercial service connecting Paris to Brussels, Amsterdam and London by January
1998. Contracts have been concluded with respect to the portion of the Network
connecting Germany with each of France, the Netherlands and Switzerland.
2
<PAGE> 9
Currently, 16 customers are under contract for service on the HER Network.
These customers represent a range of telecommunications providers including
PTOs, a global consortium of PTOs, Internet service providers, an international
carrier, a value added network and resellers.
The HER Network is based on SDH technology, which provides for digital
transmission capability upon which a broad range of advanced functionality may
be built and which offers network availability, flexibility and bandwidth speeds
and error performance not otherwise available to carriers for transport of
telecommunications traffic across national borders in Europe. The Network is
designed to provide customers with a wide variety of network bandwidth speeds,
ranging from VC12/E1 Standard (equivalent to 2.048 Mbps) to STM-1/E4 Standard
(equivalent to 155 Mbps). The Network architecture specifies a meshed topology
that can reach destinations through multiple paths. Substantially all Network
equipment and control equipment will be owned by the Company. For all routings,
there will be at least two alternate paths. The Company expects to size the HER
Network through successive upgrades so that the Network has at least twice the
amount of capacity it is forecast to require in any given year. Network capacity
upgrades can be accomplished optically through the use of wave division
multiplexing ("WDM") technology without adding fiber optic cable. The HER
Network has been designed to be controlled by a single network management center
and supported by advanced operational support systems. The Network Operations
Center located in Brussels, Belgium and a backup center located in Antwerp,
Belgium are fully operational and house network management and customer support
services which operate 24 hours a day, seven days a week.
As of September 30, 1997, the Company will have had $103.2 million of cash
equity contributed by its shareholders. See "Certain Relationships and Related
Transactions." Based on the Company's business plan, the total capital
expenditures required for the HER Network are currently expected to be
approximately $335 million, with approximately $100 million required for the
rollout of the initial five country network. As of September 30, 1997,
approximately $27.3 million has been spent on Network capital expenditures. The
Company currently estimates that after the Offering, its capital resources will
be sufficient to fund operations and expected Network development through
December 1998. The Company expects that its operations will generate positive
EBITDA in the first year of full operation of the initial five country network.
Further, the Company does not expect that its operations will generate positive
cash flows from operations in the first year of full operation of the initial
five country network. Sources of capital to fund Network development after 1998
may include internally generated funds, bank debt and vendor financing.
HER is owned approximately 79% by Global TeleSystems Group, Inc. ("GTS")
through its wholly-owned subsidiary, GTS-Hermes, Inc. ("GTS-Hermes"),
approximately 13% by HIT Rail B.V. ("HIT Rail"), a consortium of eleven European
railways, and approximately 8%, collectively, by two of the railways that
comprise the HIT Rail consortium. GTS is a U.S. based provider of a broad range
of telecommunications services to businesses, other telecommunications service
providers and consumers in Russia and the Commonwealth of Independent States,
Western and Central Europe and Asia. The Notes are obligations of the Company
only and are not guaranteed by, and do not otherwise constitute obligations of,
GTS.
3
<PAGE> 10
THE EXCHANGE OFFER
The Exchange Offer.................. The Company is offering to exchange up
to $265,000,000 aggregate principal
amount of its registered 11 1/2% Senior
Notes due 2007 (the "Exchange Notes")
for up to $265,000,000 aggregate
principal amount of its outstanding
unregistered 11 1/2% Senior Notes due
2007 (the "Outstanding Notes" and,
together with the Exchange Notes, the
"Notes"). The form and terms of the
Exchange Notes are identical in all
material respects to those of the
Outstanding Notes, except for certain
transfer restrictions and registration
rights relating to the Outstanding
Notes and except for certain interest
provisions related to such registration
rights described below under
"Description of the Exchange Notes."
The Exchange Notes will be issued
pursuant to, and entitled to the
benefits of, the Indenture governing
the Outstanding Notes. Outstanding
Notes may be exchanged only in integral
multiples of $1,000.
Based on positions taken by the staff
of the Commission that have been
enunciated in certain no-action
letters, the Company believes that the
Exchange Notes issued pursuant to the
Exchange Offer in exchange for
Outstanding Notes may be offered for
resale, resold and otherwise
transferred by the respective holders
thereof (other than any such holder
which is (i) a broker-dealer who
purchased such Outstanding Notes
directly from the Company to resell
pursuant to Rule 144A or any other
available exemption under the
Securities Act or (ii) an "affiliate"
of the Company within the meaning of
Rule 405 under the Securities Act),
without compliance with the
registration and
prospectus delivery provisions of the
Securities Act, provided that the
Exchange Notes are acquired in the
ordinary course of such holder's
business and such holder has no
arrangement with any person to
participate in the distribution of such
Exchange Notes and is not engaged in
and does not intend to engage in a
distribution of the Exchange Notes.
Minimum Condition................... The Exchange Offer is not conditioned
upon any minimum aggregate principal
amount of Outstanding Notes being
tendered or accepted for exchange.
Expiration Date;
Withdrawal of Tender.............. The Exchange Offer will expire at 5:00
p.m., New York time, on
, 1997, or such
later date and time to which it is
extended by the Company. The Exchange
Offer will not in any event be extended
to a date beyond ,
1997. The tender of Outstanding Notes
pursuant to the Exchange Offer may be
withdrawn at any time prior to the
Expiration Date. Any Outstanding Notes
not accepted for
4
<PAGE> 11
exchange for any reason will be
returned without expense to the
tendering holder thereof as promptly as
practicable after the expiration or
termination of the Exchange Offer.
Certain Conditions to the
Exchange Offer.................... The Exchange Offer is subject to
certain customary conditions, which may
be waived by the Company. See "Terms of
the Exchange Offer -- Certain
Conditions to the Exchange Offer."
Procedures for Tendering
Outstanding Notes................. Each holder of Outstanding Notes
wishing to accept the Exchange Offer
must complete, sign and date the Letter
of Transmittal, or a facsimile thereof,
in accordance with the instructions
contained herein and therein, and mail
or otherwise deliver such Letter of
Transmittal, or such facsimile,
together with such Outstanding Notes
and any other required documentation to
the Exchange Agent at the address set
forth herein. By executing the Letter
of Transmittal, each holder will
represent to the Company that, among
other things, (i) any Exchange Notes to
be received by it will be acquired in
the ordinary course of its business,
(ii) it has no arrangement with any
person to participate in the
distribution of the Exchange Notes and
(iii) it is not an "affiliate," as
defined in Rule 405 of the Securities
Act, of the Company or, if it is an
affiliate, it will comply with the
registration and prospectus delivery
requirements of the Securities Act to
the extent applicable.
Interest on the Exchange Notes...... The Exchange Notes will bear interest
at the rate of 11 1/2% per annum,
payable semiannually on February 15 and
August 15, commencing February 15,
1998, to holders of record on the
immediately preceding February 1 and
August 1, respectively. Holders of the
Exchange Notes will receive interest on
February 15, 1998 from the date of
initial issuance of the Exchange Notes,
plus an amount equal to the accrued
interest on the Outstanding Notes from
the later of (i) the most recent date
to which interest has been paid thereon
and (ii) the date of initial issuance
of the Outstanding Notes, to the date
of exchange thereof. Interest on the
Outstanding Notes accepted for exchange
will cease to accrue upon issuance of
the Exchange Notes.
Special Procedures for
Beneficial Owners................. Any beneficial owner whose Outstanding
Notes are registered in the name of a
broker, dealer, commercial bank, trust
company or other nominee and who wishes
to tender such Outstanding Notes in the
Exchange Offer should contact such
registered holder promptly and instruct
such registered holder to tender on
such beneficial owner's behalf. If such
beneficial owner
5
<PAGE> 12
wishes to tender on such owner's own
behalf, such owner must, prior to
completing and executing the Letter of
Transmittal and delivering its
Outstanding Notes, either make
appropriate arrangements to register
ownership of the Outstanding Notes in
such owner's name or obtain a properly
completed bond power from the
registered holder. The transfer of
registered ownership may take
considerable time and may not be able
to be completed prior to the Expiration
Date.
Guaranteed Delivery Procedures...... Holders of Notes who wish to tender
their Outstanding Notes and whose
Outstanding Notes are not immediately
available or who cannot deliver their
Outstanding Notes, the Letter of
Transmittal or any other documents
required by the Letter of Transmittal
to the Exchange Agent prior to the
Expiration Date, must tender their
Outstanding Notes according to the
guaranteed delivery procedures set
forth in "Terms of the Exchange
Offer -- Guaranteed Delivery
Procedures."
Registration Rights................. The Company has agreed to use its best
efforts to consummate the Exchange
Offer to offer holders of the
Outstanding Notes an opportunity to
exchange their Outstanding Notes for
the Exchange Notes which will be issued
without legends restricting the
transfer thereof. If the Company is not
permitted to effect the Exchange Offer
under certain previously enunciated
positions of the staff of the
Commission, or in certain other
circumstances, the Company has agreed
to file a shelf registration statement
(the "Shelf Registration Statement")
covering resales of the Outstanding
Notes and to use its best efforts to
cause the Shelf Registration Statement
to be declared effective under the
Securities Act and, subject to certain
exceptions, keep the Shelf Registration
Statement effective until three years
after the effective date thereof.
Certain Federal Income
Tax Considerations................ For a discussion of certain federal
income tax considerations relating to
the Exchange Notes, see "Certain United
States Federal Income Tax
Consequences."
Use of Proceeds..................... There will be no proceeds to the
Company from the exchange pursuant to
the Exchange Offer.
Exchange Agent...................... The Bank of New York is serving as
exchange agent (the "Exchange Agent")
in connection with the Exchange Offer.
The address and telephone number of the
Exchange Agent are set forth in "Terms
of the Exchange Offer -- Exchange
Agent."
6
<PAGE> 13
CONSEQUENCES OF FAILURE TO EXCHANGE OUTSTANDING NOTES
Holders of Outstanding Notes who do not exchange their Outstanding Notes
for Exchange Notes pursuant to the Exchange Offer will continue to be subject to
the restrictions on transfer of such Outstanding Notes as set forth in the
legends thereon as a consequence of the issuance of the Outstanding Notes
pursuant to exemptions from, or in transactions not subject to the registration
requirements of the Securities Act and applicable state securities laws.
Accordingly, such Outstanding Notes may be resold only (i) to a person whom the
seller reasonably believes is a qualified institutional buyer (as defined in
Rule 144A under the Securities Act) in a transaction meeting the requirements of
Rule 144A, (ii) in a transaction meeting the requirements of Rule 144 under the
Securities Act, (iii) outside the United States to a foreign person in a
transaction meeting the requirements of Rule 904 under the Securities Act or
(iv) in accordance with another exemption from the registration requirements of
the Securities Act (and upon an opinion of counsel if the Company so requests),
(v) to the Company or (vi) pursuant to an effective registration statement, and,
in each case, in accordance with any applicable securities laws of any state of
the United States or any other applicable jurisdiction. The Company does not
currently anticipate that it will register the Outstanding Notes under the
Securities Act. See "Risk Factors -- Consequences of Failure to Exchange
Outstanding Notes" and "Terms of the Exchange Offer -- Consequences of Failure
to Exchange."
TERMS OF THE EXCHANGE NOTES
The Exchange Offer applies to $265,000,000 aggregate principal amount of
Outstanding Notes. The form and terms of the Exchange Notes are identical in all
material respects to those of the Outstanding Notes, except for certain transfer
restrictions and registration rights relating to the Outstanding Notes and
except for certain interest provisions related to such registration rights. The
Exchange Notes will evidence the same debt as the Outstanding Notes and will be
entitled to the benefits of the Indenture. See "Description of the Exchange
Notes."
Securities Offered.................. $265,000,000 aggregate principal amount
of 11 1/2% Senior Notes due 2007 of
Hermes Europe Railtel B.V. (the
"Exchange Notes").
Maturity............................ August 15, 2007.
Interest Payment Dates.............. February 15 and August 15, commencing
February 15, 1998.
Ranking............................. The Exchange Notes will be general
unsecured obligations of the Company
and will rank senior in right of
payment to all future Indebtedness of
the Company that is expressly
subordinated in right of payment to the
Exchange Notes and pari passu in right
of payment with all existing and future
unsecured liabilities of the Company
that are not so subordinated. The
Exchange Notes will be effectively
subordinated to any secured liabilities
of the Company to the extent of the
assets securing such liabilities. In
addition, the Exchange Notes will be
structurally subordinated to all
liabilities (including trade payables)
of the Company's subsidiaries. As of
September 30, 1997, the Company had no
Indebtedness other than the Notes, and
the Company's subsidiaries had $19.0
million of total liabilities reflected
on the Company's balance sheet. During
and following the Exchange Offer, the
Company intends to transfer all or
substantially all of its assets and
liabilities (other than the Exchange
Notes) to its subsidiaries. After such
transfer, the Company will be a holding
company with limited assets and will
operate its business through
subsidiaries. See "Capitalization" and
"Description of the Exchange Notes."
Escrow Account...................... The Company has purchased, pledged and
transferred to the Trustee for the
benefit of the holders of the Exchange
Notes the Pledged Securities (as
defined) in such amount as will be
sufficient upon scheduled interest and
principal payments of such securities
to provide
7
<PAGE> 14
for the payment in full of the first
four scheduled interest payments on the
Exchange Notes. The Company has used
approximately $56.5 million of the net
proceeds of the offering of Outstanding
Notes to acquire the Pledged
Securities. The Pledged Securities have
been pledged to the Trustee for the
benefit of the holders of the Exchange
Notes and deposited into an escrow
account (the "Escrow Account") held by
an escrow agent for the benefit of the
Trustee and the holders of the Exchange
Notes in accordance with an escrow
agreement. Funds may be disbursed from
the Escrow Account for interest
payments on the Exchange Notes. Upon
acceleration of the maturity of the
Exchange Notes, the Escrow Agreement
will provide for the payment of the
amount remaining in the Escrow Account
to the Trustee to be applied on account
of amounts owing on the Exchange Notes
as provided in the Indenture. Pending
such disbursement, any uninvested funds
contained in the Escrow Account will be
invested in Cash Equivalents (as
defined). See "Description of the
Exchange Notes -- Escrow Account."
Optional Redemption................. The Exchange Notes will be redeemable,
in whole or in part, at the option of
the Company, at any time on or after
August 15, 2002 at the redemption
prices set forth herein, plus accrued
and unpaid interest to the date of
redemption. In addition, prior to
August 15, 2000, the Company may redeem
Exchange Notes at a price equal to
111.5% of the principal amount thereof,
plus accrued and unpaid interest to the
date of redemption with the net cash
proceeds of one or more Public Equity
Offerings or Strategic Equity
Investments; provided, however, that at
least two-thirds of the principal
amount of Exchange Notes originally
issued remains outstanding after each
such redemption.
The Company may, at any time, at its
option, redeem all (but not less than
all) of the Exchange Notes then
outstanding at 100% of the principal
amount thereof, plus accrued and unpaid
interest, if any, to the date of
redemption, if the Company has become
or would become obligated to pay, on
the next date on which any amount would
be payable with respect to the Exchange
Notes, any Additional Amounts (as
defined) as a result of change in law
(including any regulations promulgated
thereunder) or in the interpretation or
administration thereof, if such change
is announced and becomes effective on
or after the date of original issuance
of the Outstanding Notes on or about
August 19, 1997 (the "Issue Date" or
the "Closing Date").
Change of Control................... Upon the occurrence of a Change of
Control, each holder of Exchange Notes
will have the right to require the
Company to purchase all or any portion
of such holder's Exchange Notes at a
price in cash equal to 101% of the
principal amount thereof, plus accrued
and unpaid interest to the date of
purchase. There can be no assurance
that the Company will have the
financial resources necessary to
purchase the Exchange Notes upon a
Change of Control.
Certain Covenants................... The indenture relating to the Notes
(the "Indenture") contains covenants
that limit the ability of the Company
and the Restricted Subsidiaries (as
defined) to, among other things, (i)
incur additional Indebtedness, (ii)
make Restricted Payments (as defined),
(iii) cre-
8
<PAGE> 15
ate certain liens, (iv) effect certain
Asset Sales (as defined), (v) enter
into certain transactions with
affiliates, (vi) merge or consolidate
with any other person or transfer all
or substantially all of their assets or
(vii) sell or issue capital stock of
Restricted Subsidiaries. These
covenants are subject to a number of
important exceptions and
qualifications. See "Description of the
Exchange Notes -- Certain Covenants."
Registration Rights;
Liquidated Damages................ Pursuant to the Registration Rights
Agreement, the Company agreed to file,
within 90 days after the Issue Date,
the Registration Statement, and to use
its reasonable best efforts to cause
the Registration Statement to become
effective within 135 days after the
Issue Date. In certain circumstances,
the Company will be required to file,
and use its reasonable best efforts to
cause to become effective, a shelf
registration statement under the
Securities Act to cover resales of the
Outstanding Notes from time to time. If
the Registration Statement or shelf
registration statement is not filed or
declared effective within the specified
time periods or if the Exchange Offer
is not consummated within the specified
time period, the Company will be
required to pay additional interest to
holders of the Outstanding Notes. See
"Description of the Exchange
Notes -- Registration Rights;
Additional Interest."
Luxembourg Paying and Transfer
Agent............................... Banque Internationale a Luxembourg S.A.
Listing............................. The Exchange Notes are expected to be
designated as eligible for trading in
the PORTAL market. The Company does not
intend to apply for listing of the
Exchange Notes on any securities
exchange or for quotation through the
National Association of Securities
Dealers Automated Quotation System.
Application has been made to list the
Exchange Notes on the Luxembourg Stock
Exchange.
Transfer Restrictions............... The Outstanding Notes have not been
registered under the Securities Act.
Until such time as the Outstanding
Notes are exchanged for Exchange Notes
in the Exchange Offer or a registration
statement with respect to resale of
Outstanding Notes is declared
effective, the Outstanding Notes will
be subject to certain restrictions on
transfer. The Exchange Notes and
Outstanding Notes registered pursuant
to on effective registration statement
will generally be freely tradeable.
RISK FACTORS
In addition to the information contained elsewhere in this Prospectus, see
"Risk Factors" for a discussion of certain factors that should be considered by
holders of Outstanding Notes prior to tendering Outstanding Notes in the
Exchange Offer.
9
<PAGE> 16
SUMMARY FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1994(1) 1995 1996 1996 1997
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................... $ -- $ -- $ 48 $ -- $ 2,262
Operating costs and expenses................ 183 6,637 15,246 10,771 17,602
Loss from operations........................ (183) (6,637) (15,198) (10,771) (15,340)
Other (expense) income...................... (37) 135 (771) (351) (1,771)
Net loss.................................... (220) (6,502) (15,969) (11,122) (17,111)
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30,
1997
-------------
<S> <C>
BALANCE SHEET DATA:
Total current assets.......................................................... $ 276,107
Property and equipment, net................................................... 28,270
Total assets.................................................................. 347,002
Total current liabilities..................................................... 18,571
Total liabilities............................................................. 284,018
Total shareholders' equity.................................................... $ 62,984
OTHER DATA:
EBITDA(2)................................... (233) (6,607) (15,666) (11,158) (13,385)
Deficiency of earnings to fixed
charges(3)............................... (220) (6,493) (15,816) (11,117) (12,518)
</TABLE>
- ------------------------------
(1) Although the Company was formed on July 6, 1993, the Company had no
operations prior to 1994.
(2) EBITDA is earnings (loss) from operations before interest, taxes,
depreciation and amortization. EBITDA is a measure of a company's
performance commonly used in the telecommunications industry, but should not
be construed as an alternative to net income (loss) determined in accordance
with generally accepted accounting principles ("GAAP") as an indicator of
operating performance or as an alternative to cash from operating activities
determined in accordance with GAAP as a measure of liquidity. See line items
"Net cash used in operating activities," "Net cash used in investing
activities" and "Net cash provided by financing activities" on pages F-5 and
F-18 of the Company's consolidated financial statements for disclosure of
cash flows from operating, investing and financing activities.
(3) Because of the Company's historic losses, the Company has experienced a
deficiency of earnings to fixed charges throughout its existence. The
deficiency of earnings to fixed charges equals the loss from continuing
operations before income taxes minus fixed charges. Fixed charges consist of
interest on all indebtedness.
10
<PAGE> 17
RISK FACTORS
An investment in the Notes offered hereby involves a high degree of risk.
Prospective participants in the Exchange Offer should consider carefully the
following factors in evaluating the Company and its business in addition to the
other information contained in this Prospectus.
RISKS RELATING TO HER NETWORK ROLL-OUT
The Company's ability to achieve its strategic objective will depend in
large part on the successful, timely and cost-effective completion of the
Network. Although the Company currently operates commercially over the
Amsterdam-Brussels portion of the Network, the development of the remainder of
the Network may be delayed or adversely affected by a variety of factors,
uncertainties and contingencies. Many of these factors, such as strikes, natural
disasters and other casualties, are beyond the Company's control. In addition,
HER will need to negotiate and conclude additional agreements with various
parties regarding, among other things, rights-of-way and development and
maintenance of the Network infrastructure and equipment. Historically, the
Company has experienced substantial delays in concluding these agreements and
developing its Network. There can be no assurance that HER will be successful in
concluding necessary agreements, or that delays in concluding such agreements
will not materially and adversely affect the speed or successful completion of
the Network. The successful and timely completion of the Network will also
depend on, among other things, (i) the availability to the Company of
substantial amounts of additional capital and financing (see "-- Substantial
Additional Capital Requirements"), (ii) timely performance by various third
parties of their contractual obligations to engineer, design and construct
portions of the Network and (iii) the Company's ability to obtain and maintain
applicable governmental approvals (see "-- Government Regulation").
The Company expects to roll out full telecommunications service over the
initial five country network in the second quarter of 1998, and the 18,000
kilometer network to be operational during the year 2000. Although the Company
believes that its cost estimates and the build-out schedule are reasonable,
there can be no assurance that the actual construction costs or time required to
complete the Network build-out will not substantially exceed current estimates.
Any significant delay or increase in the costs associated with development
of the Network could have a material adverse effect on the Company, including
its ability to make payments on the Notes.
SUBSTANTIAL LEVERAGE
The Company is highly leveraged. After the HER Recapitalization and the
Offering and the application of the proceeds thereof, at September 30, 1997, the
Company had total long-term debt of $265.4 million and total shareholders'
equity of $63.0 million. The Company had negative EBITDA of $15.7 million and
$13.4 million for the year ended December 31, 1996 and for the nine months ended
September 30, 1997, respectively. See "Capitalization" and "Selected
Consolidated Financial Data." The Indenture and certain debt instruments to
which the Company is a party limit but do not prohibit the incurrence of
additional indebtedness by the Company. Under the Indenture, the Company will be
able to and may incur a substantial amount of secured indebtedness in order to
complete the build-out of its Network. The Company expects to incur substantial
additional indebtedness in the future and that a substantial amount of its
vendor financing will be on a secured basis.
The Company's ability to pay the principal of and interest on its
indebtedness will depend upon the Company's future performance, which is subject
to a variety of factors, uncertainties and contingencies, many of which are
beyond the Company's control. There can be no assurance that the Company will
generate sufficient cash flow in the future to enable it to meet its anticipated
debt service requirements (including those with respect to the Notes). Failure
to generate sufficient cash flow may impair the Company's ability to raise
additional equity or debt financing or to meet its debt service requirements,
including the payment obligations under the Notes, and to complete development
of the HER Network. In such circumstances, the Company may be required to
renegotiate the terms of the instruments relating to its long-term debt or to
refinance all or a portion thereof. There can be no assurance that the Company
would be able to renegotiate successfully such terms or refinance its
indebtedness when required or that the terms of any such refinancing would be
acceptable to management.
11
<PAGE> 18
The Company's leverage could result in adverse consequences to the holders
of the Notes. Such consequences may include, among other things: (i) certain of
the future borrowing by the Company may be at variable rates of interest that
could cause the Company to be vulnerable to increases in interest rates; (ii)
the Company may be more leveraged than certain of its competitors, which may
place it at a competitive disadvantage with respect to such competitors; (iii)
the Company's vulnerability to the effects of general economic downturns or to
delays or increases in the costs of developing the HER Network may be increased;
(iv) the Company's ability to take advantage of significant business
opportunities that may arise may be impaired; and (v) the Company's ability to
respond to changes affecting the implementation of its financing, construction,
development or operating plans may be impaired. The discretion of the Company's
management with respect to certain business matters will be limited by covenants
contained in the Indenture and future debt instruments. Among other things, the
covenants contained in the Indenture restrict, condition or prohibit the Company
from incurring additional indebtedness, creating liens on its assets, making
certain asset dispositions or entering into transactions with affiliates. There
can be no assurance that the Company's leverage and such restrictions or
restrictions in other debt instruments applicable to the Company will not
materially and adversely affect the Company's ability to finance its future
operations or capital needs or to engage in other business activities. Moreover,
a failure to comply with the obligations contained in the Indenture or any
future debt instrument could result in an event of default under such
agreements, which could permit acceleration of the related debt and acceleration
of debt under future debt agreements that may contain cross-acceleration or
cross-default provisions.
SUBSTANTIAL ADDITIONAL CAPITAL REQUIREMENTS
Based on the Company's business plan, the total capital expenditures
required for the HER Network are currently expected to be approximately $335
million, with approximately $100 million required for the rollout of the initial
five country network. As of September 30, 1997, approximately $27.3 million has
been spent on Network capital expenditures. As of September 30, 1997, HER has
cash of $237.5 million available for operations and to construct and develop the
Network. Additional financing will be required to develop the Network. Under the
Indenture, the Company will be able to and may incur a substantial amount of
secured indebtedness in order to complete the build-out of its Network. The
Company expects that a substantial amount of its vendor financing will be on a
secured basis. Failure to obtain necessary financing may require the Company to
delay or abandon its plans for deploying the remainder of the Network, which may
have a material adverse effect on the Company, including its ability to make
payments on the Notes.
The Company's revenues and the cost of rolling out its Network and
operating its business will depend upon a variety of factors including, among
other things, the Company's ability to (i) effectively and efficiently manage
the expansion of its Network and operations, (ii) negotiate favorable contracts
with suppliers, (iii) obtain additional licenses, regulatory approvals,
rights-of-way and infrastructure contracts to complete and operate the HER
Network, (iv) access markets and attract sufficient numbers of customers and (v)
provide and develop services for which customers will subscribe. The Company's
revenues and costs are also dependent upon factors that are not within the
Company's control such as regulatory changes, changes in technology, increased
competition and various factors such as strikes, weather, and performance by
third-parties in connection with the development of the Network. See
"-- Government Regulation," "-- Competition," "-- Technology," and "-- Risks
Relating to HER Network Roll-out." Due to the uncertainty of these factors,
actual costs and revenues may vary from expected amounts, possibly to a material
degree, and such variations would likely affect the Company's future capital
requirements. Accordingly, there can be no assurance that the amount of funds
required to complete the Network will not exceed the anticipated amounts
described above. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Use of Proceeds."
LIMITED OPERATING HISTORY; HISTORY OF OPERATING LOSSES AND WORKING CAPITAL
DEFICITS
HER was considered a development stage enterprise through December 31,
1996. The Company's prospects must be considered in light of the risks,
expenses, problems and delays inherent in establishing a new business in a
rapidly changing industry. While the Company has commenced commercial operation
of the Brussels-Amsterdam portion of the Network, the Company has generated only
limited revenue, has limited experience in operating its business and intends to
enter countries where it has limited or no operating
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experience. The Company's plans and development of the Network have been
substantially delayed in the past.
The Company's business has generated operating losses and, as yet,
insufficient cash flow to meet its future debt service requirements, capital
expenditures and other cash needs. At September 30, 1997, the Company had a
cumulative net loss of $39.8 million and a working capital balance of $257.5
million. There can be no assurance that the Company will be able to achieve or
sustain operating profitability, or generate sufficient cash flow to make
payments on the Notes.
ANTICIPATED HOLDING COMPANY STRUCTURE; EFFECTIVE SUBORDINATION OF THE NOTES;
DEPENDENCE UPON CASH FLOW OF SUBSIDIARIES
The Notes will be general unsecured obligations of the Company and will
rank senior in right of payment to all future Indebtedness of the Company that
is expressly subordinated in right of payment to the Notes and pari passu in
right of payment with all existing and future unsecured liabilities of the
Company that are not so subordinated. See "Description of Certain Indebtedness"
and "Use of Proceeds."
During and following the Exchange Offer, the Company intends to transfer
all or substantially all of its assets and liabilities (other than the Notes) to
subsidiaries. After such transfer, the Company will be a holding company with
limited assets and will operate its business through subsidiaries. Accordingly,
the Company will rely entirely upon distributions from its subsidiaries to
generate the funds necessary to meet its obligations, including payments on the
Notes. Such subsidiaries will be separate and distinct legal entities which have
no obligation, contingent or otherwise, to pay any amount due pursuant to the
Notes or to make any funds available therefor, whether by dividends, loans or
other payments. Any right of the Company and its creditors, including holders of
the Notes, to participate in the assets of any of the Company's subsidiaries
upon any liquidation or administration of any such subsidiary will be subject to
the prior claims of the creditors of such subsidiary. The claims of creditors of
the Company, including holders of the Notes, will be effectively subordinated to
all existing and future third-party indebtedness and liabilities, including
trade payables, of the Company's subsidiaries. The Company and its subsidiaries
may incur other debt in the future, including secured debt.
The Company expects that future indebtedness incurred by it may be secured,
particularly through equipment financings. As a result, any claims against the
Company will be effectively subordinated to indebtedness secured by mortgages or
other security interests or liens on the assets of the Company, which could have
material consequences to holders of the Notes. Such security may include
substantially all of the fixed assets of the Company. The value of a substantial
portion of such fixed assets is derived from employing such assets in a
telecommunications business. These assets are highly specialized and, taken
individually, can be expected to have limited marketability. Consequently, in
the event of a realization by secured creditors on the assets of the Company,
creditors would likely seek to sell the business as a going concern in order to
maximize the proceeds realized. The price obtained upon any such sale could be
adversely affected by the necessity to obtain approval of the sale or permits
from the applicable regulatory authorities and to comply with other applicable
governmental regulations.
UNCERTAINTY OF MARKET ACCEPTANCE; POTENTIAL LACK OF CUSTOMER DEMAND
The Company only recently began delivering services to a limited number of
customers over a portion of the Network. Since there is no precedent for a
pan-European carriers' carrier network, the market acceptance and customer
demand for services over such a network are uncertain. There can be no assurance
that the Company will be able to achieve the traffic volume necessary to realize
the anticipated cash flow, operating efficiencies and cost benefits of the
Network.
GOVERNMENT REGULATION
As a multinational telecommunications company, the Company is subject to
varying degrees of regulation in each of the jurisdictions in which it provides
services. Local laws and regulations, and the interpretation of such laws and
regulations, differ significantly among the jurisdictions in which the Company
operates. There can be no assurance that future regulatory, judicial and
legislative changes will not have a material adverse effect on the Company, that
regulators or third parties will not raise material issues with
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<PAGE> 20
regard to the Company's compliance or noncompliance with applicable regulations
or that any changes in applicable laws or regulations will not have a material
adverse effect on the Company.
A substantial portion of the Company's strategy is based upon the timely
implementation of regulatory liberalization of the EU telecommunications market
on January 1, 1998 under existing EC directives. Although EU member states have
a legal obligation to liberalize their markets in accordance with their
requirements, certain more detailed aspects of the EU regulatory framework to
apply in the liberalized environment after January 1, 1998, still remain to be
adopted. In addition, Ireland, Portugal, Spain, Luxembourg and Greece have been
granted extensions from the January 1, 1998 deadline. There can be no assurance
that each EU member state will proceed with the expected liberalization on
schedule, or at all, or that the trend toward liberalization will not be stopped
or reversed in any of the countries. Accordingly, the Company faces the risk
that it will establish the Network and make capital expenditures in a given
country in anticipation of regulatory liberalization which does not subsequently
occur.
In order to give effect to EC directives in each member state, national
governments must pass legislation liberalizing their respective markets. This
applies not only to the liberalization requirements set out in existing EC
directives, but also to requirements set out in directives which have yet to be
adopted. The implementation of EC directives in the telecommunications sector
has been inconsistent or ambiguous in some EU member states. Such implementation
could limit, constrain or otherwise adversely affect the Company's ability to
provide certain services. Furthermore, national governments may not necessarily
pass legislation implementing an EC directive in the form required, or at all,
or may pass such legislation only after a significant delay. Even if a national
legislature enacts appropriate regulation within the time frame established by
the EU, there may be significant resistance to the implementation of such
legislation from PTOs, regulators, trade unions and other sources. Further, the
Company's provision of services in Europe may be materially adversely affected
if any EU member state imposes greater restrictions on non-EU international
services than on international services within the EU. These and other potential
obstacles to liberalization could have a material adverse effect on the
Company's operations by preventing the Company from establishing its Network as
currently intended, as well as a material adverse effect on the Company's
ability to make payments on the Notes.
The Company has obtained licenses, authorizations and/or registrations in
the United Kingdom, Belgium, the Netherlands and Germany. The Company has filed
an application for authorization in France and is awaiting final approval
thereof. In addition, the Company intends to file applications in other
countries in anticipation of service launch in accordance with the HER Network
roll-out plan. The terms and conditions of these licenses may limit or otherwise
affect the Company's scope of operations. There can be no assurance that it will
be able to obtain, maintain or renew licenses to provide the services it
currently provides and plans to provide, that such licenses will be issued or
renewed on terms or with fees that are commercially viable, or that licenses
required in the future can be obtained by the Company. The loss of, or failure
to obtain, these telecommunications licenses or a substantial limitation upon
the terms of these telecommunications licenses could have a material adverse
effect on the Company. See "Licenses and Regulatory Issues."
NEED TO OBTAIN AND MAINTAIN INFRASTRUCTURE PROVIDER AND RIGHTS-OF-WAY
AGREEMENTS; DEPENDENCE ON LEASED FIBER
The Company must obtain additional infrastructure provider agreements for
the long-term lease of dark fiber, rights-of-way and other permits to install
fiber optic cable from railroads, utilities and governmental authorities to
build out the Network. There can be no assurance that the Company will be able
to maintain all of its existing agreements, rights and permits or to obtain and
maintain the additional agreements, rights and permits needed to implement its
business plan on acceptable terms. Loss of substantial agreements, rights and
permits or the failure to enter into and maintain required arrangements for the
HER Network could have a material adverse effect on the Company's business. In
addition, the Company depends on third parties for leases of dark fiber for
portions of its Network. There can be no assurance that the Company will be able
to enter into and maintain required arrangements for leased portions of the HER
Network, which could have a material adverse effect on the Company's business.
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<PAGE> 21
COMPETITION
The European and international telecommunications industries are
competitive. The Company is providing "point-to-point" transborder services, and
upon completion of the Brussels-Amsterdam-London ring of the initial five
country network, will begin to offer "virtual infrastructure" services. See
"Business -- Services." The Company believes that there is currently no
competition for the provision of virtual infrastructure services on a
pan-European centrally managed network, although the Company faces potential
competition from other telecommunications companies who may develop centrally
managed pan-European networks. PTOs, multinational telecommunications carriers,
other telecommunications developers and certain niche telecommunications
providers could proceed to build a competitive network. Such competition could
have a material adverse effect on the Company and its ability to make payments
on the Notes. WorldCom, Inc. recently announced plans to construct a
pan-European fiber network, the first phase of which is expected to connect
London, Amsterdam, Brussels and Paris by early 1998. Although the Company
believes that the proposed WorldCom pan-European network is primarily intended
to carry WorldCom traffic, WorldCom has stated that any excess capacity on such
network will be used to provide a competitive "carrier's carrier" service.
The Company competes with respect to its "point-to-point" transborder
service offering against circuits currently provided by PTOs through IPLCs.
Although the Company believes that it has certain competitive advantages over
PTOs in this market, there can be no assurance that the Company will compete
effectively against PTOs, which have established customer bases and greater
technical, financial, marketing and other resources.
The Company believes that liberalization of the European telecommunications
market is likely to attract entrants to the market. Many of the Company's
current or potential competitors have technical, financial, marketing and other
resources substantially greater than those of the Company. There can be no
assurance that the Company will be able to overcome successfully the competitive
pressures to which it is or may become subject, both in the markets in which it
currently operates and in markets into which it might expand. See
"Business -- Competition."
MANAGING RAPID GROWTH
As a result of the Company's expected growth and expansion, significant
demands will be placed on the Company's management, operational and financial
resources and on its systems and controls. In order to manage its growth
effectively, the Company must continue to develop its operational and financial
systems and controls, purchase and utilize additional telecommunications
facilities, and expand, train and manage its employee base. Inaccuracies in the
Company's forecasts of market demand could result in insufficient or excessive
telecommunications facilities and disproportionate fixed expenses for its
operations. There can be no assurance that the Company will be able to develop
and operate the entire HER Network as currently planned, expand into additional
markets at the rate currently planned by the Company, or that any existing
regulatory barriers to such expansion will be reduced or eliminated. As the
Company proceeds with its development and expansion, there will be demands on
the Company's customer support, sales and marketing and administrative resources
and Network infrastructure. There can be no assurance that the operating and
financial control systems and infrastructure of the Company will be adequate to
maintain and effectively manage future growth. Failure to continue to upgrade
the administrative, operating and financial control systems or the emergence of
unexpected expansion difficulties could materially and adversely affect the
Company's business, results of operations and financial condition.
DEPENDENCE ON SIGNIFICANT CUSTOMERS
Telecommunications companies constitute, and will continue to constitute,
the Company's customer base. The Company may become dependent on a small number
of significant customers. The loss of a significant customer may have a material
adverse effect on the Company and its ability to make payments on the Notes.
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<PAGE> 22
CURRENCY AND EXCHANGE RISKS
The Company's functional and reporting currencies are the Belgian franc and
the U.S. dollar, respectively. The Company conducts and will continue to conduct
business transactions in currencies other than its functional and reporting
currencies; accordingly, appreciation or depreciation in the value of other
currencies as compared to the functional currency or reporting currency could
result in a material transaction or translation gain or loss, respectively. The
Company experienced a foreign currency gain of $0.1 million for the nine months
ended September 30, 1997 and a foreign currency loss of $0.8 million for the
nine months ended September 30, 1996. The Company experienced a $1.1 million
foreign currency transaction loss for the year ended December 31, 1996. The
Company operates in a multi-currency environment and is subject to the effects
of fluctuations in exchange rates. The Company transacts its business in the
following significant currencies: the Belgian franc and the European Currency
Unit. The Company is in the process of developing risk management policies that
will establish guidelines for managing foreign exchange risk. The Company
expects that these policies will be implemented in the first quarter of 1998 and
anticipates that these policies will allow management to use financial hedging
instruments to manage foreign exchange exposure. Currently, the Company is
considering alternatives to hedge foreign exchange exposure resulting from the
issuance of the Outstanding Notes.
The Company has not entered into hedging transactions to limit its foreign
currency risk exposure, although the Company may implement such practices in the
future. In addition, the Company's revenues have been, and the Company currently
expects that its revenues will be, generated primarily in the ECU while the
interest and principal payment obligations with respect to the Notes will be
payable in U.S. dollars. Accordingly, the Company is subject to the risk that it
will be unable to generate a sufficient amount of ECU-based revenue to meet its
principal and interest obligations with respect to the Notes.
RISK OF ERROR IN FORWARD LOOKING STATEMENTS
HER is a development stage company. All statements in this Prospectus that
are not clearly historical in nature are forward looking. Examples of such
forward looking statements include the statements concerning HER's operations,
prospects, markets, technical capabilities, funding needs, financing sources,
commercial operations schedule and future regulatory approvals, as well as
information concerning expected characteristics of competing systems and
expected actions of third parties such as equipment suppliers and partners.
These forward looking statements are inherently predictive and speculative and
no assurance can be given that any of such statements will prove to be correct.
Actual results and developments may be materially different from those expressed
or implied by such statements. Prospective investors should carefully review the
other risk factors set forth in this section of the Prospectus for a discussion
of various factors which could result in any of such forward looking statements
proving to be inaccurate.
TECHNOLOGY
The telecommunications industry is subject to rapid and significant changes
in technology and such technological advances may reduce the relative
effectiveness of existing technology and equipment. The cost of implementation
of emerging and future technologies could be significant. There can be no
assurance that the Company will maintain competitive services or that the
Company will obtain appropriate new technology on a timely basis or on
satisfactory terms. Any failure by the Company to maintain competitive services
or obtain new technologies could have a material adverse effect on the Company's
business, financial condition and results of operations.
Development and operation of the HER Network are also subject to certain
technological risks. The Network has been designed to utilize SDH technology.
While SDH represents an advanced, new transmission technology, the Company's
ability to upgrade technology from this platform to WDM may be important in
establishing and/or maintaining a cost advantage over competitive carriers.
While the current operational network segment has performed at or above design
specifications since November 1996, there can be no assurance that the HER
Network will achieve the technical specifications for which it was designed or
that the Company will be able to upgrade the Network as technological
improvements in telecommunications
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<PAGE> 23
equipment are introduced. Failure to achieve current specifications for, or
future upgrades of, the Network may materially and adversely affect the
viability of the HER Network and could have a material adverse effect on the
business and prospects of the Company.
ENFORCEABILITY OF JUDGMENTS
All of the assets of the Company are located outside the United States. As
a result, it will be necessary for investors to comply with foreign laws in
order to enforce judgments obtained in a U.S. court against the assets of the
Company, including in order to foreclose upon such assets. In addition, it may
not be possible for investors to: (i) effect service of process within the
United States upon the Company or (ii) enforce U.S. court judgements against
such persons obtained in such courts predicated upon U.S. federal securities
laws. See "Service of Process and Enforceability of Civil Liabilities."
LACK OF PUBLIC MARKET
The Exchange Notes will constitute a new issue of securities with no
established trading market. There can be no assurance as to the liquidity of
markets that may develop for the Exchange Notes or the ability of holders of the
Exchange Notes to sell them, or the prices at which such holders would be able
to sell the Exchange Notes. If such markets were to exist, the Exchange Notes
could trade at prices that may be lower than the initial market values thereof
depending on many factors, including prevailing interest rates, the Company's
operating results and the markets for similar securities. The Company does not
intend to apply for listing of the Exchange Notes on any securities exchange
(other than the Luxembourg Stock Exchange) or for inclusion of the Exchange
Notes in any automated quotation system. The Exchange Notes are expected to be
eligible for trading in the PORTAL market. Accordingly, there can be no
assurance as to the development or liquidity of any market for the Exchange
Notes. Historically, the market for non-investment grade debt has been subject
to disruptions that have caused substantial volatility in the prices of
securities similar to the Exchange Notes. There can be no assurance that, if a
market for the Exchange Notes were to develop, such a market would not be
subject to similar disruptions. See "Description of the Exchange
Notes -- Exchange Offer; Registration Rights; Additional Interest" and "Plan of
Distribution."
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of Notes will be
entitled to require the Company to purchase any or all of the Notes held by such
holder at the prices stated herein. However, the Company's ability to repurchase
the Notes upon a Change of Control may be limited by the terms of then existing
contractual obligations of the Company and its subsidiaries. In addition, the
Company may not have adequate financial resources to effect such a purchase, and
there can be no assurance that the Company would be able to obtain such
resources through a refinancing of the Notes to be purchased or otherwise. If
the Company fails to repurchase all of the Notes tendered for purchase upon the
occurrence of a Change of Control, such failure will constitute an Event of
Default under the Indenture.
With respect to the sale of assets referred to in the definition of Change
of Control, the phrase "all or substantially all" as used in such definition
varies according to the facts and circumstances of the subject transaction, has
no clearly established meaning under the relevant law and is subject to judicial
interpretation. Accordingly, in certain circumstances there may be a degree of
uncertainty in ascertaining whether a particular transaction would involve a
disposition of "all or substantially all" of the assets of a person and
therefore it may be unclear whether a Change of Control has occurred and whether
the Notes are subject to an offer to purchase.
The Change of Control provision may not necessarily afford the holders
protection in the event of a highly leveraged transaction, including a
reorganization, restructuring, merger or other similar transaction involving the
Company that may adversely affect the holders, because such transactions may not
involve a shift in voting power or beneficial ownership or, even if they do, may
not involve a shift of the magnitude required under the definition of Change of
Control to trigger such provisions. Except as described under "Description of
the Notes -- Change of Control," the Indenture does not contain provisions that
permit the holders of the Notes
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<PAGE> 24
to require the Company to repurchase or redeem the Notes in the event of a
takeover, recapitalization or similar transaction.
RELIANCE ON KEY PERSONNEL
The Company's operations are managed by a small number of key executive
officers, the loss of any of whom could have a material adverse effect on the
Company. The Company believes that its growth and future success will depend in
large part on its continued ability to attract and retain highly skilled and
qualified personnel. The competition for qualified personnel in the
telecommunications industry is intense and, accordingly, there can be no
assurance that the Company will be able to hire or retain necessary personnel.
The loss of senior management or the failure to recruit additional qualified
personnel in the future could significantly impede attainment of the Company's
financial, Network development, marketing and other objectives. Although the
Company has designed incentive and compensation programs to retain key employees
and has entered into employment agreements with certain executive officers, no
assurance can be given as to the continued availability of qualified key
executive officers. See "Management."
COUNTRY AND EUROPEAN COMMUNITY ECONOMIC, POLITICAL AND LEGAL CONSIDERATIONS
All of the Company's investments have been, and are expected to continue to
be, in Europe. Risks include loss of or damage to property from terrorism and
other political risks (such as the risks of increases in taxes or changes in law
or governmental regulation).
RELATIONSHIP WITH GTS; POTENTIAL CONFLICTS OF INTEREST
As of the date hereof, GTS beneficially owns approximately 79% of the
outstanding capital stock of the Company through GTS-Hermes Inc., a wholly owned
subsidiary, which is the sole Managing Director of the Company. In either case,
however, GTS, through GTS-Hermes, Inc., will be a majority shareholder of the
Company and will have the ability to strongly influence and/or control the
affairs and business of the Company. Circumstances may occur in which the
interests of GTS could be in conflict with the interests of the holders of the
Notes. In addition, GTS may have an interest in pursuing transactions that, in
its judgment, enhance the value of its equity investments in the Company, even
though such transactions may involve risks to the holders of the Notes. There
can be no assurance that any such conflicts of interests will be resolved in
favor of such holders of the Notes. See "Security Ownership of Principal
Shareholders and Management."
ESCROW ARRANGEMENTS
Although the Escrow Account is designed to secure a portion of the
Company's obligations under the Notes, the ability to deal freely with the funds
in the Escrow Account following an Event of Default under the Indenture may be
limited by applicable bankruptcy, reorganization, receivership, insolvency,
liquidation or other similar legislation or legal principles. See "Description
of the Notes -- Escrow Account."
CONSEQUENCES OF FAILURE TO EXCHANGE OUTSTANDING NOTES
Holders of Outstanding Notes who do not exchange their Outstanding Notes
for Exchange Notes pursuant to the Exchange Offer will continue to be subject to
the restrictions on transfer of such Outstanding Notes as set forth in the
legend thereon as a consequence of the issuance of the Outstanding Notes
pursuant to exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Outstanding Notes may not be offered or sold, unless registered
under the Securities Act and applicable state securities laws, or pursuant to an
exemption therefrom. Except under certain limited circumstances, the Company
does not intend to register the Outstanding Notes under the Securities Act. In
addition, any holder of Outstanding Notes who tenders in the Exchange Offer for
the purpose of participating in a distribution of the Exchange Notes may be
deemed to have received restricted securities and, if so, will be required to
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. To the extent
Outstanding Notes are tendered and accepted in the Exchange Offer, the trading
market, if any, for the Outstanding Notes not tendered could be adversely
affected. See "The Exchange Offer" and "Description of the Exchange
Notes -- Registration Rights."
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USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. In consideration for issuing the Exchange Notes
as contemplated herein, the Company will receive in exchange Outstanding Notes
in like principal amount. The Outstanding Notes surrendered in exchange for the
Exchange Notes will be retired and cancelled and cannot be reissued.
Accordingly, issuance of the Exchange Notes will not result in any change in the
indebtedness of the Company.
The net proceeds received by the Company from the Offering, after deducting
the underwriting discounts and commissions and estimated expenses of the
Offering, are approximately $251.8 million. The net proceeds of the Offering
will be used, together with the $51.8 million equity contribution from
GTS-Hermes (described below), to complete the development and operational
start-up of the initial five country network and the full 18,000 kilometer
Network and for general working capital purposes. As of September 30, 1997, the
Company has spent approximately $27.3 million on Network capital expenditures.
The Company's sources of liquidity through the end of September 1997 have been
capital contributions totaling $2.9 million in the form of common equity and
shareholder loans totaling $48.5 million, which were converted into common
equity upon the finalization of the HER Recapitalization. Additional cash
proceeds of approximately $51.8 million were contributed (the "GTS
Contribution") as common equity, on September 30, 1997, by GTS-Hermes pursuant
to the HER Recapitalization.
TERMS OF THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Outstanding Notes were sold by the Company on August 19, 1997 to the
Initial Purchasers who placed the Outstanding Notes with certain institutional
investors in reliance on Section 4(2) and Regulation S of, and Rule 144A under,
the Securities Act. In connection with the sale of the Outstanding Notes, the
Company entered into the Registration Rights Agreement, pursuant to which the
Company agreed to use its best efforts to consummate an offer to exchange the
Outstanding Notes for the Exchange Notes pursuant to an effective registration
statement within 90 days of August 19, 1997. A copy of the Registration Rights
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part. Unless the context requires otherwise, the term
"holder" with respect to the Exchange Offer means any person in whose name
Outstanding Notes are registered on the books of Company or any other person who
has obtained a properly completed bond power from the registered holder, or any
person whose Outstanding Notes are held of record by DTC who desires to deliver
such Outstanding Notes by book-entry transfer at DTC.
The Company has not requested, and does not intend to request, an
interpretation by the staff of the Commission with respect to whether the
Exchange Notes issued pursuant to the Exchange Offer in exchange for the
Outstanding Notes may be offered for sale, resold or otherwise transferred by
any holder without compliance with the registration and prospectus delivery
provisions of the Securities Act. Based on interpretations by the staff of the
Commission set forth in no-action letters issued to third parties, the Company
believes that Exchange Notes issued pursuant to the Exchange Offer in exchange
for Outstanding Notes may be offered for resale, resold and otherwise
transferred by any holder of such Exchange Notes (other than any such holder
that is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act and except in the case of broker-dealers, as set forth below)
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that such Exchange Notes are acquired in the
ordinary course of such holder's business and such holder has no arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes. Any holder who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Exchange Notes or who is an affiliate of
the Company may not rely on such interpretation by the staff of the Commission
and must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any secondary resale transaction. Each
broker-dealer that receives Exchange Notes for its own account in exchange for
Outstanding Notes, where such Outstanding Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution."
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By tendering in the Exchange Offer, each holder of Outstanding Notes will
represent to the Company that, among other things, (i) the Exchange Notes
acquired pursuant to the Exchange Offer are being obtained in the ordinary
course of business of the person receiving such Exchange Notes, whether or not
such person is such holder, (ii) neither the holder of Outstanding Notes nor any
such other person has an arrangement or understanding with any person to
participate in the distribution of such Exchange Notes, (iii) if the holder is
not a broker-dealer, or is a broker-dealer but will not receive Exchange Notes
for its own account in exchange for Outstanding Notes, neither the holder nor
any such other person is engaged in or intends to participate in the
distribution of such Exchange Notes and (iv) neither the holder nor any such
other person is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act or, if such holder is an "affiliate," that such holder
will comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable.
Following the consummation of the Exchange Offer, holders of Outstanding
Notes not tendered will not have any further registration rights and the
Outstanding Notes will continue to be subject to certain restrictions on
transfer. Accordingly, the liquidity of the market for the Outstanding Notes
could be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept for exchange any and
all Outstanding Notes properly tendered and not withdrawn prior to 5:00 p.m.,
New York time, on the Expiration Date. The Company will issue $1,000 principal
amount of Exchange Notes in exchange for each $1,000 principal amount of
Outstanding Notes surrendered pursuant to the Exchange Offer. Outstanding Notes
may be tendered only in integral multiples of $1,000.
The form and terms of the Exchange Notes will be the same as the form and
terms of the Outstanding Notes, except that the Exchange Notes will be
registered under the Securities Act and hence will not bear legends restricting
the transfer thereof. The Exchange Notes will evidence the same debt as the
Outstanding Notes. The Exchange Notes will be issued under and entitled to the
benefits of the Indenture, which also authorized the issuance of the Outstanding
Notes, such that both series will be treated as a single class of debt
securities under the Indenture.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Outstanding Notes being tendered for exchange. Holders of Outstanding
Notes do not have any appraisal or dissenters' rights in connection with the
Exchange Offer.
As of the date of this Prospectus, $265,000,000 aggregate principal amount
of the Outstanding Notes are outstanding. This Prospectus, together with the
Letter of Transmittal, is being sent to all registered holders of Outstanding
Notes. There will be no fixed record date for determining registered holders of
Outstanding Notes entitled to participate in the Exchange Offer.
The Company intends to conduct the Exchange Offer in accordance with the
provisions of the Registration Rights Agreement and the applicable requirements
of the Exchange Act, and the rules and regulations of the Commission thereunder.
Outstanding Notes which are not tendered for exchange in the Exchange Offer will
remain outstanding and continue to accrue interest and will be entitled to the
rights and benefits such holders have under the Indenture and the Registration
Rights Agreement.
The Company shall be deemed to have accepted for exchange properly tendered
Outstanding Notes when, as and if the Company shall have given oral or written
notice thereof to the Exchange Agent and complied with the applicable provisions
of the Registration Rights Agreement. The Exchange Agent will act as agent for
the tendering holders for the purposes of receiving the Exchange Notes from the
Company. The Company expressly reserves the right to amend or terminate the
Exchange Offer, and not to accept for exchange any Outstanding Notes not
theretofore accepted for exchange, upon the occurrence of any of the conditions
specified below under "-- Certain Conditions to the Exchange Offer."
Holders who tender Outstanding Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to
20
<PAGE> 27
the exchange of Outstanding Notes pursuant to the Exchange Offer. The Company
will pay all charges and expenses, other than certain applicable taxes described
below, in connection with the Exchange Offer. See "The Exchange Offer -- Fees
and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York time on
, 1997, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended. The Exchange Offer will
not in any event be extended beyond , 1997.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the registered
holders of Outstanding Notes an announcement thereof, each prior to 9:00 a.m.,
New York time, on the next business day after the then Expiration Date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting for exchange any Notes, to extend the Exchange Offer or to terminate
the Exchange Offer if any of the conditions set forth below under "-- Certain
Conditions to the Exchange Offer" shall not have been satisfied, by giving oral
or written notice of such delay, extension or termination to the Exchange Agent
or (ii) to amend the terms of the Exchange Offer in any manner. Any such delay
in acceptance, extension, termination or amendment will be followed as promptly
as practicable by oral or written notice thereof to the registered holders of
Outstanding Notes. If the Exchange Offer is amended in a manner determined by
the Company to constitute a material change, the Company will promptly disclose
such amendment by means of a prospectus supplement that will be distributed to
the registered holders, and the Company will extend the Exchange Offer,
depending upon the significance of the amendment and the manner of disclosure to
the registered holders, if the Exchange Offer would otherwise expire during such
period.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest at a rate of 11 1/2% per annum,
payable semi-annually, on each February 15 and August 15, commencing February
15, 1998. Holders of Exchange Notes will receive interest on February 15, 1998
from the date of initial issuance of the Exchange Notes, plus an amount equal to
the accrued and unpaid interest on the Outstanding Notes from the date of
initial issuance to the date of exchange thereof for Exchange Notes. Interest on
the Outstanding Notes accepted for exchange will cease to accrue upon issuance
of the Exchange Notes.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or exchange any Exchange Notes for, any
Outstanding Notes, and may terminate the Exchange Offer as provided herein
before the acceptance of any Outstanding Notes for exchange, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
which, in the Company's reasonable judgment, might materially impair the
ability of the Company to proceed with the Exchange Offer; or
(b) any law, statute, rule or regulation is proposed, adopted or
enacted, or any existing law, statute, rule or regulation is interpreted by
the staff of the Commission, which, in the Company's reasonable judgment,
might materially impair the ability of the Company to proceed with the
Exchange Offer; or
(c) any governmental approval has not been obtained, which approval
the Company shall reasonably deem necessary for the consummation of the
Exchange Offer as contemplated hereby.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Outstanding Notes not theretofore
accepted for exchange, upon the occurrence of any of the conditions of the
Exchange Offer specified above. The Company will give oral or written notice of
any extension, amendment, non-acceptance or termination to the holders of the
Outstanding Notes as promptly as
21
<PAGE> 28
practicable, such notice in the case of any extension to be issued no later than
9:00 a.m., New York time, on the next business day after the previously
scheduled Expiration Date.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its reasonable judgment. The failure by the Company at any
time to exercise any of the foregoing rights shall not be deemed a waiver of any
such right, and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
In addition, the Company will not accept for exchange any Outstanding Notes
tendered, and no Exchange Notes will be issued in exchange for any such
Outstanding Notes, if at such time any stop order shall be threatened or in
effect with respect to the Registration Statement of which this Prospectus
constitutes a part or the qualification of the Indenture under the Trust
Indenture Act of 1939.
PROCEDURES FOR TENDERING
Only a holder of Outstanding Notes may tender such Outstanding Notes in the
Exchange Offer. To tender in the Exchange Offer, a holder must complete, sign
and date the Letter of Transmittal, or facsimile thereof, have the signature
thereon guaranteed if required by the Letter of Transmittal, and mail or
otherwise deliver such Letter of Transmittal or such facsimile to the Exchange
Agent prior to 5:00 p.m., New York time, on the Expiration Date. In addition,
either (i) Outstanding Notes must be received by the Exchange Agent along with
the Letter of Transmittal, or (ii) a timely confirmation of book-entry transfer
(a "Book-Entry Confirmation") of such Outstanding Notes, if such procedure is
available, into the Exchange Agent's account at The Depository Trust Company
(the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below must be received by the Exchange Agent prior to the
Expiration Date, or (iii) the holder must comply with the guaranteed delivery
procedures described below. To be tendered effectively, the Letter of
Transmittal and other required documents must be received by the Exchange Agent
at the address set forth below under "Exchange Agent" prior to 5:00 p.m., New
York time, on the Expiration Date.
If delivery of the Outstanding Notes is to be made by book-entry transfer
to the account maintained by the Exchange Agent at DTC, the Letter of
Transmittal need not be manually executed; provided, however, that tenders of
Outstanding Notes must be effected in accordance with the procedures mandated by
DTC's Automated Tender Offer Program ("ATOP"). To tender Outstanding Notes
through ATOP, the electronic instructions sent to DTC and transmitted by DTC to
the Exchange Agent must contain the character by which the participant
acknowledges its receipt of and agrees to be bound by the Letter of Transmittal.
The tender by a holder which is not withdrawn prior to the Expiration Date
will constitute an agreement between such holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal.
THE METHOD OF DELIVERY OF OUTSTANDING NOTES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR OUTSTANDING NOTES SHOULD BE SENT TO THE COMPANY.
HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR OTHER NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Outstanding Notes are registered in the name of
a broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder of Outstanding Notes to tender on such beneficial owner's
behalf. If such beneficial owner wishes to tender on such owner's own behalf,
such owner must, prior to completing and executing the Letter of Transmittal and
delivering such owner's Outstanding Notes, either make appropriate arrangements
to register ownership of the Outstanding Notes in such owner's name or
22
<PAGE> 29
obtain a properly completed bond power from the registered holder of Outstanding
Notes. The transfer of registered ownership may take considerable time and may
not be able to be completed prior to the Expiration Date.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below, as the case may be, must be guaranteed by an Eligible Institution (as
defined) unless the Outstanding Notes tendered pursuant thereto are tendered (i)
by a registered holder who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. If signatures on a Letter of
Transmittal or a notice of withdrawal, as the case may be, are required to be
guaranteed, such guarantor must be a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act which is a member of one of the recognized
signature guarantee programs identified in the Letter of Transmittal (an
"Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Outstanding Notes listed therein, such Outstanding
Notes must be endorsed or accompanied by a properly completed bond power, signed
by such registered holder as such registered holder's name appears on such
Outstanding Notes with the signature thereon guaranteed by an Eligible
Institution.
If the Letter of Transmittal or any Outstanding Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company of their authority to so act must
be submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Outstanding Notes and withdrawal of tendered
Outstanding Notes will be determined by the Company in its sole discretion,
which determination will be final and binding. The Company reserves the absolute
right to reject any and all Outstanding Notes not properly tendered or any
Outstanding Notes the Company's acceptance of which would, in the opinion of
counsel for the Company, be unlawful. The Company also reserves the right to
waive any defects, irregularities or conditions of tender as to particular
Outstanding Notes. The Company's interpretation of the terms and conditions of
the Exchange Offer (including the instructions in the Letter of Transmittal)
will be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Outstanding Notes must be cured
within such time as the Company shall determine. Although the Company intends to
notify holders of defects or irregularities with respect to tenders of
Outstanding Notes, neither the Company, the Exchange Agent nor any other person
shall incur any liability for failure to give such notification. Tenders of
Outstanding Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Outstanding Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holders, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
In all cases, issuance of Exchange Notes for Outstanding Notes that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of Outstanding Notes or a timely Book-Entry
Confirmation of such Outstanding Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Outstanding Notes
are not accepted for exchange for any reason set forth in the terms and
conditions of the Exchange Offer or if Outstanding Notes are submitted for a
greater principal amount than the holder desires to exchange, such unaccepted or
non-exchanged Outstanding Notes will be returned without expense to the
tendering holder thereof (or, in the case of Outstanding Notes tendered by
book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer
Facility pursuant to the book-entry transfer procedures described below, such
non-exchanged Notes will be credited to an account maintained with such
Book-Entry Transfer Facility) as promptly as practicable after the expiration or
termination of the Exchange Offer.
23
<PAGE> 30
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Outstanding Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of Outstanding Notes by causing
the Book-Entry Transfer Facility to transfer such Outstanding Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility in accordance with
such Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Notes may be effected through book-entry transfer at the Book-Entry
Transfer Facility, the Letter of Transmittal or facsimile thereof, with any
required signature guarantees and any other required documents, must, in any
case, be transmitted to and received by the Exchange Agent at the address set
forth below under "Exchange Agent" on or prior to the Expiration Date or, if the
guaranteed delivery procedures described below are to be complied with, within
the time period provided under such procedures. Delivery of documents to the
Book-Entry Transfer Facility does not constitute delivery to the Exchange Agent.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Outstanding Notes and (i) whose
Outstanding Notes are not immediately available or (ii) who cannot deliver their
Outstanding Notes, the Letter of Transmittal or any other required documents to
the Exchange Agent prior to the Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the registered number(s)
of such Outstanding Notes and the principal amount of Outstanding Notes
tendered, stating that the tender is being made thereby and guaranteeing
that, within three New York Stock Exchange trading days after the
Expiration Date, the Letter of Transmittal (or facsimile thereof) together
with the Outstanding Notes or a Book-Entry Confirmation, as the case may
be, and any other documents required by the Letter of Transmittal will be
deposited by the Eligible Institution with the Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as all tendered Notes in proper form for
transfer or a Book-Entry Confirmation, as the case may be, and all other
documents required by the Letter of Transmittal, are received by the
Exchange Agent within three New York Stock Exchange trading days after the
Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Outstanding Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Outstanding Notes may be
withdrawn at any time prior to 5:00 p.m., New York time, on the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at the address set forth below under "Exchange
Agent." Any such notice of withdrawal must specify the name of the person having
tendered the Outstanding Notes to be withdrawn, identify the Outstanding Notes
to be withdrawn (including the principal amount of such Outstanding Notes), and
(where certificates for Outstanding Notes have been transmitted) specify the
name in which such Outstanding Notes were registered, if different from that of
the withdrawing holder. If certificates for Outstanding Notes have been
delivered or otherwise identified to the Exchange Agent, then, prior to the
release of such certificates, the withdrawing holder must also submit the serial
numbers of the particular certificates to be withdrawn and a signed notice of
withdrawal with signatures guaranteed by an Eligible Institution unless such
holder is an Eligible Institution. If Outstanding Notes have been tendered
pursuant to the procedure for book-entry transfer described above, any notice of
withdrawal must specify the name and number of the account at the
24
<PAGE> 31
Book-Entry Transfer Facility to be credited with the withdrawn Outstanding Notes
and otherwise comply with the procedures of such facility. All questions as to
the validity, form and eligibility (including time of receipt) of such notices
will be determined by the Company, whose determination shall be final and
binding on all parties. Any Outstanding Notes so withdrawn will be deemed not to
have been validly tendered for exchange for purposes of the Exchange Offer. Any
Outstanding Notes which have been tendered for exchange but which are not
exchanged for any reason will be returned to the holder thereof without cost to
such holder (or, in the case of Outstanding Notes tendered by book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility
pursuant to the book-entry transfer procedures described above, such Outstanding
Notes will be credited to an account maintained with such Book-Entry Transfer
Facility for the Outstanding Notes) as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer. Properly withdrawn
Outstanding Notes may be retendered by following one of the procedures described
under "-- Procedures for Tendering" above at any time on or prior to the
Expiration Date.
EXCHANGE AGENT
The Bank of New York has been appointed as Exchange Agent of the Exchange
Offer. Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal and requests for Notice of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
The Bank of New York
101 Barclay Street (7 East)
New York, NY 10286
Attn: The Reorganization Section
By: Telephone: (212) 815-2742
Facsimile: (212) 815-6339
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to broker-dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company and are estimated in the aggregate to be approximately
$________. Such expenses include registration fees, fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees, printing costs and
related fees and expenses.
TRANSFER TAXES
The Company will pay all transfer taxes, if any, applicable to the exchange
of Outstanding Notes pursuant to the Exchange Offer. If, however, certificates
representing Outstanding Notes for principal amounts not tendered or accepted
for exchange are to be delivered to, or are to be issued in the name of, any
person other than the registered holder of Notes tendered, or if tendered Notes
are registered in the name of any person other than the person signing the
Letter of Transmittal, or if a transfer tax is imposed for any reason other than
the exchange of Notes pursuant to the Exchange Offer, then the amount of any
such transfer taxes (whether imposed on the registered holder or any other
persons) will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
25
<PAGE> 32
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Outstanding Notes who do not exchange their Outstanding Notes
for Exchange Notes pursuant to the Exchange Offer will continue to be subject to
the restrictions on transfer of such Outstanding Notes, as set forth in the
legend thereon, as a consequence of the issuance of the Outstanding Notes
pursuant to the exemptions from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable state securities
laws. In general, the Outstanding Notes may not be offered or sold, unless
registered under the Securities Act, except pursuant to an exemption from, or in
a transaction not subject to, the Securities Act and applicable state securities
laws. The Company does not currently anticipate that it will register the
Outstanding Notes under the Securities Act.
26
<PAGE> 33
CAPITALIZATION
The following table sets forth the historical and as adjusted
capitalization of the Company as of September 30, 1997. This table should be
read in conjunction with the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company's consolidated financial
statements and notes thereto included elsewhere in this Prospectus. Other than
as described in footnote (1) below, there has been no material change in the
capitalization of the Company since September 30, 1997.
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 1997
------------------
(IN THOUSANDS)
<S> <C>
Debt maturing within one year............................................... 52
Long-term debt, less current portion........................................ 265,401
------------------
Total debt........................................................ 265,453
------------------
Shareholders loans.......................................................... --
------------------
Shareholders' Equity:
Common stock, 1,000 Dutch guilders par value (305 shares authorized and 80
shares issued and outstanding, actual; and 297,000 shares authorized
and 190,468 shares issued and outstanding, as adjusted)................ 96,757
Additional paid-in capital................................................ 8,949
Cumulative translation adjustment......................................... (2,920)
Deficit accumulated during the development stage.......................... (39,802)
------------------
Total shareholders' equity........................................ 62,984
------------------
Total Capitalization.............................................. $328,437
==============
</TABLE>
27
<PAGE> 34
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data of the Company presented below
under the captions Statement of Operations Data for the years ended December 31,
1995 and 1996 and Balance Sheet Data as of December 31, 1995 and 1996 has been
derived from consolidated financial statements of the Company audited by Ernst &
Young Reviseurs d'Entreprises S.C.C. The selected consolidated financial data of
the Company as of December 31, 1994 and September 30, 1997 and for the year
ended December 31, 1994 and for the nine months ended September 30, 1996 and
1997 has been derived from unaudited financial statements which, in the opinion
of management, include all adjustments, consisting of only normal recurring
accruals, necessary for a fair presentation of such information for the
unaudited interim periods. The operating results for the nine months ended
September 30, 1996 and 1997 are not necessarily indicative of results for the
full fiscal year. The Company did not declare or pay any cash dividends during
the periods indicated. The following information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's consolidated financial statements and notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER
YEAR ENDED DECEMBER 31, 30,
-------------------------------- ---------------------------
1994(1) 1995 1996 1996 1997
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................... $ -- $ -- $ 48 $ -- $ 2,262
Operating costs and expenses:
Cost of revenues......................... -- -- 4,694 3,442 5,989
Selling, general and administrative...... 183 6,637 10,552 7,329 11,613
Loss from operations....................... (183) (6,637) (15,198) (10,771) (15,340)
Other income/(expense):
Interest income.......................... 18 125 508
Interest expense......................... -- (9) (153)
Foreign currency (losses) gains.......... (55) 19 (1,126) (774) (93)
Net loss............................ $(220) $(6,502) $(15,969) $(11,122) $(17,111)
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
-------------------------------- -------------------
1994 1995 1996 1997
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total current assets............................ $ 908 $ 6,430 $ 7,528 $ 276,107
Property and equipment, net..................... 47 4,671 20,303 28,270
Total assets.................................... 955 11,101 27,831 347,002
Total current liabilities....................... 90 6,785 11,907 18,571
Long-term debt, less current portion............ -- 10 499 265,401
Total liabilities............................... 90 6,795 12,414 284,018
Shareholders' loans............................. -- 8,353 34,863 --
Shareholders' equity............................ 866 (4,047) (19,446) 62,984
OTHER DATA:
EBITDA(2)....................................... (233) (6,607) (15,666) (13,385)
Deficiency of earnings to fixed charges(3)...... $ (220) $(6,493) $(15,816) $ (12,518)
</TABLE>
- ------------------------------
(1) Although the Company was formed on July 6, 1993, the Company had no
operations prior to 1994.
(2) EBITDA is earnings (loss) from operations before interest, taxes,
depreciation and amortization. EBITDA is a measure of a company's
performance commonly used in the telecommunications industry, but should not
be construed as an alternative to net income (loss) determined in accordance
with GAAP as an indicator of operating performance or as an alternative to
cash from operating activities determined in accordance with GAAP as a
measure of liquidity. See line items "Net cash used in operating
activities," "Net cash used in investing activities" and "Net cash provided
by financing activities" on pages F-5 and F-18 of the Company's consolidated
financial statements for disclosure of cash flows from operating, investing
and financing activities.
(3) Because of the Company's historic losses, the Company has experienced a
deficiency of earnings to fixed charges throughout its existence. The
deficiency of earnings to fixed charges equals the loss from continuing
operations before income taxes minus fixed charges. Fixed charges consist of
interest on all indebtedness.
28
<PAGE> 35
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the financial condition and results of
operations of the Company as of September 30, 1997 and 1996, December 31, 1996,
1995 and 1994 and for the nine months ended September 30, 1997 and 1996 and for
the years ended December 31, 1996, 1995 and 1994. The following discussion
should be read in conjunction with the Company's audited consolidated financial
statements, the notes related thereto and the other financial data included
elsewhere in this Prospectus. Certain statements contained in "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
including, without limitation, those concerning (i) projected traffic volume,
(ii) future revenue and costs and (iii) changes in the Company's competitive
environment, contain forward-looking statements concerning the Company's
operations, economic performance and financial condition. Because such
statements involve risks and uncertainties, actual results may differ materially
from those expressed or implied by such forward-looking statements. Factors that
could cause such differences include, but are not limited to, those discussed
under "Risk Factors."
OVERVIEW
The Company is a development stage enterprise and has invested heavily in
developing its Network. The Company realized a small stream of revenues in 1996
from its commencement of commercial service on the Amsterdam-Brussels portion of
its Network in November 1996. The Company expects that its operations will
generate positive EBITDA in the first year of full operation of the initial five
country network.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996
Revenue. For the nine months ended September 30, 1997, the Company
generated revenue of $2.3 million. This revenue was generated from the operation
of the Brussels to Amsterdam segment of the HER Network, which began commercial
operation in November 1996. There was no revenue generated from operations for
the nine months ended September 30, 1996.
Gross Margin. The Company had unfavorable gross margins of $(3.7) million
and $(3.4) million in the nine months ended September 30, 1997 and 1996,
respectively. The unfavorable margin was primarily due to higher depreciation on
Network assets related to the Brussels to Amsterdam segment which were
transferred from construction in process to telecommunications equipment at the
end of 1996.
Selling, General and Administrative. Selling, general and administrative
expenses were $11.6 million and $7.3 million for the nine months ended September
30, 1997 and 1996, respectively. The increase in selling, general, and
administrative expenses was due mostly to the increase in the number of
employees. The Company had 125 and 91 employees at September 30, 1997 and 1996,
respectively.
Foreign Currency. HER experienced foreign currency gains of $0.1 million
and foreign currency losses of $0.8 million for the nine months ended September
30, 1997 and 1996, respectively. The Company operates in a multi-currency
environment and is subject to the effects of fluctuations in exchange rates. See
"Risk Factors -- Currency and Exchange Risks."
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995 COMPARED
TO YEAR ENDED DECEMBER 31, 1994
Revenue. HER had minimal revenues for the year ended December 31, 1996 and
no revenues for the years ended December 31, 1995 and 1994.
Gross Margin. HER had an unfavorable gross margin of $(4.7) million for
the year ended December 31, 1996 and no gross margin for the years ended
December 31, 1995 and 1994.
Selling, General and Administrative. Selling, general and administrative
expenses were $10.6 million, $6.6 million and $0.2 million for the years ended
December 31, 1996, 1995 and 1994, respectively. In addition,
29
<PAGE> 36
the Company had 101, 29 and 2 employees at December 31, 1996, 1995 and 1994,
respectively. The increase in selling, general and administrative expenses and
employees reflects HER's continued transition from the start-up phase to the
operational phase.
Foreign Currency. HER experienced a $1.1 million foreign currency
transaction loss for the year ended December 31, 1996. The Company operates in a
multi-currency environment and is subject to the effects of fluctuations in
exchange rates. See "Risk Factors -- Currency and Exchange Risks."
LIQUIDITY AND CAPITAL RESOURCES
The primary source of funding for HER through September 30, 1997 has been
cash equity contributions of $103.2 million and net proceeds from the Offering
of $251.8 million.
Development of the HER fiber optic network is capital intensive. The
buildout of the Network is expected to require approximately $335 million of
capital expenditures, with approximately $100 million required for the initial
five country network. The Company currently estimates that after the Offering
its capital resources will be sufficient to fund operations and expected Network
development through December 1998, at which time it may be required to obtain
additional funds. The Company expects that its operations will generate positive
EBITDA in the first year of full operation of the initial five country network.
Further, the Company does not expect that its operations will generate positive
cash flows from operations in the first year of full operation of the initial
five country network. Sources of capital to fund Network development after 1998
may include internally generated funds, bank debt and vendor financing. The
Company is currently in discussion with a number of financial institutions to
obtain debt financing and to negotiate vendor financing with key suppliers of
network equipment.
CAPITAL EXPENDITURES AND WORKING CAPITAL
The development of the Company's business in the past has required
substantial capital expenditures. In the future, the Company will require
substantial capital expenditures significantly in excess of historical levels to
develop and expand the Network generally. The Company had negative working
capital balances of $0.4 million and $4.4 million as of December 31, 1995 and
1996, respectively, and a working capital balance of $257.5 million as of
September 30, 1997. The Company had an accumulated deficit of $39.8 million at
September 30, 1997 including net losses of approximately $16.0 million and $17.1
million for the periods ending December 31, 1996 and September 30, 1997,
respectively.
LIQUIDITY ANALYSIS
The Company had cash and cash equivalents of $237.5 million and $2.0
million at September 30, 1997 and December 31, 1996, respectively. The Company
had $57.0 million and $3.8 million of restricted cash at September 30, 1997 and
December 31, 1996, respectively, representing the Company's obligation to place
into escrow the first four scheduled semi-annual interest payments on the Notes
and cash held in escrow pursuant to an agreement with a major vendor.
During the nine months ended September 30, 1997 and 1996, the Company's
operating activities used $12.3 million and $8.4 million of cash, respectively.
During the years ended December 31, 1996, 1995 and 1994, the Company used $11.9
million, $2.5 million and $0.2 million, respectively, of cash for operating
activities. Cash used for investing activities was $20.1 million, $4.6 million
and $0.1 million for the years ended December 31, 1996, 1995 and 1994,
respectively. The use of cash in operating and investing activities reflects the
developmental stage of the Company's commercial activities and the engineering
and equipment costs associated with the initial buildout of the fiber optic
network.
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INDUSTRY OVERVIEW
HER's primary service offering consists of high capacity cross-border
circuits in Europe for wholesale customers provided over an integrated, managed
pan-European Network. The Company expects that such customers will include PTOs
and New Entrants. These target customers carry a mixture of voice traffic, data
traffic and multimedia/image traffic. Historically European PTOs have
monopolized the provision of these telecommunications services resulting in high
prices and limited service for both carriers and end-users. The liberalization
in the European telecommunications market is creating more demand for
cross-border transport capacity through (i) the entry of increased numbers of,
and different types of, New Entrants to the market, (ii) increased end-user
demand for capacity due to the introduction of new services and for improved
quality, and (iii) increased use of existing services due to lower prices. HER
intends to capitalize on the opportunities arising from this large and
inefficient market as well as this increased demand for cross-border transport
capacity by being the first or among the first operators in the European market
to provide pan-European carrier's carrier services.
THE TELECOMMUNICATIONS SERVICES MARKET
The telecommunications services market being addressed by HER target
customers can be divided broadly into three categories: voice traffic, data
traffic and multimedia/image traffic which includes Internet traffic.
Voice Traffic. In 1995 the HERGA is estimated to have generated in excess
of 13 billion minutes of international switched telecommunications traffic
("MITT") which both originate and terminate in the HERGA with a total value of
$9.4 billion. European international switched telecommunications traffic has
historically grown at a rate of approximately 12% annually from 1984 to 1992.
The table below summarizes the intra-HERGA MITTs by country which terminate
within the HERGA for 1995:
<TABLE>
<CAPTION>
MITT
HERGA COUNTRY (IN MILLIONS)
------------------------------------------------------- -------------
<S> <C>
Austria................................................ 588
Belgium................................................ 888
Czech Republic......................................... 133
Denmark................................................ 350
France................................................. 1,640
Germany................................................ 3,192
Hungary................................................ 158
Italy.................................................. 1,129
Netherlands............................................ 1,081
Poland................................................. 276
Slovakia............................................... 42
Spain.................................................. 673
Sweden................................................. 423
Switzerland............................................ 1,274
United Kingdom......................................... 1,591
-------------
Total........................................ 13,438
===========
</TABLE>
- ------------------------------
Source: TeleGeography, Inc., Washington, DC
The Company's basic service offering is wholesale transmission capacity
measured in E1 equivalents of circuit capacity. An E1 circuit is capable of
handling 30 simultaneous voice calls. Minutes of traffic may be translated into
E1 equivalent circuit capacity by calculating the average number of MITT per
minute and then making an adjustment for the uneven distribution of calls. In
1995, within the HERGA, there were approximately 13.4 billion MITT. This is
equivalent to an average of approximately 25,400 MITT per minute.This figure may
be divided by 30 to yield E1 equivalent circuits in use at a given time.
However, an
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<PAGE> 38
adjustment must be made to allow for the uneven distribution of calls, with peak
usage estimated at approximately 7 times average usage. Based on this algorithm,
the approximately 13.4 billion of intra-HERGA MITT generated in 1995 translate
into capacity requirements of approximately 5,900 E1 equivalent circuits. The
Company expects this capacity requirement to grow at a rate of approximately 14%
per year to some 11,300 E1 equivalent circuits of capacity in the year 2000. The
Company expects that the introduction of competition in the liberalizing
European market and its impact on pricing and infrastructure utilization will
drive the peak usage average up yielding this increase in the prospective growth
rate. In 1995, the total value of this traffic is estimated to have been $9.4
billion.
Data Traffic. In 1995 the market for data traffic within the HERGA is
estimated to have been about 250 E1 equivalent circuits, which the Company
expects will grow on the order of 30% per annum to approximately 930 E1
equivalent circuits in the year 2000. Driving the growth for data networks is
the expected increase in managed data network services and a transition from
private leased circuits to Virtual Private Networks.
Multimedia/Image Traffic. Multimedia/image traffic usage for 1995 is
estimated at approximately 180 E1 equivalents of circuit capacity with a rapidly
growing number of users. The Company expects a growth rate of approximately 40%
per annum resulting in traffic use of approximately 970 E1 equivalents of
circuit capacity in the year 2000. The increase in the growth rate is expected
primarily due to increased demand for and use of these services.
THE CURRENT EUROPEAN MARKET
Current telecommunications service provided by PTOs is characterized by a
number of shortcomings. In the traditional system, PTOs own and control circuits
only within their national borders, and as a result, cross-border traffic must
be passed from one PTO to another PTO at the national boundary. PTOs therefore
do not own or control end-to-end cross-border circuit capacity. Pan-European
service has been provided through the networks of the PTOs linked by an
extensive system of multiple, point-to-point links. As a consequence cross-
border transport has been possible in only two ways: (i) either through the
transport and termination of traffic by the PTO under the bilateral ARM or (ii)
through the leasing by carriers or large businesses of IPLCs provided by PTOs.
The ARM. Under the ARM, international switched voice traffic is exchanged
under bilateral correspondent agreements between carriers in two countries.
Correspondent agreements provide for the termination of traffic in, and return
traffic to, the carriers' respective countries at negotiated accounting rates.
In addition, correspondent agreements provide for network coordination and
accounting and settlement procedures between the carriers. Both carriers are
responsible for their own costs and expenses related to operating their
respective halves of end-to-end international connection. The ARM, to which only
PTOs could be participants, has been responsible for keeping the price of
cross-border calls in Europe at levels significantly higher than the underlying
cost of transporting and terminating the calls. The continuing liberalization of
the telecommunications market is, however, putting increasing pressure on both
accounting rates and on the ARM itself.
IPLCs. IPLCs are private leased circuits that are provisioned on a
half-circuit basis through the networks of two or more PTOs. IPLCs may be
composed of a mix of circuit capacities (generally limited to low capacities) as
well as a mix of transmission technologies including PDH and SDH. The HERGA
includes six of the top ten IPLC routes in the world. Customers for IPLCs
include multinational corporations, PTOs, global consortia of telecommunications
operators and other carriers. IPLCs provided by PTOs have a number of inherent
disadvantages including high prices, lack of redundancy, lack of end-to-end
quality control, low quality due to diversity of network systems and equipment,
limited availability of bandwidth and long lead times for provisioning.
The Company intends to address the above deficiencies by creating a single
pan-European fiber network that will provide cross-border wholesale transport
services exclusively to the carrier market for this purpose. The Company
believes it is the only operator currently developing such a network. The
Company's network will be wholly controlled and operated by HER, allowing full
end-to-end quality control. The Company's low
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<PAGE> 39
cost structure and its ability to load the network with traffic from a large
number of carriers will allow the Company to offer highly competitive pricing.
The HER network architecture and technology platform allows for flexible network
availability, full redundancy, high bandwidth speeds, and low error performance.
It will also allow the Company to provide tailored innovative service offerings
to individual customers, allowing them to maximize the efficiency of their own
networks. The Company believes that these features combined with the Company's
early entry into the market, its carriers' carrier strategy and the Company's
current agreements and relationships with rail-based entities will provide it
with competitive advantages.
LIBERALIZATION OF THE EUROPEAN MARKET
In Europe, the traditional system of monopoly PTOs has ensured the
development of broad access to telecommunications services; however, it has also
restricted the growth of high quality and competitively priced pan-European
voice and data services. The current liberalization occurring in Europe is
intended to address these structural deficiencies by breaking down PTO
monopolies, allowing new telecommunications operators to enter the market and
increasing the competition within the European telecommunications market. The
inefficiencies of the traditional monopoly system combined with the EU
liberalization initiatives have created the current market opportunity for the
Company's service offerings.
In March 1996, the European Commission adopted the Full Competition
Directive requiring the full liberalization of all telecommunications markets in
EU member states by January 1, 1998 with the exception of certain countries that
were granted an additional grace period. The Company expects that full
liberalization in Europe will lead to the emergence of multiple New Entrants
with new and competitive service offerings. Increasing competition is forcing
these PTOs and New Entrants to explore alternative means of transporting
switched voice traffic across borders in order to reduce the high costs
associated with the ARM. Full liberalization will allow the PTOs and New
Entrants to transport this traffic across borders using dedicated circuits such
as those provided by the Company. The alternative for the transport of this
traffic will be for these competing carriers to build their own transport
capacity or to use IPLCs. Building their own transport capacity is unlikely to
be an attractive option for most carriers because of the high traffic volumes
required to justify the expense, the need to focus resources on marketing and
customer service, the time commitment and the regulatory and administrative
complexities involved. In addition, IPLCs provided by the PTOs also have a
number of disadvantages, including high prices, lack of end-to-end quality
control, low quality due to diversity of network systems and equipment, limited
availability of bandwidth and long lead times for provisioning.
The Company also expects this increase in competition to result in lower
prices and a substantial increase in the volume of traffic and range of
telecommunication services provided. As a result of the increased call volume
and growth in the offerings of value added services, participants in these
markets will require significant amounts of new cross-border telecommunications
transport capacity to provide their services. Service provider demand for
cross-border infrastructure is expected to exceed the demand due to switched
minute market growth. Customers will demand higher bandwidth and increased
quality levels required in a competitive environment. End users will have
requirements for vastly increased data traffic which has not been captured in
historical traffic statistics and requirements for increased bandwidth for new
applications.
HER POTENTIAL CUSTOMER BASE
The Company is a carrier's carrier and will not offer services to end-user
customers. The Company's target customers include PTOs and New Entrants.
Currently an operator wishing to transport and terminate cross-border traffic in
Europe relies on the services of at least two (and in most cases more than two)
PTOs and is required to pay high prices without quality guarantees across the
circuit. HER intends to offer these target customers a better transport system
that can provide a higher level of transmission quality and service across
Europe at lower prices. The advantages that HER can offer its target customers
can be divided into two categories: advantages for facilities-based carriers,
such as PTOs and global consortia of telecommunications operators, and
advantages for non-facilities based carriers, which could include international
carriers, alternative carriers, value added networks, Internet backbone networks
and resellers.
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<PAGE> 40
Facilities-based carriers. The Company expects that carriers that already
own facilities will be interested in using the HER Network for a number of
reasons. PTOs are beginning to provide services in markets other than their home
market and are interested in procuring end-to-end connectivity. The HER Network
gives PTOs the ability to reconfigure or shift capacity among routes to avoid
over- and under-utilization of certain routes and to respond to changes in
end-user customer traffic. The HER Network can also provide additional
redundancy to a PTO or other facilities-based carrier's already existing
network. In addition, the Company believes that facilities-based carriers will
be attracted to the high quality of the HER Network.
Non-facilities based carriers. The Company expects that non-facilities
based carriers will be interested in using the HER Network because the Network
will offer high quality service at lower prices than currently offered by PTOs.
In addition, for Internet backbone networks, HER offers advanced technology and
is capable of handling large volumes of traffic. For all customers, HER virtual
network service offering is expected to be attractive because it allows for
flexibility in the provisioning of telecommunications transmission capacity.
Carriers from outside Europe will be able to connect to the HER Network for all
pan-European service needs. Additionally, the Company expects that New Entrants
who compete with facilities-based carriers will be reluctant to use a
competitor's facilities if alternative infrastructure such as the HER Network is
available, providing better quality service and pricing flexibility.
Special pricing plans have been tailored to the unique needs of these
customer groups.
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<PAGE> 41
BUSINESS
GENERAL
HER's objective is to become the leading pan-European carriers' carrier by
providing cross-border centrally managed telecommunications transmission
capacity to telecommunications companies including PTOs and New Entrants. HER
intends to offer these target customers a better transport system than is
currently available in Europe with a higher and more consistent level of
transmission quality, redundancy, network functionality and service across
Europe at lower prices. Development of the HER Network is dependent upon, among
other things, HER's ability to obtain the necessary financing, rights-of-way,
licenses and other regulatory approvals in a timely and cost-effective manner.
See "Risk Factors -- Risks Relating to HER Network Roll-out."
HER is developing an approximately 18,000 kilometer, pan-European high
capacity fiber optic network designed to interconnect a majority of the largest
Western and Central European cities. HER began initial trials of the
Brussels-Amsterdam portion of the Network in the third quarter of 1996 and
commenced commercial service in November 1996. The Company expects the initial
five country network to be placed in operation in the second quarter of 1998 and
the 18,000 kilometer Network to be operational during the year 2000. Each access
point of the Network will be placed in operation as it is linked to the Network.
HER intends to build the Network using the most accessible and cost-efficient
infrastructure base in each of the regions served, including using rights-of-way
and existing infrastructure of railways, motorways, pipeline companies,
waterways and power companies. HER plans a flexible approach to the Network
build-out plan and intends to fine-tune the scope, route and design of the
Network based upon the evaluation of customer demand.
The Company expects to continue to roll-out full telecommunications
transport service on the initial five country network linking London, Rotterdam,
Amsterdam, Antwerp, Brussels, Paris, Dusseldorf and Frankfurt in the second
quarter of 1998. The initial five country network is expected to consist of
2,900 kilometers of fiber optic cable covering countries which, in 1995,
originated over 60% of all outgoing calls and terminated over 60% of all
incoming calls in the countries to be served by the Network. Network coverage is
planned to be expanded to include Munich, Berlin, Geneva, Zurich, Stockholm,
Copenhagen and Milan in the third quarter of 1998. Additional extensions of the
Network to be completed in phases through the year 2000 will be built-out into
Southern and Central Europe. The HER Network is expected to have points of
presence in at least 32 cities in 15 European countries.
HER has entered into agreements for the construction and/or lease of fiber
optic routes for the initial five country network, except for some of the routes
in Germany which are currently under negotiation. The Company has completed the
construction of two undersea cables connecting the United Kingdom to the
Netherlands and to Belgium, which were placed in commercial service in January
1998. In France, HER has reached agreement with an operator of motorways for the
use of approximately 600 kilometers of infrastructure in northern France, and
has agreements with other providers to complete the French segment of the
initial five country network. The Company expects to start commercial service
connecting Paris to Brussels, Amsterdam and London by January 1998. Contracts
have been concluded with respect to the portion of the Network connecting
Germany with each of France, the Netherlands and Switzerland.
HER continues to negotiate rights-of-way and other infrastructure
arrangements in six other Western European countries representing the remainder
of the Western European portion of the rollout, which negotiations involve
railway and other infrastructure providers. The Company will need to negotiate
similar agreements to complete the Network in four Central European countries.
Buildout of the HER Network is subject to numerous risks and uncertainties that
could delay deployment or increase the costs of the Network, or make the Network
commercially unfeasible. See "Risk Factors -- Risks Relating to HER Network
Roll-out."
HER was formed on July 6, 1993 by HIT Rail. HIT Rail was incorporated in
1990 by eleven national railways to carry out telecommunications engineering
activities in order to construct and exploit a data communications network for
railway traffic. GTS-Hermes purchased a 34.4% interest in HER in 1994 and has
increased its interest to 50% in 1995 and to approximately 79% in 1997.
GTS-Hermes is a wholly owned subsidiary of GTS.
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BUSINESS AND MARKETING STRATEGY
The overall strategy of HER is to offer PTOs and New Entrants pan-European
cross-border telecommunications transport services to help them, in turn, more
successfully meet the needs of their end-user customers. The HER Network also
provides a vehicle through which a carrier can compete in other markets where
the carrier does not own infrastructure. HER expects to enter the market ahead
of similar competition and encourage a wide variety of carriers to use its
Network with service offerings that meet their needs. HER's primary service
offerings are large-capacity circuits for "wholesale" customers such as PTOs and
New Entrants. HER's focus on carriers is designed to complement and not compete
with carriers' own business objectives in providing services to end-users.
To establish HER as the leading carriers' carrier for international
telecommunications within Europe, HER intends to offer its customers
significantly higher quality transmission and extended/advanced network
capabilities at a competitive price by focusing on the following:
High Capacity International Network Facilities. The HER Network is
designed to offer its customers access to high capacity network facilities
outside their domestic markets, providing cross-border capabilities without
requiring customers to invest in network infrastructure or being
constrained by a narrow range of capacity offerings.
Uniform Network Architecture. The HER Network is designed to offer
managed transport services from country to country and across multiple
countries utilizing a single uniform network, in contrast to services
currently available that use multiple providers over several networks with
varying technologies and each under the control of separate, not
necessarily compatible, network control systems. The HER Network's uniform
technology enhances service by providing quality and reliability as well as
uniformity of features throughout the Network.
Diverse Routing. The HER Network architecture includes diverse,
redundant routes that are designed to provide high levels of reliability.
The Network is designed to provide availability of over 99.98% for most
routes and to provide customers with a wide range of telecommunications
transmission capacity. To achieve this level of reliability without the use
of a network similar to the HER Network, the Company believes that carrier
customers would need to purchase additional dedicated circuits to provide
for redundancy.
Rapid Provisioning. HER services provide access to the Network, such
that additional capacity can be provided to customers on the HER Network on
a rapid basis. This access provides a level of capabilities that the
Company believes is unavailable in Western Europe today.
Flexibility. HER services are focused on providing customers
flexibility across the Network through which the customer may minimize risk
by enabling Network rerouting, eventually even under customer direct
control.
Advanced Technology. HER is deploying SDH technology which, by using
WDM techniques and hardware, is upgradeable and will permit significant
expansion of transmission capacity without increasing the number of fiber
pairs in the Network. This technology also provides the basis for
structuring advanced operating features, such as virtual private network
service and ATM-based services.
Innovative Pricing. Currently the price of E1 equivalent circuits on
transborder European routes is artificially high and not necessarily
related to the cost of such circuits. HER intends to offer competitive
pricing. HER will also offer highly tailored contract terms and volume
discounts, which allow carrier customers to plan more efficiently the fixed
costs of their service portfolio. Customers can select varying capacity,
access, guaranteed availability and contract terms at competitive prices.
Customers sourcing from PTOs are generally limited to order from a very
narrow set of capabilities offered under inflexible pricing plans.
Although HER and GTS have relationships with certain PTOs for specific
projects, they do not have wide-ranging alliances with any of the major
consortia or large Western telecommunications companies. Additionally, HER's
strategy calls for it to focus on carriers' carrier services, so that it will
not compete with
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<PAGE> 43
its carrier customers in end-user markets. HER believes that this independence
will make it an attractive service provider for Western European carriers who
may otherwise be reluctant to obtain services from other providers of
intra-European transport that also may be their competitors in the retail
market.
SERVICES
HER's primary service is large capacity cross-border European circuits
provided over an integrated, managed pan-European network structure thus
providing a service for wholesale customers such as PTOs and New Entrants. HER's
service is not intended for business or residential end users. The HER Network
will be based on SDH technology, which provides for digital transmission
capability upon which a broad range of advanced functionality may be built and
which offers network availability, flexibility, bandwidth speeds and error
performance not otherwise available to carriers for transport of
telecommunications traffic across national borders in Western Europe. The
Network is designed to provide customers with a wide variety of bandwidth
speeds, ranging from VC12/E1 Standard (equivalent to 2.048 Mbps) to STM-1/E4
Standard (equivalent to 155 Mbps) and beyond.
HER will provide high quality cross-border transmission services for
licensed telecommunications providers. Services are based on the principle of
adding greater value than currently available in the market while retaining
competitive prices.
Point-to-Point Transport Service. The current market for cross-border
transport is served by IPLCs provided by PTOs. IPLCs are formed by combining
half-circuits from two PTOs between customer locations, often with additional
PTOs providing transit segments. Under the IPLC service, overall service quality
guarantees generally are not provided and only a limited range of bandwidth is
available, usually only E1 and in certain instances, E3. The Company believes
that HER's Point-to-Point Transport Service will be a major improvement to the
PTO-based approach because it provides a greater range of bandwidths (from 2
Mbps (E1 or VC-12) to 140/155 Mbps (E4 or VC-4)) and allows customers to choose
a service level agreement with guarantees appropriate for their applications,
including guarantees for on-time service delivery and service availability.
Point-to-Point Transport Service consists of two services, "Integrated" and
"Node-to-Node." The HER "Integrated" service provides an end-to-end service
between customer-specified locations where the customer can request for HER to
arrange for "last mile" services from the HER node location to the customer's
location. The HER "Node-to-Node" service can be selected when the customer
prefers to provide its own services to reach the local HER node location. In
Node-to-Node Service, HER guarantees service only on its portion of the Network
between HER nodes. Both services are competitively priced relative to current
service offerings. A premium is charged for the highest guaranteed level of
service which incorporates an end-to-end, fully diverse, protected, "Integrated"
service. The customer can choose flexible contract terms from one to five or
more years' duration, with volume discount schemes designed to ensure that HER
remains a cost-effective solution.
Virtual Infrastructure Service. Carriers and operators that plan to expand
their operations to become pan-European service providers as the European
marketplace is liberalized require a flexible and cost-effective means of
telecommunications transport. To date such service providers obtain
international transport service by leasing IPLCs from PTOs. Leasing IPLCs
requires a carrier to lease channels on a segment-by-segment basis from multiple
PTOs, linking the target cities under arrangements having fixed capacity and
pricing structure for each segment of the carrier's network. Leasing IPLCs has
several disadvantages, including (i) difficulty in obtaining discount/volume
pricing schemes since there is no single provider of pan-European coverage, (ii)
delays in implementation due to numerous contractual negotiations and having to
interconnect numerous IPLCs, (iii) limited availability of pan-European leased
capacity at high bandwidth and (iv) variability of quality due to multiple
operators and the absence of a single uniform network. Operators could also
construct their own network, which is expensive, time-consuming and complex and
which may not be justified by such operators' traffic volume.
HER's Virtual Infrastructure Service will offer a new solution and an
attractive alternative to leasing IPLCs or building infrastructure. This service
will enable HER's customers to obtain a uniform pan-European
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or cross-border network under one service agreement by allowing the customer to
select any number of cities along the HER Network at a pricing structure based
on the overall amount of leased capacity for the customer's entire network. The
key feature behind Virtual Infrastructure Service is that it gives the customer
the ability to add or reconfigure capacity in 24 hours between locations
connected in the Virtual Infrastructure Service, thereby enabling the customers
to respond almost immediately to changes in traffic. By being able to transfer
capacity among the Network routes, HER's customers are able to avoid over- and
under-utilization of leased channels. This service offering provides a customer
with the benefits of ownership (rapid provisioning, freedom to rearrange and
control) with a "pay-as-you-go" managed service offering, without the burdens of
up-front investment and costs required to build a network, and without having to
manage the on-going maintenance and operation of the network.
The service is delivered through pre-installed physical facilities at each
of the customer locations. These facilities are designed to ensure that most
growth or changes in customer requirements can be addressed purely by remote
logical reconfiguration from the HER Network Operations Center. This remote
Network management ability is inherent in SDH technology and allows rapid
provisioning and high quality of service.
RING SERVICE
Most medium to large carriers and operators purchase network capacity in
excess of actual requirements, and prefer to have physical configuration control
over their networks. The HER 'Ring' service connects multiple customer locations
with multiple VC-4 paths in a ring fashion. The customer has direct control over
the configuration of the VC-3 and VC-12 paths within the ring, and has exclusive
control over the routing. Additional ring capacity can be added with no service
interruption and additional customer locations may be added to the ring with
minimal service interruption. Due to the fact that HER is not required to
configure 'idle' bandwidth or to manage the 'SDH subnet' this service can be
provided at a very competitive rate vis-a-vis other point-to-point services.
Sales and marketing of HER's services are conducted through its sales and
marketing department, which includes a director and senior sales managers
responsible for various regions and customer segments. Additionally, the Company
expects that its railway shareholders that develop domestic telecommunications
businesses, or other local network access providers, can provide an effective
distribution channel to smaller carrier customers.
PRICING
Currently the price of cross-border pan-European calls are often
significantly higher than the underlying cost of transport and terminating such
calls and higher than the price of intra-country calls or transborder calls to
and from liberalized markets. The low cost of operating the Network enables the
Company to attractively and competitively price services in the face of
declining overall tariffs for telecommunication services. The Company's low-cost
basis is due to, among other things, its use of up-to-date technology without
the burden of legacy networks, which requires fewer employees to operate.
The term of a typical customer agreement is expected to be from 1 to 3
years. The customer agrees to purchase, and the Company agrees to provide,
cross-border transmission services. In general, the customer agrees to pay
certain non-recurring charges and recurring charges on an annual basis, payable
in twelve monthly installments. If the customer terminates the service order
prior to the end of the contract term, it is required to pay the Company a
cancellation charge equal to three months' service for each of the twelve months
remaining in the contract term. The Company guarantees transmission services to
a certain service level. If such levels are not met or the Company fails to
deliver service by the committed delivery date, the customer is eligible for a
credit against charges otherwise payable in respect of the relevant link.
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CUSTOMERS
HER's high capacity, SDH-based fiber optic network is designed to enable
PTOs and New Entrants to integrate high quality, cross-border capacity into
their end user offerings. HER will target seven major market segments or
customer groups which can be characterized as follows:
Alternative Carriers. This segment consists of second carriers, cable
TV and mobile carriers and competitive access providers. These new carriers
have chosen to compete with the incumbent PTOs in their respective
countries, and the Company believes that they would look very favorably to
an alternative such as HER The Company believes that this segment will
sustain the largest growth as competition emerges in Europe. The Company
also believes that non-PTO competitors in Europe will prefer to use a
non-PTO alternative like HER to meet their cross-border telecommunication
transport needs.
Existing PTOs. This customer segment consists of the traditional
European PTOs that generally participate in the standard bilateral
agreements for cross-border connectivity. HER provides a vehicle for PTOs
to compete in non-domestic markets both before and after January 1, 1998.
Prior to January 1, 1998 when liberalization of the provision of switched
telephony (reserved traffic) is scheduled to occur in the majority of
Western European markets, a significant market opportunity for HER exists
to provide cross-border transport services to PTOs for their non-reserved
international traffic outside the standard ITU settlement process. As of
January 1, 1998, both reserved and non-reserved traffic can be transported
by alternative infrastructure providers, thus vastly expanding the
available PTO market for HER
Global Consortia of Telecommunications Operators. Many of the largest
PTOs and international carriers have pooled resources and formed consortia
in order to compete more effectively in important telecommunications
markets such as those in Western Europe particularly outside their home
markets. Prior to liberalization of the provision of switched voice
services in Western European markets, one of the primary objectives of
these consortia is to provide non-reserved pan-European services to
multinational business customers, including X.25/frame relay (high speed
data network) service and closed-user group voice services. Under the
current regulatory framework, consortia would otherwise be required to
purchase leased lines at negotiated retail rates, even within their home
countries. HER believes that it provides an attractive alternative at
better pricing in those environments where such a consortium does not
already own its infrastructure. Furthermore, HER believes that it is well
positioned to provide cross-border connectivity between different domestic
infrastructures of these alliances.
International Carriers. This customer segment consists of carriers
whose primary business is to transport traffic between European and other
international gateways. Such carriers include Teleglobe and GTS-Monaco
Access. HER can provide these customers a pan-European distribution network
to gather and deliver traffic to and from their own and other hubs.
Internet Backbone Networks. Internet backbone networks are a fast
emerging segment and are expected to generate significant requirements for
the services HER offers. These require large capacity international
connectivity services between Internet nodes (point of interconnection
between local Internet service providers) in all local European markets.
The Internet segment is experiencing significant growth in demand for
transmission capacity.
Resellers. Resellers are carriers that do not own transmission
facilities, but obtain communications services from another carrier for
resale to the public. Resellers are also a growing segment of the market
and are expected to increase in conjunction with the liberalization of the
European telecommunications market. In the U.S., for example, resellers
were a significant factor in the expansion of competition.
Value Added Networks ("VANs") and other Service Providers. VANs are
data communications systems in which special service features enhance the
basic data transmission facilities offered to customers. Many of these
networks are targeted to the data transfer requirements of specific
international customer segments such as airlines and financial
institutions. VANs' basic network transmission requirement is to connect
data switches or processors. VANs currently purchase their own
international circuits and build additional resiliency into their network
infrastructure. HER will allow them to meet
39
<PAGE> 46
these needs cost-effectively, and to extend their services to new markets
or customers without substantial capital investment.
The Company expects that additional demand for alternative service
providers will come from increased usage of dedicated circuits for Internet
access, private lines for the deployment of wide-area networks by large
corporations, "single source" local and long distance services by small and
medium-sized businesses and emerging broad band applications such as cable TV
programming distribution (other than broadcast) to the end user.
CURRENT OPERATIONS
HER currently operates a limited network connecting the cities of
Amsterdam, Brussels and recently London. HER is currently operating the network
on the Brussels-Amsterdam-London links with additional access points in Antwerp
and Rotterdam. HER began initial trials of a 244 kilometer portion of the
Network between Brussels and Amsterdam in the third quarter of 1996 and
commenced commercial service in November 1996. The Company's Network Operations
Center located in Brussels, Belgium and its backup center located in Antwerp,
Belgium are fully operational and house Network management and customer support
services which operate 24 hours a day, seven days a week. Billing and customer
service functions are also operational. Currently 16 customers are under
contract for service on the HER Network, including PTOs, a global consortium of
PTOs, Internet service providers, an international carrier, a VAN and resellers.
HER provided capacity of approximately 110 E1 equivalent circuits as of October
31, 1997.
The type and quality of HER's customers validates the concept of the HER
Network, and illustrates the type of customers who will be attracted to the full
Network. The success of this limited network also demonstrates the demand for
cross-border transport services.
NETWORK DESIGN
Network Architecture. The Network architecture is based on a highly meshed
flat topology which covers a wide geographical area with large distances between
individual Network nodes. This architecture allows rerouting of traffic at
electronic speeds in the event of a Network failure. This approach also lowers
Network cost by allowing each node to be sized to match anticipated traffic
volumes rather than to a standard capacity. Individual nodes can be configured
to connect any trunk to any other in the nodes, thus allowing efficient
transmission of traffic. Each node will be connected to at least two other nodes
allowing rerouting of traffic in the event of a Network failure. The Company
believes that its Network will be the first cross-border pan-European network
with such redundancy.
The HER Network has been designed to be controlled by a single network
management center and supported by advanced operational support systems. A
centralized Network center can pinpoint overloaded pathways or malfunctioning
circuitry and reroute traffic much more quickly than networks controlled by
separate network centers operated by PTOs in different countries. HER currently
uses a single vendor for the supply of transmission equipment and network
management systems. HER's advanced operational support systems allow it to
correct Network failures and isolate equipment faults with greater speed and at
a lower cost than is the case with heterogeneous multi-operator networks.
Critical elements of the Network, including Network maintenance and control
systems, are designed with redundancy in order to ensure a high quality of
service. The Network design has several important resilience features including:
multiple paths to each node, built-in hardware redundancy and redundant power
supplies. For all Network routings, there will be at least two paths. Should
service failure occur on one route, the Network is designed to automatically
re-route traffic to another route. The Company believes that these techniques
will result in performance of 99.98 percent or better for premium service
customers for most routes.
HER expects to operate the entire Network and to own substantially all of
the Network equipment as well as some segments of the fiber optic cable. A
substantial part of the fiber is leased on a long-term basis. Long-term leases
for fiber are advantageous to the Company because they reduce the capital
expense burden
40
<PAGE> 47
of building large quantities of capacity before they can be used. Where HER
leases dark fiber, the infrastructure provider will generally be responsible for
maintaining such fiber optic cable. HER will enter into agreements with Alcatel
and infrastructure providers and other third parties to supply and/or maintain
the equipment for the HER Network. See "Risk Factors -- Risks Relating to HER
Network Roll-out."
Network Capacity. The Network will consist of SDH STM-16 links delivered
over fiber owned by HER and dark fiber leased from infrastructure providers.
Each line system and multiplexer works initially at the 2.5 Gbps (STM-16) level.
The most important types of equipment used or to be used in the Network are Add-
Drop Multiplexors ("ADMs") and regulators and a variety of optical amplifiers
for boosting optical signals.
Network Agreements. The Company has entered into agreements and letters of
intent with various infrastructure providers for construction and/or dark fiber
lease of portions of the HER Network. The Company's agreements for leases of
portions of the Network typically required the infrastructure provider to
provide a certain number of pairs of dark fiber and node and/or regenerator
sites along the Network route commencing on certain dates provided by HER The
term of a lease agreement typically ranges from 10 to 18 years. An agreement
typically contains optical specification standards for the fiber and methods of
testing. HER is allowed to use the cable for the transmission of messages and in
other ways, including increasing capacity. The infrastructure provider also
provides space for the location of equipment and spare parts and guarantees the
provision of power and other utilities together with environmental controls and
security to ensure the proper functioning of the equipment. The infrastructure
provider is typically responsible for maintenance of the cable and the provision
of first line maintenance to equipment and permits HER access to such
facilities. Access arrangements to the nodes are also provided so that
connection may be made to HER customers or to the rest of the Network. An
agreement also provides for an annual price for the provision of fiber and for
the facilities and maintenance. The agreements typically provide for termination
by the parties only for material breach, with a 90-day minimum cure period. The
agreements typically contain a transition period after termination of the
agreement to allow the Company to continue to serve its customers until it can
reach agreement with an alternative infrastructure provider.
Local Access. Access to the HER Network will be provided to clients
through SDH access lines including at the STM-1 or STM-4 level. However,
customers who continue to use the older PDH technology may also access the HER
Network. In each city, as an HER POP is deployed, HER may contract with a local
access network supplier for"last mile" services to customer locations. HER will
not invest in building local access infrastructure but such connectivity can be
supplied on a case-by-case basis via preferred local access partner
arrangements. Currently Telfort in the Netherlands and Belgacom in Belgium are
providing local access to the operating Amsterdam-Brussels route. In London and
Paris, HER has contracted to connect the HER Network to intra-city networks in
those cities. Pursuant to this agreement, HER can offer its carrier customers
local connectivity in those cities. Local access network suppliers may also be
interested in HER for the purpose of linking the business centers in which they
are active. Therefore, the Company believes that the relationships
41
<PAGE> 48
between HER and local access network suppliers can benefit both parties. Set
forth below is an illustration of the connection between the HER Network and
local access providers.
LOGO
Network Routes. The table below sets forth the planning dates as of
October 31, 1997 of the development of routes in the initial five country
network.
<TABLE>
<CAPTION>
ESTIMATED
COMMERCIAL
SERVICE TOTAL ROUTE
AVAILABILITY KILOMETERS OF
FROM -------- TO -------- DATE FIBER
-------------- -------------
<S> <C> <C> <C>
Amsterdam Brussels Operational 244
Amsterdam London January 1998 458
Brussels London January 1998 474
Paris Brussels January 1998 514
Paris Frankfurt April 1998 764
Frankfurt Dusseldorf April 1998 236
Dusseldorf Amsterdam February 1998 246
</TABLE>
The Dusseldorf-Amsterdam, Frankfurt-Dusseldorf and Paris-Frankfurt fiber
optic routes are currently under construction. "Under construction" means that
with respect to each of the segments that make up each of these routes, one of
the following is occurring: (i) HER has contracted to build or is contracting to
build the fiber optic cable segment or (ii) HER has leased or will lease such
segment of dark fiber optic cable from a third party who has built or is
currently building such segment. The dates set forth above may be subject to
delays due to a variety of factors, many of which are beyond the control of the
Company. See "Risk Factors -- Risks Related to HER Network Roll-Out."
42
<PAGE> 49
HER is deploying the Network along the rights-of-way of several
shareholders as well as the rights-of-way of a variety of alternative sources,
including motorways, waterways, pipelines and utilities. The rights-of-way of
Hermes-built portions of the Network will be provided pursuant to long-term
leases or other arrangements entered into with railroads, highway commissions,
pipeline owners, utilities or others. HER generally prefers to use the
infrastructure of its rail-based shareholders when such infrastructure is
available on a timely and commercially reasonable basis. In certain cases,
however, HER has not been able to reach agreement with such shareholders for the
provision of rights-of-way along their railways, which has resulted in
significant delays to the Network buildout. In all cases, it is the policy of
HER to evaluate multiple alternative infrastructure suppliers in order to
maximize flexibility. As a result of its Network development activities to date,
the Company has gained access to infrastructure for its Network routes which, in
certain cases, the Company believes will be difficult for its competitors to
duplicate.
COMPETITION
The European and international telecommunications industries are
competitive. HER's success depends upon its ability to compete with a variety of
other telecommunications providers offering or seeking to offer cross-border
services, including (i) the respective PTO in each country in which HER operates
and (ii) global alliances among some of the world's largest telecommunications
carriers. The Company expects that some of these potential competitors may also
become its customers. HER believes that the ongoing liberalization of the
European telecommunications market will attract New Entrants to the market and
increase the intensity of competition. Competitors in the market compete
primarily on the basis of price and quality. HER intends to focus on these
factors and on service innovation as well. HER's business plan anticipates
substantial head-to-head competition as well as indirect competition.
WorldCom, Inc. recently announced plans to construct a pan-European fiber
network, the first phase of which is expected to connect London, Amsterdam,
Brussels and Paris by early 1998. Although the Company believes that the
proposed WorldCom pan-European network is primarily intended to carry WorldCom
traffic, WorldCom has stated that any excess capacity on such network will be
used to provide a competitive "carrier's carrier" service.
If HER's competitors, many of whom possess greater technical, financial and
other resources than HER, devote significant resources to the provision of
pan-European, cross-border telecommunications transport services to carriers,
such action could have a material adverse effect on HER's business, financial
condition and results of operations. There can be no assurance that HER will be
able to compete successfully against such new or existing competitors. See "Risk
Factors -- Competition."
LICENSES AND REGULATORY ISSUES
A summary discussion of the regulatory framework in the countries of the
initial five country network and the next five countries into which HER expects
to develop a Network is set forth below. This discussion is intended to provide
a general outline, rather than a comprehensive discussion, of the more relevant
regulations and current regulatory posture of the various jurisdictions.
National authorities in individual member states of the EU are responsible
for regulating the operation (and in some cases the construction) of
telecommunications infrastructure. The Company believes that the adoption of the
Full Competition Directive and the various related Directives adopted by the
European Parliament and the Council of the EU have resulted in the removal of
most regulatory barriers to the operation of telecommunications infrastructure
in the countries of the initial five country network.
HER requires licenses, authorizations or registrations in all countries to
operate the Network. There can be no assurance that HER will be able to obtain
such licenses, authorizations or registrations or that HER's operations will not
become subject to other regulatory, authorization or registration requirements
in the countries in which it plans to operate. Licenses, authorizations or
registrations have been obtained in the United Kingdom, the Netherlands, Belgium
and Germany and a license application for a trial concession has been filed in
Switzerland. A draft license has been received from the French regulatory
authorities which will be the basis for the final license. However, there can be
no assurance that such license will be granted. The
43
<PAGE> 50
Company intends to file applications in other countries in anticipation of
service launch in accordance with the Network roll-out plan.
On June 28, 1990, the European Commission, in an effort to promote
competition and efficiency in the European Union, issued a directive (the "1990
Directive") requiring EU member states to immediately liberalize all
telecommunication services with the exception of voice telephony to the general
public (basic voice services provided over the public switched voice network).
This step liberalized value added services and voice services over corporate
networks and/or "closed user groups," although the exact definitions of the
terms used in the 1990 Directive were not altogether clear.
On July 22, 1993, the Council of the EU agreed that all voice telephony
services in EU member states should be liberalized by January 1, 1998 subject to
additional transitional periods of up to five years to allow member states with
less developed networks to achieve the necessary adjustments. It was agreed that
such exemptions would be granted to Spain, Ireland, Greece and Portugal, subject
to formal application and satisfaction of certain requirements. Luxembourg,
because of the small size of its market, would be eligible for a special
transitional period of up to two years.
In April 1995, a communication from the European Commission sought to
clarify the types of services that were liberalized by the 1990 Directive,
stating that the burden of proof as to why a service should be considered
"reserved" and therefore not open to competition should be upon the PTOs and the
regulatory authorities of member states. Along with this statement came the
threat of formal procedures under the Treaty of Rome against member states that
do not implement the 1990 Directive "within a reasonable time." Procedures have
been brought so far against Italy, Greece, Germany and Spain for failing to
apply the requirements of the 1990 Directive.
On March 13, 1996, the European Commission adopted the Full Competition
Directive extending the 1990 Directive to all services, requiring that licensing
procedures for these services be transparent and non-discriminatory, requiring
member states to fully liberalize alternative infrastructure to allow a
competitive market for "non-reserved" services such as data, value added
services and non-public (closed-user group) switched voice services by July 1,
1996 and mandating open competition in all public telecommunications services,
including voice telephony to the general public, by January 1, 1998 (except for
countries to which grace periods were granted in accordance with the 1993
Council Resolution).
On April 10, 1997, the European Parliament and the Council of Ministers
adopted a Directive on a common framework for general authorizations and
individual licenses in the field of telecommunications services, including
networks. Licenses must be awarded through open, non-discriminatory and
transparent procedures and applications will be required to be dealt with in a
timely fashion. The number of licenses may only be restricted to the extent
required to ensure the efficient use of radio frequencies or for the time
necessary to make available sufficient numbers in accordance with EC law.
The Company believes that many European countries have revised
telecommunications regulations to comply with the 1990 Directive and the Full
Competition Directive and that such changes will enhance the Company's ability
to obtain other necessary regulatory approvals for its operations.
As a multinational telecommunications company, HER is subject to varying
degrees of regulation in each of the jurisdictions in which it provides its
services. Local laws and regulations and the interpretation of such laws and
regulations differ significantly among the jurisdictions in which the Company
operates. There can be no assurance that future regulatory, judicial and
legislative changes will not have a material adverse effect on the Company, that
domestic or international regulators or third parties will not raise material
issues with regard to the Company's compliance or noncompliance with applicable
regulations or that regulatory activities will not have a material adverse
effect on the Company. See "Risk Factors -- Government Regulation." The
regulatory framework in certain jurisdictions in which the Company provides its
services is briefly described below.
UNITED KINGDOM
Since the elimination in 1991 of the United Kingdom telecommunications
duopoly consisting of British Telecommunications and Mercury, it has been the
stated goal of Oftel, the United Kingdom telecommunica-
44
<PAGE> 51
tions regulatory authority, to create a competitive marketplace from which
detailed regulation could eventually be withdrawn. The United Kingdom has
already liberalized its market beyond the requirements of the Full Competition
Directive, and most restrictions on competition have been removed in practice as
well as in law. The Company has received a license from the Secretary of State
for Trade and Industry which grants it the right to run a telecommunications
system or systems in the United Kingdom connected to an overseas
telecommunications system and to provide international services over such
systems. Like the licenses granted to other providers of international
facilities-based services, the license granted to HER on December 18, 1996 was
for an initial six months' duration and thereafter is subject to revocation on
one month's notice in writing. The short duration of these initial licenses was
adopted for administrative convenience on the opening-up of the United Kingdom
market for international facilities-based services. The Department of Trade and
Industry ("DTI") has confirmed that it intends to replace the initial licenses
with new licenses and that it would not normally expect to revoke an initial
license without replacing it with another license giving an equivalent
authorization. The DTI is currently discussing with license holders the
arrangements to put these new licenses into effect and although the DTI has
indicated that the new licenses are expected to be of 25 years' duration, there
can be no certainty that this will be the case or that the new licenses will not
contain terms or conditions unfavorable to the Company.
THE NETHERLANDS
On July 1, 1997 the Dutch government abolished the prohibition on the use
of fixed infrastructure for the provision of public voice telephony, thereby
complying with the requirements of the Full Competition Directive six months
ahead of schedule. On August 1, 1996, HER was granted a license for the
installation, maintenance and use of a fixed telecommunications infrastructure.
An entirely new Telecommunications Bill was introduced to the Second
Chamber (the House of Representatives) of the Parliament on September 15, 1997.
The new Telecommunications Act is intended to confirm the full liberalization of
the telecommunications market according to European Community standards. It is
not expected that the new Telecommunications Act will detrimentally affect the
conduct of business by HER
BELGIUM
Belgium has implemented the "alternative infrastructure" provider provision
of the Full Competition Directive. Full liberalization of competition, including
the provision of voice telephony, requires further legislation which is expected
to be introduced to the legislature in the near future. HER has obtained,
through a wholly owned subsidiary, a license from the Belgian regulatory
authority to provide liberalized services using alternative infrastructure and
is currently operating under its license in Belgium on the Brussels-Amsterdam
route. HER also has authorization to build infrastructure between major Belgian
population centers and the relevant border crossings.
GERMANY
Germany has approved legislation to implement the Full Competition
Directive and remove all remaining restrictions on competition from January
1998. The Company was granted a license by the German regulatory authorities on
July 18, 1997. The license permits the Company to operate the portions of the
Network in Germany connecting Dusseldorf, Frankfurt and Stuttgart; Dusseldorf to
the Dutch border; and Stuttgart to the French and Swiss borders. The Company
expects to extend its license in Germany as appropriate in order to enable it to
operate the remaining portions of the Network in Germany.
FRANCE
A new regulatory agency, the Autorite de Regulation des Telecommunications
("ART"), was established in France effective January 1, 1997. In 1996, France
approved legislation to implement the Full Competition Directive and to remove
all remaining restrictions on competition from January 1998. HER has applied for
an authorization to operate its Network in specific regions of France.
45
<PAGE> 52
SWITZERLAND
The Swiss Parliament has recently passed a new Telecommunications Law which
will enter into force on January 1, 1998. Although Switzerland is not a Member
State of the EU, the effect of the law is largely to mirror the EC
telecommunications liberalization Directives and therefore from that date
existing voice telephony monopoly will be abolished and such services will be
fully liberalized. An independent national regulatory authority has previously
been established. HER has applied for a trial concession in order to roll out
its Networks and to provide its services in advance of the full liberalization
coming into effect on January 1998.
ITALY
Although in the past Italy has been dilatory in implementing EC
liberalization measures, Italy enacted legislation on July 31, 1997 which
substantially completes the liberalization of services in accordance with the
Full Competition Directive. The Parliament has also approved the creation of an
independent national regulatory authority for the telecommunications and
audiovisual sectors. The most recent EC liberalization Directives relating to
licensing and interconnection remain to be implemented. HER intends to apply for
a license to provide its services in due course.
SPAIN
Under the Full Competition Directive Spain was granted the right to request
a delay of up to five years in liberalizing fully its telecommunications market.
However, the Spanish government and the European Commission have agreed that
full liberalization should take place on December 1, 1998. In order to ensure
effective liberalization from that date, the Commission Decision granting the
eleven month extension sets out a timetable of interim measures leading up to
full liberalization. These measures include the passing of legislation
authorizing regional cable operators to provide telecommunications services and
the adoption of a new General Telecommunications Bill effectively transposing EC
Directives into Spanish law. Further, RETEVISION, S.A. has been granted a second
national operator's license to compete with the national PTO and Spain has
agreed to grant a third national operator license in early 1998. HER intends to
apply for a license to provide its services in due course.
SWEDEN
Full liberalization of the Swedish telecommunications market occurred in
1993. A new Telecommunications Act was passed this year to reinforce the powers
of the national regulatory authority, to ensure conformity with EC Directives
and to supplement the pre-existing licensing regime with a general authorization
regime for services other than telephony services, mobile services and leased
lines. HER intends to register to provide its services in due course.
DENMARK
With the liberalization of infrastructure from July 1, 1997 Denmark has
fully liberalized its telecommunications markets in accordance with the
requirements of the relevant EC Directives. An independent national regulatory
authority has been established. According to the Danish rules, HER will not
require any regulatory approval in order to install or operate the Network in
Denmark.
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<PAGE> 53
MANAGEMENT
MEMBERS OF THE BOARD OF SUPERVISORY DIRECTORS AND THE BOARD OF MANAGING
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The Members of the Board of Supervisory Directors and the Board of Managing
Directors and executive officers of the Company and their respective ages and
positions with the Company as of September 30, 1997 are set forth below.
GTS-Hermes is entitled to propose another member for appointment to the Board of
Supervisory Directors and the railways that become shareholders pursuant to the
HER Recapitalization will also be entitled to propose for appointment another
director to the Board of Supervisory Directors.
BOARD OF SUPERVISORY DIRECTORS
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------- ---- -------------------------------------------
<S> <C> <C>
Gerald W. Thames........................... 50 President, Chief Executive Officer and
Director of GTS
Bernard J. McFadden........................ 64 Director of GTS, GTS-Hermes representative
on the Board of Supervisory Directors of
HER
Lars Stig M. Larsson....................... 66 President and Director General of Statens
Jarnvagar ("SJ"), the Swedish State
Railways
Svend Laursen.............................. 48 Managing Director of HIT Rail B.V. and
Director of the Information Technology
Department of Danske Statsbaner, the Danish
Railways Company
BOARD OF MANAGING DIRECTORS
GTS-Hermes, Inc.
</TABLE>
EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------- ---- -------------------------------------------
<S> <C> <C>
Jan Loeber................................. 53 Managing Director (Principal Executive
Officer)
Gerard J. Caccappolo....................... 55 Corporate Director of Marketing and Sales
Peter Magnus............................... 35 Corporate Financial Director -- Chief
Financial Officer (Principal Financial and
Accounting Officer)
Bruce C. Rudy.............................. 42 Corporate Director of Business Development,
Planning and Regulatory Affairs
John Allan Shearing........................ 48 Corporate Operations and Engineering
Director
Jan De Wispelaere.......................... 38 Corporate Legal Director
Steven Andrews............................. 51 Corporate Administration Director
</TABLE>
BOARD OF SUPERVISORY DIRECTORS
The general affairs and business of the Company and the board which manages
the Company (the "Board of Managing Directors") (Directie) are supervised by a
board appointed by the general meeting of shareholders (the "Board of
Supervisory Directors") (Raad van Commissarissen).
The Company's Articles of Association (the "Articles of Association")
provide for at least four and no more than ten supervisory directors who must be
natural persons ("Supervisory Directors") to serve on the Board of Supervisory
Directors. Under the law of the Netherlands, a Member of the Board of
Supervisory Directors of a Company cannot be a member of the Board of Managing
Directors of the same Company. The members of the Board of Supervisory Directors
are appointed by the general meeting of shareholders. The Board of Supervisory
Directors elects a chairman from among its members. See "Certain Relationships
and Related Transactions." Under the new Shareholders Agreement, resolutions of
the Board of Supervisory
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<PAGE> 54
Directors will require the approval of a majority of the Supervisory Directors
present. The quorum for a valid meeting is a majority of the members of the
Supervisory Board with a minimum of four members. The Board of Supervisory
Directors meets four times a year and also upon the request of its chairman or
the Board of Managing Directors. Pursuant to the Articles of Association,
Supervisory Directors may be suspended or dismissed by the general meeting of
shareholders. The remuneration or compensation of the Supervisory Directors is
determined by the general meeting of shareholders.
While the Board of Managing Directors is the executive body of the Company
and is responsible for managing its affairs and representing the Company in its
dealings with third parties, the primary responsibility of the Board of
Supervisory Directors is to supervise the policies enacted by the Board of
Managing Directors and the general course of affairs of the Company. The Board
of Supervisory Directors advises the Board of Managing Directors. In the
fulfilment of their duties, members of the Board of Supervisory Directors are
required to act in the best interests of the Company.
BOARD OF MANAGING DIRECTORS
The Board of Managing Directors, having one managing director (GTS-Hermes),
is charged with the management of the Company in accordance with the business
plan of the Company under the supervision of the Board of Supervisory Directors.
Jan Loeber acts on behalf of GTS-Hermes in this capacity. Under the Articles of
Association, the Board of Managing Directors must obtain the approval of the
Board of Supervisory Directors in order to take the following actions: (a) to
adopt and amend the business plan and the annual budget of the Company; (b) to
incur expenses in excess of the adopted or amended annual budget; (c) to incur
loans outside of the Company's ordinary business, except draw-downs of amounts
previously approved on the Company's account with a bank designated by the Board
of Supervisory Directors; (d) to lend sums which exceed the amounts previously
approved by the Board of Supervisory Directors outside the Company's ordinary
business; (e) to commit the Company to guarantee debts of third parties outside
the Company's ordinary business; (f) to extend the Company's business into a new
line of business and to discontinue the business of the Company; and (g) to
alienate a considerable part of the assets of the Company.
The Articles of Association provide that the Board of Managing Directors
shall consist of one member. The member of the Board of Managing Directors is
appointed by the general meeting of shareholders. The general meeting of
shareholders may suspend or dismiss the member of the Management Board by a vote
of a majority of votes cast in a meeting in which at least four-fifths of the
issued capital is present or represented. If the office of the sole member of
the Board of Managing Directors is vacated or the sole member is prevented from
acting, the Board of Supervisory Directors is charged temporarily with
management of the Company and may appoint one or more of the directors of the
Board of Supervisory Directors to represent the Company. The compensation and
other terms and conditions of employment of the member of the Board of Managing
Directors is determined by the general meeting of shareholders.
SUPERVISORY DIRECTORS
Gerald W. Thames, Member of the Supervisory Board. Mr. Thames is
President, Chief Executive Officer and a Director of GTS. Mr. Thames joined GTS
as Chief Executive Officer in February 1994, and has served as a director of GTS
since February 1994. From 1990 to 1994, Mr. Thames was President and Chief
Executive Officer for British Telecom North America and Syncordia, a joint
venture company focused on the international outsourcing market. Mr. Thames has
spent over 18 years in senior positions with telecommunications companies, where
he was responsible for developing start-up telecommunications companies,
including 15 years with AT&T, where he rose to the position of General Manager
of Network Services for the Northeast Region of AT&T Communications.
Bernard J. McFadden, Member of Supervisory Board. Mr. McFadden has served
as a director of GTS since February 1994. Mr. McFadden currently serves as an
independent consultant to GTS. Prior to 1994, Mr. McFadden worked for 32 years
with ITT Corporation, where he served as President and Chief Executive Officer
of ITT's Telecom International Group. Mr. McFadden's career in international
telecommunications
48
<PAGE> 55
includes a four and one-half year assignment as President and Chief Operating
Officer of Alcatel Trade International, S.A.
Lars Stig M. Larsson, Member of Supervisory Board. Mr. Larsson is
President and Director General of SJ, the Swedish State Railway, a position he
has held since February 1988. After receiving a Master of Science Engineering
degree from Gothenburg Technical University, where he is also a Doctor honoris
causa, he joined the Ericsson Group in 1960. From 1960 to 1987 he held different
posts within the Ericsson Group and its subsidiaries, including that of
Development Director for road and rail signalling systems as well as the
telephone system AXE. In 1979 Mr. Larsson was appointed President of RIFA, the
Ericsson subsidiary company specializing in the development, production and
marketing of electronic components. In 1985 he was named President of Ericsson
Information Systems. In 1988 Mr. Larsson was appointed President and Director
General of SJ. After several years in positions of responsibility within the
Union Internationale des Chemins de Fer ("UIC") framework, including as Chairman
of the Strategy Committee, Mr. Larsson was appointed Vice-Chairman of UIC in
charge of coordinating all rail cooperation in Europe in September 1993. On
November 1, 1996 he was appointed Chairman of UIC. Mr. Larsson is also Chairman
of the Board of AB Swedcarrier, SweFerry AB, Rail Combi AB, Royal Viking Hotel
AB, Stockholm Water Foundation and the Swedish Travel & Tourist Council. He is a
board member of the Royal Academy of Engineering Sciences (IVA) section XI for
Education and Research, the Swedish Transport Research Commission (TFK), the
National Agency for Government Employers, the Taxpayers' Association, the
Stockholm Water Festival and the environmental organization, The Natural Step.
Svend Laursen, Member of Supervisory Board. Mr. Laursen currently is
Director of the Information Technology Department in Danish State Railway, a
position he has held since 1987, and Managing Director of HIT Rail, a position
he has held since 1994. Until 1987 Mr. Laursen was employed as consultant for
the Danish Ministry of Finance where he was responsible for advising public and
state authorities in relation to information technology. Prior to 1987 he was
employed by the then state owned computer center, DataCentralen. Mr. Laursen has
been a Supervisory Board member of HIT Rail from 1989 to 1994 and a member of
the Board of Supervisory Directors since 1994.
EXECUTIVE OFFICERS OF THE COMPANY
Jan Loeber, Managing Director. Mr. Loeber has overall responsibility for
the development and operations of the Company. Mr. Loeber joined GTS in January
1995. From October 1992 to December 1994, Mr. Loeber was a Managing Director of
B.T. Securities Corporation, where he was responsible for investment banking for
telecommunications clients. From April 1990 to September 1992, Mr. Loeber held
positions as Managing Director of Unitel Ltd. (now Mercury One 2 One) in the
United Kingdom, Group President of Nokia North America Inc., Vice President of
ITT Corporation and Marketing and Product Management Director of ITT Europe. Mr.
Loeber also spent almost ten years with AT&T, where his last position was
Executive Director, Bell Laboratories. Mr. Loeber has over 22 years of
experience in the telecommunications industry and an additional nine years of
experience in information technology with the Pentagon, IBM and Chemical Bank of
New York.
Gerard J. Caccappolo, Corporate Director of Marketing and Sales. Mr.
Caccappolo joined HER in January 1995 as Director of Marketing and Sales,
responsible for market and customer segmentation, services development, and
pricing and sales strategies. Prior to joining HER, from September 1988 to
December 1994, he was Vice President of Marketing and Sales -- International
Carriers at Ascom Timeplex Equipment (Telecommunications) Manufacturer.
Peter Magnus, Corporate Financial Director -- Chief Financial Officer. Mr.
Magnus joined HER in January 1995 as Financial Director -- Chief Financial
Officer, responsible for treasury, financing, accounting and budgets. Prior to
joining HER, from January 1992 to December 1994, he was Controller of the
Belgian operations of Cargill N.V.
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<PAGE> 56
Bruce C. Rudy, Corporate Director of Business Development, Planning and
Regulatory Affairs. Mr. Rudy joined HER in 1996 and is Director of Business
Development, Planning and Regulatory Affairs, responsible for business planning,
financial modeling, shareholder relations and development. Mr. Rudy previously
worked for Lochridge & Company, Inc. Management Consultants in Boston, where he
was a senior consultant from September 1989 to December 1995.
John Allan Shearing, Corporate Operations and Engineering Director. Mr.
Shearing joined HER in November 1995 as Director of Operations, with
responsibility for network operations, customer service and information systems.
Before joining HER, Mr. Shearing spent eight years at S.W.I.F.T. as Network
Operations Director and also managing the acceptance and implementation of a new
generation of network systems and applications.
Jan De Wispelaere, Corporate Legal Director. Mr. De Wispelaere joined HER
as a consulting attorney in 1995 and has since been promoted to the position of
Legal Director -- Corporate Secretary and General Counsel. Prior to joining HER,
from January 1994 to November 1995, Mr. De Wispelaere had been with Stanbrook &
Hooper -- European Community Lawyers. Prior to that, he was with Scott Paper
Company and SD Warren Group as Senior Counsel for five years. He has held since
1993 positions as a member of the Board of Directors and Management Board of the
German Scott -- Feldmuhle HQ Company, as well as several Scott Paper operating
entities in Europe.
Steven Andrews, Corporate Administration Director. Mr. Andrews joined HER
in September 1997, assuming responsibility for human resources; corporate, press
and shareholder communications; quality and facilities-purchasing. Before
joining HER, Mr. Andrews was an executive of US West with recent assignment as
president of Media One and president of US West Spectrum Enterprises
International.
50
<PAGE> 57
EXECUTIVE COMPENSATION AND OTHER INFORMATION
COMPENSATION OF DIRECTORS
The directors on the Board of Supervising Directors and the Board of
Managing Directors receive no fees from the Company for serving as directors.
Mr. McFadden currently serves as an independent consultant to GTS pursuant to a
consulting agreement, under which he receives a consulting fee of $100,000 per
annum. One of his duties under the consulting agreement is to serve as a member
of the Board of Supervisory Directors of HER
EXECUTIVE COMPENSATION
The following table sets forth each component of compensation paid or
awarded to, or earned by, the chief executive officer (who is the Managing
Director of HER) and the four most highly compensated executive officers other
than the chief executive officer (collectively, the "Named Executive Officers")
during the fiscal year ended December 31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------
AWARDS
ANNUAL COMPENSATION -----------------------
-------------------------------------- RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
SALARY BONUS COMPENSATION AWARD(S) OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION ($) ($) ($) ($) (#) ($)
- --------------------------- ----------- ------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Jan Loeber(1).............. $235,000 $78,608 $74,642(2) (3) 3.5 $9,950(10)
Managing Director
Gerald J. Caccappolo(1).... 160,000 40,000 42,108(6) -- 1.5 3,750(5)
Corporate Director of
Marketing & Sales
Peter Magnus............... 129,889(7) 32,472(7) (8) -- 0.5 --
Corporate Financial
Director (Principal
Accounting Officer)
Bruce Rudy(1).............. 135,000 13,509 18,416(9) -- 0.5 2,532(5)
Corporate Director of
Business Development
John Shearing.............. 173,594(7) 35,163(7) (8) -- -- --
Corporate Operations
Director
</TABLE>
- ---------------
(1) The terms of the Named Executive Officer's employment are included in an
agreement between the Named Executive Officer and GTS. Such Named Executive
Officer is seconded to the Company for a fee.
(2) Mr. Loeber received a cost of living allowance and paid home leave during
fiscal year 1996. The Company provided Mr. Loeber with a tax equalization
that compensates him for the higher taxes he pays because he resides in
Belgium instead of the United States. Furthermore, the Company provided Mr.
Loeber with a housing allowance equal to $31,836 per year (converted from
Belgian Francs to U.S. Dollars at an exchange rate of BF32.0392=$1.00). In
addition, the Company provides Mr. Loeber with the use of a company car.
(3) Mr. Loeber has been granted a restricted stock award of 20,000 shares of
GTS common stock which vests in equal thirds, beginning in January 2, 1997.
GTS common stock is not registered or publicly traded and no market price
is available for such stock. GTS completed a private placement of common
stock in the third quarter of 1996 pursuant to which the common stock was
valued at $20 per share. At December 31, 1996, GTS deemed the value of its
common stock to be approximately $20 per share.
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<PAGE> 58
(4) Stock options were granted under the GTS-Hermes, Inc. 1994 Stock Option
Plan (the "GTS-Hermes Plan"). Each stock option is exercisable for one
share of GTS-Hermes common stock, par value $0.01 per share at an exercise
price equal to the fair market value of the stock on the date of grant as
determined by a committee of the board of directors of GTS-Hermes. There is
no ready market for the GTS-Hermes common stock. As of December 31, 1996,
100 shares of GTS-Hermes common stock were outstanding. In the aggregate
13% of this stock is subject to the GTS-Hermes Plan. Generally, one-third
of the stock options vest on each of the first three anniversaries of the
date of grant.
(5) These Named Executive Officers participate in the GTS 401(k) plan to which
GTS contributed the amounts indicated for 1996.
(6) Mr. Caccappolo received a cost of living allowance of $11,200 and resides
in a Company apartment which the Company pays the equivalent of $17,928 per
year in rent (converted from Belgian Francs to U.S. Dollars at an exchange
rate of BF32.0392=$1.00). In addition, the Company provides Mr. Caccappolo
with the use of a Company car.
(7) Converted from Belgian Francs to U.S. Dollars at an exchange rate of
BF32.0392=$1.00.
(8) Perquisites and other personal benefits paid to Mr. Magnus and Mr. Shearing
during fiscal year 1996 were less than the lesser of $50,000 and 10 percent
of the total of annual salary and bonus reported for the Named Executive
Officer.
(9) Mr. Rudy received a housing allowance of $16,855 during fiscal year 1996.
In addition, the Company provides Mr. Rudy with the use of a Company car.
(10) This amount represents premiums paid by GTS for $1,000,000 in term life
insurance for Mr. Loeber and contributions to Mr. Loeber's account by GTS
under the 401(k) Plan.
OPTION GRANTS IN THE LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
% OF TOTAL STOCK PRICE
NUMBER OF OPTIONS APPRECIATION FOR
SECURITIES GRANTED TO EXERCISE OR OPTION TERM(2)
UNDERLYING OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ------------------
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
---------------------- ------------------ ------------ ----------- ---------- ------------ ---
<S> <C> <C> <C> <C> <C> <C>
Jan Loeber(4)......... 3.5 53.8% $ 57,142.86 2007 N/A N/A
Gerard J.
Caccappolo.......... 1.5 23.1 57,142.86 2007 N/A N/A
Peter Magnus(4)....... 0.5 7.7 57,142.86 2007 N/A N/A
John Green............ 0.5 7.7 57,142.86 2007 N/A N/A
Bruce Rudy............ 0.5 7.7 172,120.00 2007 N/A N/A
</TABLE>
- ---------------
(1) Stock options are for GTS-Hermes stock pursuant to the GTS-Hermes Plan.
Each stock option vests one-third on each of the first three anniversaries
of the date of grant.
(2) Due to the high exercise price of the options granted under the GTS-Hermes
Plan and the relatively low value of GTS-Hermes shares, GTS and the Company
have agreed that it is reasonable to set the potential realizable value of
the options at zero with respect to the assumed annual rates of stock price
appreciation of 5% and 10% for the term of the options.
(3) Additional grants were made during 1997 involving the other corporate
directors: John Shearing, 0.5 shares, Jan De Wispelaere, 0.5 shares, and
Steven Andrews, 0.5 shares. Exercise prices for such directors are
$340,474, $340,474 and $2,750,000 per share, respectively.
(4) In 1995, Jan Loeber and Peter Magnus were granted 3.5 shares and 0.5 shares,
respectively.
52
<PAGE> 59
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-ENDED OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
NAME OPTIONS AT FY-END(#) FY-END($)(1)
----------------------------------------------- ------------------------- -------------------------
EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
<S> <C> <C>
Jan Loeber..................................... 1.167 / 5.833 N/A
Gerard J. Caccappolo........................... 0.0 / 1.5 N/A
Peter Magnus................................... 0.5 / 0.5 N/A
John Green..................................... 0.0 / 0.5 N/A
Bruce Rudy..................................... 0.0 / 0.5 N/A
</TABLE>
- ---------------
(1) See footnote (2) above for explanation of valuation.
(2) Options per footnote (3) above, are not yet vested.
GTS-HERMES 1994 STOCK OPTION PLAN
The GTS-Hermes, Inc. 1994 Stock Option Plan (the "GTS-Hermes Plan") was
adopted by the board of directors of GTS-Hermes in 1994 to enable employees of
GTS-Hermes and its subsidiaries, including HER, and affiliates to participate in
ownership of GTS-Hermes and to attract and retain key employees of particular
merit. The GTS-Hermes Plan provides for the award of incentive stock options,
nonqualified stock options and stock appreciation rights. All employees of
GTS-Hermes and its subsidiaries, including HER, and affiliates are eligible to
participate in the GTS-Hermes Plan.
The maximum number of shares authorized with respect to grants of awards
under the GTS-Hermes Plan in each calendar year is 6.5% of the shares of common
stock, par value $0.01 per share, of GTS-Hermes issued and outstanding, and the
aggregate number of shares of stock subject to the GTS-Hermes Plan is 13% of the
total shares of stock issued and outstanding. The GTS-Hermes Plan is
administered by a committee appointed by the board of directors of GTS-Hermes,
which has broad discretion to determine who shall receive awards under the HER
Plan and the characteristics of any award thereunder, including the price, term
and vesting of such award. However, stock appreciation rights may not be awarded
alone and may only be awarded in tandem with an option grant.
The GTS-Hermes Plan provides that in the event of a change in control, as
defined under the GTS-Hermes Plan, any stock appreciation rights outstanding for
at least six months and any stock options awarded under the GTS-Hermes Plan not
previously exercisable and vested which have been held for at least six months
from the date of grant will become fully vested and exercisable at an adjusted
price to be determined according to the highest sales price per share paid in
any transaction reported or offer made at any time during the preceding 60 days
as determined by the committee.
The board of directors of GTS-Hermes may amend, alter or discontinue the
GTS-Hermes Plan at any time, provided that the rights of participants are not
impaired.
HER intends to establish a new stock option plan to replace the GTS-Hermes
Plan during the fourth quarter of 1997. The new plan, the Key Employee Stock
Option Plan of Hermes Europe Railtel B.V. (the "New Plan"), and the stock option
agreements that will be issued pursuant thereto have been drafted and are
pending final approval and execution. The options outstanding under the
GTS-Hermes Plan will be converted into options under the New Plan as soon as
practicable after such plan becomes effective. Upon establishment of the New
Plan, the GTS-Hermes Plan will be terminated.
PENSION PLAN
In 1995, the Company established a defined benefit pension plan (the
"Pension Plan") that covers substantially all of its employees that are at least
twenty-five years of age and have at least one year of service. The benefits are
based on years of service and the employee's compensation at retirement. Messrs.
Magnus and Shearing participate in the Pension Plan. Each participant in the
Pension Plan will receive a lump sum at
53
<PAGE> 60
retirement equal to 450% of final annual salary up to a specified ceiling which
changes every year (in 1996 the ceiling was BF1,352,000) plus 910% of the excess
multiplied by the years of service divided by 35. The maximum years of service
taken into account under the formula is 35. The normal retirement age is 60. The
Company has entered into an agreement with an insurance company for the
provision of a group insurance policy (the "Policy"). Under the Policy, the
insurance provider has undertaken a legal obligation to provide specified
benefits to participants in return for a fixed premium; accordingly, the Company
does not bear significant financial risk. Premium payments for the Policy are
partly paid by the employee based on specified terms that consider the
employee's annual salary, with the remaining premium paid by the Company.
Premiums are intended to provide not only for benefits attributed to service to
date but also for those expected to be earned in the future. (See Note 5 to the
Notes to Consolidated Financial Statements). Upon termination of employment
prior to retirement age, employer contributions cease and the participant may
decide to receive the cash surrender value of the policy, to continue paying
premiums or cease paying premiums but in either case maintaining the policy
which is paid out according to its terms.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
------------------------------------------------------------------
REMUNERATION 15 20 25 30 35
- ----------------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$125,000........................... $ 370,313 $ 493,750 $ 617,188 $ 740,625 $ 863,200
$150,000........................... 467,870 623,829 779,786 935,744 1,090,610
$175,000........................... 565,508 754,011 942,513 1,131,056 1,318,200
$200,000........................... 663,100 884,140 1,105,170 1,326,210 1,545,700
$225,000........................... 760,703 1,014,271 1,267,838 1,521,405 1,773,200
$250,000........................... 858,300 1,144,400 1,430,500 1,716,600 2,000,000
$300,000........................... 1,053,490 1,404,660 1,755,820 2,106,990 2,455,700
$400,000........................... 1,443,880 1,925,181 2,406,476 2,887,771 3,365,700
$450,000........................... 1,639,080 2,185,440 2,731,800 3,278,160 3,820,700
$500,000........................... 1,834,270 2,445,700 3,057,120 3,668,550 4,275,700
</TABLE>
The above pension benefits are based on the following formula: (260% S1 + 910%
S2) X N/35
S = annual salary
S1 = S up to the "ceiling"
S2 = S above the "ceiling"
N = years of service up to a maximum of 35
For purposes of this calculation the "ceiling" is U.S. $42,200.
EMPLOYMENT AGREEMENTS
All the Named Executive Officers have employment agreements with either the
Company (the "Company Employment Agreements") or GTS (the "GTS Employment
Agreements"). The Company reimburses GTS for payments made to Named Executive
Officers under contracts with GTS. The Employment Agreements generally are each
for a term of two to three years and include an automatic renewal provision
unless either party provides notice of termination on or prior to 90 days
thereof.
Messrs. Magnus and Shearing have Company Employment Agreements. The
following is a summary of the material terms of such agreements. Mr. Magnus'
Company Employment Agreement was entered into by the parties on January 3, 1995
for an initial term ending December 31, 1996. The parties have agreed to extend
the term for an indefinite period of time. Mr. Magnus' initial gross annual
salary was BF4,080,000. He may also receive a yearly performance-based bonus of
up to 30% of his base salary based at the discretion of the Company. Under the
agreement, Mr. Magnus is entitled to the use of a company car. The agreement
also provides that Mr. Magnus shall be granted an option to buy shares under the
GTS-Hermes Plan under a separate stock option agreement.
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<PAGE> 61
Mr. Shearing's Company Employment Agreement was entered into by the parties
of November 1, 1995 for an undetermined period of time. Mr. Shearing's initial
annual salary was BF2,800,000, which is net of all tax and social security
contributions. Mr. Shearing's gross salary for fiscal year 1997 was BF5,561,813.
He may also receive a yearly performance-based bonus of up to 10% of his base
salary at the discretion of the Company. Furthermore, beginning in 1996, Mr.
Shearing may receive an additional deferred bonus of up to 10% of his base
salary, which will be payable on the third anniversary of the date such bonus is
awarded, provided that Mr. Shearing is still employed by the Company on December
31, 1998. Mr. Shearing participates in the Company's pension plan and is
provided with a company car.
See "Certain Relationships and Related Transactions" for a description of
the GTS Employment Agreements.
SECURITY OWNERSHIP OF PRINCIPAL
SHAREHOLDERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Ordinary Shares of the Company, as of September 30, 1997, by
each beneficial owner of 5% or more of the Ordinary Shares and by executive
officers and directors of the Company as a group. Pursuant to a recent
recapitalization, the Company issued 11,424 Ordinary Shares to Societe Nationale
des Chemins de Fer Belges S.A. de Droit Public/Nationale Maatschappij der
Belgische Spoorwegen N.V. Van Publiek Recht (the Belgian National Railway)
("SNCB/NMBS") and 4,365 Ordinary Shares to AB Swed Carrier (a wholly owned
subsidiary of SJ, the Swedish National Railway).
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENT
--------- -------
<S> <C> <C>
GTS-Hermes, Inc............................................................ 150,632 79.09%
HIT Rail B.V.(1)........................................................... 24,047 12.63
SNCB/NMBS.................................................................. 11,424 6.00
AB Swed Carrier............................................................ 4,365 2.29
All directors and executive officers as a group(2)......................... -- --
---------
Total............................................................ 190,468
========
</TABLE>
- ------------------------------
(1) The members of HIT Rail are Osterreichische Bundesbahnen, Societe Nationale
des Chemins de Fer Belges, Danske Statsbaner, Societe Nationale des Chemins
de Fer Francais, Deutsche Bundesbahn, Ente Ferrovie dello Stato, Nederlandse
Spoorwegen, Red Nacional de los Ferrocarriles Espanoles, Statens Jarnvagar,
Schweizerische Bundesbahnen and Racal-BRT.
(2) The Company intends to establish a stock option plan pursuant to which key
officers and employees will be granted options to purchase Ordinary Shares
of the Company. The Company expects that the number of Ordinary Shares of
Hermes subject to the proposed plan will be approximately 13% of the total
Ordinary Shares of Hermes issued and outstanding. See "Executive
Compensation and Other Information -- GTS-Hermes 1994 Stock Option Plan."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
HER was formed on July 6, 1993 by HIT Rail, a consortium of eleven Western
European railways. HIT Rail was incorporated in 1990 by these national railways
to carry out telecommunications engineering activities in order to construct and
exploit a data communications network for railway traffic. GTS-Hermes purchased
a 34.4% interest in HER in 1994, increased its interest to 50% in 1995 and
approximately 79% in 1997.
GTS-Hermes is a wholly owned subsidiary of GTS. GTS is a U.S.-based
provider of a broad range of telecommunications services to businesses, other
telecommunications service providers and consumers in Russia and the
Commonwealth of Independent States, Western and Central Europe and Asia. GTS is
organized in the state of Delaware. At September 30, 1997, GTS had approximately
37.6 million shares of common stock outstanding and shareholders' equity of
$63.4 million.
55
<PAGE> 62
HER has formed a wholly owned subsidiary, Hermes Europe Railtel N.V., a
company incorporated in Belgium in December 1996. The registered office of
Hermes Europe Railtel N.V. is 1560 Hoeilaart, Terhulpsesteenweg 6A, Belgium. The
authorized share capital is 2,500 shares (of which 2,499 shares are owned by the
Company) and the share capital is fully subscribed and amounts to BF 2,500,000.
Hermes Europe Railtel N.V. currently has no operations or revenue. Following the
Offering, HER intends to transfer all or substantially all of its assets and
liabilities (other than the Notes) to Hermes Europe Railtel N.V. After such
transfer, the Company will be a holding company with limited assets and will
operate its business through subsidiaries. As of the date hereof, the Company
has only one subsidiary and expects to form one or more subsidiaries in the
future.
HER RECAPITALIZATION
HER has completed a recapitalization (the "HER Recapitalization"), wherein
HER extended rights to subscribe to additional shares of HER to GTS-Hermes, HIT
Rail and the eleven railways comprising the HIT Rail consortium. Pursuant
thereto, GTS-Hermes and two of the eleven railways that comprise the HIT Rail
consortium have exercised their subscription rights, while HIT Rail and the
other nine railways have declined to exercise their subscription rights. HER has
issued (i) 150,592 shares to GTS-Hermes in exchange for the conversion of loans
and additional consideration, (ii) 24,007 shares to HIT Rail in exchange for the
conversion of loans, (iii) 11,424 shares to SNCB/NMBS and (iv) 4,365 shares to
AB Swed Carrier (a wholly owned subsidiary of SJ, the Swedish national railway).
As a result, GTS-Hermes owns 79.08%, HIT Rail owns 12.63%, SNCB/NMBS owns 6.00%
and AB Swed Carrier owns 2.29% of the issued HER shares. Pursuant to the HER
Recapitalization, HER, GTS-Hermes, HIT Rail, SNCB/NMBS and AB Swed Carrier have
executed a new Shareholders Agreement, the principal terms of which are set
forth below.
Under the new Shareholders Agreement, actions to be taken by shareholders
will be adopted by a simple majority vote with the exception of certain actions
which will require at least 85% of the votes cast: (i) purchase by HER of its
own shares and any redemption thereof, (ii) exclusion of preemptive rights in
the case of the issuance of new shares and the transfer of shares held by HER,
except in the event of a public listing of the shares or of new shares or of an
offering of shares or options on new shares (warrants) to professional investors
in order to obtain further funding, (iii) winding up or dissolution of HER, (iv)
any amendment to the articles of association other than those pertaining to
increases in the authorized capital of HER or to convert HER into an N.V.
("Naamloze Vennootschap") to enable a public listing of shares or new shares,
(v) any amendment to the scope of HER's business, (vi) the declaration of
dividends and (vii) the admission of new shareholders to the Shareholders
Agreement. In addition, the Shareholders Agreement provides that (a) if
GTS-Hermes is the owner of as least 50% of the issued shares, then it will have
the right to make a binding nomination for the appointment of half of the
members of the Board of Supervisory Directors or (b) if GTS-Hermes is the owner
of at least two-thirds of the issued shares, then it will have the right to make
a binding nomination for the appointment of half of the members of the Board of
Supervisory Directors plus one member more, appointed pursuant to nominations by
the other shareholders. As long as HIT Rail is the owner of at least one share,
HIT Rail will be entitled to make a binding nomination for the appointment of at
least one member of the Supervisory Board. The Shareholders Agreement also
provides that shareholders who participated in the HER Recapitalization other
than GTS-Hermes and HIT Rail with a shareholding of at least 6.8% subject to
adjustment in the discretion of the other shareholders will be entitled to make
a binding nomination for the appointment of one member of the Board of
Supervisory Directors. Shareholders who participated in the HER Recapitalization
other than GTS-Hermes and HIT Rail who hold fewer than 6.8% of the issued share
capital of HER will be entitled on a rotating basis to make one binding
nomination for the appointment of a member of the Board of Supervisory Directors
for two-year periods.
ARTICLES OF ASSOCIATION AND SHAREHOLDERS AGREEMENT
Under the Articles of Association and the Shareholders Agreement between
GTS-Hermes and HIT Rail, both GTS-Hermes and HIT Rail have preemptive rights in
connection with issuances of ordinary shares and options on shares to be issued
in proportion to the total nominal value of the shares held by each of them.
Preemption rights can be exercised for four weeks after the date the notice of
the offer is received by the shareholders.
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<PAGE> 63
The Shareholders Agreement provides that the Company or its designated
vendor will provide fiber capacity in its Network for use by the shareholders of
the Company on fair commercial terms, use, quantity and price to be negotiated
on a bilateral basis. In the Shareholders Agreement, HIT Rail has covenanted to
(i) use its best efforts to establish such commercial agreements between
individual HIT Rail shareholders and the Company, to obtain rights of way from
individual HIT Rail shareholders and to cooperate in obtaining such licenses as
may advance the business of the Company, (ii) use its best efforts to ensure
that the HIT Rail shareholders cooperate in obtaining such license in accordance
with the business plan of the Company and as may be necessary or advisable in
furtherance of the Company's business, (iii) will not, so long as both HIT Rail
and GTS-Hermes are shareholders of the Company and for one year after HIT Rail
ceases to be a shareholder, agree with any entity other than GTS-Hermes and the
Company to assist or cooperate in the development of any pan-European
telecommunications operator and (iv) use its best efforts to obtain on the
Company's behalf such materials as may be required and arrange inspection visits
of selected rights of way for the purpose of making initial cost estimates.
The foregoing summary of the Shareholders Agreement does not purport to be
complete and is qualified in its entirety by reference to the Shareholders
Agreement.
SHAREHOLDER LEASES AND LOANS
The Company currently leases dark fiber and facilities from, and has
entered into a contract to construct portions of the initial five country
network with, Telfort which is a subsidiary of Nederlandse Spoorwegen, a member
of HIT Rail. As a result, Telfort is currently an indirect shareholder of the
Company. The Company has also entered into a contracts with SNCB/NMBS for the
provision of fiber and facilities for portions of the initial five country
network. SNCB/NMBS is a member of HIT Rail and thus an indirect shareholder of
the Company and is also a direct shareholder of HER As such, it is entitled to
propose a nominee for appointment to the Board of Supervisory Directors of the
Company.
Lars Stig M. Larsson is currently a member of the Board of Supervisory
Directors of the Company and is President and Director General of SJ, the
Swedish State Railways, which is the parent company of AB Swedcarrier. AB
Swedcarrier is both an indirect shareholder through HIT Rail and a direct
shareholder of the Company.
In January and February 1997, additional loans of ECU 6.4 million
(approximately $7.5 million) were advanced to the Company by GTS-Hermes. In
addition, loans of ECU 5.4 million (approximately $6.1 million) were advanced to
the Company in February and April 1997 by individual members of the HIT Rail
consortium. The loans were converted into equity as part of the HER
Recapitalization.
GTS EMPLOYMENT AGREEMENTS
Messrs. Loeber, Caccappolo and Rudy are parties to GTS Employment
Agreements. Each GTS Employment Agreement provides the relevant Named Executive
Officer with a salary, bonus and a standard company welfare benefits package as
well as the use of an automobile, cost of living allowance, tax equalization and
certain other fringe benefits. In addition, the GTS Employment Agreements
include severance benefit provisions. Finally, the GTS Employment Agreements
include noncompete and nonsolicitation clauses that cover the term of employment
and twelve months thereafter. Under the GTS Agreements, each party employee is
entitled to participate in the GTS-Hermes Plan. In addition, Mr. Loeber received
a restricted stock award of 20,000 shares of GTS common stock.
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DESCRIPTION OF THE EXCHANGE NOTES
The Outstanding Notes were issued under an Indenture (the "Indenture")
dated as of August 19, 1997 among the Company, GTS (with respect only to the
provisions described under "-- Covenant of GTS") and The Bank of New York, as
trustee (the "Trustee"). The Exchange Notes will be issued under the Indenture,
which will be qualified under the United States Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"), upon the effectiveness of the Registration
Statement of which this Prospectus is a part. The form and terms of the Exchange
Notes are the same in all material respects as the form and terms of the
Outstanding Notes, except that the Exchange Notes will have been registered
under the Securities Act and, therefore, will not bear legends restricting
transfer thereof. Upon the consummation of the Exchange Offer, holders of
Outstanding Notes will not be entitled to registration rights under, or the
contingent increase in interest rate provided pursuant to, the Registration
Rights Agreement. The Exchange Notes will evidence the same debt as the
Outstanding Notes and will be treated as a single class under the Indenture with
any Outstanding Notes that remain outstanding. The Outstanding Notes and
Exchange Notes are herein collectively referred to as the "Notes."
The following summary of certain provisions of the Indenture, the Escrow
Agreement and the Registration Rights Agreement does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, the Trust
Indenture Act, and to all of the provisions of the Indenture, the Escrow
Agreement and the Registration Rights Agreement, including the definitions of
certain terms therein and those terms made a part of the Indenture by reference
to the Trust Indenture Act. Copies of the Indenture, the Escrow Agreement and
the Registration Rights Agreement have been filed with the Commission as an
Exhibit to the Registration Statement of which this Prospectus is part. The
definitions of certain terms used in the following summary are set forth under
"-- Certain Definitions." References in this "Description of the Exchange Notes"
section to "the Company" mean only HER and not any Subsidiary.
GENERAL
The Notes will be issued only in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. The Company will
initially appoint the Trustee to serve as registrar and principal paying agent
under the Indenture at its offices at 101 Barclay Street, New York, New York
10286. The registrar, paying agents, and transfer agents (the "Registrar,"
"Paying Agents" and "Transfer Agents," respectively) are appointed in accordance
with the Indenture and initially are as set forth on the inside back cover page
hereof. No service charge will be made for any registration of transfer or
exchange of the Notes, except for any tax or other governmental charge that may
be imposed in connection therewith.
RANKING
The Notes will be general unsecured obligations of the Company and will
rank senior in right of payment to all future Indebtedness of the Company that
is, by its terms or by the terms of the agreement or instrument governing such
Indebtedness, expressly subordinated in right of payment to the Notes and pari
passu in right of payment with all existing and future unsecured liabilities of
the Company that are not so subordinated.
During and following the Exchange Offer, the Company intends to transfer
all or substantially all of its assets and liabilities (other than the Notes) to
Subsidiaries. After such transfer, the Company will be a holding company with
limited assets and will operate its business through Subsidiaries. Any right of
the Company and its creditors, including holders of the Notes, to participate in
the assets of any of the Company's Subsidiaries upon any liquidation or
administration of any such Subsidiary will be subject to the prior claims of the
creditors of such Subsidiary. The claims of creditors of the Company, including
holders of the Notes, will be effectively subordinated to all existing and
future third-party indebtedness and liabilities, including trade payables, of
the Company's Subsidiaries. At September 30, 1997, the Company's Subsidiaries
had total liabilities of $19.0 million reflected on the Company's balance sheet.
The Company and its Subsidiaries may incur other debt in the future, including
secured debt.
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The Notes will not be entitled to any security, except as described under
"-- Escrow Account" and will not be entitled to the benefit of any guarantees,
except under the circumstances described under "-- Certain
Covenants -- Limitation on Issuances of Guarantees by Restricted Subsidiaries."
MATURITY, INTEREST AND PRINCIPAL OF THE NOTES
The Notes will be limited to $265.0 million aggregate principal amount and
will mature on August 15, 2007. The Notes will be payable at maturity at par,
plus accrued and unpaid interest, if any. Cash interest on the Notes will accrue
at the rate per annum set forth on the cover page of this Prospectus and will be
payable semi-annually in arrears on each February 15 and August 15, commencing
February 15, 1998, to the holders of record of Notes (the "Holders") at the
close of business on February 1 and August 1, respectively, immediately
preceding such interest payment date. Cash interest will accrue from the most
recent interest payment date to which interest has been paid or, if no interest
has been paid, from the Issue Date. Holders of the Exchange Notes will receive
interest on February 15, 1998, from the date of initial issuance of the Exchange
Notes, plus an amount equal to the accrued interest on the Outstanding Notes
from the later of (i) the most recent date to which interest has been paid
thereon and (ii) the date of issuance of the Outstanding Notes, to the date of
exchange thereof. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
The Luxembourg Stock Exchange will be informed of each change in the
interest rate of the Notes on the date of such change. The Company will cause a
copy of such notice to be published in a daily newspaper with general
circulation in Luxembourg (which is expected to be the Luxemburger Wort).
Principal of, and interest on, the Notes will be payable, and the transfer
of Notes will be registrable, at the office of the Trustee, and at the offices
of the Paying Agents and Transfer Agents, respectively. Payments of such
principal and premium, if any, will be made against surrender of Certificated
Notes at the corporate trust office of the Paying Agent in New York City or,
subject to any applicable laws and regulations, at the offices of the Paying
Agent in Luxembourg by United States dollar check drawn on, or wire transfer to
a United States dollar account maintained by the holder with, a bank located in
New York City. Payments of any installment of interest on Certificated Notes
will be made by a United States dollar check drawn on a bank in New York City
mailed to the holder at such holder's registered address or (if arrangements
satisfactory to the Company and the Paying Agents are made) by wire transfer to
a dollar account maintained by the holder with a bank in New York City. For so
long as the Notes are listed on the Luxembourg Stock Exchange and the rules of
such stock exchange so require, the Company will maintain a Paying Agent and a
Transfer Agent in Luxembourg.
If a payment date is not a Business Day at a place of payment, payment may
be made at that place on the next succeeding Business Day and no interest shall
accrue for the intervening period.
The Company may at any time deliver Notes to the Trustee for cancellation.
Subject to the terms of the Indenture, the Company may not issue new Notes to
replace Notes that it has paid or delivered to the Trustee for cancellation.
ADDITIONAL AMOUNTS
All payments made by the Company under or with respect to the Notes will be
made free and clear of and without withholding or deduction for or on account of
any present or future Taxes imposed or levied by or on behalf of any Taxing
Authority within the Netherlands, or within any other jurisdiction in which the
Company is organized or engaged in business for tax purposes, unless the Company
is required to withhold or deduct Taxes by law or by the interpretation or
administration thereof. If the Company is required to withhold or deduct any
amount for or on account of Taxes imposed by a Taxing Authority within the
Netherlands, or within any other jurisdiction in which the Company is organized
or engaged in business for tax purposes, from any payment made under or with
respect to the Notes, the Company will pay such additional amounts ("Additional
Amounts") as may be necessary so that the net amount received by each holder of
Notes (including Additional Amounts) after such withholding or deduction will
equal the amount the holder would have received if such Taxes had not been
withheld or deducted; provided, however, that no Additional Amounts will be
payable with respect to any Tax that would not have been imposed, payable or due
(i) but for the existence of any present or former connection between the holder
(or the beneficial owner of, or person
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ultimately entitled to obtain an interest in, such Notes) and the Netherlands or
other jurisdiction in which the Company is organized or engaged in business for
tax purposes other than the mere holding of the Notes; (ii) but for the failure
to satisfy any certification, identification or other reporting requirements
whether imposed by statute, treaty, regulation or administrative practice,
provided that the Company has delivered a request to the holder to comply with
such requirements at least 30 days prior to the date by which such compliance is
required; (iii) if the presentation of Notes (where presentation is required)
for payment has occurred within 30 days after the date such payment was due and
payable or was duly provided for, whichever is later; or (iv) if the beneficial
owner of, or person ultimately entitled to obtain an interest in, such Notes had
been the holder of the Notes and would not be entitled to the payment of
Additional Amounts. In addition, Additional Amounts will not be payable with
respect to any Tax which is payable otherwise than by withholding from payments
of, or in respect of principal of, or any interest on, the Notes.
Whenever in the Indenture or in this "Description of the Notes" there is
mentioned, in any context, the payment of amounts based upon the principal
amount of the Notes or of principal, interest or of any other amount payable
under or with respect to any of the Notes, such mention shall be deemed to
include mention of the payment of Additional Amounts to the extent that, in such
context, Additional Amounts are, were or would be payable in respect thereof.
ESCROW ACCOUNT
Pursuant to the Indenture, the Company has purchased, pledged and
transferred to the Trustee for the benefit of the holders of the Notes the
Pledged Securities in such amount as will be sufficient upon scheduled interest
and principal payments of such securities to provide for the payment in full of
the first four scheduled interest payments on the Notes (excluding any
Additional Amounts or Additional Interest). The Company has used approximately
$56.5 million of the net proceeds of the Offering to acquire the Pledged
Securities. The Pledged Securities have been pledged to the Trustee for the
benefit of the Holders of the Notes and deposited into an escrow account (the
"Escrow Account") held by the Escrow Agent for the benefit of the Trustee and
the Holders in accordance with an escrow agreement entered into among the
Company, The Bank of New York, as escrow agent (the "Escrow Agent") and the
Trustee (the "Escrow Agreement"). The Escrow Agreement provides, among other
things, that funds may be disbursed from the Escrow Account for interest
payments on the Notes. The Escrow Agent has been instructed to cause any
uninvested funds in the Escrow Account to be invested, pending disbursement, in
Cash Equivalents. Interest earned on the Pledged Securities and any Cash
Equivalents will be added to the Escrow Account.
Under the Escrow Agreement, the Company granted to the Trustee, for the
benefit of the Holders, a first priority and exclusive security interest in all
funds and securities in the Escrow Account and the proceeds thereof (the "Escrow
Collateral"). The Escrow Agreement provides that the Trustee may foreclose on
the Escrow Collateral upon acceleration of the maturity of the Notes. Under the
terms of the Indenture, the proceeds of the Escrow Collateral will be applied,
first, to amounts owing to the Trustee in respect of fees and expenses of the
Trustee, and second, to the Obligations of the Company to the Holders under the
Notes and the Indenture. The ability of Holders to realize upon the Escrow
Collateral may be subject to certain bankruptcy law limitations in the event of
the bankruptcy of the Company.
Upon payment in full of the first four scheduled interest payments
(including any Additional Amounts or Additional Interest), if no Default has
occurred and is continuing, the Escrow Collateral will be released to the
Company.
OPTIONAL REDEMPTION
The Notes will be redeemable at the option of the Company, in whole or in
part, at any time or from time to time on or after August 15, 2002, upon not
less than 30 nor more than 60 days' prior notice mailed by first class mail to
each Holder's registered address, at the redemption prices (expressed as a
percentage of principal
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amount) set forth below, plus accrued and unpaid interest thereon, if any, to
the date of redemption, if redeemed during the 12-month period beginning on
August 15 of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---------------------------------------------------------- ----------
<S> <C>
2002...................................................... 105.750%
2003...................................................... 103.833%
2004...................................................... 101.917%
2005 and thereafter....................................... 100.000%
</TABLE>
REDEMPTION UPON PUBLIC EQUITY OFFERING OR STRATEGIC EQUITY INVESTMENT
At any time or from time to time prior to August 15, 2000, upon not less
than 30 nor more than 60 days' prior notice mailed by first class mail to each
Holder's registered address, the Company may redeem Notes at a redemption price
equal to 111.5% of the principal amount of the Notes so redeemed, plus accrued
and unpaid interest thereon, if any, to the date of redemption with the net cash
proceeds of one or more Public Equity Offerings or Strategic Equity Investments
resulting in aggregate gross cash proceeds to the Company of at least $75.0
million; provided, however, that at least two-thirds of the principal amount of
Notes originally issued would remain outstanding immediately after giving effect
to any such redemption (excluding any Notes owned by the Company or any of its
Affiliates) (it being understood that the foregoing shall not apply to proceeds
received in connection with the GTS Contribution). Notice of any such redemption
must be given within 60 days after the date of a Public Equity Offering or
Strategic Equity Investment resulting in gross cash proceeds to the Company,
when aggregated with all prior Public Equity Offerings and Strategic Equity
Investments, of at least $75.0 million.
REDEMPTION FOR CHANGES IN WITHHOLDING TAXES
The Company may, at any time, at its option, redeem all (but not less than
all) of the Notes then outstanding at 100% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the date of redemption, if the Company
has become or would become obligated to pay, on the next date on which any
amount would be payable with respect to the Notes, any Additional Amounts as a
result of change in law (including any regulations promulgated thereunder) or in
the interpretation or administration thereof, if such change is announced and
becomes effective on or after the Issue Date.
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the Notes are to be redeemed at any time
pursuant to an optional redemption, selection of such Notes for redemption will
be made by the Trustee in compliance with the requirements of the principal
national securities exchange, if any, on which the Notes are listed or, if the
Notes are not then listed on a national securities exchange, on a pro rata
basis, by lot or by such method as the Trustee shall deem fair and appropriate;
provided, however, that no Notes of a principal amount of $1,000 or less shall
be redeemed in part; provided, further, however, that if a partial redemption is
made pursuant to the provisions described in the second paragraph under
"-- Optional Redemption," selection of the Notes or portions thereof for
redemption shall be made by the Trustee only on a pro rata basis or on as nearly
a pro rata basis as is practicable (subject to the procedures of The Depository
Trust Company), unless such method is otherwise prohibited. Notice of redemption
shall be mailed by first-class mail at least 30 but not more than 60 days before
the date of redemption to each Holder of Notes to be redeemed at its registered
address. The Company will cause a copy of such notice to be published in a daily
newspaper with general circulation in Luxembourg (which is expected to be the
Luxembourger Wort). If any Note is to be redeemed in part only, the notice of
redemption that relates to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in a principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note. On and after the date of redemption, interest
will cease to accrue on Notes or portions thereof called for redemption as long
as the Company has deposited with the Paying Agents in New York and Luxembourg
for the Notes funds in satisfaction of the redemption price pursuant to the
Indenture.
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CHANGE OF CONTROL
Following the occurrence of a Change of Control (the date of such
occurrence being the "Change of Control Date"), the Company shall notify the
Holders of such occurrence in the manner prescribed by the Indenture and shall,
within 30 days after the Change of Control Date, make an Offer to Purchase all
Notes then outstanding at a purchase price in cash equal to 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest thereon, if
any, to the Purchase Date. The Company will cause a copy of such notice to be
published in a daily newspaper with general circulation in Luxembourg (which is
expected to be the Luxembourger Wort). The Company's obligations may be
satisfied if a third party makes the Offer to Purchase in the manner, at the
times and otherwise in compliance with the requirements of the Indenture
applicable to an Offer to Purchase made by the Company and purchases all Notes
validly tendered and not withdrawn under such Offer to Purchase.
If an Offer to Purchase is made, there can be no assurance that the Company
will have available funds sufficient to pay for all of the Notes that might be
tendered by Holders seeking to accept the Offer to Purchase. If the Company
fails to purchase all of the Notes tendered for purchase upon the occurrence of
a Change of Control, such failure will constitute an Event of Default. See
"-- Events of Default" and "-- Risk Factors -- Change of Control."
If the Company makes an Offer to Purchase, the Company will comply with all
applicable tender offer laws and regulations, including, to the extent
applicable, Section 14(e) and Rule 14e-1 under the Exchange Act, and any other
applicable Federal or state securities laws and regulations and any applicable
requirements of any securities exchange on which the Notes are listed, and any
violation of the provisions of the Indenture relating to such Offer to Purchase
occurring as a result of such compliance shall not be deemed a Default.
CERTAIN COVENANTS
Limitation on Restricted Payments. The Company shall not, and shall not
cause or permit any Restricted Subsidiary to, directly or indirectly,
(i) declare or pay any dividend or any other distribution on any
Equity Interests of the Company or any Restricted Subsidiary or make any
payment or distribution to the direct or indirect holders of Equity
Interests of the Company or any Restricted Subsidiary (other than any
dividends, distributions and payments made to the Company or any Restricted
Subsidiary and dividends or distributions payable to any Person solely in
Qualified Equity Interests or in options, warrants or other rights to
purchase Qualified Equity Interests);
(ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Company or any Restricted Subsidiary (other than
any such Equity Interests owned by the Company or any Restricted
Subsidiary);
(iii) purchase, redeem, defease or retire for value, or make any
principal payment on, prior to any scheduled maturity, scheduled repayment
or scheduled sinking fund payment, any Subordinated Indebtedness (other
than any Subordinated Indebtedness held by any Restricted Subsidiary); or
(iv) make any Investment (other than Permitted Investments)
(any of the foregoing, a "Restricted Payment"), unless
(a) no Default shall have occurred and be continuing at the time of or
after giving effect to such Restricted Payment;
(b) immediately after giving effect to such Restricted Payment, the
Company would be able to Incur $1.00 of additional Indebtedness under the
first paragraph of "-- Limitation on Incurrence of Indebtedness"; and
(c) immediately after giving effect to such Restricted Payment, the
aggregate amount of all Restricted Payments (including the Fair Market
Value of any non-cash Restricted Payment) declared or made on or after the
Issue Date (excluding any Restricted Payment described in clauses (ii),
(iii) or (iv) of the next paragraph) does not exceed an amount equal to the
sum of the following (the "Basket"):
(1) (x) the Cumulative Operating Cash Flow determined at the time
of such Restricted Payment less (y) 150% of cumulative Consolidated
Interest Expense determined for the period
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(treated as one accounting period) commencing on the Issue Date and
ending on the last day of the most recent fiscal quarter immediately
preceding the date of such Restricted Payment for which consolidated
financial information of the Company is required to be available, plus
(2) the aggregate net cash proceeds received by the Company either
(x) as capital contributions to the Company after the Issue Date or (y)
from the issue and sale (other than to a Subsidiary) of Qualified Equity
Interests after the Issue Date (other than any issuance and sale of
Qualified Equity Interests financed, directly or indirectly, using funds
(I) borrowed from the Company or any Subsidiary until and to the extent
such borrowing is repaid or (II) contributed, extended, guaranteed or
advanced by the Company or any Subsidiary (including, without
limitation, in respect of any employee stock ownership or benefit
plan)), plus
(3) the aggregate amount by which Indebtedness (other than any
Subordinated Indebtedness) of the Company or any Restricted Subsidiary
is reduced on the Company's balance sheet upon the conversion or
exchange (other than by a Subsidiary of the Company) subsequent to the
Issue Date into Qualified Equity Interests (less the amount of any cash,
or the fair value of property, distributed by the Company or any
Restricted Subsidiary upon such conversion or exchange), plus
(4) in the case of the disposition or repayment of any Investment
that was treated as a Restricted Payment made after the Issue Date, an
amount (to the extent not included in the computation of Cumulative
Operating Cash Flow) equal to the lesser of: (x) the return of capital
with respect to such Investment and (y) the amount of such Investment
that was treated as a Restricted Payment, in either case, less the cost
of the disposition of such Investment and net of taxes, plus
(5) so long as the Designation thereof was treated as a Restricted
Payment made after the Issue Date, with respect to any Unrestricted
Subsidiary that has been redesignated as a Restricted Subsidiary after
the Issue Date in accordance with "-- Designation of Unrestricted
Subsidiaries," the Company's proportionate interest in an amount equal
to the excess of (x) the total assets of such Subsidiary, valued on an
aggregate basis at the lesser of book value and Fair Market Value, over
(y) the total liabilities of such Subsidiary, determined in accordance
with GAAP (and provided that such amount shall not in any case exceed
the Designation Amount with respect to such Restricted Subsidiary upon
its Designation), minus
(6) with respect to each Subsidiary of the Company which has been
designated as an Unrestricted Subsidiary after the Issue Date in
accordance with "-- Designation of Unrestricted Subsidiaries," the
greater of (x) $0 and (y) the Designation Amount thereof (measured as of
the Date of Designation).
Notwithstanding the foregoing, the GTS Contribution shall not be taken into
account in calculating the Basket.
The foregoing provisions will not prevent (i) the payment of any dividend
or distribution on, or redemption of, Equity Interests within 60 days after the
date of declaration of such dividend or distribution or the giving of formal
notice of such redemption, if at the date of such declaration or giving of
formal notice such payment or redemption would comply with the provisions of the
Indenture; (ii) the purchase, redemption, retirement or other acquisition of any
Equity Interests of the Company in exchange for, or out of the net cash proceeds
of the substantially concurrent (A) common equity capital contribution to the
Company from any Person (other than a Subsidiary) or (B) issue and sale (other
than to a Subsidiary) of, Qualified Equity Interests; (iii) any Investment to
the extent that the consideration therefor consists of the net proceeds of the
substantially concurrent issue and sale (other than to a Subsidiary) of
Qualified Equity Interests; (iv) the purchase, redemption, retirement,
defeasance or other acquisition of Subordinated Indebtedness made in exchange
for, or out of the net cash proceeds of, a substantially concurrent issue and
sale (other than to a Subsidiary) of, (x) Qualified Equity Interests or (y)
other Subordinated Indebtedness having no stated maturity for the payment of
principal thereof prior to the Maturity Date; or (v) any Investment in any
Person principally engaged in a Telecommunications Business; provided, however,
that Investments pursuant to this clause (v) shall not exceed $25.0 million in
the aggregate at any time outstanding; provided, further, however,
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that in the case of each of clauses (ii), (iii), (iv) and (v), no Default shall
have occurred and be continuing or would arise therefrom.
Limitation on Incurrence of Indebtedness. (a) The Company shall not, and
shall not cause or permit any Restricted Subsidiary to, directly or indirectly,
Incur any Indebtedness; provided, however, that the Company may Incur
Indebtedness if, at the time of such Incurrence, the Debt to Annualized
Operating Cash Flow Ratio would be less than or equal to 6.0 to 1.0.
(b) The foregoing limitations of paragraph (a) of this covenant will
not apply to any of the following, each of which shall be given independent
effect:
(i) the Notes and the Exchange Notes, and Permitted Refinancings
thereof;
(ii) Indebtedness of the Company or any Restricted Subsidiary to
the extent outstanding on the date of the Indenture, and Permitted
Refinancings thereof;
(iii) Indebtedness of the Company or Qualified Subsidiary
Indebtedness, in each case, to the extent that the proceeds of or credit
support provided by such Indebtedness is used to finance the cost
(including the cost of design, development, construction, installation
or integration) of network assets, equipment or inventory acquired by
the Company or a Restricted Subsidiary after the Issue Date, and
Permitted Refinancings thereof;
(iv) (1) Indebtedness of the Company or Qualified Subsidiary
Indebtedness, in each case, to the extent that the proceeds of or credit
support provided by such Indebtedness is used to finance a
Telecommunications Acquisition, or working capital for, or to finance
the construction of, the business or network acquired and (2) Acquired
Indebtedness, and, in each case, Permitted Refinancings thereof, but in
each case only to the extent that (x) the aggregate amount of
Indebtedness outstanding of the Company and the Restricted Subsidiaries
after giving effect to the Incurrence of such Indebtedness and the
application of the proceeds therefrom does not exceed the product of 2.0
and the Share Capital of the Company at the date of Incurrence of such
Indebtedness or (y) the aggregate amount of such Indebtedness or
Acquired Indebtedness, together with all Indebtedness of the Person, if
any, that is to become a Restricted Subsidiary or be merged or
consolidated with or into the Company or any Restricted Subsidiary in
the contemplated transaction outstanding at the time of such transaction
(whether or not Incurred in connection with, or in contemplation of,
such transaction), does not exceed the net sum of the plant, property
and equipment set forth on the Latest Balance Sheet of such Person;
(v) (1) Indebtedness of any Restricted Subsidiary owed to and held
by the Company or any Restricted Subsidiary and (2) Indebtedness of the
Company owed to and held by any Restricted Subsidiary which is unsecured
and subordinated in right of payment to the payment and performance of
the Company's obligations under the Notes; provided, however, that an
Incurrence of Indebtedness that is not permitted by this clause (v)
shall be deemed to have occurred upon (x) any sale or other disposition
of any Indebtedness of the Company or any Restricted Subsidiary referred
to in this clause (v) to any Person other than the Company or any
Restricted Subsidiary or (y) any Restricted Subsidiary that holds
Indebtedness of the Company or another Restricted Subsidiary ceasing to
be a Restricted Subsidiary;
(vi) Interest Rate Protection Obligations of the Company or any
Restricted Subsidiary relating to Indebtedness of the Company or such
Restricted Subsidiary, as the case may be (which Indebtedness (x) bears
interest at fluctuating interest rates and (y) is otherwise permitted to
be Incurred under this covenant); provided, however, that the notional
principal amount of such Interest Rate Protection Obligations does not
exceed the principal amount of the Indebtedness to which such Interest
Rate Protection Obligations relate;
(vii) Indebtedness of the Company or any Restricted Subsidiary
under Currency Agreements to the extent relating to (x) Indebtedness of
the Company or such Restricted Subsidiary, as the case may be, and/or
(y) obligations to purchase assets, properties or services incurred in
the ordinary course of business of the Company or such Restricted
Subsidiary, as the case may be; provided, however, that such Currency
Agreements do not increase the Indebtedness or other obligations of
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the Company and the Restricted Subsidiaries outstanding other than as a
result of fluctuations in foreign currency exchange rates or by reason
of fees, indemnities or compensation payable thereunder;
(viii) Indebtedness of the Company and/or any Restricted Subsidiary
in respect of performance bonds of the Company or any Restricted
Subsidiary or surety bonds provided by the Company or any Restricted
Subsidiary incurred in the ordinary course of business and on ordinary
business terms in connection with the construction or operation of a
Telecommunications Business; and
(ix) in addition to the items referred to in clauses (i) through
(viii) above, Indebtedness of the Company or Qualified Subsidiary
Indebtedness in an aggregate amount not to exceed $15.0 million at any
time outstanding.
(c) For purposes of determining any particular amount of Indebtedness
under this covenant, guarantees, Liens or obligations with respect to
letters of credit supporting Indebtedness otherwise included in the
determination of such particular amount shall not be included; provided,
however, that the foregoing shall not in any way be deemed to limit the
provisions of "-- Limitation on Issuances of Guarantees by Restricted
Subsidiaries."
(d) For purposes of determining compliance with this covenant, in the
event that an item of Indebtedness may be Incurred through the first
paragraph of this covenant or by meeting the criteria of one or more of the
types of Indebtedness described in the second paragraph of this covenant
(or the definitions of the terms used therein), the Company, in its sole
discretion, may, at the time of such Incurrence, (i) classify such item of
Indebtedness under and comply with either of such paragraphs (or any of
such definitions), as applicable, (ii) classify and divide such item of
Indebtedness into more than one of such paragraphs (or definitions), as
applicable, and (iii) elect to comply with such paragraphs (or
definitions), as applicable, in any order.
Limitation on Restrictions Affecting Restricted Subsidiaries. The Company
shall not, and shall not cause or permit any Restricted Subsidiary to, directly
or indirectly, create or otherwise cause or suffer to exist or become effective
any encumbrance or restriction on the ability of any Restricted Subsidiary to
(x) pay dividends or make any other distributions to the Company or any other
Restricted Subsidiary on its Equity Interests or with respect to any other
interest or participation in, or measured by, its profits, or pay any
Indebtedness owed to the Company or any other Restricted Subsidiary, (y) make
loans or advances to, or guarantee any Indebtedness or other obligations of, the
Company or any other Restricted Subsidiary or (z) transfer any of its properties
or assets to the Company or any other Restricted Subsidiary.
The foregoing shall not prohibit (a) any encumbrance or restriction
existing under or by reason of any agreement in effect on the Issue Date, as any
such agreement is in effect on such date or as thereafter amended or
supplemented but only if such encumbrance or restriction is no more restrictive
than in the agreement being amended; (b) customary provisions contained in an
agreement that has been entered into for the sale or disposition of all or
substantially all of the Capital Stock or assets of a Restricted Subsidiary;
provided, however, that (x) such encumbrance or restriction is applicable only
to such Restricted Subsidiary or assets and (y) such sale or disposition is made
in accordance with "-- Limitation on Asset Sales"; (c) any encumbrance or
restriction existing under or by reason of applicable law; (d) customary
provisions restricting subletting or assignment of any lease governing any
leasehold interest of any Restricted Subsidiary; (e) covenants in purchase money
obligations for property acquired in the ordinary course of business restricting
transfer of such property; (f) covenants in security agreements securing
Indebtedness of a Restricted Subsidiary (to the extent that such Liens were
otherwise incurred in accordance with "-- Limitation on Liens") that restrict
the transfer of property subject to such agreements; (g) any agreement or other
instrument of a Person acquired by the Company or any Restricted Subsidiary in
existence at the time of such acquisition, which encumbrance or restriction (x)
is not applicable to any Person, or the properties or assets of any Person,
other than the Person, or the properties or assets of the Person so acquired,
and (y) is not incurred in connection with or in contemplation of such
acquisition; or (h) contained in any agreement entered into after the Issue
Date, so long as such encumbrance or restriction is not materially more
disadvantageous to the Holders than the encumbrances and restrictions in
existence at the Issue Date.
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Designation of Unrestricted Subsidiaries. (a) The Company may designate
any Subsidiary of the Company as an "Unrestricted Subsidiary" under the
Indenture (a "Designation") only if:
(i) no Default shall have occurred and be continuing at the time of or
after giving effect to such Designation;
(ii) at the time of and after giving effect to such Designation, the
Company could Incur $1.00 of additional Indebtedness under the first
paragraph of "-- Limitation on Incurrence of Indebtedness"; and
(iii) the Company would be permitted to make an Investment (other than
a Permitted Investment) at the time of Designation (assuming the
effectiveness of such Designation) pursuant to the first paragraph of
"-- Limitation on Restricted Payments" in an amount (the "Designation
Amount") equal to the Fair Market Value of the Company's proportionate
interest in the net worth of such Subsidiary on such date calculated in
accordance with GAAP.
All Subsidiaries of Unrestricted Subsidiaries shall be Unrestricted
Subsidiaries.
The Company shall not, and shall not cause or permit any Restricted
Subsidiary to, directly or indirectly, at any time (x) provide credit support
for, subject any of its properties or assets (other than the Equity Interests of
any Unrestricted Subsidiary) to the satisfaction of, or guarantee, any
Indebtedness of any Unrestricted Subsidiary (including any undertaking,
agreement or instrument evidencing such Indebtedness), (y) be liable for any
Indebtedness of any Unrestricted Subsidiary or (z) be liable for any
Indebtedness which provides that the holder thereof may (upon notice, lapse of
time or both) declare a default thereon or cause the payment thereof to be
accelerated or payable prior to its final scheduled maturity upon the occurrence
of a default with respect to any Indebtedness of any Unrestricted Subsidiary.
(b) The Company may revoke any Designation of a Subsidiary as an
Unrestricted Subsidiary (a "Revocation") only if:
(i) no Default shall have occurred and be continuing at the time of
and after giving effect to such Revocation;
(ii) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if Incurred at
such time, have been permitted to be Incurred for all purposes of the
Indenture; and
(iii) any transaction (or series of related transactions) between such
Subsidiary and any of its Affiliates that occurred while such Subsidiary
was an Unrestricted Subsidiary would be permitted by "-- Limitation on
Transactions with Affiliates" as if such transaction (or series of related
transactions) had occurred at the time of such Revocation (after giving
effect to any modification to such transaction (or series of related
transactions) effective at such time).
All Designations and Revocations must be evidenced by resolutions of the
Board of Directors of the Company, delivered to the Trustee certifying
compliance with the foregoing provisions.
Limitation on Liens. The Company shall not, and shall not cause or permit
any Restricted Subsidiary to, directly or indirectly, Incur any Lien (other than
any Permitted Lien) of any kind against or upon any of their respective
properties or assets now owned or hereafter acquired, or any proceeds, income or
profits therefrom, unless contemporaneously therewith or prior thereto, (i) in
the case of any Lien securing an obligation that ranks pari passu with the
Notes, effective provision is made to secure the Notes equally and ratably with
or prior to such obligation with a Lien on the same collateral and (ii) in the
case of any Lien securing an obligation that is subordinated in right of payment
to the Notes, effective provision is made to secure the Notes with a Lien on the
same collateral that is prior to the Lien securing such subordinated obligation,
in each case, for so long as such obligation is secured by such Lien.
Limitation on Asset Sales. The Company shall not, and shall not cause or
permit any Restricted Subsidiary to, directly or indirectly, make any Asset
Sale, unless (x) the Company or such Restricted Subsidiary, as the case may be,
receives consideration at the time of such Asset Sale at least equal to the Fair
Market Value of the assets sold or otherwise disposed of and (y) at least 75% of
such consideration consists of
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(i) cash or Cash Equivalents, (ii) Replacement Assets, (iii) publicly traded
Equity Interests of a Person who is engaged primarily in a Telecommunications
Business; provided, however, that the Company or such Restricted Subsidiary
shall sell (a "Monetization Sale"), for cash or Cash Equivalents, such Equity
Interests to a third Person (other than to the Company or a Subsidiary thereof)
at a price not less than the Fair Market Value thereof within 365 days of the
consummation of such Asset Sale, or (iv) any combination of the foregoing
clauses (i) through (iii). The amount of any (x) Indebtedness (other than any
Subordinated Indebtedness) of the Company or any Restricted Subsidiary that is
actually assumed by the transferee in such Asset Sale and from which the Company
and the Restricted Subsidiaries are fully released shall be deemed to be cash
for purposes of determining the percentage of cash consideration received by the
Company or such Restricted Subsidiary and (y) notes or other similar obligations
received by the Company or any Restricted Subsidiary from such transferee that
are immediately converted, sold or exchanged (or are converted, sold or
exchanged within 365 days of the related Asset Sale) by the Company or any
Restricted Subsidiary into cash shall be deemed to be cash, in an amount equal
to the net cash proceeds realized upon such conversion, sale or exchange for
purposes of determining the percentage of cash consideration received by the
Company or such Restricted Subsidiary. Any Net Cash Proceeds from any Asset Sale
or any Monetization Sale that are not invested in Replacement Assets or used to
repay and permanently reduce the commitments under Indebtedness of any
Restricted Subsidiary within 365 days of the consummation of such Asset Sale or
Monetization Sale shall constitute "Excess Proceeds" subject to disposition as
provided below.
Within 40 days after the aggregate amount of Excess Proceeds equals or
exceeds $10.0 million, the Company shall make an Offer to Purchase, from all
Holders, that aggregate principal amount of Notes as can be purchased with the
Note Portion of Excess Proceeds at a price in cash equal to 100% of the
principal amount thereof, plus accrued and unpaid interest, if any, to any
purchase date. To the extent that the aggregate amount of principal and accrued
interest of Notes validly tendered and not withdrawn pursuant to an Offer to
Purchase is less than the Excess Proceeds, the Company may use such surplus for
general corporate purposes. If the aggregate amount of principal and accrued
interest of Notes validly tendered and not withdrawn by Holders thereof exceeds
the amount of Notes that can be purchased with the Note Portion of Excess
Proceeds, Notes to be purchased will be selected pro rata based on the aggregate
principal amount of Notes tendered by each Holder. Upon completion of an Offer
to Purchase, the amount of Excess Proceeds with respect to the applicable Asset
Sale or Monetization Sale shall be reset to zero.
In the event that any other Indebtedness of the Company that ranks pari
passu with the Notes (the "Other Debt") requires an offer to purchase to be made
to repurchase such Other Debt upon the consummation of an Asset Sale, the
Company may apply the Excess Proceeds otherwise required to be applied to an
Offer to Purchase to offer to purchase such Other Debt and to an Offer to
Purchase so long as the amount of such Excess Proceeds applied to purchase the
Notes is not less than the Note Portion of Excess Proceeds. With respect to any
Excess Proceeds, the Company shall make the Offer to Purchase in respect thereof
at the same time as the analogous offer to purchase is made pursuant to any
Other Debt and the Purchase Date in respect thereof shall be the same as the
purchase date in respect thereof pursuant to any Other Debt.
For purposes of this covenant, "Note Portion of Excess Proceeds" means (1)
if no Other Debt is being offered to be purchased, the amount of the Excess
Proceeds and (2) if Other Debt is being offered to be purchased, the amount of
the Excess Proceeds equal to the product of (x) the Excess Proceeds and (y) a
fraction the numerator of which is the aggregate amount of all Notes tendered
pursuant to the Offer to Purchase related to such Excess Proceeds (the "Note
Amount") and the denominator of which is the sum of the Note Amount and the
aggregate amount as of the relevant purchase date of all Other Debt tendered and
purchased pursuant to a concurrent offer to purchase such Other Debt made at the
time of such Offer to Purchase.
In the event that the Company makes an Offer to Purchase the Notes, the
Company shall comply with any applicable securities laws and regulations,
including any applicable requirements of Section 14(e) of, and Rule 14e-1 under,
the Exchange Act, and any violation of the provisions of the Indenture relating
to such Offer to Purchase occurring as a result of such compliance shall not be
deemed a Default or an Event of Default.
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Limitation on Transactions with Affiliates. The Company shall not, and
shall not cause or permit any Restricted Subsidiary to, directly or indirectly,
conduct any business or enter into any transaction or series of related
transactions with or for the benefit of any Affiliate, any holder of 5% or more
of any class of Equity Interests or any officer, director or employee of the
Company or any Restricted Subsidiary (each, an "Affiliate Transaction"), unless
such Affiliate Transaction is on terms that are no less favorable to the Company
or such Restricted Subsidiary, as the case may be, than could reasonably be
obtained at such time in a comparable transaction with an unaffiliated third
party. For any such transaction that involves value in excess of $5.0 million,
the Company shall deliver to the Trustee an Officers' Certificate stating that a
majority of the Disinterested Directors has determined that the transaction
satisfies the above criteria and shall evidence such a determination by a Board
Resolution delivered to the Trustee. For any such transaction that involves
value in excess of $12.5 million, the Company shall also obtain a written
opinion from an Independent Financial Advisor to the effect that such
transaction is fair, from a financial point of view, to the Company or such
Restricted Subsidiary, as the case may be.
Notwithstanding the foregoing, the restrictions set forth in this covenant
shall not apply to (i) transactions between or among the Company and one or more
Restricted Subsidiaries or between or among Restricted Subsidiaries; (ii)
customary directors' fees, indemnification and similar arrangements, employee
salaries, bonuses or employment agreements, compensation or employee benefit
arrangements and incentive arrangements with any officer, director or employee
of the Company or any Restricted Subsidiary entered into in the ordinary course
of business (including customary benefits thereunder); (iii) transactions
pursuant to agreements in effect on the Issue Date, as such agreements are in
effect on the Issue Date or as thereafter amended or supplemented in a manner
not adverse to the Holders; (iv) loans and advances to officers, directors and
employees of the Company or any Restricted Subsidiary for travel, entertainment,
moving and other relocation expenses, in each case made in the ordinary course
of business and consistent with past business practices; (v) any transaction
between the Company or any Restricted Subsidiary, on the one hand, and any
Affiliate of the Company engaged primarily in a Telecommunications Business, on
the other hand, (x) in the ordinary course of business and consistent with
commercially reasonable practices or (y) approved by a majority of the
Disinterested Directors; (vi) any payment pursuant to any tax sharing agreement
between the Company and any other Person with which the Company files a
consolidated tax return or with which the Company is part of a consolidated
group for tax purposes; provided that such payment is not greater than that
which the Company would be required to pay as a stand-alone taxpayer; (vii) the
pledge of Equity Interests of Unrestricted Subsidiaries to support the
Indebtedness thereof; and (viii) payment of dividends in respect of Equity
Interests of the Company or any Restricted Subsidiary permitted under the
covenant described under "-- Limitation on Restricted Payments."
Limitation on Issuances of Guarantees by Restricted Subsidiaries. The
Company shall not cause or permit any Restricted Subsidiary, directly or
indirectly, to guarantee any Indebtedness of the Company ("Guaranteed
Indebtedness"), unless (i) such Restricted Subsidiary simultaneously executes
and delivers a supplemental indenture to the Indenture pursuant to which such
Restricted Subsidiary guarantees (a "Subsidiary Guarantee") all of the Company's
obligations under the Notes and the Indenture and (ii) such Restricted
Subsidiary waives and will not in any manner whatsoever claim or take the
benefit or advantage of, any rights of reimbursement, indemnity or subrogation
or any other rights against the Company or any other Restricted Subsidiary as a
result of any payment by such Restricted Subsidiary under its Subsidiary
Guarantee. If the Guaranteed Indebtedness is (A) pari passu with the Notes, then
the guarantee of such Guaranteed Indebtedness shall be pari passu with, or
subordinated to, the Subsidiary Guarantee or (B) subordinated to the Notes, then
the guarantee of such Guaranteed Indebtedness shall be subordinated to the
Subsidiary Guarantee at least to the extent that the Guaranteed Indebtedness is
subordinated to the Notes.
Any Subsidiary Guarantee by a Restricted Subsidiary shall provide by its
terms that it shall be automatically and unconditionally released and discharged
upon (i) any sale, exchange or transfer, to any Person not an Affiliate of the
Company, of all of the Equity Interests of the Company or any Restricted
Subsidiary in, or all or substantially all the assets of, such Restricted
Subsidiary (which sale, exchange or transfer is made in accordance with the
Indenture) or (ii) the release or discharge of the guarantee which
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resulted in the creation of such Subsidiary Guarantee, except a discharge or
release by or as a result of payment under such guarantee.
Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries. The Company shall not sell, and shall not cause or permit any
Restricted Subsidiary, directly or indirectly, to issue or sell, any Equity
Interests of a Restricted Subsidiary, except (i) to the Company or a Wholly
Owned Restricted Subsidiary; (ii) if, immediately after giving effect to such
issuance or sale, such Restricted Subsidiary would no longer constitute a
Restricted Subsidiary; or (iii) in the case of issuance of Equity Interests by a
non-Wholly Owned Restricted Subsidiary if, after giving effect to such issuance,
the Company maintains its direct or indirect percentage of beneficial and
economic ownership of such non-Wholly Owned Restricted Subsidiary.
Merger, Sale of Assets, etc. The Company shall not consolidate with or
merge with or into (whether or not the Company is the Surviving Person) any
other Person and the Company shall not, and shall not cause or permit any
Restricted Subsidiary to, sell, convey, assign, transfer, lease or otherwise
dispose of all or substantially all of the property and assets of the Company
and the Restricted Subsidiaries, taken as a whole, to any Person or Persons
(other than any Restricted Subsidiary), in each case, in a single transaction or
series of related transactions, unless: (i) either (x) the Company shall be the
Surviving Person or (y) the Surviving Person (if other than the Company) shall
be a corporation organized and validly existing under the laws of The
Netherlands, the United States of America or any State thereof or the District
of Columbia, and shall, in any such case, expressly assume by a supplemental
indenture, the due and punctual payment of the principal of and interest on the
Notes and the performance and observance of every covenant of the Indenture, the
Escrow Agreement and the Registration Rights Agreement to be performed or
observed on the part of the Company; (ii) immediately after giving effect to
such transaction, no Default shall have occurred and be continuing; and (iii)
immediately after giving effect to such transaction, the Surviving Person (as
the Company) could Incur at least $1.00 of additional Indebtedness under the
first paragraph of "-- Limitation on Incurrence of Indebtedness."
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all the properties and assets of one or more Restricted
Subsidiaries the Equity Interests of which constitute all or substantially all
the properties and assets of the Company shall be deemed to be the transfer of
all or substantially all the properties and assets of the Company.
In the event of any transaction (other than a lease) described in and
complying with the conditions listed in the first paragraph of this covenant in
which the Company is not the Surviving Person and the Surviving Person is to
assume all the Obligations of the Company under the Notes, the Indenture, the
Escrow Agreement and the Registration Rights Agreement pursuant to a
supplemental indenture, such Surviving Person shall succeed to, and be
substituted for, and may exercise every right and power of, the Company and the
Company shall be discharged from its Obligations under the Notes, the Indenture,
the Escrow Agreement and the Registration Rights Agreement.
Provision of Financial Information. Whether or not the Company is subject
to Section 13(a) or 15(d) of the Exchange Act, or any successor provision
thereto, the Company shall file with the SEC (if permitted by SEC practice and
applicable law and regulations) the annual reports, quarterly reports and other
documents which the Company would have been required to file with the SEC
pursuant to such Section 13(a) or 15(d) or any successor provision thereto if
the Company were so required, such documents to be filed with the SEC on or
prior to the respective dates (the "Required Filing Dates") by which the Company
would have been required so to file such documents if the Company were so
required; provided, however, that until the Company is subject to Section 13(a)
or Section 15(d) of the Exchange Act or any successor provisions thereto, the
Required Filing Dates for such quarterly reports shall be 75 days following the
end of the applicable fiscal quarter. The Company shall also in any event (a)
within 15 days of each Required Filing Date (whether or not permitted or
required to be filed with the SEC but subject to the proviso in the previous
sentence) (i) transmit (or cause to be transmitted) by mail to all Holders, as
their names and addresses appear in the Note register, without cost to such
Holders, and (ii) file with the Trustee, copies of the annual reports, quarterly
reports and other documents which the Company is required to file with the SEC
pursuant
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to the preceding sentence, or, if such filing is not so permitted, information
and data of a similar nature, and (b) if, notwithstanding the preceding
sentence, filing such documents by the Company with the SEC is not permitted by
SEC practice or applicable law or regulations, promptly upon written request
supply copies of such documents to any Holder. In addition, for so long as any
Notes remain outstanding, the Company will furnish to the Holders and to
securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act, and, to any beneficial holder of Notes, if not obtainable from
the SEC, information of the type that would be filed with the SEC pursuant to
the foregoing provisions, upon the request of any such holder.
COVENANT OF GTS
GTS has consummated the GTS Contribution. This obligation of GTS
constitutes "Senior Indebtedness" under that certain indenture noted as of July
14, 1997 between GTS and The Bank of New York relating to GTS' Senior
Subordinated Convertible Bonds due 2000, and is incurred pursuant to clause (c)
of the second paragraph of the "Limitation on Indebtedness" covenant.
EVENTS OF DEFAULT
The occurrence of any of the following will be defined as an "Event of
Default" under the Indenture: (a) failure to pay principal of any Note when due;
(b) failure to pay any interest on any Note when due, continued for 30 days or
more; (c) failure to pay on the Purchase Date the Purchase Price for any Note
validly tendered pursuant to any Offer to Purchase; (d) failure to perform or
comply with any of the provisions described under "-- Certain
Covenants -- Merger, Sale of Assets, etc."; (e) failure to perform any other
covenant, warranty or agreement of the Company under the Indenture or the Escrow
Agreement or in the Notes continued for 30 days or more after written notice to
the Company by the Trustee or Holders of at least 25% in aggregate principal
amount of the outstanding Notes; (f) there shall be, with respect to any issue
or issues of Indebtedness of the Company or any Restricted Subsidiary having an
outstanding principal amount of $10.0 million or more in the aggregate for all
such issues of all such Persons, whether such Indebtedness now exists or shall
hereafter be created, (x) an event of default that has caused the holders
thereof (or their representative) (I) to declare such Indebtedness to be due and
payable prior to its scheduled maturity and such Indebtedness has not been
discharged in full or such acceleration has not been rescinded or annulled
within 45 days following such acceleration and/or (II) to commence judicial
proceeding to foreclose upon, or to exercise remedies under applicable law or
applicable security documents to take ownership of, the property or assets
securing such Indebtedness and/or (y) the failure to make a principal payment at
the final (but not any interim) fixed maturity and such defaulted payment shall
not have been made, waived or extended within 45 days of such payment default;
(g) the rendering of a final judgment or judgments against the Company or any
Restricted Subsidiary in an amount of $10.0 million or more which remains
undischarged or unstayed for a period of 60 consecutive days; (h) certain events
of bankruptcy, insolvency or reorganization affecting the Company or any
Significant Restricted Subsidiary; or (i) the Company shall challenge the Lien
on the Escrow Collateral under the Escrow Agreement prior to such time as the
Escrow Collateral is to be released to the Company, or the Escrow Collateral
shall become subject to any Lien other than the Lien under the Escrow Agreement.
If an Event of Default with respect to the Notes (other than an Event of
Default with respect to the Company described in clause (h) of the preceding
paragraph) occurs and is continuing, the Trustee or the Holders of at least 25%
in aggregate principal amount of the outstanding Notes by notice in writing to
the Company may declare the unpaid principal of and accrued interest to the date
of acceleration on all the outstanding Notes to be due and payable immediately
and, upon any such declaration, such principal amount and accrued interest,
notwithstanding anything contained in the Indenture or the Notes to the
contrary, will become immediately due and payable; provided, however, that after
such acceleration, but before a judgment or decree based on acceleration, the
Holders of a majority in aggregate principal amount of outstanding Notes may,
under certain circumstances, rescind and annul such acceleration if all Events
of Default, other than the nonpayment of accelerated principal, have been cured
or waived as provided in the Indenture. If an Event or Default specified in
clause (h) of the preceding paragraph with respect to the Company occurs under
the
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Indenture, the Notes will ipso facto become immediately due and payable without
any declaration or other act on the part of the Trustee or any Holder.
The Indenture provides that the Trustee shall, within 30 days after the
occurrence of any Default with respect to the Notes, give the Holders notice of
all uncured Defaults thereunder known to it; provided, however, that, except in
the case of an Event of Default in payment with respect to the Notes or a
Default or Event of Default in complying with "-- Certain Covenants -- Merger,
Sale of Assets, etc.," the Trustee shall be protected in withholding such notice
if and so long as a committee of its trust officers in good faith determines
that the withholding of such notice is in the interest of the Holders.
No Holder will have any right to institute any proceeding with respect to
the Indenture or for any remedy thereunder, unless the Trustee (i) shall have
failed to act for a period of 60 days after receiving written notice of a
continuing Event of Default by such Holder and a request to act by Holders of at
least 25% in aggregate principal amount of Notes outstanding, (ii) shall have
been offered indemnity reasonably satisfactory to it and (iii) shall not have
received from the Holders of a majority in aggregate principal amount of the
outstanding Notes a direction inconsistent with such request. However, such
limitations do not apply to a suit instituted by a Holder of any Note for
enforcement of payment of the principal of or interest on such Note on or after
the due date therefor (after giving effect to the grace period specified in
clause(b) of the first paragraph of this "-- Events of Default" section).
The Company will be required to furnish to the Trustee after the end of
each fiscal year a statement as to the performance by it of certain of its
obligations under the Indenture and as to any default in such performance.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, INCORPORATOR AND
STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or any of its Affiliates, as such, shall have any liability for any obligations
of the Company or any of its Affiliates under the Notes or the Indenture or for
any claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Notes.
SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE
The Company may terminate its substantive obligations in respect of the
Notes by delivering all outstanding Notes to the Trustee for cancellation and
paying all sums payable by it on account of principal of, premium, if any, and
interest on all Notes or otherwise. In addition to the foregoing, the Company
may terminate the applicability of the covenants under "-- Certain Covenants"
and "-- Change of Control" or any Event of Default under clause (e) of
"-- Events of Default" by (i) depositing with the Trustee, under the terms of an
irrevocable trust agreement, money or United States Government Obligations
sufficient (without reinvestment) to pay all remaining indebtedness on such
Notes at maturity or upon earlier redemption; (ii) delivering to the Trustee
either an Opinion of Counsel or a ruling directed to the Trustee from the
Internal Revenue Service to the effect that the Holders of the Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such deposit and termination of obligations; (iii) delivering to the Trustee an
Opinion of Counsel to the effect that the Company's exercise of its option under
this paragraph will not result in any of the Company, the Trustee or the trust
created by the Company's deposit of funds pursuant to this provision becoming or
being deemed to be an "investment company" under the United States Investment
Company Act of 1940, as amended (the "Investment Act"); and (iv) complying with
certain other requirements set forth in the Indenture. In addition, the Company
may, provided that no Default has occurred and is continuing or would arise
therefrom (or, with respect to a Default specified in clause (h) of "-- Events
of Default," occurs at any time on or prior to the 91st calendar day after the
date of the deposit (it being understood that this condition shall not be deemed
satisfied until after such 91st day)) under the Indenture, terminate all of its
substantive obligations in respect of the Notes (including its obligations to
pay the principal of and interest on such Notes) by (i) depositing with the
Trustee, under the terms of an irrevocable trust agreement, money or United
States Government Obligations sufficient (without reinvestment) to pay all
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remaining Indebtedness on such Notes at maturity or upon earlier redemption;
(ii) delivering to the Trustee either a ruling directed to the Trustee from the
Internal Revenue Service to the effect that the Holders of such Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such deposit and termination of obligations or an Opinion of Counsel addressed
to the Trustee based upon such a ruling or based on a change in the applicable
federal tax law since the date of the Indenture, to such effect; (iii)
delivering to the Trustee an Opinion of Counsel to the effect that the Company's
exercise of its option under this paragraph will not result in any of the
Company, such Trustee or the relevant trust created by the Company's deposit of
funds pursuant to this provision becoming or being deemed to be an "investment
company" under the Investment Act; and (iv) complying with certain other
requirements set forth in the Indenture.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the Holders of a majority in aggregate
principal amount of the Notes (including consents obtained in connection with a
tender offer or exchange offer for such Notes); provided, however, that no such
modification or amendment to the Indenture may, without the consent of the
Holder of each Note affected thereby, (a) change the maturity of the principal
of any such Note; (b) alter the optional redemption or repurchase provisions of
any such Note or the Indenture in a manner adverse to the Holders of such Notes;
(c) reduce the principal amount of any such Note; (d) reduce the rate of or
extend the time for payment of interest on any such Note; (e) change the place
or currency of payment of principal of or interest on any such Note; (f) modify
any provisions of the Indenture relating to the waiver of past defaults (other
than to add sections of the Indenture or the Notes subject thereto) or the right
of the Holders of Notes to institute suit for the enforcement of any payment on
or with respect to any such Note in respect thereof or the modification and
amendment provisions of the Indenture and such Notes (other than to add sections
of the Indenture or such Notes which may not be amended, supplemented or waived
without the consent of each Holder therein affected); (g) reduce the percentage
of the principal amount of outstanding Notes necessary for amendment to or
waiver of compliance with any provision of the Indenture or the Notes or for
waiver of any Default in respect thereof; (h) waive a default in the payment of
principal of, interest on, or redemption payment with respect to, such Note
(except a rescission of acceleration of the relevant Notes by the Holders
thereof as provided in the Indenture and a waiver of the payment default that
resulted from such acceleration); (i) modify the ranking or priority of any such
Note; (j) modify the provisions of any covenant (or the related definitions) in
the Indenture requiring the Company to make an Offer to Purchase in a manner
materially adverse to the Holders of Notes affected thereby; or (k) modify the
provisions of the Escrow Agreement or the Indenture relating to the Escrow
Collateral in any manner adverse to the Holders or release any of the Escrow
Collateral from the Lien under the Escrow Agreement or permit any other
obligation to be secured by the Escrow Collateral.
The Holders of a majority in aggregate principal amount of the outstanding
Notes, on behalf of all Holders, may waive compliance by the Company with
certain restrictive provisions of the Indenture. Subject to certain rights of
the Trustee as provided in the Indenture, the Holders of a majority in aggregate
principal amount of the Notes, on behalf of all Holders, may waive any past
default under the Indenture (including any such waiver obtained in connection
with a tender offer or exchange offer for such Notes), except a default in the
payment of principal or interest or a default arising from failure to purchase
any Notes tendered pursuant to an Offer to Purchase pursuant thereto, or a
default in respect of a provision that under the Indenture cannot be modified or
amended without the consent of the Holder of each Note that is affected.
GOVERNING LAW
The Indenture and the Notes will be governed by the laws of the State of
New York without regard to principles of conflicts of laws.
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THE TRUSTEE
Except during the continuance of a Default, the Trustee will perform only
such duties as are specifically set forth in the Indenture. During the existence
of a Default under the Indenture, the Trustee will exercise such rights and
powers vested in it under the Indenture and use the same degree of care and
skill in its exercise as a prudent person would exercise under the circumstances
in the conduct of such person's own affairs.
The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee, should it
become a creditor of the Company or any other obligor upon the Notes, to obtain
payment of claims in certain cases or to realize on certain property received by
it in respect of any such claim as the Notes or otherwise. The Trustee is
permitted to engage in other transactions with the Company or an Affiliate of
the Company; provided, however, that if it acquires any conflicting interest (as
defined in the Indenture or in the Trust Indenture Act), it must eliminate such
conflict or resign.
LISTING
Application has been made to list the Notes on the Luxembourg Stock
Exchange. The legal notice relating to the issue of the Notes and the Articles
of Association of the Company will be registered prior to the listing with the
Registrar of the District Court in Luxembourg, where such documents are
available for inspection and where copies thereof can be obtained upon request.
As long as the Notes are listed on the Luxembourg Stock Exchange, an agent for
making payments on, and transfers of, the Notes will be maintained in
Luxembourg. The Company has initially designated Banque Internationale a
Luxembourg S.A. as its agent for such purposes.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person (a) assumed in
connection with an Acquisition from such Person or (b) existing at the time such
Person becomes a Restricted Subsidiary or is merged or consolidated with or into
the Company or any Restricted Subsidiary; provided, however, that such
Indebtedness was not Incurred in connection with, or in contemplation of, such
Acquisition, such Person becoming a Restricted Subsidiary or such merger or
consolidation.
"Acquired Person" means, with respect to any specified Person, any other
Person which merges with or into or becomes a Subsidiary of such specified
Person.
"Acquisition" means (i) any capital contribution (by means of transfers of
cash or other property to others or payments for property or services for the
account or use of others, or otherwise) by the Company or any Restricted
Subsidiary to any other Person, or any acquisition or purchase of Equity
Interests of any other Person by the Company or any Restricted Subsidiary, in
either case pursuant to which such Person shall become a Restricted Subsidiary
or shall be consolidated, merged with or into the Company or any Restricted
Subsidiary or (ii) any acquisition by the Company or any Restricted Subsidiary
of the assets of any Person which constitute substantially all of an operating
unit or line of business of such Person or which is otherwise outside of the
ordinary course of business.
"Additional Interest" has the meaning provided in Section 4(a) of the
Registration Rights Agreement.
"Affiliate" of any specified person means any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such person, whether through the
ownership of voting securities, by agreement or otherwise.
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"Asset Sale" means any direct or indirect sale, conveyance, transfer, lease
(that has the effect of a disposition) or other disposition (including, without
limitation, any merger, consolidation or sale-leaseback transaction) to any
Person other than the Company or a Restricted Subsidiary, in one transaction or
a series of related transactions, of (i) any Equity Interest of any Restricted
Subsidiary; (ii) any material license, franchise or other authorization of the
Company or any Restricted Subsidiary; (iii) any assets of the Company or any
Restricted Subsidiary which constitute substantially all of an operating unit or
line of business of the Company or any Restricted Subsidiary; or (iv) any other
property or asset of the Company or any Restricted Subsidiary outside of the
ordinary course of business (including the receipt of proceeds paid on account
of the loss of or damage to any property or asset and awards of compensation for
any asset taken by condemnation, eminent domain or similar proceedings). For the
purposes of this definition, the term "Asset Sale" shall not include (a) any
transaction consummated in compliance with "-- Certain Covenants -- Merger, Sale
of Assets, etc." and the creation of any Lien not prohibited by "-- Certain
Covenants -- Limitation on Liens"; provided, however, that any transaction
consummated in compliance with "-- Certain Covenants -- Merger, Sale of Assets,
etc." involving a sale, conveyance, assignment, transfer, lease or other
disposal of less than all of the properties or assets of the Company and the
Restricted Subsidiaries shall be deemed to be an Asset Sale with respect to the
properties or assets of the Company and Restricted Subsidiaries that are not so
sold, conveyed, assigned, transferred, leased or otherwise disposed of in such
transaction; (b) sales of property or equipment that has become worn out,
obsolete or damaged or otherwise unsuitable for use in connection with the
business of the Company or any Restricted Subsidiary, as the case may be; and
(c) any transaction consummated in compliance with "-- Certain
Covenants -- Limitation on Restricted Payments." In addition, solely for
purposes of "-- Certain Covenants -- Limitation on Asset Sales," any sale,
conveyance, transfer, lease or other disposition of any property or asset,
whether in one transaction or a series of related transactions, involving assets
with a Fair Market Value not in excess of $1.0 million in any fiscal year shall
be deemed not to be an Asset Sale.
"Basket" has the meaning set forth in "-- Certain Covenants -- Limitation
on Restricted Payments."
"Board of Directors" means, with respect to any Person, the Board of
Directors of such Person (or comparable governing body), or any authorized
committee of that Board (it being understood that the Board of Directors of the
Company shall be its Board of Supervisory Directors).
"Business Day" means a day (other than a Saturday or Sunday) on which the
Depository and banks in New York are open for business.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be so required to be capitalized on the balance sheet in accordance
with GAAP.
"Cash Equivalents" means: (a) U.S. dollars; (b) securities issued or
directly and fully guaranteed or insured by the U.S. government or any agency or
instrumentality thereof having maturities of not more than six months from the
date of acquisition; provided, however, that securities deposited in the Escrow
Account may have longer maturities; (c) certificates of deposit and eurodollar
time deposits with maturities of six months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding six months and
overnight bank deposits, in each case with any commercial bank having capital
and surplus in excess of $500 million; provided, however, that securities
deposited in the Escrow Account may have longer maturities; (d) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clauses (b) and (c) entered into with any financial
institution meeting the qualifications specified in clause (c) above; and (e)
commercial paper rated P-1, A-1 or the equivalent thereof by Moody's Investors
Service, Inc. or Standard & Poor's Ratings Group, respectively, and in each case
maturing within six months after the date of acquisition.
"Change of Control" shall mean the occurrence of any of the following
events (whether or not approved by the Board of Directors of the Company): (a)
any Person or group, excluding Permitted Holders, is or becomes the beneficial
owner, directly or indirectly, of Voting Equity Interests representing 35% or
more of the total voting power of the Voting Equity Interests of the Company at
a time when the Permitted Holders together (x) own Voting Equity Interests
representing a lesser percentage of the total voting power of the Voting Equity
Interests of the Company, than such Person or group (for purposes of determining
the
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percentage of the Voting Equity Interests of such Person or group, the holdings
of the Permitted Holders who are part of such Person or group shall not be
counted in the Voting Equity Interests of such Person or group) or (y) do not
hold the power to elect a majority of the members of the Board of Directors of
the Company; (b) any Person or group is or becomes the beneficial owner directly
or indirectly, of Voting Equity Interests representing 50% or more of the total
voting power of the Voting Equity Interests of GTS or has the power, directly or
indirectly, to elect a majority of the members of the Board of Directors of GTS;
(c) the Company consolidates with, or merges with or into, another Person or the
Company or one or more Restricted Subsidiaries sell, assign, convey, transfer,
lease or otherwise dispose of all or substantially all of the assets of the
Company and the Restricted Subsidiaries, taken as a whole, to any Person (other
than a Wholly Owned Restricted Subsidiary), or any Person consolidates with, or
merges with or into, the Company, in any such event other than pursuant to a
transaction in which the Person or Persons that "beneficially owned," directly
or indirectly, a majority of the total voting power of the Voting Equity
Interests of the Company immediately prior to such transaction, "beneficially
own," directly or indirectly, Voting Equity Interests representing a majority of
the total voting power of the Voting Equity Interests of the surviving or
transferee Person; (d) GTS consolidates with, or merges with or into, another
Person or GTS or one or more of its Subsidiaries sell, assign, convey, transfer,
lease or otherwise dispose of all or substantially all of the assets of GTS and
its Subsidiaries, taken as a whole, to any Person (other than a wholly owned
Subsidiary of GTS), or any Person consolidates with, or merges with or into,
GTS, in any such event other than pursuant to a transaction in which the Person
or Persons that "beneficially owned," directly or indirectly, Voting Equity
Interests representing a majority of the total voting power of the Voting Equity
Interests of GTS immediately prior to such transaction, "beneficially own,"
directly or indirectly, Voting Equity Interests representing a majority of the
total voting power of the Voting Equity Interests of the surviving or transferee
Person; (e) during any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election by the Board of Directors of the
Company or whose nomination for election by the stockholders of the Company was
approved by a vote of a majority of the directors then still in office who were
either directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason (other than by
action of the Permitted Holders) to constitute a majority of the Board of
Directors of the Company, then in office; (f) during any consecutive two-year
period, individuals who at the beginning of such period constituted the Board of
Directors of GTS (together with any new directors whose election by the Board of
Directors of GTS or whose nomination for election by the stockholders of GTS was
approved by a vote of a majority of the directors then still in office who were
either directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of GTS then in office; or (g) there shall
occur the liquidation or dissolution of the Company or GTS. For purposes of this
definition, (I) "group" has the meaning under Section 13(d) and 14(d) of the
Exchange Act or any successor provision to either of the foregoing, including
any group acting for the purpose of acquiring, holding or disposing of
securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act, and
(II) "beneficial ownership" has the meaning set forth in Rules 13d-3 and 13d-5
under the Exchange Act, except that a Person shall be deemed to have "beneficial
ownership" of all securities that such Person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time, upon
the happening of an event or otherwise.
"Change of Control Date" has the meaning set forth under "-- Change of
Control."
"Consolidated Income Tax Expense" means, with respect to any period, the
provision for federal, state, local and foreign income taxes payable by the
Company and the Restricted Subsidiaries for such period as determined on a
consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to any period, without
duplication, the sum of (i) the interest expense of the Company and the
Restricted Subsidiaries for such period as determined on a consolidated basis in
accordance with GAAP, including, without limitation, (a) any amortization of
debt discount, (b) the net cost under Interest Rate Protection Obligations
(including any amortization of discounts), (c) the interest portion of any
deferred payment obligation, (d) all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance financing
and (e) all capitalized interest and all accrued interest, (ii) the interest
component of Capitalized Lease Obligations paid,
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accrued and/or scheduled to be paid or accrued by the Company and the Restricted
Subsidiaries during such period as determined on a consolidated basis in
accordance with GAAP and (iii) dividends and distributions in respect of
Disqualified Equity Interests actually paid in cash by the Company or any
Restricted Subsidiary (other than to the Company or another Restricted
Subsidiary) during such period as determined on a consolidated basis in
accordance with GAAP.
"Consolidated Net Income" means, with respect to any period, the net income
of the Company and the Restricted Subsidiaries for such period determined on a
consolidated basis in accordance with GAAP, adjusted, to the extent included in
calculating such net income, by excluding, without duplication, (a) other than
for purposes of calculating the Basket, all extraordinary gains or losses for
such period; (b) other than for purposes of calculating the Basket, all gains or
losses from the sales or other dispositions of assets out of the ordinary course
of business (net of taxes, fees and expenses relating to the transaction giving
rise thereto) for such period; (c) that portion of such net income derived from
or in respect of investments in Persons other than Restricted Subsidiaries,
except to the extent actually received in cash by the Company or any Restricted
Subsidiary (subject, in the case of any Restricted Subsidiary, to the provisions
of clause (f) of this definition); (d) the portion of such net income (or loss)
allocable to minority interests in any Person (other than a Restricted
Subsidiary) for such period, except to the extent the Company's allocable
portion of such Person's net income for such period is actually received in cash
by the Company or any Restricted Subsidiary (subject, in the case of any
Restricted Subsidiary, to the provisions of clause (f) of this definition); (e)
the net income (or loss) of any other Person combined with the Company or any
Restricted Subsidiary on a "pooling of interests" basis attributable to any
period prior to the date of combination; and (f) the net income of any
Restricted Subsidiary to the extent that the declaration of dividends or similar
distributions by that Restricted Subsidiary of that income is not at the time
(regardless of any waiver) permitted, directly or indirectly, by operation of
the terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulations applicable to that Restricted
Subsidiary or its Equity Interest holders.
"Consolidated Operating Cash Flow" means, with respect to any period,
Consolidated Net Income for such period increased (without duplication), to the
extent deducted in calculating such Consolidated Net Income, by (a) Consolidated
Income Tax Expense for such period; (b) Consolidated Interest Expense for such
period; and (c) depreciation, amortization and any other non-cash items for such
period (other than any non-cash item which requires the accrual of, or a reserve
for, cash charges for any future period) of the Company and the Restricted
Subsidiaries, including, without limitation, amortization of capitalized debt
issuance costs for such period, all of the foregoing determined on a
consolidated basis in accordance with GAAP minus non-cash items to the extent
they increase Consolidated Net Income (including the partial or entire reversal
of reserves taken in prior periods) for such period.
"Cumulative Operating Cash Flow" means, as at any date of determination,
the positive cumulative Consolidated Operating Cash Flow realized during the
period commencing on the Issue Date and ending on the last day of the most
recent fiscal quarter immediately preceding the date of determination for which
consolidated financial information of the Company is available or, if such
cumulative Consolidated Operating Cash Flow for such period is negative, the
negative amount by which cumulative Consolidated Operating Cash Flow is less
than zero.
"Currency Agreement" shall mean any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement, which may include the
use of derivatives, designed to protect the Company or any Restricted Subsidiary
against fluctuations in currency values.
"Debt to Annualized Operating Cash Flow Ratio" means the ratio of (a) the
Total Consolidated Indebtedness as of the date of calculation (the
"Determination Date") to (b) two times the Consolidated Operating Cash Flow for
the latest two fiscal quarters for which financial information is available
immediately preceding such Determination Date (the "Measurement Period"). For
purposes of calculating Consolidated Operating Cash Flow for the Measurement
Period immediately prior to the relevant Determination Date, (I) any Person that
is a Restricted Subsidiary on the Determination Date (or would become a
Restricted Subsidiary on such Determination Date in connection with the
transaction that requires the determination of such Consolidated Operating Cash
Flow) will be deemed to have been a Restricted Subsidiary at all times during
such Measurement Period, (II) any Person that is not a Restricted Subsidiary on
such Determination
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Date (or would cease to be a Restricted Subsidiary on such Determination Date in
connection with the transaction that requires the determination of such
Consolidated Operating Cash Flow) will be deemed not to have been a Restricted
Subsidiary at any time during such Measurement Period, and (III) if the Company
or any Restricted Subsidiary shall have in any manner (x) acquired (through an
Acquisition or the commencement of activities constituting such operating
business) or (y) disposed of (by way of an Asset Sale or the termination or
discontinuance of activities constituting such operating business) any operating
business during such Measurement Period or after the end of such period and on
or prior to such Determination Date, such calculation will be made on a pro
forma basis in accordance with GAAP as if, in the case of an Acquisition or the
commencement of activities constituting such operating business, all such
transactions had been consummated on the first day of such Measurement Period
and, in the case of an Asset Sale or termination or discontinuance of activities
constituting such operating business, all such transactions had been consummated
prior to the first day of such Measurement Period (it being understood that in
calculating Consolidated Operating Cash Flow the exclusions set forth in clauses
(a) through (f) of the definition of Consolidated Net Income shall apply to an
Acquired Person as if it were a Restricted Subsidiary).
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Designation" has the meaning set forth in "-- Certain
Covenants -- Designation of Unrestricted Subsidiaries."
"Designation Amount" has the meaning set forth in "-- Certain
Covenants -- Designation of Unrestricted Subsidiaries."
"Disinterested Director" means a member of the Board of Directors of the
Company who does not have any material direct or indirect financial interest in
or with respect to the transaction being considered.
"Disposition" means, with respect to any Person, any merger, consolidation
or other business combination involving such Person (whether or not such Person
is the Surviving Person) or the sale, assignment, transfer, lease, conveyance or
other disposition of all or substantially all of such Person's assets.
"Disqualified Equity Interest" means any Equity Interest which, by its
terms (or by the terms of any security into which it is convertible or for which
it is exchangeable at the option of the holder thereof), or upon the happening
of any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable, at the option of the holder thereof, in
whole or in part, on or prior to the Maturity Date; provided, however, that any
Equity Interests that would not constitute Disqualified Equity Interests but for
provisions thereof giving holders thereof the right to require the Company to
repurchase or redeem such Equity Interests upon the occurrence of a change in
control occurring prior to the Maturity Date shall not constitute Disqualified
Equity Interests if the change in control provisions applicable to such Equity
Interests are no more favorable to the holders of such Equity Interests than the
provisions described under "-- Change of Control" and such Equity Interests
specifically provide that the Company will not repurchase or redeem any such
Equity Interests pursuant to such provisions prior to the Company's repurchase
of Notes as are required to be repurchased pursuant to the provisions described
under "-- Change of Control."
"Dollar Equivalent" shall mean, with respect to a monetary amount in a
currency other than U.S. Dollars, at any time for the determination thereof, the
amount of U.S. Dollars obtained by converting such other currency involved in
such computation into U.S. dollars at the rate for the purchase of U.S. dollars
with the applicable currency as set forth in the Key Currency Cross Rates table
of The Wall Street Journal (or a successor table) on the date that is two
Business Days prior to such determination.
"Equity Interest" in any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock or other equity
participations, including partnership interests, whether general or limited, in
such Person, including any Preferred Equity Interests.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the SEC thereunder.
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"Expiration Date" has the meaning set forth in the definition of "Offer to
Purchase."
"Fair Market Value" means, with respect to any asset, the price (after
taking into account any liabilities relating to such assets) which could be
negotiated in an arm's-length free market transaction, for cash, between a
willing seller and a willing and able buyer, neither of which is under any
compulsion to complete the transaction; provided, however, that the Fair Market
Value of any such asset or assets shall be determined conclusively by the Board
of Directors of the Company acting in good faith, which determination shall be
evidenced by a resolution of such Board delivered to the Trustee.
"GAAP" means, at any date of determination, generally accepted accounting
principles in effect in the United States which are applicable at the date of
determination and which are consistently applied for all applicable periods.
"GTS" means Global TeleSystems Group, Inc., a Delaware corporation, and its
successors.
"GTS Contribution" means one or more investments, on and after the Issue
Date, in the Company (other than by a Subsidiary of the Company) of not less
than ECU 46.0 million (the equivalent of $51.1 million on July 7, 1997), in the
aggregate, by capital contribution to the Company, purchase from the Company of
common Equity Interests of the Company, conversion of Indebtedness owing to
GTS-Hermes, Inc. by the Company into common Equity Interests of the Company or
repayment of Indebtedness owing to the Company.
"guarantee" means, as applied to any obligation, (i) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit. A guarantee shall include,
without limitation, any agreement to maintain or preserve any other person's
financial condition or to cause any other Person to achieve certain levels of
operating results.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (including by conversion, exchange or
otherwise), assume, guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or other obligation on the balance sheet
of such Person (and "Incurrence," "Incurred" and "Incurring" shall have meanings
correlative to the foregoing). Indebtedness of a Person existing at the time
such Person becomes a Restricted Subsidiary or is merged or consolidated with or
into the Company or any Restricted Subsidiary shall be deemed to be Incurred at
such time.
"Indebtedness" means (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person and whether
or not contingent, (a) every obligation of such Person for money borrowed; (b)
every obligation of such Person evidenced by bonds, debentures, notes or other
similar instruments, including obligations incurred in connection with the
acquisition of property, assets or businesses; (c) every reimbursement
obligation of such Person with respect to letters of credit, bankers'
acceptances or similar facilities issued for the account of such Person; (d)
every obligation of such Person issued or assumed as the deferred purchase price
of property or services (but excluding trade accounts payable incurred in the
ordinary course of business and payable in accordance with industry practices,
or other accrued liabilities arising in the ordinary course of business which
are not overdue or which are being contested in good faith); (e) every Capital
Lease Obligation of such Person; (f) every net obligation under interest rate
swap or similar agreements or foreign currency hedge, exchange or similar
agreements of such Person; (g) every obligation of the type referred to in
clauses (a) through (f) of another Person and all dividends of another Person
the payment of which, in either case, such Person has guaranteed or is
responsible or liable for, directly or indirectly, as obligor, guarantor or
otherwise; and (h) any and all Refinancing of, or amendments, modifications or
supplements to, any liability of the kind described in any of the preceding
clauses (a) through (g) above. Indebtedness (i) shall never be calculated taking
into account any cash and cash equivalents held by such Person; (ii) shall not
include obligations of any Person (x) arising from the honoring by a bank or
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other financial institution of a check, draft or similar instrument
inadvertently drawn against insufficient funds in the ordinary course of
business, provided that such obligations are extinguished within two Business
Days of their incurrence unless covered by an overdraft line, (y) resulting from
the endorsement of negotiable instruments for collection in the ordinary course
of business and consistent with past business practices and (z) under stand-by
letters of credit to the extent collateralized by cash or Cash Equivalents;
(iii) which provides that an amount less than the principal amount thereof shall
be due upon any declaration of acceleration thereof shall be deemed to be
Incurred or outstanding in an amount equal to the accreted value thereof at the
date of determination determined in accordance with GAAP; and (iv) shall include
the liquidation preference and any mandatory redemption payment obligations in
respect of any Disqualified Equity Interests of the Company or any Preferred
Equity Interests of any Restricted Subsidiary.
"Independent Financial Advisor" means a recognized, accounting, appraisal,
investment banking firm or consultant with experience in a Telecommunications
Business (i) which does not, and whose directors, officers and employees or
Affiliates do not, have a material direct or indirect financial interest in the
Company and (ii) which, in the judgment of the Board of Directors of the
Company, is otherwise independent and qualified to perform the task for which it
is to be engaged.
"interest" means, with respect to the Notes, the sum of any cash interest
and any Additional Interest on the Notes.
"Interest Rate Protection Obligations" means, with respect to any Person,
the Obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements, and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
"Investment" means, with respect to any Person, any direct or indirect
loan, advance, guarantee or other extension of credit or capital contribution to
(by means of transfers of cash or other property or assets to others or payments
for property or services for the account or use of others, or otherwise), or
purchase or acquisition of capital stock, bonds, notes, debentures or other
securities or evidences of Indebtedness issued by, any other Person. The amount
of any Investment shall be the original cost of such Investment, plus the cost
of all additions thereto, and minus the amount of any portion of such Investment
repaid to such Person in cash as a repayment of principal or a return of
capital, as the case may be, but without any other adjustments for increases or
decreases in value, or write-ups, write-downs or write-offs with respect to such
Investment. In determining the amount of any investment involving a transfer of
any property or asset other than cash, such property shall be valued at its Fair
Market Value at the time of such transfer. "Investments" shall exclude
extensions of trade credit in the ordinary course of business in accordance with
normal trade practices.
"Issue Date" means the original issue date of the Notes.
"Latest Balance Sheet" means, of any Person, the latest consolidated
balance sheet of such Person reported on by a recognized firm of independent
accountants without qualification as to scope.
"Lien" means any lien, mortgage, charge, security interest, hypothecation,
assignment for security or encumbrance of any kind (including any conditional
sale or capital lease or other title retention agreement, any lease in the
nature thereof, and any agreement to give any security interest).
"Maturity Date" means the date, which is set forth on the face of the
Notes, on which the Notes will mature.
"Net Cash Proceeds" means the aggregate proceeds in the form of cash or
Cash Equivalents received by the Company or any Restricted Subsidiary in respect
of any Asset Sale, including all cash or Cash Equivalents received upon any
sale, liquidation or other exchange of proceeds of Asset Sales received in a
form other than cash or Cash Equivalents, net of (a) the direct costs relating
to such Asset Sale (including, without limitation, legal, accounting and
investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof; (b) taxes paid or payable as a result thereof
(after taking into account any available tax credits or deductions and any tax
sharing arrangements); (c) amounts required to be applied to the repayment of
Indebtedness secured by a Lien on the asset or assets that were the subject of
such Asset Sale; (d) amounts deemed, in good faith, appropriate by the Board of
Directors of the Company to be provided as a reserve, in
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accordance with GAAP, against any liabilities associated with such assets which
are the subject of such Asset Sale (provided that the amount of any such
reserves shall be deemed to constitute Net Cash Proceeds at the time such
reserves shall have been released or are not otherwise required to be retained
as a reserve); and (e) with respect to Asset Sales by Subsidiaries, the portion
of such cash payments attributable to Persons holding a minority interest in
such Subsidiary.
"Obligations" means any principal, interest (including, without limitation,
post-petition interest), penalties, fees, indemnifications, reimbursement
obligations, damages and other liabilities payable under the documentation
governing any Indebtedness.
"Offer" has the meaning set forth in the definition of "Offer to Purchase."
"Offer to Purchase" means a written offer (the "Offer") sent by or on
behalf of the Company by first-class mail, postage prepaid, to each holder at
his address appearing in the register for the Notes on the date of the Offer
offering to purchase up to the principal amount of Notes specified in such Offer
at the purchase price specified in such Offer (as determined pursuant to the
Indenture). Unless otherwise required by applicable law, the Offer shall specify
an expiration date (the "Expiration Date") of the Offer to Purchase, which shall
be not less than 20 Business Days nor more than 90 days after the date of such
Offer, and a settlement date (the "Purchase Date") for purchase of Notes to
occur no later than five Business Days after the Expiration Date. The Company
shall notify the Trustee at least 15 Business Days (or such shorter period as is
acceptable to the Trustee) prior to the mailing of the Offer of the Company's
obligation to make an Offer to Purchase, and the Offer shall be mailed by the
Company or, at the Company's request, by the Trustee in the name and at the
expense of the Company. The Offer shall contain all the information required by
applicable law to be included therein. The Offer shall contain all instructions
and materials necessary to enable such Holders to tender Notes pursuant to the
Offer to Purchase. The Offer shall also state:
(1) the Section of the Indenture pursuant to which the Offer to
Purchase is being made;
(2) the Expiration Date and the Purchase Date;
(3) the aggregate principal amount of the outstanding Notes offered to
be purchased by the Company pursuant to the Offer to Purchase (including,
if less than 100%, the manner by which such amount has been determined
pursuant to the Section of the Indenture requiring the Offer to Purchase)
(the "Purchase Amount");
(4) the purchase price to be paid by the Company for each $1,000
aggregate principal amount of Notes accepted for payment (as specified
pursuant to the Indenture) (the "Purchase Price");
(5) that the holder may tender all or any portion of the Notes
registered in the name of such holder and that any portion of a Note
tendered must be tendered in an integral multiple of $1,000 principal
amount at maturity;
(6) the place or places where Notes are to be surrendered for tender
pursuant to the Offer to Purchase;
(7) that interest on any Note not tendered or tendered but not
purchased by the Company pursuant to the Offer to Purchase will continue to
accrue;
(8) that on the Purchase Date the Purchase Price will become due and
payable upon each Note being accepted for payment pursuant to the Offer to
Purchase and that interest thereon shall cease to accrue on and after the
Purchase Date;
(9) that each holder electing to tender all or any portion of a Note
pursuant to the Offer to Purchase will be required to surrender such Note
at the place or places specified in the Offer prior to the close of
business on the Expiration Date (such Note being, if the Company or the
Trustee so requires, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Trustee
duly executed by, the holder thereof or his attorney duly authorized in
writing);
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(10) that holders will be entitled to withdraw all or any portion of
Notes tendered if the Company (or its Paying Agent) receives, not later
than the close of business on the fifth Business Day next preceding the
Expiration Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the holder, the principal amount of the Note the
holder tendered, the certificate number of the Note the holder tendered and
a statement that such holder is withdrawing all or a portion of his tender;
(11) that (a) if Notes in an aggregate principal amount less than or
equal to the Purchase Amount are duly tendered and not withdrawn pursuant
to the Offer to Purchase, the Company shall purchase all such Notes and (b)
if Notes in an aggregate principal amount in excess of the Purchase Amount
are tendered and not withdrawn pursuant to the Offer to Purchase, the
Company shall purchase Notes having an aggregate principal amount equal to
the Purchase Amount on a pro rata basis (with such adjustments as may be
deemed appropriate so that only Notes in denominations of $1,000 principal
amount at maturity or integral multiples thereof shall be purchased); and
(12) that in the case of any holder whose Note is purchased only in
part, the Company shall execute and the Trustee shall authenticate and
deliver to the holder of such Note without service charge, a new Note or
Notes, of any authorized denomination as requested by such holder, in an
aggregate principal amount equal to and in exchange for the unpurchased
portion of the Note so tendered.
An Offer to Purchase shall be governed by and effected in accordance with
the provisions above pertaining to any Offer.
"Permitted Holders" means GTS or any of its Affiliates.
"Permitted Investments" means (a) Cash Equivalents; (b) Investments in
prepaid expenses, negotiable instruments held for collection and lease, utility
and workers' compensation, performance and other similar deposits; (c) loans and
advances to employees made in the ordinary course of business not to exceed
$3,000,000 in the aggregate at any one time outstanding; (d) Interest Rate
Protection Obligations and Currency Agreements permitted under "-- Certain
Covenants -- Limitation on Incurrence of Indebtedness"; (e) bonds, notes,
debentures or other securities received as a result of Asset Sales permitted
under "-- Certain Covenants -- Limitation on Asset Sales"; (f) transactions with
officers, directors and employees of the Company or any Restricted Subsidiary
entered into in the ordinary course of business (including compensation or
employee benefit arrangements with any such director or employee) and consistent
with past business practices; (g) Investments made in the ordinary course of
business and on ordinary business terms as partial payment for constructing a
network relating principally to a Telecommunications Business; (h) Investments
in any Restricted Subsidiary; (i) intercompany Indebtedness to the extent
permitted under paragraph (b)(v) of "-- Certain Covenants -- Limitation on
Incurrence of Indebtedness"; (j) Investments by the Company or any Restricted
Subsidiary in another Person, if as a result of such Investment (x) such other
Person becomes a Restricted Subsidiary or (y) such other Person is merged or
consolidated with or into, or transfers or conveys all or substantially all of
its assets to, the Company or a Restricted Subsidiary; and (k) Investments in
evidences of Indebtedness, securities or other property received from another
Person by the Company or any Restricted Subsidiary in connection with any
bankruptcy proceeding or by reason of a composition or readjustment of debt or a
reorganization of such Person or as a result of foreclosure, perfection or
enforcement of any Lien in exchange for evidences of Indebtedness, securities or
other property of such Person held by the Company or any Restricted Subsidiary,
or for other liabilities or obligations of such other Person to the Company or
any Restricted Subsidiary that were created in accordance with the terms of the
Indenture.
"Permitted Liens" means (a) Liens on property of a Person existing at the
time such Person is merged into or consolidated with the Company or any
Restricted Subsidiary; provided, however, that such Liens were in existence
prior to the contemplation of such merger or consolidation and do not secure any
property or assets of the Company or any Restricted Subsidiary other than the
property or assets subject to the Liens prior to such merger or consolidation;
(b) Liens existing on the Issue Date; (c) Liens securing Indebtedness consisting
of Capitalized Lease Obligations, mortgage financings, industrial revenue bonds
or other monetary obligations, in each case incurred solely for the purpose of
financing all or any part of the purchase price or cost of construction or
installation of assets used in the business of the Company or any Restricted
Subsidiary,
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or repairs, additions or improvements to such assets; provided, however, that
(I) such Liens secure Indebtedness in an amount not in excess of the original
purchase price or the original cost of any such assets or repair, addition or
improvement thereto (plus an amount equal to the reasonable fees and expenses in
connection with the Incurrence of such Indebtedness), (II) such Liens do not
extend to any other assets of the Company or any Restricted Subsidiary (and, in
the case of repair, addition or improvements to any such assets, such Lien
extends only to the assets (and improvements thereto or thereon) repaired, added
to or improved), (III) the Incurrence of such Indebtedness is permitted by
"-- Certain Covenants -- Limitation on Incurrence of Indebtedness" and (IV) such
Liens attach within 90 days of such purchase, construction, installation,
repair, addition or improvement; (d) Liens to secure any Refinancings, in whole
or in part, of any Indebtedness secured by Liens referred to in the clauses
above so long as such Lien does not extend to any other property (other than
improvements thereto); (e) Liens securing letters of credit entered into in the
ordinary course of business and consistent with past business practice; (f)
Liens on and pledges of the capital stock of any Unrestricted Subsidiary
securing any Indebtedness of such Unrestricted Subsidiary; (g) Liens on any
property or assets of a Restricted Subsidiary granted in favor of and held by
the Company or any Restricted Subsidiary; (h) Liens on any property or assets of
the Company or any Restricted Subsidiary securing on a pari passu basis all of
the Notes; (i) statutory Liens of landlords and carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen or other like Liens arising in the
ordinary course of business of the Company or any Restricted Subsidiary and with
respect to amounts not yet delinquent or being contested in good faith by
appropriate proceedings; (j) Liens for taxes, assessments, government charges or
claims that are being contested in good faith by appropriate proceedings
promptly instituted and diligently conducted; provided that any reserve or other
appropriate provision as shall be required in conformity with GAAP shall have
been made therefor; (k) Liens incurred or deposits made to secure the
performance of tenders, bids, leases, statutory obligations, surety and appeal
bonds, government contracts, performance bonds and other obligations of a like
nature incurred in the ordinary course of business (other than contracts for the
payment of money); (l) easements, rights-of-way, restrictions and other similar
charges or encumbrances not interfering in any material respect with the
business of the Company or any Restricted Subsidiary incurred in the ordinary
course of business; (m) Liens arising by reason of judgment, decree or order of
any court so long as such Lien is adequately bonded and any appropriate legal
proceedings that may have been duly initiated for the review of such judgment,
decree or order shall not have been finally terminated or the period within
which such proceedings may be initiated shall not have expired; (n) Liens
securing Qualified Subsidiary Indebtedness to the extent permitted to be
Incurred under "-- Certain Covenants -- Limitation on Incurrence of
Indebtedness"; (o) Liens securing Indebtedness under Interest Rate Protection
Obligations or Indebtedness under Currency Agreements to the extent permitted to
be Incurred under "-- Certain Covenants -- Limitation on Incurrence of
Indebtedness"; and (p) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance and
other types of social security.
"Permitted Refinancing" means, with respect to any Indebtedness,
Indebtedness to the extent representing a Refinancing of such Indebtedness;
provided, however, that (1) the Refinancing Indebtedness shall not exceed the
sum of the amount of the Indebtedness being Refinanced, plus the amount of
accrued interest or dividends thereon, the amount of any reasonably determined
prepayment premium necessary to accomplish such Refinancing and reasonable fees
and expenses incurred in connection therewith; (2) the Refinancing Indebtedness
shall have a Weighted Average Life to Maturity equal to or greater than the
Weighted Average Life to Maturity of the Indebtedness being Refinanced and shall
not permit redemption or other retirement (including pursuant to any required
offer to purchase to be made by the Company or any Restricted Subsidiary) of
such Indebtedness at the option of the holder thereof prior to the final stated
maturity of the Indebtedness being Refinanced, other than a redemption or other
retirement at the option of the holder of such Indebtedness (including pursuant
to a required offer to purchase made by the Company or a Restricted Subsidiary)
upon a change of control of the Company pursuant to provisions substantially
similar to those contained in the Indenture described under "-- Change of
Control"; (3) Indebtedness that ranks pari passu with the Notes may be
Refinanced only with Indebtedness that is made pari passu with or subordinate in
right of payment to the Notes, and Indebtedness that is subordinated in right of
payment to the Notes may be Refinanced only with Indebtedness that is
subordinate in right of payment to the Notes on terms no less
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favorable to the Holders than those contained in the Indebtedness being
Refinanced; and (4) the Refinancing Indebtedness shall be Incurred by the
obligor on the Indebtedness being Refinanced or by the Company.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, limited liability
partnership, limited partnership, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Pledged Securities" means the U.S. Government Obligations purchased by the
Company with a portion of the net proceeds from the Offering to be deposited in
the Escrow Account pursuant to the Escrow Agreement.
"Preferred Equity Interest," in any Person, means an Equity Interest of any
class or classes (however designated) which is preferred as to the payment of
dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over Equity
Interests of any other class in such Person.
"principal" of a debt security means the principal of the security plus,
when appropriate, the premium, if any, on the security.
"Public Equity Offering" means an underwritten public offering of common
Equity Interests of the Company pursuant to an effective registration statement
filed under the Securities Act (excluding registration statements filed on Form
S-8).
"Purchase Amount" has the meaning set forth in the definition of "Offer to
Purchase."
"Purchase Date" has the meaning set forth in the definition of "Offer to
Purchase."
"Purchase Price" has the meaning set forth in the definition of "Offer to
Purchase."
"Qualified Equity Interest" means any Equity Interest of the Company other
than any Disqualified Equity Interest.
"Qualified Subsidiary Indebtedness" means (i) Indebtedness of Restricted
Subsidiaries under one or more senior credit agreements, senior loan agreements
or similar senior facilities, secured or unsecured, entered into from time to
time, including any related notes, guarantees collateral documents, instruments
and agreements executed in connection therewith or (ii) Indebtedness of
Restricted Subsidiaries in an aggregate principal amount not to exceed $25.0
million in the aggregate at any time outstanding.
"Refinance" means refinance, renew, extend, replace, defease or refund; and
"Refinancing" and "Refinanced" have correlative meanings.
"Replacement Assets" means (x) properties and assets (other than cash or
any Equity Interests or other security) that will be used in a
Telecommunications Business of the Company and the Restricted Subsidiaries or
(y) Equity Interests of any Person engaged primarily in a Telecommunications
Business, which Person will become on the date of acquisition thereof a
Restricted Subsidiary as a result of the Company's acquiring such Equity
Interests.
"Restricted Subsidiary" means any Subsidiary of the Company that has not
been designated by the Board of Directors of the Company, by a resolution of the
Board of Directors of the Company delivered to the Trustee, as an Unrestricted
Subsidiary pursuant to "-- Certain Covenants -- Designation of Unrestricted
Subsidiaries." Any such designation may be revoked by a resolution of the Board
of Directors of the Company delivered to the Trustee, subject to the provisions
of such covenant.
"SEC" means the Securities and Exchange Commission.
"Share Capital" shall mean, at any time of determination, the stated
capital of the Equity Interests (other than Disqualified Stock) and additional
paid-in capital of the Company at such time, all as determined in accordance
with GAAP.
"Significant Restricted Subsidiary" means, at any date of determination,
(a) any Restricted Subsidiary that, together with its Subsidiaries that
constitute Restricted Subsidiaries (i) for the most recent fiscal year of
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the Company accounted for more than 10.0% of the consolidated revenues of the
Company and the Restricted Subsidiaries or (ii) as of the end of such fiscal
year, owned more than 10.0% of the consolidated assets of the Company and the
Restricted Subsidiaries, all as set forth on the consolidated financial
statements of the Company and the Restricted Subsidiaries for such year prepared
in conformity with GAAP, and (b) any Restricted Subsidiary which, when
aggregated with all other Restricted Subsidiaries that are not otherwise
Significant Restricted Subsidiaries and as to which any event described in
clause (h) of "-- Events of Default" has occurred and is continuing, would
constitute a Significant Restricted Subsidiary under clause (a) of this
definition.
"Stated Maturity," when used with respect to any Note or any installment of
interest thereon, means the date specified in such Note as the fixed date on
which the principal of such Note or such installment of interest is due and
payable.
"Strategic Equity Investments" means the issuance and sale of Qualified
Equity Interests to a Person that has an equity market capitalization, a net
asset value or annual revenues of at least $1.5 billion and owns and operates
business primarily in a Telecommunications Business.
"Subordinated Indebtedness" means any Indebtedness of the Company which is
expressly subordinated in right of payment to the Notes.
"Subsidiary" means, with respect to any Person, (a) any corporation of
which the outstanding Voting Equity Interests having at least a majority of the
votes entitled to be cast in the election of directors shall at the time be
owned, directly or indirectly, by such Person, or (b) any other Person of which
at least a majority of Voting Equity Interests are at the time, directly or
indirectly, owned by such first named Person.
"Surviving Person" means, with respect to any Person involved in or that
makes any Disposition, the Person formed by or surviving such Disposition or the
Person to which such Disposition is made.
"Tax" shall mean any tax, duty, levy, impost, assessment or other
governmental charge (including penalties, interest and any other liabilities
related thereto).
"Taxing Authority" shall mean any government or political subdivision or
territory or possession of any government or any authority or agency therein or
thereof having power to tax.
"Telecommunications Acquisition" means an Acquisition of properties or
assets to be used in a Telecommunications Business or of the Equity Interests of
any Person that becomes a Restricted Subsidiary; provided, however, that such
Person's properties and assets shall consist principally of properties or assets
that will be used in a Telecommunications Business.
"Telecommunications Business" means any business owning, constructing,
financing and operating a telephone and/or communications system located
entirely in countries located in Western and Central Europe, or any business
reasonably related thereto, including, without limitation, any business
conducted by the Company or any Restricted Subsidiary on the Issue Date.
"Total Consolidated Indebtedness" means, as at any date of determination,
an amount equal to the aggregate amount of all Indebtedness of the Company and
the Restricted Subsidiaries, on a consolidated basis, outstanding as of such
date of determination, after giving effect to any Incurrence of Indebtedness and
the application of the proceeds therefrom giving rise to such determination.
"U.S. Government Obligations" means direct non-callable obligations of, or
obligations guaranteed by, the United States of America for the payment of which
guarantee or obligations the full faith and credit of the United States is
pledged.
"Unrestricted Subsidiary" means any Subsidiary of the Company designated as
such pursuant to "-- Certain Covenants -- Designation of Unrestricted
Subsidiaries." Any such designation may be revoked by a resolution of the Board
of Directors of the Company delivered to the Trustee, subject to the provisions
of such covenant.
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"Voting Equity Interests" means Equity Interests in a corporation or other
Person with voting power under ordinary circumstances entitling the holders
thereof to elect the Board of Directors or other governing body of such
corporation or Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the sum of the
products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required scheduled payment
of principal, including payment of final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (b) the then outstanding
aggregate principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary all of
the outstanding Voting Equity Interests (other than directors' qualifying
shares) of which are owned, directly or indirectly, by the Company.
REGISTRATION RIGHTS; ADDITIONAL INTEREST
Holders of Exchange Notes are not entitled to any registration rights with
respect to the Exchange Notes. Pursuant to the Registration Rights Agreement,
the Company has agreed to file with the Commission on or before the Filing Date,
an offer to exchange (the "Exchange Offer") any and all of the Registrable
Securities for a like aggregate principal amount of senior debt securities of
the Company which are identical to the Outstanding Notes (the "Exchange
Securities") (and which are entitled to the benefits of the Indenture or a trust
indenture which is substantially identical to the Indenture (other than such
changes as are necessary to comply with any requirements of the Commission to
effect or maintain the qualification of such trust indenture under the Trust
Indenture Act (the "TIA")) and which has been qualified under the TIA), except
that the Exchange Securities shall have been registered pursuant to an effective
registration statement under the Securities Act and shall contain no restrictive
legend thereon. The Exchange Notes are intended to constitute Exchange
Securities under the Registration Rights Agreement. The Company has agreed to
use its reasonable best efforts to (i) cause such registration statement to
become effective and commence the Exchange Offer on or prior to the
Effectiveness Date, (ii) keep the Exchange Offer open for 30 days (or longer if
required by applicable law) (the last day of such period, the "Expiration Date")
and (iii) exchange Exchange Securities for all Notes validly tendered and not
withdrawn pursuant to the Exchange Offer on or prior to the fifth day following
the Expiration Date. The Company will cause a copy of any notice regarding the
Exchange Offer to be published in a daily newspaper with general circulation in
Luxembourg (which is expected to be the Luxemburger Wort).
The Company has agreed to use its reasonable best efforts to keep such
registration statement effective and to amend and supplement the prospectus
contained therein in order to permit such prospectus to be lawfully delivered by
all persons subject to the prospectus delivery requirements of the Securities
Act for at least 180 days (or such shorter time as such persons must comply with
such requirements in order to resell the Exchange Securities) (the "Applicable
Period").
The Exchange Offer and the Registration Statement (of which this Prospectus
constitutes a part) filed in connection with the Exchange Offer are intended to
satisfy the Company's obligations under the Registration Rights Agreement. If
the Company does not consummate the Exchange Offer, or, in lieu thereof, the
Company does not file and cause to become effective a resale shelf registration
for the Notes within the time periods set forth herein, special interest will
accrue and be payable on the Notes either temporarily or permanently.
Although the Company has filed the Registration Statement in satisfaction
of its obligations under the Registration Rights Agreement, as previously
described, there can be no assurance that the Registration Statement will become
effective. If, (i) because of any change in law or in currently prevailing
interpretations of the Staff of the Commission, the Company is not permitted to
effect the Exchange Offer, (ii) the Exchange Offer is not commenced on or prior
to the Effectiveness Date, (iii) the Exchange Offer is not, for any reason,
consummated on or prior to the 165th day after the Issue Date, (iv) any Holder
of Private Exchange Securities (as defined in the Registration Rights Agreement)
so requests, or (v) in the case of any Holder that
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participates in the Exchange Offer, such Holder does not receive Exchange
Securities on the date of the exchange that may be sold without restriction
under state and federal securities laws (the occurrence of any such event, a
"Shelf Registration Event"), then, in the case of each of clauses (i) to and
including (v) of this sentence, the Company shall promptly deliver to the
Holders and the Trustee notice thereof (the "Shelf Notice") and shall thereafter
file an Initial Shelf Registration Statement pursuant to the terms of the
Registration Rights Agreement.
SHELF REGISTRATION
If a Shelf Registration Event has occurred (and whether or not this
Registration Statement has become effective, or the Exchange Offer has been
consummated), then:
Initial Shelf Registration Statement. The Company shall promptly
prepare and file with the Commission a Registration Statement for an
offering to be made on a continuous basis pursuant to Rule 415 covering all
of the Registrable Securities (the "Initial Shelf Registration Statement").
The Company shall file with the Commission the Initial Shelf Registration
Statement on or prior to the Filing Date. The Initial Shelf Registration
Statement shall be on Form S-1 or another appropriate form if available,
permitting registration of such Registrable Securities for resale by such
holders in the manner designated by them (including, without limitation, in
one or more underwritten offerings). The Company shall not permit any
securities other than the Registrable Securities to be included in the
Initial Shelf Registration Statement or any Subsequent Shelf Registration
Statement. The Company shall use its reasonable best efforts to cause the
Initial Shelf Registration Statement to be declared effective under the
Securities Act on or prior to the Effectiveness Date, and to keep the
Initial Shelf Registration Statement continuously effective under the
Securities Act until the date which is 24 months from the Issue Date (or
such shorter period under Rule 144 under the Securities Act then in effect
permitting resales of securities by non-affiliates of the issuer without
registration), or such shorter period ending when (i) all Registrable
Securities covered by the Initial Shelf Registration Statement have been
sold in the manner set forth and as contemplated in the Initial Shelf
Registration Statement or (ii) a Subsequent Shelf Registration Statement
covering all of the Registrable Securities has been declared effective
under the Securities Act (such period, the "Effectiveness Period").
Subsequent Shelf Registration Statements. If the Initial Shelf
Registration Statement or any Subsequent Shelf Registration Statement
ceases to be effective for any reason at any time during the Effectiveness
Period (other than because of the sale of all of the securities registered
thereunder), the Company shall use its reasonable best efforts to obtain
the prompt withdrawal of any order suspending the effectiveness thereof,
and in any event the Company shall within 45 days of such cessation of
effectiveness amend the Shelf Registration Statement in a manner reasonably
expected to obtain the withdrawal of the order suspending the effectiveness
thereof, or file an additional "shelf" Registration Statement pursuant to
Rule 415 covering all of the Registrable Securities (a "Subsequent Shelf
Registration Statement"). If a Subsequent Shelf Registration Statement is
filed, the Company shall use its reasonable best efforts to cause the
Subsequent Shelf Registration Statement to be declared effective as soon as
reasonably practicable after such filing and to keep such Registration
Statement continuously effective until the end of the Effectiveness Period.
As used herein the term "Shelf Registration Statement" means the Initial
Shelf Registration Statement and any Subsequent Shelf Registration
Statement.
Supplements and Amendments. The Company shall promptly supplement and
amend the Shelf Registration Statement if required by the rules,
regulations or instructions applicable to the registration form used for
such Shelf Registration Statement, if required by the Securities Act, or if
reasonably requested by the Holders of a majority in aggregate principal
amount of the Registrable Securities covered by such Registration Statement
or by any underwriter of such Registrable Securities.
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ADDITIONAL INTEREST
The Company agrees to pay, as liquidated damages, additional interest on
the Notes ("Additional Interest") under the circumstances and to the extent set
forth below (each of which shall be given independent effect):
(i) if either the Registration Statement or the Initial Shelf
Registration Statement has not been filed on or prior to the Filing Date
(unless, with respect to the Registration Statement, a Shelf Event
described in clause (i) of the third paragraph under "-- Exchange Offer"
above shall have occurred prior to the Filing Date), Additional Interest
shall accrue on the Notes over and above the stated interest on the
principal at a rate equal to 50 basis points for the first 90 days (for any
part thereof), immediately following such date, such Additional Interest
increasing by an additional 50 basis points for each subsequent 90-day
period (or any part thereof);
(ii) if either the Registration Statement or the Initial Shelf
Registration Statement is not declared effective by the Commission on or
prior to the Effectiveness Date (unless, with respect to the Registration
Statement, a Shelf Event described in clause (i) of the third paragraph
under "-- Exchange Offer" above shall have occurred), Additional Interest
shall accrue on the Notes included or which should have been included in
such Registration Statement over and above the stated interest on the
principal at a rate equal to 50 basis points for the first 90 days (for any
part thereof), immediately following the day after such date, such
Additional Interest increasing by an additional 50 basis points for each
subsequent 90-day period (or any part thereof); and
(iii) if (A) the Company has not exchanged Exchange Securities for all
Notes validly tendered and not withdrawn in accordance with the terms of
the Exchange Offer on or prior to the fifth day after the Expiration Date,
or (B) the Registration Statement ceases to be effective at any time prior
to the Expiration Date, or (C) if applicable, any Shelf Registration
Statement has been declared effective and such Shelf Registration Statement
ceases to be effective at any time during the Effectiveness Period, then
Additional Interest shall accrue on the Notes (over and above any interest
otherwise payable on principal of the Notes) in an amount equal to 50 basis
points for the first 90 days (or any part thereof) commencing on the (x)
sixth day after the Expiration Date, in the case of (A) above, or (y) the
day the Registration Statement ceases to be effective in the case of (B)
above, or (z) the day such Shelf Registration Statement ceases to be
effective in the case of (C) above, such Additional Interest increasing by
an additional 50 basis points at the beginning of each such subsequent
90-day period (or any part thereof);
provided, however, that the Additional Interest rate on the Notes may not exceed
at any one time in the aggregate 150 basis points, provided further, that (1)
upon the filing of the Exchange Offer Registration Statement or a Shelf
Registration Statement as required hereunder (in the case of clause (i) of this
paragraph), (2) upon the effectiveness of the Registration Statement or the
Shelf Registration Statement as required hereunder (in the case of clause (ii)
of this paragraph) or (3) upon the exchange of Exchange Securities for all Notes
validly tendered and not withdrawn (in the case of clause (iii)(A) of this
paragraph), or upon the effectiveness of the Registration Statement which had
ceased to remain effective (in the case of (iii)(B) of this paragraph), or upon
the effectiveness of the Shelf Registration Statement which had ceased to remain
effective (in the case of (iii)(C) of paragraph), Additional Interest on the
Notes as a result of such clause (or the relevant subclause thereof), as the
case may be, shall cease to accrue (but any accrued amount shall be payable).
DEFINITIONS
As used in this section, the following terms shall have the following
meanings:
Effectiveness Date: The 135th day after the Closing Date; provided,
however, that, with respect to the Initial Shelf Registration Statement, (i) if
the Filing Date in respect thereof is fewer than 60 days prior to the 135th day
after the Closing Date, then the Effectiveness Date in respect thereof shall be
the 60th day after such Filing Date and (ii) if the Filing Date is after the
filing of the Registration Statement with the Commission, then the Effectiveness
Date in respect thereof shall be the 60th day after such Filing Date.
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Filing Date: The 90th day after the Closing Date; provided, however, that,
with respect to the Initial Shelf Registration Statement, (i) if a Shelf
Registration Event shall have occurred fewer than 30 days prior to the 90th day
after the Closing Date, then the Filing Date in respect thereof shall be the
30th day after such Shelf Registration Event and (ii) if a Shelf Registration
Event shall have occurred after the filing of the Registration Statement with
the Commission, then the Filing Date in respect thereof shall be the 30th day
after such Shelf Registration Event.
Registrable Securities: The Outstanding Notes upon original issuance
thereof and at all times subsequent thereto, each Exchange Security as to which
clause (v) of the third paragraph under "-- Exchange Offer" above is applicable
upon original issuance and at all times subsequent thereto and, if issued, the
Private Exchange Securities, until in the case of any such Outstanding Notes,
Exchange Securities or Private Exchange Securities as the case may be, (i) a
Registration Statement (other than, with respect to any Exchange Security as to
which clause (v) of the third paragraph under "-- Exchange Offer" above is
applicable, the Registration Statement) covering such Outstanding Notes,
Exchange Securities or Private Exchange Securities has been declared effective
by the Commission and such Outstanding Notes, Exchange Securities or Private
Exchange Securities, as the case may be, have been disposed of in accordance
with such effective Registration Statement, (ii) such Outstanding Notes,
Exchange Securities or Private Exchange Securities, as the case may be, are sold
in compliance with Rule 144 under the Securities Act, (iii) such Outstanding
Note has been exchanged for an Exchange Note pursuant to the Exchange Offer and
clause (v) of paragraph (b) of "-- Exchange Offer" above is not applicable
thereto, or (iv) such Outstanding Notes, Exchange Securities or Private Exchange
Securities, as the case may be, cease to be outstanding.
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CERTAIN TAX CONSIDERATIONS
The following is a summary of the principal Netherlands and United States
federal tax consequences to U.S. Holders (as defined below) of the exchange of
Outstanding Notes for Exchange Notes pursuant to the Exchange Offer and the
ownership and disposition of Exchange Notes by a holder acquiring the Exchange
Notes pursuant to the Exchange Offer. The summary is based on the opinion of
Shearman & Sterling as to United States federal income tax matters. This
discussion is not exhaustive of all the possible tax considerations and
potential investors are advised to consult their own tax advisors in order to
determine the final tax consequences of exchanging Outstanding Notes for
Exchange Notes in their own particular circumstances.
THE NETHERLANDS
This summary is based on the tax laws of the Netherlands, as well as the
Convention between the United States of America and the Kingdom of the
Netherlands for the Avoidance of Double Taxation and the Prevention of Fiscal
Evasion with respect to Taxes on Income (the "Treaty"), to the extent they were
published and effective on October 1, 1997. Changes made to these laws after
that date may have retroactive effect, and may affect the tax consequences
described herein.
The outline below is based on the assumption that the U.S. Holder is not,
and has not been for at least five years, a resident of the Netherlands for
purposes of Dutch tax legislation and is not engaged in a trade or business
through a branch or agency in the Netherlands and does not have a permanent
establishment therein (a "Non-Resident Holder"). In addition, it is assumed that
holders who are individuals do not own, either alone or together with related
individuals, 25% or more of any class of shares of HER Finally it is assumed
that the limitation on benefits provision in the Treaty cannot be invoked
against the holder.
GENERAL APPLICATION OF DUTCH TAX LAW
A Non-Resident Holder of Notes is liable for Corporate or Individual Income
Tax ("CIT" or "IIT"), according to Dutch Law, if he/she receives interest with
respect to the Notes provided that either (i) he or she has, directly or
indirectly, a substantial interest or a deemed substantial interest (as defined
below) in HER or (ii) such interest is attributable to a Dutch enterprise.
Similarly, the capital gains realized upon sale of the Outstanding Notes are
only taxable if the Notes are (deemed to be) part of such "substantial"
interest.
A substantial interest is deemed to exist if the Non-Resident Holder,
either alone or together with related individuals, owns at least five percent of
the share capital in any class of shares issued by HER or if he/she holds an
option to buy at least 5% in any class of shares in the capital of HER
INTEREST -- WITHHOLDING TAX AND TAX TREATY LIMITATIONS
According to article 12 of the Treaty, interest can only be subject to
CIT/IIT in the country of residence of the recipient of the interest. As a
result, no Dutch CIT or IIT will be due on interest received on the Notes.
In addition, the Netherlands does not levy any withholding taxes on the
payment of interest, provided that these payments do not depend and/or are not
deemed to be dependent on the profits realized and/or distributed by the company
paying the interest. If such link can be established, payments are likely to be
reclassified as payments of dividends. Although amounts reclassified as
dividends generally would be subject to Dutch withholding tax when paid to a
Non-Resident Holder, it does not appear that any substantial basis exists for
such reclassification. The forced reduction under the Treaty of the maximum
withholding tax to zero in such a case would, however, be irrelevant.
CAPITAL GAINS
As a result of article 14 of the Treaty, the Dutch intention to impose CIT
or IIT on capital gains realized upon disposal of any or all of the Notes by a
Non-Resident Holder can only be effectuated, where a Holder who is an
individual, at the time of the alienation, owns, either alone or together with
related individuals, at least 25% of any class of shares of the Company.
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EXCHANGE OFFER
Pursuant to the Exchange Offer contemplated by the Company herein, an
exchange of Outstanding Notes for Exchange Notes will not be a taxable event for
Netherlands income tax purposes.
THE UNITED STATES
The following is a summary of the principal U.S. federal income tax
considerations relevant to the purchase, ownership and disposition of the Notes.
This summary is based on the Internal Revenue Code of 1986, as amended (the
"Code"), existing and proposed Treasury Regulations, revenue rulings,
administrative interpretations and judicial decisions (all as currently in
effect and all of which are subject to change, possibly with retroactive
effect). Except as specifically set forth herein, this summary deals only with
Notes held as capital assets within the meaning of Section 1221 of the Code.
This summary does not discuss all of the tax consequences that may be relevant
to holders in light of their particular circumstances or to holders subject to
special tax rules, such as insurance companies, dealers in securities or foreign
currencies, tax-exempt investors, persons holding the Notes as part of a hedging
transaction, "straddle," conversion transaction, or other integrated
transaction, or U.S. Holders whose functional currency (as defined in Section
985 of the Code) is not the U.S. dollar. Persons considering the exchange of
Outstanding Notes for Exchange Notes should consult with their own tax advisors
with regard to the application of the U.S. federal income tax laws to their
particular situations as well as any tax consequences arising under the laws of
any state, local or foreign jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of a Note
who or that is for U.S. federal income tax purposes (i) a citizen or individual
resident of the United States, (ii) a corporation created or organized in or
under the laws of the United States or any political subdivision thereof, (iii)
a domestic partnership within the meaning of the Code (i.e., a partnership
created or organized in or under the laws of the United States or any political
subdivision thereof, unless future Treasury regulations provide otherwise), (iv)
an estate the income of which is subject to U.S. federal income taxation
regardless of its source, or (v) a trust if both: (A) a U.S. court is able to
exercise primary supervision over the administration of the trust, and (B) one
or more U.S. persons have the authority to control all substantial decisions of
the trust. A "Foreign Holder" means a holder of Notes who or that is not a U.S.
Holder.
INTEREST
Interest on the Notes and Additional Amounts, if any, paid in respect of
withholding taxes imposed on payments on the Notes (as described in "Description
of the Notes -- Payments of Additional Amounts") generally will be taxable to a
U.S. Holder as ordinary income at the time accrued or received, in accordance
with such U.S. Holder's method of accounting for U.S. federal income tax
purposes. The amount of interest required to be included in income by a U.S.
Holder will include the amount of such taxes, if any, withheld by the Company in
respect thereof. Thus, in the event of such withholding, a U.S. Holder would be
required to report gross income in an amount greater than the cash it receives
in respect of payments on its Note. However, a U.S. Holder could, subject to
certain limitations, be eligible to claim as a credit or deduction for purposes
of computing its U.S. federal income tax liability such taxes withheld,
notwithstanding that the payment of such taxes will be made by the Company. The
rules relating to foreign tax credits and the timing thereof are extremely
complex and U.S. Holders should consult with their own tax advisors with regard
to the availability of a foreign tax credit and the application of the foreign
tax credit limitations to their particular situations.
EXCHANGE OFFER; ADDITIONAL INTEREST; ADDITIONAL AMOUNTS
Pursuant to the Exchange Offer contemplated by the Company herein, in the
opinion of Shearman & Sterling an exchange of Outstanding Notes for Exchange
Notes will not be a taxable event for U.S. federal income tax purposes and a
U.S. Holder will have the same tax basis and holding period in the Exchange
Notes as in the Outstanding Notes. The Company will be required to pay
Additional Interest in certain circumstances as described in "Description of
Notes -- Registration Rights; Additional Interest" herein. Also, subject to
certain exceptions, the Company will pay Additional Amounts to Holders in the
event that withholding taxes are imposed in respect to payments on the Notes.
See "Description of the Notes --
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Additional Amounts." According to the Treasury Regulations, the possibility of
additional payments in respect of the Notes will not affect their yield (and,
accordingly, will not affect the inclusion of interest in income) if the
likelihood of such payments, as of the date the Notes are issued, is remote. The
Company does not intend to treat the possibility of additional interest as
affecting the yield to maturity of any Note. If, however, additional payments
are made on the Notes, then, solely for the purposes of determining the yield to
maturity of a Note, the Note could be treated as reissued with "original issue
discount," which could result in a U.S. Holder having to include amounts in
income prior to the receipt of payments in respect thereof.
MARKET DISCOUNT AND PREMIUM
If a U.S. Holder purchases a Note for an amount that is less than its
principal amount, the amount of the difference will be treated as "market
discount" for U.S. federal income tax purposes, unless such difference is less
than a specified de minimis amount.
Under the market discount rules of the Code, a U.S. Holder will be required
to treat any partial principal payment on, or any gain realized on the sale,
exchange, retirement or other disposition of, a Note as ordinary income to the
extent of the lesser of (i) the amount of such payment or realized gain or (ii)
the market discount that has not previously been included in income and is
treated as having accrued on such Note at the time of such payment or
disposition. If such Note is disposed of in a nontaxable transaction (other than
a nonrecognition transaction described in Code Section 1276(c)), the amount of
gain realized on such disposition for purposes of the market discount rules
shall be determined as if such holder had sold the Note at its then fair market
value. Market discount will be considered to accrue on a straight-line basis
during the period from the date of acquisition to the maturity date of the Note,
unless the U.S. Holder elects to accrue on the basis of a constant interest
rate.
A U.S. Holder may be required to defer the deduction of all or a portion of
the interest paid or accrued on any indebtedness incurred or maintained to
purchase or carry such Note until the maturity of the Note or its earlier
disposition (except for certain nonrecognition transactions). However, a U.S.
Holder may elect to include market discount in income currently as it accrues
(on either a straight-line or a constant interest rate basis), in which case the
rules described above regarding the treatment as ordinary income of gain upon
the disposition of the Note and upon the receipt of certain cash payments and
regarding the deferral of interest deductions will not apply.
If a U.S. Holder purchases a Note for an amount that is greater than the
amount payable at maturity (or on the earlier call date, in the case of a Note
that is redeemable at the option of the Company), such holder will be considered
to have purchased such Note with "amortizable bond premium" equal in amount to
such excess, and may elect (in accordance with applicable Code provisions) to
amortize such premium, using a constant yield method over the remaining term of
the Note and to offset interest otherwise required to be included in income in
respect of such Note during any taxable year by the amortized amount of such
excess for such taxable year. However, if such Note may be optionally redeemed
after the U.S. Holder acquires it at a price in excess of its stated redemption
price at maturity, special rules would apply which could result in a deferral of
the amortization of some bond premium until later in the term of such Note. If
an election to amortize bond premium is not made, a U.S. Holder must include the
full amount of each interest payment in income in accordance with such U.S.
Holder's regular method of accounting and will receive a tax benefit from the
premium only in computing its gain or loss upon the sale or other disposition or
payment of the principal amount of the Note.
U.S. Holders are permitted to elect to include all interest on a Note using
the constant yield method. For this purpose, interest includes stated interest,
acquisition discount, market discount, de minimis market discount, and unstated
interest, as adjusted by any amortizable bond premium or acquisition premium.
Special rules apply to such elections made with respect to Notes with
amortizable bond premium or market discount and U.S. Holders considering such an
election should consult with their own tax advisors. Once made, the election
cannot be revoked without the consent of the IRS.
DISPOSITIONS
Upon the sale, exchange or retirement of a Note, a U.S. Holder generally
will recognize taxable gain or loss equal to the difference between the amount
realized on the sale, exchange or retirement and such holder's adjusted tax
basis (as increased by any market discount previously includible in income by
the U.S. Holder
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and decreased by amortizable bond premium, if any, deducted over the term of the
Notes) in the Note. For these purposes, the amount realized on the sale,
exchange or retirement of a Note does not include any amount attributable to
accrued but unpaid interest, which will be taxable as such unless previously
taken into account. Gain or loss recognized on the sale, exchange or retirement
of a Note will be capital gain or loss and will be long-term capital gain or
loss if the Note was held for more than one year. Under recently enacted
legislation, an individual generally will be taxed on the net amount of his or
her capital gain derived in respect of the Notes at a maximum rate of (i) 28%,
for Notes held for more than one year but not more than 18 months, or (ii) 20%,
for Notes held for more than 18 months. Special rules (and generally lower
maximum rates) apply for individuals in lower tax brackets.
BACKUP WITHHOLDING
"Backup" withholding and information reporting requirements may apply to
certain payments of principal and interest on a Note and to certain payments of
proceeds of the sale or retirement of a Note. The Company, its agent, a broker,
the Trustee or any paying agent, as the case may be, will be required to
withhold tax from any payment that is subject to backup withholding at a rate of
31% of such payment if the U.S. Holder fails to furnish his taxpayer
identification number (social security number or employer identification number)
within a reasonable time after a request therefor, to certify that such U.S.
Holder is not subject to backup withholding, or to otherwise comply with the
applicable requirements of the backup withholding rules. Certain U.S. Holders
(including, among others, all corporations) are not subject to the backup
withholding and information reporting requirements.
Under current Treasury Regulations, backup withholding and information
reporting will not apply to payments made by the Company or any agent thereof
(in its capacity as such) to a Holder of a Note who has provided certain
required certification under penalties of perjury that it is not a U.S. Holder
or has otherwise established an exemption (provided that neither the Company nor
such agent has actual knowledge that the Holder is a U.S. Holder or that the
conditions of any other exemption are in fact satisfied).
Payment of the proceeds from the sale by a U.S. Holder of a Note made to or
through a non-U.S. office of a broker will not be subject to U.S. information
reporting or backup withholding, except that, if the broker is a U.S. person, a
controlled foreign corporation for U.S. federal income tax purposes or a foreign
person 50% or more of whose gross income is effectively connected with a United
States trade or business for a specified three-year period, U.S. information
reporting, but not backup withholding, may apply to such payments. Payments of
the proceeds from the sale of a Note to or through the United States office of a
broker are subject to U.S. information reporting and backup withholding unless
the Holder certifies as to its non-U.S. status or otherwise establishes an
exemption from U.S. information reporting and backup withholding.
Any amounts withheld under the backup withholding rules from a payment to a
Holder may be claimed as a credit against such Holder's U.S. federal income tax
liability; provided that the required information is provided to the IRS.
FOREIGN HOLDERS
Foreign Holders generally will not be subject to U.S. federal income or
withholding tax on (a) interest and Additional Amounts, if any, in respect of
the Notes unless such payments are effectively connected with the conduct by the
Foreign Holder of a trade or business within the United States, or (b) gains
realized on the sale, exchange or retirement of a Note unless (i) such gain is
effectively connected with the conduct by the Foreign Holder of a trade or
business within the United States or (ii) in the case of gain realized by an
individual Foreign Holder, the Foreign Holder is present in the United States
for 183 days or more in the taxable year of the disposition and certain other
conditions are met.
Notes held (or treated as held) by an individual who is a Foreign Holder at
the time of his or her death will not be subject to U.S. federal estate tax,
provided that any interest on the Notes would have qualified as portfolio
interest if received by such individual at the time of his or her death.
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PLAN OF DISTRIBUTION
Based on positions taken by the staff of the Commission set forth in
no-action letters issued to Exxon Capital Holdings Corp. and Morgan Stanley &
Co. Inc., among others, the Company believes that Exchange Notes issued pursuant
to the Exchange Offer in exchange for Outstanding Notes may be offered for
resale, resold and otherwise transferred by holders thereof (other than any
holder which is (i) an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act, (ii) a broker-dealer who acquired Notes directly from
the Company, or (iii) broker-dealers who acquired Notes as a result of
market-making or other trading activities) without compliance with the
registration and prospectus delivery provisions for the Securities Act provided
that such Exchange Notes are acquired in the ordinary course of such holders'
business, and such holders are not engaged in, and do not intend to engage in,
and have no arrangement or understanding with any person to participate in, a
distribution of such Exchange Notes; provided that broker-dealers
("Participating Broker-Dealers") receiving Exchange Notes in the Exchange Offer
will be subject to a prospectus delivery requirement with respect to resales of
such Exchange Notes. To date, the staff of the Commission has taken the position
that Participating Broker-Dealers may fulfill their prospectus delivery
requirements with respect to transactions involving an exchange of securities
such as the exchange pursuant to the Exchange Offer (other than a resale of an
unsold allotment from the sale of the Outstanding Notes to the Initial
Purchasers thereof) with the Prospectus contained in the Exchange Offer
Registration Statement. Pursuant to the Registration Rights Agreement, the
Company has agreed to permit Participating Broker-Dealers and other persons, if
any, subject to similar prospectus delivery requirements to use this Prospectus
in connection with the resale of such Exchange Notes. The Company has agreed
that, for a period of 180 days after the Exchange Offer has been consummated, it
will make this Prospectus, and any amendment or supplement to this Prospectus,
available to any broker-dealer that requests such documents in the Letter of
Transmittal.
Each holder of Outstanding Notes who wishes to exchange its Outstanding
Notes for Exchange Notes in the Exchange Offer will be required to make certain
representations to the Company as set forth in "Terms of the Exchange
Offer -- Terms and Conditions of the Letter of Transmittal". In addition, each
holder who is a broker-dealer and who receives Exchange Notes for its own
account in exchange for Outstanding Notes that were acquired by it as a result
of market-making activities or other trading activities, will be required to
acknowledge that it will deliver a prospectus in connection with any resale by
it of such Exchange Notes.
Holders who tender Outstanding Notes in the Exchange Offer with the
intention to participate in a distribution of the Exchange Notes may not rely
upon the Morgan Stanley or similar no-action letters.
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or at negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer and/or the purchasers of any such Exchange Notes. The Letter
of Transmittal states that by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter' within the meaning of the Securities Act.
The Company has agreed to pay all expenses incidental to the Exchange Offer
other than commissions and concessions of any brokers or dealers and will
indemnify holders of the Outstanding Notes (including any broker-dealers)
against certain liabilities, including liabilities under the Securities Act, as
set forth in the Registration Rights Agreement.
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LEGAL MATTERS
Certain legal matters regarding the validity of the Exchange Notes offered
hereby and the United States federal income tax consequences of the Exchange
Offer will be passed upon for the Company by Shearman & Sterling.
EXPERTS
The consolidated financial statements of Hermes Europe Railtel B.V. at
December 31, 1995 and 1996, and for each of the two years in the period ended
December 31, 1996, appearing in this Prospectus and Registration Statement have
been audited by Ernst & Young Reviseurs d'Entreprises S.C.C., independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
GENERAL LISTING INFORMATION
LISTING
Application has been made to list the Exchange Notes on the Luxembourg
Stock Exchange. The Articles of Association of the Company and the legal notices
relating to the exchange of the Outstanding Notes for the Exchange Notes will be
deposited prior to the listing with the Registrar of the District Court in
Luxembourg (Greffier en Chef du Tribunal d'Arrondissement a Luxembourg), where
such documents are available for inspection and where copies thereof can be
obtained upon request. As long as the Exchange Notes are listed on the
Luxembourg Stock Exchange, an Agent for making payments on, and transfers of,
Exchange Notes will be maintained in Luxembourg.
CONSENTS
The Company has obtained all necessary consents, approvals and
authorizations in connection with the exchange of Outstanding Notes for Exchange
Notes. The issue of the Notes was authorized by resolutions of the Board of
Supervisory Directors of the Company passed on July 22, 1997.
NO MATERIAL CHANGE
Except as disclosed in this Prospectus, there has been no material adverse
change in the financial position of the Company and its subsidiaries since June
30, 1997.
LITIGATION
Neither the Company nor any of its subsidiaries or affiliates is involved
in any litigation or arbitration proceedings which relate to claims or amounts
which are material in the context of the issue of the Notes or that may have, or
have had during the 12 months preceding the date of this Prospectus, a material
adverse effect on the financial position of the Company, nor, so far as any of
them is aware, is any such proceeding pending or threatened.
FINANCIAL STATEMENTS
The consolidated accounts of the Company for the two years ended December
31, 1996 have been prepared in accordance with United States generally accepted
accounting principles ("U.S. GAAP"). The unaudited consolidated interim accounts
for the nine months ended September 30, 1996 and 1997 were prepared in
accordance with U.S. GAAP.
DOCUMENTS FOR INSPECTION
Copies of the following documents may be inspected at the specified office
of the Paying and Transfer Agent in Luxembourg.
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- Articles of Association of the Company;
- the Purchase Agreement, Registration Rights Agreement and Escrow
Agreement relating to the Notes; and
- the Indenture relating to the Notes (which includes the form of the Note
certificates).
In addition, copies of the most recent consolidated financial statements of
the Company for the preceding financial year, and any interim quarterly
financial statements published by the Company, will be available at the
specified office of the Paying and Transfer Agent in Luxembourg for as long as
the Notes are listed on the Luxembourg Stock Exchange. The Company publishes
only consolidated financial statements.
CLEARING SYSTEMS
The Notes distributed pursuant to Regulation S and represented by the
Regulation S Global Certificate have been accepted for clearance through the
facilities of Euroclear and Cedel. Relevant trading information is set forth
below. The ISIN number is USN40243AA09. The CUSIP number for the Notes
distributed pursuant to Rule 144A represented by the Restricted Global
Certificate is 427516AA7 and for the Notes distributed pursuant to Regulation S
and represented by the Regulation S Global Certificate is N40243AA0.
NOTICES
All notices shall be deemed to have been given upon (i) the mailing by
first class mail, postage prepaid, of such notices to Holders of the Notes at
their registered addresses as recorded in the Register; and (ii) so long as the
Notes are listed on the Luxembourg Stock Exchange and it is required by the
rules of the Luxembourg Stock Exchange, publication of such notice to the
Holders of the Notes in English in a leading newspaper having general
circulation in Luxembourg (which is expected to be the Luxembourg Wort) or, if
such publication is not practicable, in one other leading English language daily
newspaper with general circulation in Europe, such newspaper being published on
each Business Day in morning editions, whether or not it shall be published in
Saturday, Sunday or holiday editions.
95
<PAGE> 102
GLOSSARY
Accounting Rate Mechanism (ARM). The current system of bilateral
settlement agreements between PTOs under which tariffs for cross-border
pan-European-switched voice traffic are determined.
Add-drop multiplexer (ADM). A multiplexer which controls cross connect
between individual circuits by software, permitting dynamic cross connect of
individual 64 kbps circuits within an E1 line.
Asynchronous Transfer Mode (ATM). A switching and transmission technology
that is one of a general class of packet technologies that relay traffic by way
of an address contained within the first five bits of a standard fifty-three
bit-long packet or cell. ATM-based packet transport was specifically developed
to allow switching and transmission of mixed voice, data and video at varying
rates. The ATM format can be used by many different information systems,
including LANs.
Bps. Bits per second; the basic measuring unit of speed in a digital
transmission system; the number of bits that a transmission facility can convey
between a sending location and a receiving location in one second.
Backbone. The through-portions of a transmission network, as opposed to
spurs which branch off the through-portions.
Bandwidth. The range of frequencies that can be passed through a medium,
such as glass fibers, without distortion. The greater the bandwidth, the greater
the information-carrying capacity of such medium. For fiber optic transmission,
electronic transmitting devices determine the bandwidth, not the fibers
themselves. Bandwidth is measured in Hertz (analog) or Bits Per Second
(digital).
Capacity. Refers to transmission.
Carrier. A provider of communications transmission services by fiber, wire
or radio.
CCITT. International Telegraph and Telephone Consultative Committee.
Closed User Group. A group of customers with some affiliation with one
another and which are treated for regulatory purposes as not being the public.
Competitive Local Telecommunications Provider. A company that provides its
customers with an alternative to the local telephone company for local transport
of private line, special access and transport of switched access
telecommunications services. Competitive Local Telecommunications Providers are
also referred to in the industry as alternative local telecommunications service
providers (ALTS), Competitive Access Providers (CAPs) and Competitive Local
Exchange Carriers (CLECs).
Dark Fiber. Fiber that lacks the requisite electronic and optronic
equipment necessary to use the fiber for transmission.
Dedicated. Refers to telecommunications lines dedicated to or reserved for
use by particular customers along predetermined routes (in contrast to
telecommunications lines within the local telephone company's public switched
network).
Digital. Describes a method of storing, processing and transmitting
information through the use of distinct electronic or optical pulses that
represent the binary digits 0 and 1. Digital transmission/switching technologies
employ a sequence of discrete, distinct pulses to represent information, as
opposed to the continuously variable analog signal.
E1. Data transmission rate of approximately 2 Mbps.
E3. Data transmission rate of approximately 34 Mbps.
Enhanced Network Services. Telecommunications services providing digital
connectivity, primarily for data applications, via frame relay, ATM, or digital
interexchange private line facilities. Enhanced network services also include
applications on such networks, including Internet access and other Internet
services.
Frame Relay. A wide area transport technology that organizes data into
units called frames instead of providing fixed bandwidth as with private lines.
A high-speed, data-packet switching service used to transmit data between
computers. Frame Relay supports data units of variable lengths at access speeds
ranging from 56 kilobits per second to 1.5 megabits per second. This service is
well-suited for connecting local area networks, but is not presently well suited
for voice and video applications due to the variable delays which can occur.
Frame Relay was designed to operate at high speeds on modern fiber optic
networks.
96
<PAGE> 103
Gbps. Gigabits per second, which is a measurement of speed for digital
signal transmission expressed in billions of bits per second.
Hertz. The unit for measuring the frequency with which an electromagnetic
signal cycles through the zero-value state between lowest and highest states.
One Hz (Hertz) equals one cycle per second. kHz (kilohertz) stands for thousands
of Hertz; MHz (megahertz) stands for millions of Hertz.
Interconnect. Connection of a telecommunications device or service to the
PSTN.
International Simple Resale. Refers to the wholesale purchase of IPLCs
from facilities-based carriers and the reselling of such capacity to customers
for switched telephone service.
IPLC. International Private Leased Circuits.
ITU. International Telecommunications Union, a worldwide
telecommunications organization under the auspices of the United Nations.
Kbps. Kilobits per second, which is a measurement of speed for digital
signal transmission expressed in thousands of bits per second.
Local Area Network (LAN). The interconnection of computers for the purpose
of sharing files, programs and peripheral devices such as printers and
high-speed modems. LANs may include dedicated computers or file servers that
provide a centralized source of shared files and programs. LANs are generally
confined to a single customer's premises and may be extended or interconnected
to other locations through the use of bridges and routers.
Local Loop. The local loop is that portion of the local telephone network
that connects the customer's premises to the local exchange provider's central
office or switching center. This includes all the facilities starting from the
customer premise interface which connects to the inside wiring and equipment at
the customer premise to a terminating point within the switching wire center.
Mbps. Megabits per second, which is a measurement of speed for digital
signal transmission expressed in millions of bits per second.
Multiplexing. The use of some means to inter-leave narrow-band or
slow-speed data from multiple sources in order to make use of a wide-band or
high-speed channel.
Nodes. Locations within the network housing electronic equipment and/or
switches which serve as intermediate connection points to send and receive
transmission signals.
Plesiochronous Digital Hierarchy (PDH). A method of controlling the timing
between transmission and switching systems that is not synchronized but rather
relies on highly accurate clocks to minimize the slip rates between switching
nodes.
Points of Presence (POPs). Locations where a carrier has installed
transmission equipment in a service area that serves as, or relays calls to, a
network switching center of that carrier.
PSTN. Public switched telecommunications network.
Public Telecommunications Operator (PTO). A licensed telecommunications
common carrier.
Redundant Electronics. Describes a telecommunications facility using two
separate electronic devices to transmit the telecommunications signal so that if
one device malfunctions, the signal may continue without interruption.
Regeneration/amplifier. Devices which automatically re-transmit or boost
signals on an out-bound circuit.
Route Kilometers. The number of kilometers along which fiber optic cables
are installed.
Route Mile. The number of miles along which fiber optic cables are
installed.
STM-1. Data transmission rate of approximately 155 Mbps.
97
<PAGE> 104
STM-4. Data transmission rate of approximately 622 Mbps.
STM-16. Data transmission rate of approximately 2,488 Mbps.
STM-64. Data transmission rate of approximately 9,952 Mbps.
Switch. A sophisticated computer that accepts instructions from a caller
in the form of a telephone number. Like an address on an envelope, the numbers
tell the switch where to route the call. The switch opens or closes circuits or
selects the paths or circuits to be used for transmission of information.
Switching is a process of interconnection circuits to form a transmission path
between users. Switches allow local telecommunications service providers to
connect calls directly to their destination, while providing advanced features
and recording connection information for future billing.
Synchronous Digital Hierarchy (SDH). SDH is a set of standards for optical
communications transmission systems that define optical rates and formats,
signal characteristics, performance, management and maintenance information to
be embedded within the signals and the multiplexing techniques to be employed in
optical communications transmission systems. SDH facilitates the
interoperability of dissimilar vendors' equipment and benefits customers by
minimizing the equipment necessary for telecommunications applications. SDH also
improves the reliability of the local loop connecting customers' premises to the
local exchange provider, historically one of the weakest links in the service
delivery.
Time Division Multiplexing (TDM). A multiplexing technique allowing
multiple signals to be carried simultaneously on a fiber by allocating resources
on a time interval basis.
Trunk. A telephone circuit with a switch at both ends.
Wavelength Division Multiplexing (WDM). A multiplexing technique allowing
multiple different signals to be carried simultaneously on a fiber by allocating
resources according to frequency on non-overlapping frequency bands.
X.25. A CCITT standard governing the interface between data terminals and
data circuit termination equipment for terminals on packet-switched data
networks.
98
<PAGE> 105
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
YEAR END FINANCIAL STATEMENTS
Report of Ernst & Young Reviseurs d'Entreprises S.C.C., Independent Auditors.......... F-2
Audited Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1995 and 1996........................ F-3
Consolidated Statements of Operations for the years ended December 31, 1994, 1995
and 1996 and from inception (July 6, 1993) to December 31, 1996.................. F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995
and 1996 and from inception (July 6, 1993) to December 31, 1996.................. F-5
Consolidated Statements of Shareholders' Equity from inception (July 6, 1993) to
December 31, 1993 and for the years ended December 31, 1994, 1995 and 1996....... F-6
Notes to Consolidated Financial Statements............................................ F-7
SECOND QUARTER FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheets as of December 31, 1996 and September 30,
1997................................................................................ F-16
Condensed Consolidated Statements of Operations for the nine months ended September
30, 1996 and 1997................................................................... F-17
Condensed Consolidated Statements of Cash Flows for the nine months ended September
30, 1996 and 1997................................................................... F-18
Notes to the Condensed Consolidated Financial Statements.............................. F-19
</TABLE>
F-1
<PAGE> 106
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
To the Board of Directors and
the Shareholders of
Hermes Europe Railtel B.V.
We have audited the accompanying consolidated balance sheets of Hermes
Europe Railtel B.V. (a development stage company) as of December 31, 1995 and
1996, and the related consolidated statements of operations, cash flows, and
shareholders' equity for the years ended December 31, 1995 and 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Hermes Europe
Railtel B.V. at December 31, 1995 and 1996, and the consolidated results of its
operations and its cash flows for the years then ended in conformity with United
States generally accepted accounting principles.
Ernst & Young Reviseurs d'Entreprises
S.C.C.
Represented by
L. SWOLFS
Partner
Brussels, Belgium
June 11, 1997 except for Note 9, which
is as of July 15, 1997
F-2
<PAGE> 107
HERMES EUROPE RAILTEL B.V.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA AT
DECEMBER 31,
DECEMBER 31, DECEMBER 31, 1996
1995 1996 (UNAUDITED)
------------ ------------ ------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............................... $ 5,784 $ 2,013 $ 1,125
Restricted cash......................................... -- 3,840 3,840
Accounts receivable..................................... -- 84 84
Due from affiliated companies........................... 67 491 491
Other assets............................................ 579 1,100 1,100
------------ ------------ ------------
Total current assets............................ 6,430 7,528 6,640
Property and equipment, net............................... 4,671 20,303 20,303
------------ ------------ ------------
Total Assets.................................... $ 11,101 $ 27,831 $ 26,943
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses................... $ 4,659 $ 8,476 $ 8,476
Due to affiliated companies............................. 2,117 3,344 3,344
Debt maturing within one year........................... 9 63 63
Other current liabilities............................... -- 24 24
------------ ------------ ------------
Total current liabilities....................... 6,785 11,907 11,907
Long-term debt, less current portion...................... 10 499 499
Pension obligation........................................ -- 8 8
------------ ------------ ------------
Total Liabilities............................... 6,795 12,414 12,414
Commitments and contingencies
Shareholders' loans....................................... 8,353 34,863 --
SHAREHOLDERS' EQUITY
Common stock, 1,000 Dutch guilders par value (305 shares
authorized and 80 shares issued and outstanding at
December 31, 1995 and 1996; 297,000 shares authorized
and 174,679 shares issued and outstanding on a pro
forma basis at December 31, 1996).................... 45 45 88,829
Additional paid-in capital.............................. 2,884 2,884 6,612
Shareholder receivable.................................. -- -- (58,537)
Cumulative translation adjustment....................... (254) 316 316
Deficit accumulated during the development stage........ (6,722) (22,691) (22,691)
------------ ------------ ------------
Total Shareholders' Equity...................... (4,047) (19,446) 14,529
------------ ------------ ------------
Total Liabilities and Shareholders' Equity...... $ 11,101 $ 27,831 $ 26,943
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 108
HERMES EUROPE RAILTEL B.V.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
ACTIVITY
FROM
YEAR ENDED INCEPTION
------------------------------------------ (JULY 6,
DECEMBER 31, 1993) TO
1994 DECEMBER 31, DECEMBER 31, DECEMBER 31,
(UNAUDITED) 1995 1996 1996
------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues...................................... $ -- $ -- $ 48 $ 48
Operating costs and expenses:
Cost of revenues............................ -- -- 4,694 4,694
Selling, general and administrative......... 183 6,637 10,552 17,372
------------ ------------ ------------ ------------
183 6,637 15,246 22,066
------------ ------------ ------------ ------------
Loss from operations.......................... (183) (6,637) (15,198) (22,018)
Other income/(expense):
Interest income............................. 18 125 508 651
Interest expense............................ -- (9) (153) (162)
Foreign currency (losses) gains............. (55) 19 (1,126) (1,162)
------------ ------------ ------------ ------------
(37) 135 (771) (673)
------------ ------------ ------------ ------------
Loss before income taxes...................... (220) $ (6,502) $(15,969) $(22,691)
Income taxes.................................. -- -- -- --
------------ ------------ ------------ ------------
Net Loss...................................... $ (220) $ (6,502) $(15,969) $(22,691)
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 109
HERMES EUROPE RAILTEL B.V.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED ACTIVITY FROM
------------------------------------------ INCEPTION
DECEMBER 31, (JULY 6, 1993) TO
1994 DECEMBER 31, DECEMBER 31, DECEMBER 31,
(UNAUDITED) 1995 1996 1996
------------ ------------ ------------ -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................................. $ (220) $ (6,502) $(15,969) $ (22,691)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization......... 5 11 658 674
Deferred interest..................... -- -- 125 125
Changes in assets and liabilities:
Accounts receivable................. -- -- (84) (84)
Deposits............................ -- (17) (589) (606)
Accounts payable and accrued
expenses......................... 89 4,570 3,817 8,476
Other changes in assets and
liabilities...................... (41) (521) 100 (462)
------------ ------------ ------------ -----------------
Net cash used in operating
activities..................... (167) (2,459) (11,942) (14,568)
INVESTING ACTIVITIES
Purchases of property and equipment...... (52) (4,635) (16,290) (20,977)
Restricted cash.......................... -- -- (3,840) (3,840)
------------ ------------ ------------ -----------------
Net cash used in investing
activities..................... (52) (4,635) (20,130) (24,817)
FINANCING ACTIVITIES
Proceeds from debt....................... -- 19 543 562
Net proceeds from issuance of common
stock................................. 1,028 1,901 -- 2,929
Proceeds from shareholders' loans........ -- 8,353 26,385 34,738
Due to affiliated companies, net......... -- 2,050 803 2,853
------------ ------------ ------------ -----------------
Net cash provided by financing
activities..................... 1,028 12,323 27,731 41,082
Effect of exchange rate changes on cash and
cash equivalents......................... 58 (312) 570 316
------------ ------------ ------------ -----------------
Net increase (decrease) in cash and cash
equivalents.............................. 867 4,917 (3,771) 2,013
Cash and cash equivalents at beginning of
period................................... -- 867 5,784 --
------------ ------------ ------------ -----------------
Cash and cash equivalents at end of
period................................... $ 867 $ 5,784 $ 2,013 $ 2,013
========== ========== ========== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 110
HERMES EUROPE RAILTEL B.V.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the period from July 6, 1993 (date of inception) to December 31, 1993
and the years ended December 31, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL CUMULATIVE DURING THE TOTAL
-------------- PAID-IN TRANSLATION DEVELOPMENT SHAREHOLDERS'
SHARES AMOUNT CAPITAL ADJUSTMENT STAGE EQUITY
------ ------ ---------- ----------- ------------ -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Issuance of shares on July 6, 1993 (date of
inception)................................... 40 $ 21 $ -- $ -- $ -- $ 21
--
--- ------ ------ -------- --------
BALANCE AT DECEMBER 31, 1993................... 40 21 -- -- -- 21
Proceeds from the sale of common stock......... 21 11 996 -- -- 1,007
Translation adjustment......................... -- -- -- 58 -- 58
Net loss....................................... -- -- -- -- (220) (220)
--
--- ------ ------ -------- --------
BALANCE AT DECEMBER 31, 1994................... 61 32 996 58 (220) 866
Proceeds from the sale of common stock......... 19 13 1,888 -- -- 1,901
Translation adjustment......................... -- -- -- (312) -- (312)
Net loss....................................... -- -- -- -- (6,502) (6,502)
--
--- ------ ------ -------- --------
BALANCE AT DECEMBER 31, 1995................... 80 45 2,884 (254) (6,722) (4,047)
Translation adjustment......................... -- -- -- 570 -- 570
Net loss....................................... -- -- -- -- (15,969) (15,969)
--
--- ------ ------ -------- --------
BALANCE AT DECEMBER 31, 1996................... 80 $ 45 $2,884 $ 316 $(22,691) $ (19,446)
== === ====== ====== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 111
HERMES EUROPE RAILTEL B.V.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: NATURE OF BUSINESS OPERATIONS
Hermes Europe Railtel B.V. (the "Company") intends to become the leading
pan-European carriers' carrier by constructing and operating a managed,
seamless, fiber optic, pan-European network, and providing high-quality
trans-border transmission services to telecommunications carriers across Europe.
The Company is 50% owned by HIT Rail B.V.("HIT Rail"), a consortium of
eleven European railway companies and 50% owned by GTS-Hermes,
Inc.("GTS-Hermes"), a U.S. holding company that is a wholly-owned subsidiary of
Global TeleSystems Group, Inc., a provider of a broad range of
telecommunications services to businesses, other telecommunications service
providers and consumers through its operations of voice and data networks,
international gateways, local access and cellular networks and the provision of
various value added services in markets outside of the United States.
The Company is still a development stage enterprise, as currently the
telecommunications network is being configured. The buildout of the network
started in 1996; full commercial services are anticipated to commence in the
first half of 1998.
The Company had working deficits of approximately $4.4 million and $0.4
million as of December 31, 1996 and 1995, respectively. The Company had an
accumulated deficit of $22.7 million as of December 31, 1996, including a net
loss of approximately $16.0 million for the year then ended. During 1997, the
Company expects to incur substantial expenditures for working capital and
capital expenditure requirements. The Company's working capital at December 31,
1996, plus its anticipated cash flows from operations for 1997, will not be
sufficient to meet such objectives as presently planned.
Management recognizes that the Company must generate additional capital
resources in order to continue its buildout of the network. The Company is
pursuing other equity and debt financing sources and has entered into
substantive negotiations with various financial institutions in order to obtain
further debt financing and is expecting to complete a recapitalization (the
"Recapitalization") by the end of August, 1997 (see Note 9, "Subsequent Events
and Pro Forma Adjustments").
The financial statements have been prepared on the basis of accounting
principles applicable to a going concern, which assumes that the Company will
continue in the foreseeable future and will be able to realize its assets and
discharge its liabilities in the normal course of business. If the going concern
assumptions were not appropriate for these financial statements, then
adjustments would have been necessary in the carrying value of assets and
liabilities and the reported revenues and expenses.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The financial statements include the accounts of Hermes Europe Railtel
B.V., its Belgian branch and of Hermes Europe Railtel N.V. All significant
intercompany accounts and transactions are eliminated upon consolidation.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 consolidated financial
statements in order to conform to the 1996 presentation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less at the time of purchase to be cash equivalents. The Company
had $3.8 million of restricted cash at December 31, 1996.
F-7
<PAGE> 112
HERMES EUROPE RAILTEL B.V.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The restricted cash is primarily related to cash held in escrow in compliance
with an agreement with a major vendor.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is calculated on a
straight-line basis over the estimated lives ranging from five to seven years
for telecommunications equipment and three to ten years for furniture, fixtures
and equipment and other property. A substantial part of the costs includes
construction in process, which is currently related to the configuration and
build-out of the network, and these costs primarily consist of labor. These
costs are transferred to telecommunications equipment in service as construction
is completed and/or equipment is placed into service. Depreciation is recorded
commencing with the first full month that the assets are in service. Maintenance
and repairs are charged to expense as incurred.
The Company intends to capitalize material interest costs associated with
the construction of telecommunications equipment; however, no interest costs
have been capitalized as of December 31, 1996.
LONG-LIVED ASSETS
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." In accordance
with SFAS No. 121, long-lived assets to be held and used by the Company are
reviewed to determine whether any events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable. For long-lived
assets to be held and used, the Company bases its evaluation on such impairment
indicators as the nature of the assets, the future economic benefit of the
assets, any historical or future profitability measurements, as well as other
external market conditions or factors that may be present. If such impairment
indicators are present or other factors exist that indicate that the carrying
amount of the asset may not be recoverable, the Company determines whether an
impairment has occurred through the use of an undiscounted cash flow analysis of
assets at the lowest level for which identifiable cash flows exist. If an
impairment has occurred, the Company recognizes a loss for the difference
between the carrying amount and the estimated value of the asset. The fair value
of the asset is measured using quoted market prices or, in the absence of quoted
market prices, fair value is based on an estimate of discounted cash flow
analysis. During the years ended December 31, 1995 and 1996, the Company's
analyses indicated that there was not an impairment of its long-lived assets.
INCOME TAXES
The Company uses the liability method of accounting for income taxes.
Deferred income taxes result from temporary differences between the tax basis of
assets and liabilities and the basis as reported in the consolidated financial
statements.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Dutch B.V. company are maintained in Dutch
guilders. The accounting records of the Belgian branch and the Belgian N.V.
company are maintained in Belgian francs. The functional currency for the
Company has been determined to be the Belgian franc. Therefore, the Dutch
guilder statements have been remeasured into Belgian franc equivalents,
consolidated with the Belgian branch and Belgian N.V. statements and then
translated into U.S. dollar equivalents for the purpose of preparing the
accompanying financial statements, in accordance with accounting principles
generally accepted in the United States.
F-8
<PAGE> 113
HERMES EUROPE RAILTEL B.V.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company follows a translation policy in accordance with SFAS No. 52,
"Foreign Currency Translation." Assets and liabilities are translated at the
rates of exchange at the balance sheet date. Income and expense accounts are
translated at average monthly rates of exchange. The resultant translation
adjustments are included in the cumulative translation adjustment, a separate
component of shareholders' equity. Gains and losses from foreign currency
transactions are included in the operations.
REVENUE RECOGNITION
The Company's revenue is associated with its customers right to use the
network and is recognized on a straight-line basis over the terms of the
customer contracts.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company believes that the carrying amount of its assets and liabilities
reported in the balance sheets approximates their fair value.
OFF BALANCE SHEET RISK AND CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of cash and cash equivalents and accounts
receivable. The Company maintains most of its cash and cash equivalents in high
quality European financial institutions.
The Company does not now hedge against foreign currency fluctuations,
although the Company may implement such practices in the future. Under current
practices, the Company's results from operations could be adversely affected by
fluctuations in foreign currency exchange rates.
USES OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
The preparation of these consolidated financial statements, in conformity
with generally accepted accounting principles, requires management to make
estimates and assumptions that affect amounts in the financial statements and
accompanying notes and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 3: SUPPLEMENTAL BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Other assets consist of:
Deposits................................................... $ 17 $ 606
VAT receivable............................................. 272 402
Other assets............................................... 290 92
------------ ------------
Total other assets................................. $ 579 $ 1,100
========== ==========
</TABLE>
F-9
<PAGE> 114
HERMES EUROPE RAILTEL B.V.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3: SUPPLEMENTAL BALANCE SHEET INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Property and equipment, net consists of:
Construction in process.................................... $3,879 $ 12,981
Telecommunications equipment in service.................... -- 4,947
Furniture, fixtures and equipment.......................... 807 2,507
Leasehold improvements..................................... 2 543
------------ ------------
4,688 20,978
Less: accumulated depreciation.......................... 17 675
------------ ------------
Total property and equipment, net.................. $4,671 $ 20,303
========== ==========
Accounts payable and accrued expenses consist of:
Trade accounts payable..................................... 2,225 5,445
Accrued salaries and bonuses............................... 668 1,924
Accrued vacation expense................................... 110 774
Accrued legal expenses..................................... 522 147
Accrued expense............................................ 1,134 186
------------ ------------
$4,659 $ 8,476
========== ==========
</TABLE>
NOTE 4: DEBT OBLIGATIONS
Company debt consists of:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Debt obligation, vendor financing agreement with quarterly
principal payments and maturing on October 1, 2004 at 6.8%
interest................................................... $ -- $562
Other financing agreements with interest at 10.2%............ 19 --
--- ------
Less: debt maturing within one year.......................... 9 63
--- ------
Total long-term debt......................................... $ 10 $499
========== ==========
</TABLE>
Aggregate maturities of long-term debt, as of December 31, 1996, are as
follows: 1997 -- $0.06 million, 1998 -- $0.06 million, 1999 -- $0.06 million,
2000 -- $0.07 million, 2001 -- $0.07 million and $0.2 million thereafter.
The Company paid interest of $0.02 million and $0.01 million in 1996 and
1995, respectively. The Company did not pay interest in 1994.
NOTE 5: DEFINED BENEFIT PLAN
The Company established a defined benefit pension plan in 1995 that covers
substantially all of its employees upon twenty-five years of age and at least
one year of service. The benefits are based on years of service and the
employee's compensation. The Company has entered into an arrangement with an
insurance company for the provision of a group insurance policy (the "Policy").
Under the Policy, the insurance provider has undertaken a legal obligation to
provide specified benefits to participants in return for a fixed premium;
accordingly, the Company no longer bears significant financial risk. Premium
payments for the
F-10
<PAGE> 115
HERMES EUROPE RAILTEL B.V.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5: DEFINED BENEFIT PLAN (CONTINUED)
Policy are partly paid by the employee; based on specified terms that consider
the employees annual salary, with the remaining premium paid by the employer.
Premiums are intended to provide not only for benefits attributed to service to
date but also for those expected to be earned in the future.
The Company's expense under the plan was $0.05 million in 1995. No
actuarial calculation was performed due to the immateriality to the financial
statements.
The following table sets forth the plan's funded status and amounts recognized
at December 31, 1996:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation....................................... $ (136)
-------
Projected benefit obligation for service rendered to date............ $ (388)
Plan assets at fair value, primarily Belgian bonds................... 338
-------
Projected benefit obligations in excess of plan assets............... (50)
Unrecognized net obligation.......................................... 42
-------
Pension obligation................................................... $ 8
===========
Net pension cost for 1996 included the following components:
Service cost -- benefits earned during the period.................... $ 365
Interest cost on projected benefit obligation........................ 3
Actual return on plan assets......................................... (9)
Net amortization..................................................... 2
-------
Net periodic pension cost.................................... $ 361
===========
</TABLE>
The discount rate and rate of increase in future compensation levels used
in determining the actuarial present value of the projected benefit obligation
was 4.5%. The expected long-term rate of return on assets was 7.0%
NOTE 6: INCOME TAXES
The components of loss before income taxes were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994 1995 1996
----- ------- --------
<S> <C> <C> <C>
Pretax loss:
Domestic (the Netherlands)........................... $ (95) $ (422) $ (608)
Foreign.............................................. (125) (6,080) (15,361)
----- ------- --------
$(220) $(6,502) $(15,969)
===== ======= ========
</TABLE>
No current income taxes are due as the Company incurred losses due to the
start-up activities in the Belgian branch and the Company.
F-11
<PAGE> 116
HERMES EUROPE RAILTEL B.V.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6: INCOME TAXES (CONTINUED)
A deferred tax asset is recorded based on temporary differences between
earnings as reported in the financial statements and earnings for income tax
purposes. The following table summarizes major components of the Company's
deferred tax asset:
<TABLE>
<CAPTION>
DECEMBER DECEMBER
31, 31,
1995 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 3,919 $ 11,729
----------- -----------
Net deferred tax assets..................................... 3,919 11,729
Less: valuation allowance................................... (3,919) (11,729)
----------- -----------
Total............................................. $ -- $ --
========= =========
</TABLE>
As of December 31, 1996, the Company had net operating loss carryforwards
for Belgian and Dutch income tax purposes of approximately $29.3 million, which
are recoverable from profits for an unlimited period of time.
NOTE 7: COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
Operating lease commitments are primarily for office space and car rental.
The office lease has a term of nine years, expiring on June 30, 2005, with an
option to cancel January 1, 2002 with a penalty of six months, rental payment as
well as the remaining principal due on the debt obligation (see Note 4, "Debt
Obligations"). In addition, the Company received a reduction in annual expense
during the first three years of the lease. This reduction is being amortized
over the first six years of the lease, using a straight-line method.
Rental expense aggregated approximately $0.5 million and $0.7 million, net
of sublease income of $0.01 million and $0.08 million for the years ended
December 31, 1996 and 1995, respectively. The Company did not have rent expense
in 1994.
Future minimum lease payments under these non-cancelable operating leases
with terms of one year or more, as of December 31, 1996, are as follows:
1997 -- $1.1 million, 1998 -- $1.1 million, 1999 -- $1.2 million, 2000 -- $1.2
million, 2001 -- $1.2 million and $0.6 million thereafter.
OTHER MATTERS
In the ordinary course of business, the Company may be party to various
legal and tax proceedings, and subject to claims, certain of which relate to the
regulatory environments in which the Company currently or intends to operate. In
the opinion of management, the Company's liability, if any, in all pending
litigation, or other legal proceeding or other matter other than what is
discussed above, will not have a material effect upon the financial condition,
results of operations or liquidity of the Company.
F-12
<PAGE> 117
HERMES EUROPE RAILTEL B.V.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8: RELATED PARTY TRANSACTIONS
The Company received financing through shareholders' loan transactions
provided by HIT Rail and GTS-Hermes. The components of the Company's shareholder
loans are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
HIT Rail..................................................... $6,425 $ 13,999
GTS-Hermes................................................... 1,928 20,864
------------ ------------
Total shareholders' loans.......................... $8,353 $ 34,863
========== ==========
</TABLE>
The amount due from GTS HER includes $0.1 million of accrued interest at
December 31, 1996. The loans will be converted into shares of the Company's
common stock as part of the Recapitalization which is expected to be completed
by the end of August, 1997 (see Note 9, "Subsequent Events and Pro Forma
Adjustments").
NOTE 9: SUBSEQUENT EVENTS AND PRO FORMA ADJUSTMENTS
Subsequent to December 31, 1996, Hermes Europe Railtel N.V. began
negotiating a new lease on a second office building, which is currently being
constructed. The terms of the lease are expected to be finalized by the fourth
quarter of 1997, the expected completion date of the construction. The lease
period will be for eight years and will have an annual expense of $0.4 million
to be paid in quarterly installments.
In January and February 1997, additional loans of ECU 6.4 million
(approximately $7.5 million) were advanced to the Company by GTS-Hermes. These
loans were converted into shares of the Company's common stock ("Common Stock")
as part of the Recapitalization. In addition, loans of ECU 5.4 million
(approximately $6.1 million) were advanced to the Company in February and April
1997 by individual members of HIT Rail. These loans are expected to be converted
into Common Stock as part of the Recapitalization discussed below.
To increase the equity of the Company by means of the contribution of fiber
optic cable leases and/or cash by its current partners and individual
shareholders of HIT Rail, the Company expects to complete the Recapitalization
by the end of August, 1997.
Pursuant to the Recapitalization, the Company extended rights to subscribe
to additional Common Stock to GTS-Hermes, HIT Rail and the eleven individual
members of the HIT Rail consortium. HIT Rail and eight of the members of HIT
Rail have declined to exercise their rights, while GTS-Hermes and three of the
members of HIT Rail have indicated that they intend to exercise their rights.
The first phase of the Recapitalization was completed on July 7, 1997. As a
result, all shareholders' loans from GTS-Hermes and HIT Rail were converted into
Common Stock. In addition, GTS-Hermes exercised its right to subscribe to
additional Common Stock, resulting in a contribution of ECU 46.0 million
(approximately $51.1 million), which will be paid to the Company by September
30, 1997. The first phase of the Recapitalization resulted in the following
ownership of the Company:
<TABLE>
<CAPTION>
SHARES CONVERSION OF EXERCISE SHARES
DECEMBER 31, 1996 SHAREHOLDERS' LOANS OF RIGHTS JULY 7, 1997
----------------- ------------------- --------- ------------
<S> <C> <C> <C> <C>
GTS-Hermes...................... 40 50,197 100,395 150,632
HIT Rail........................ 40 24,007 -- 24,047
--
------ ------- -------
80 74,204 100,395 174,679
== ====== ======= =======
</TABLE>
F-13
<PAGE> 118
HERMES EUROPE RAILTEL B.V.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9: SUBSEQUENT EVENTS AND PRO FORMA ADJUSTMENTS (CONTINUED)
Under Dutch law, the Company is required to pay a 1% capital duty tax on
all issuances of common stock, which will result in the Company paying a capital
duty tax of approximately $0.9 million. The pro forma balance sheet at December
31, 1996 gives effect to the first phase of the Recapitalization as discussed
above.
Additional phases of the Recapitalization are expected to include the
conversion of loans of ECU 5.4 million (approximately $6.1 million) advanced to
the Company by two of the individual members of HIT Rail, as well as the
contribution of fiber optic cable leases. If all three individual members of HIT
Rail participate in the Recapitalization as anticipated, it will result in the
following ownership of the Company:
<TABLE>
<CAPTION>
SHARES ADDITIONAL SHARES AT COMPLETION
JULY 7, 1997 SHARES OF RECAPITALIZATION
------------ ---------- --------------------
<S> <C> <C> <C>
GTS-Hermes................................... 150,632 150,632
HIT Rail..................................... 24,047 24,047
Individual members of the HIT Rail
consortium................................. -- 21,385 21,385
------- ------ -------
174,679 21,385 196,064
======= ====== =======
</TABLE>
F-14
<PAGE> 119
HERMES EUROPE RAILTEL B.V.
CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRD QUARTER OF 1997
(UNAUDITED)
F-15
<PAGE> 120
HERMES EUROPE RAILTEL B.V.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(IN THOUSANDS, EXCEPT SHARE
DATA)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents...................................... $ 2,013 $ 237,541
Restricted cash................................................ 3,840 29,155
Accounts receivable............................................ 84 479
Due from affiliated companies.................................. 491 672
Other assets................................................... 1,100 8,260
------ --------
Total current assets................................... 7,528 276,107
Property and equipment, net...................................... 20,303 28,270
Restricted cash.................................................. -- 27,877
Intangible assets, net........................................... -- 14,748
------ --------
Total assets........................................... $ 27,831 $ 347,002
====== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses.......................... $ 8,476 $ 15,138
Due to affiliated companies.................................... 3,344 1,251
Deferred income................................................ 24 1,577
Other current liabilities...................................... -- 591
Debt maturing within one year.................................. 63 52
------ --------
Total current liabilities.............................. 11,907 18,069
Long-term debt, less current portion............................. 499 265,401
Pension obligation............................................... 8 8
------ --------
Total liabilities...................................... 12,414 284,018
Commitments and contingencies
Shareholders' loans.............................................. 34,863 --
SHAREHOLDERS' EQUITY
Common stock, 1000 guilders par value (305 shares authorized
and 80 shares issued and outstanding at December 31, 1996;
297,000 shares authorized and 190,468 shares issued and
outstanding at September 30, 1997).......................... 45 96,757
Additional paid-in capital..................................... 2,884 8,949
Cumulative translation adjustment.............................. 316 (2,920)
Accumulated deficit............................................ (22,691) (39,802)
------ --------
Total shareholders' equity............................. (19,446) 62,984
------ --------
Total liabilities and shareholders' equity............. $ 27,831 $ 347,002
====== ========
</TABLE>
The accompanying notes are an integral part of these condensed, consolidated
financial statements.
F-16
<PAGE> 121
HERMES EUROPE RAILTEL B.V.
CONDENSED, CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1996 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Revenues............................................................... $ -- $ 2,262
-------- --------
Operating costs and expenses:
Cost of revenues..................................................... 3,442 5,989
Selling, general and administrative.................................. 7,329 11,613
-------- --------
10,771 17,602
-------- --------
Loss from operations................................................... (10,771) (15,340)
Other income/(expense):
Interest income/(expense), net....................................... 423 (1,864)
Foreign currency (losses)/gains...................................... (774) 93
-------- --------
(351) (1,771)
-------- --------
Loss before income taxes............................................... (11,122) (17,111)
Income taxes........................................................... -- --
-------- --------
Net loss............................................................... $(11,122) $(17,111)
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed, consolidated
financial statements.
F-17
<PAGE> 122
HERMES EUROPE RAILTEL B.V.
CONDENSED, CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1996 1997
-------- --------
(IN THOUSANDS)
-------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss............................................................... $(11,122) $(17,111)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization....................................... 387 1,862
Non-cash compensation............................................... -- 1,468
Changes in assets and liabilities:
Accounts receivable............................................... -- (414)
Deposits.......................................................... (628) (6,240)
Accounts payable and accrued expenses............................. 4,625 7,871
Other changes in assets and liabilities........................... (1,705) 234
-------- --------
Net cash used in operating activities.......................... (8,443) (12,330)
INVESTING ACTIVITIES
Purchases of property and equipment.................................... (12,834) (12,757)
Restricted cash........................................................ (6,883) (54,860)
-------- --------
Net cash used in investing activities.......................... (19,717) (67,617)
FINANCING ACTIVITIES
Proceeds from debt..................................................... 583 270,849
Payment of debt issue costs............................................ (13,238)
Net proceeds from issuance of common stock............................. -- 52,015
Proceeds from shareholders' loans...................................... 25,305 13,311
Due to affiliated companies, net....................................... 351 (1,964)
-------- --------
Net cash provided by financing activities...................... 26,239 320,973
Effect of exchange rate changes on cash and cash equivalents............. (404) (5,498)
-------- --------
Net (decrease) increase in cash and cash equivalents..................... (2,325) 235,528
Cash and cash equivalents at beginning of period......................... 5,784 2,013
-------- --------
Cash and cash equivalents at end of period............................... $ 3,459 $237,541
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed, consolidated
financial statements.
F-18
<PAGE> 123
HERMES EUROPE RAILTEL B.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. FINANCIAL PRESENTATION AND DISCLOSURES
In the opinion of management, the accompanying unaudited condensed,
consolidated financial statements of Hermes Europe Railtel B.V. (the "Company")
contain all adjustments (consisting only of normal recurring accruals) necessary
to present fairly the Company's financial position as of December 31, 1996 and
September 30, 1997, and the results of operations and cash flows for the periods
indicated.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. Material intercompany affiliate account
transactions have been eliminated; however, other adjustments may have been
required had an audit been performed. It is suggested that these financial
statements be read in conjunction with the Company's 1996 audited consolidated
financial statements and the notes related thereto. The results of operations
for the nine months ended September 30, 1997 may not be indicative of the
operating results for the full year.
The Company intends to become the leading pan-European carriers' carrier by
constructing and operating a managed, seamless, fiber optic, pan-European
network, and providing high quality trans-border transmission services to
telecommunications carriers across Europe.
In an effort to generate sufficient capital resources to continue its
buildout of the network and sustain working capital requirements, the Company
undertook a recapitalization (the "Recapitalization") during the first quarter
of 1997, which was completed in September 1997. Prior to the recapitalization,
the Company was 50% owned by HIT Rail B.V. ("HIT Rail"), a consortium of eleven
European railway companies, and 50% owned by GTS-Hermes, Inc. ("GTS-Hermes"), a
U.S. holding company that is a wholly owned subsidiary of Global TeleSystems
Group, Inc. ("GTS"), a provider of a broad range of telecommunications services
to businesses, other telecommunications service providers and consumers through
its operation of voice and data networks, international gateways, local access
and cellular networks and the provision of value-added services, in markets
outside the United States.
Pursuant to the Recapitalization, the Company offered to GTS-Hermes, HIT
Rail and the eleven individual members of the HIT Rail consortium the right to
subscribe to additional common stock of the Company. GTS-Hermes and two of the
members of HIT Rail, Societe Nationale des Chemins de Fer Belges S.A. de Droit
Public/Nationale Maatschappij der Belgische Spoorwegen N.V. ("NMBS") and AB Swed
Carrier ("Swed Carrier"), exercised their rights, while HIT Rail and the nine
remaining members of HIT Rail declined to participate.
As a result of the finalization of the Recapitalization, total shareholder
loans of ECU 39.4 million (approximately $48.5 million) from, collectively,
GTS-Hermes, HIT Rail, NMBS and Swed Carrier were converted into equity.
Additionally, GTS-Hermes contributed ECU 46.0 million (approximately $51.8
million) and NMBS contributed a ten-year fiber optic cable lease which was
valued at ECU 1.8 million (approximately $2.0 million).
In addition, under Dutch law, the Company is required to pay a 1% capital
duty tax on issuances of common stock, resulting in a tax of approximately $1.0
million, of which $0.6 million remains to be paid at September 30, 1997.
F-19
<PAGE> 124
HERMES EUROPE RAILTEL B.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. FINANCIAL PRESENTATION AND DISCLOSURES -- (CONTINUED)
The ownership of the Company as a result of the Recapitalization is as
follows:
<TABLE>
<CAPTION>
SHARES OWNERSHIP %
------- -----------
<S> <C> <C>
GTS-Hermes.................................................... 150,632 79.1%
HIT Rail...................................................... 24,047 12.6
NMBS.......................................................... 11,424 6.0
Swed Carrier.................................................. 4,365 2.3
------- -----------
Total............................................... 190,468 100.0%
======= =========
</TABLE>
In an additional effort to obtain capital resources, the Company completed
a debt offering in August 1997 that raised $265.0 million (see Note 2, "Debt
Obligations").
The Company was a development stage enterprise through December 31, 1996.
NOTE 2. DEBT OBLIGATIONS
On August 15, 1997, the Company issued aggregate principal amount $265.0
million of senior notes due August 15, 2007 (the "Senior Notes"). The Senior
Notes are general unsecured obligations of the Company, with interest payable
semiannually at a rate of 11.5%. Approximately $56.6 million of the net proceeds
of the offering of the Senior Notes is being held in escrow for the first four
semiannual interest payments commencing on February 15, 1998. The Company may
redeem the Senior Notes, in whole or in part, any time on or after August 15,
2002 at specific redemption prices. The Company may also redeem the Senior Notes
at a price equal to 111.5% of the principal amount prior to August 15, 2000 with
net cash proceeds of a public equity offering with gross proceeds of at least
$75.0 million or in certain other circumstances specified in the indenture for
the Senior Notes, provided, however, that at least two-thirds of the principal
amount of the Senior Notes originally issued remains outstanding after each such
redemption. Pursuant to the covenants in the offering, the Company has filed an
S-4 registration statement with the Securities Exchange Commission to exchange
registered senior notes, with the same terms and conditions as the Senior Notes,
for the Senior Notes.
NOTE 3. RELATED PARTY TRANSACTIONS
During 1997, additional shareholder loans of $7.5 million, $3.9 million and
$2.2 million were received from GTS-Hermes, NMBS and Swed Carrier, respectively.
All shareholder loans outstanding were converted into equity prior to September
30, 1997 (See Note 1, "Financial Presentation and Disclosures").
NOTE 4. SUBSEQUENT EVENTS
Subsequent to September 30, 1997, the Company entered into contractual
commitments to lease fiber pairs, including facilities and maintenance and
utilizing the partial routes for laying fiber optic cable. Based on the contract
provisions, these commitments are currently estimated to aggregate approximately
$98.0 million. The commitments have expected lease terms of three to twenty
years with options for renewal rights of five additional years. As of September
30, 1997, the Company made deposits of approximately $6.8 million related to the
above leases.
F-20
<PAGE> 125
PRINCIPAL EXECUTIVE OFFICE OF THE COMPANY
HERMES EUROPE RAILTEL B.V.
Terhulpsesteenweg 6A
1560 Hoeilaart, Belgium
OFFICE IN COUNTRY OF ORGANIZATION
HERMES EUROPE RAILTEL B.V.
Strawinskylaan 305
1077 XX Amsterdam
The Netherlands
INDEPENDENT AUDITORS
ERNST & YOUNG REVISEURS D'ENTREPRISES S.C.C.
Avenue Marcel Thirty 204
B-1200 Brussels, Belgium
LEGAL ADVISERS
SHEARMAN & STERLING
599 Lexington Avenue
New York, New York 10022-6069
<TABLE>
<S> <C>
As to Dutch Company Law Matters As to Regulatory Matters
LOEFF CLAEYS VERBEKE COUDERT BROTHERS
Apollolaan 15 20 Old Bailey
P.O. Box 75088 London, EC4M 7JP
1070AB England
Amsterdam, The Netherlands
</TABLE>
EXCHANGE AND INFORMATION AGENT
THE BANK OF NEW YORK
101 Barclay Street
New York, New York 10286
LISTING AGENT, PAYING AND TRANSFER AGENT
BANQUE INTERNATIONALE A LUXEMBOURG S.A.
69 route d'Esch
L-1470 Luxembourg
<PAGE> 126
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THOSE TO WHICH IT
RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY THE NOTES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Service of Process and Enforceability
of Civil Liabilities................ iv
Certain Definitions................... iv
Prospectus Summary.................... 1
Risk Factors.......................... 11
Use of Proceeds....................... 19
Terms of the Exchange Offer........... 19
Capitalization........................ 27
Selected Consolidated Financial
Data................................ 28
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 29
Industry Overview..................... 31
Business.............................. 35
Licenses and Regulatory Issues........ 43
Management............................ 47
Executive Compensation and Other
Information......................... 51
Security Ownership of Principal
Shareholders and Management......... 55
Certain Relationships and Related
Transactions........................ 55
Description of the Exchange Notes..... 58
Certain Tax Considerations............ 89
Plan of Distribution.................. 93
Legal Matters......................... 94
Experts............................... 94
General Listing Information........... 94
Glossary.............................. 96
Index to Financial Statements......... F-1
</TABLE>
======================================================
======================================================
$265,000,000
HERMES EUROPE
RAILTEL B.V.
11 1/2% SENIOR NOTES DUE 2007
[HERMES EUROPE RAILTEL LOGO]
----------------------
PROSPECTUS
----------------------
, 1997
======================================================
<PAGE> 127
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Dutch Company Law ("Netherlands Law") permits indemnification of directors,
employees and agents of corporations under certain conditions and subject to
certain limitations.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<S> <C>
(A) EXHIBITS.
3.1* -- Deed of Incorporation and Articles of Association, as amended to date
4.1* -- Form of Outstanding Note (contained in Indenture filed as Exhibit 4.3)
4.2* -- Form of Exchange Note (contained in Indenture filed as Exhibit 4.3)
4.3* -- Indenture, dated August 19, 1997, among the Company, Global TeleSystems Group,
Inc. and The Bank of New York, as Trustee
4.4* -- Registration Rights Agreement, dated August 19, 1997, between the Company and
Donaldson, Lufkin & Jenrette Securities Corporation, UBS Securities LLC and
Lehman Brothers Inc.
4.5* -- Escrow Agreement, dated August 19, 1997, among the Company and The Bank of New
York, as Trustee and as Escrow Agent
5.1 -- Opinion of Shearman & Sterling regarding the legality of the securities being
registered
5.2** -- Opinion of Loeff Claeys Verbeke
8.1 -- Opinion of Shearman & Sterling regarding tax matters
10.1 -- Shareholders Agreement among the Company, GTS-Hermes Inc., HIT Rail B.V.,
SNCB/NMBS and AB Swed Carrier
10.2* -- Employment Agreement, dated as of January 3, 1995, between SFMT, Inc. and Jan
Loeber
10.3* -- Employment Agreement, dated as of January 3, 1995, between SFMT, Inc. and
Gerard Caccappolo
10.4* -- Employment Agreement, dated as of January 1, 1996, between GTS Group, Inc. and
Bruce Rudy
10.5* -- Employment Agreement between the Company and Peter Magnus
10.6* -- Employment Agreement, dated as of September 26, 1995, between the Company and
J.A. Shearing
10.7* -- License, dated December 18, 1996, granted by the Secretary of State for Trade
and Industry relating to the United Kingdom
10.8 -- Registration, dated July 26, 1996, granted by IBPT relating to Belgium
10.9 -- Authorization Letter, dated August 1, 1996, granted by Hoofdirectie
Telecommunicate & Post relating to the Netherlands
10.10 -- License, dated May 28, 1997, granted by BMPT relating to Germany
10.11+ -- Agreement, dated April 1, 1997, between Eastern Group Telecoms Limited and the
Company
10.12+ -- Agreement, dated January 16, 1997, between SNCB/NMBS and the Company
10.13+ -- Agreement, dated February 3, 1997, between SANEF and the Company
12.1* -- Statements re computation of deficiency of earnings to fixed charges
21.1* -- List of Subsidiaries
23.1 -- Consent of Ernst & Young LLP
23.2 -- Consent of Shearman & Sterling (included in its opinion filed as Exhibit 5.1)
24.1* -- Powers of Attorney (included on the signature pages of this Registration
Statement)
25.1* -- Statement of Eligibility of The Bank of New York on Form T-1
27.1* -- Financial Data Schedule for 1996
27.2* -- Financial Data Schedule for Third Quarter 1997
99.1 -- Form of Letter of Transmittal
99.2 -- Form of Notice of Guaranteed Delivery
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
+ Confidential material has been redacted and filed separately with the
Securities and Exchange Commission.
II-1
<PAGE> 128
(B) FINANCIAL STATEMENT SCHEDULES.
(1) Financial Statements
The financial statements filed as part of this Registration Statement are
listed in the Index to Financial Statements on page F-1.
(2) Schedules
The financial statement schedules of the Company have been omitted because
the information required to be set forth therein is not applicable or is shown
in the Financial Statements or Notes thereto.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) of this section
do not apply if the registration statement is on Form S-3, Form S-8 or Form
F-3, and the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed with
or furnished to the Commission by the registrant pursuant to section 13 or
section 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) If the registrant is a foreign private issuer, to file a
post-effective amendment to the registration statement to include any
financial statements required by sec.210.3-19 of this chapter at the start
of any delayed offering or throughout a continuous offering. Financial
statements and information otherwise required by Section 10(a)(3) of the
Act need not be furnished, provided that the registrant includes in the
prospectus, by means of a post-effective amendment, financial statements
required pursuant to this paragraph(a)(4) and other information necessary
to ensure that all other information in the prospectus is at least as
current as the date of those financial statements. Notwithstanding the
foregoing, with respect to registration statements on Form F-3, a
post-effective amendment need not be filed to include financial statements
and information required by Section 10(a)(3) of the Act or sec.210.3-19 of
this chapter if such financial statements and information are contained in
periodic reports filed with or furnished to the Commission by the
registrant pursuant to section 13 or section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the Form F-3.
II-2
<PAGE> 129
The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
The undersigned registrant hereby undertakes that every prospectus (i) that
is filed pursuant to the immediately preceding paragraph, or (ii) that purports
to meet the requirements of section 10(a)(3) of the Securities Act and is used
in connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
The undersigned registrant hereby undertakes: (i) to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means; and (ii) to arrange or provide for a facility in the
U.S. for the purpose of responding to such requests. The undertaking in
subparagraph (i) above includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 20 "Indemnification
of Directors and Officers," above, or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the paying by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification is against public policy
as expressed in the Act and will be governed by the final adjudication of such
issue.
II-3
<PAGE> 130
SIGNATURES
Pursuant to the requirements of the Securities Act, Hermes Europe Railtel
B.V. has duly caused this Amendment No. 2 to Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Hoeilaart,
Belgium, on December 5, 1997.
HERMES EUROPE RAILTEL B.V.
By: /s/ Jan Loeber
------------------------------------
JAN LOEBER
Managing Director
Pursuant to the requirements of the Securities Act, this Amendment No. 2 to
Registration Statement has been signed by the following persons in the
capacities indicated on December 5, 1997.
<TABLE>
<CAPTION>
Signature TITLE
- ------------------------------------------ -----------------------------------------------
<C> <S>
/s/ Jan Loeber Managing Director (Principal Executive Officer)
- ------------------------------------------
(Jan Loeber)
* Corporate Financial Director -- Chief Financial
- ------------------------------------------ Officer (Principal Financial and Accounting
(Peter Magnus) Officer)
* Member of Board of Supervisory Directors
- ------------------------------------------
(Gerald W. Thames)
* Member of Board of Supervisory Directors
- ------------------------------------------
(Bernard J. McFadden)
* Member of Board of Supervisory Directors
- ------------------------------------------
(Lars Stig M. Larsson)
* Member of Board of Supervisory Directors
- ------------------------------------------
(Svend Laursen)
/s/ Jan Loeber Member of Board of Managing Directors
- ------------------------------------------
GTS-Hermes, Inc.
By Jan Loeber,
Senior Vice President and Representative
</TABLE>
- ---------------
* By power of attorney.
II-4
<PAGE> 131
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
---------- ------------------------------------------------------------------ ------------
<S> <C> <C>
3.1* -- Deed of Incorporation and Articles of Association, as amended to
date
4.1* -- Form of Outstanding Note (contained in Indenture filed as Exhibit
4.3)
4.2* -- Form of Exchange Note (contained in Indenture filed as Exhibit
4.3)
4.3* -- Indenture, dated August 19, 1997, among the Company, Global
TeleSystems Group, Inc. and The Bank of New York, as Trustee
4.4* -- Registration Rights Agreement, dated August 19, 1997, between the
Company and Donaldson, Lufkin & Jenrette Securities Corporation,
UBS Securities LLC and Lehman Brothers Inc.
4.5* -- Escrow Agreement, dated August 19, 1997, among the Company and The
Bank of New York, as Trustee and as Escrow Agent
5.1 -- Opinion of Shearman & Sterling regarding the legality of the
securities being registered
5.2** -- Opinion of Loeff Claeys Verbeke
8.1 -- Opinion of Shearman & Sterling regarding tax matters
10.1 -- Shareholders Agreement among the Company, GTS-Hermes Inc., HIT
Rail B.V., SNCB/NMBS and AB Swed Carrier
10.2* -- Employment Agreement, dated as of January 3, 1995, between SFMT,
Inc. and Jan Loeber
10.3* -- Employment Agreement, dated as of January 3, 1995, between SFMT,
Inc. and Gerard Caccappolo
10.4* -- Employment Agreement, dated as of January 1, 1996, between GTS
Group, Inc. and Bruce Rudy
10.5* -- Employment Agreement between the Company and Peter Magnus
10.6* -- Employment Agreement, dated as of September 26, 1995, between the
Company and J.A. Shearing
10.7* -- License, dated December 18, 1996, granted by the Secretary of
State for Trade and Industry relating to the United Kingdom
10.8 -- Registration, dated July 26, 1996, granted by IBPT relating to
Belgium
10.9 -- Authorization Letter, dated August 1, 1996, granted by
Hoofdirectie Telecommunicate & Post relating to the Netherlands
10.10 -- License, dated May 28, 1997, granted by BMPT relating to Germany
10.11+ -- Agreement, dated April 1, 1997, between Eastern Group Telecoms
Limited and the Company
10.12+ -- Agreement, dated January 16, 1997, between SNCB/NMBS and the
Company
10.13+ -- Agreement, dated February 3, 1997, between SANEF and the Company
12.1* -- Statements re computation of deficiency of earnings to fixed
charges
21.1* -- List of Subsidiaries
23.1 -- Consent of Ernst & Young LLP
23.2 -- Consent of Shearman & Sterling (included in its opinion filed as
Exhibit 5.1)
24.1* -- Powers of Attorney (included on the signature pages of this
Registration Statement)
25.1* -- Statement of Eligibility of The Bank of New York on Form T-1
27.1* -- Financial Data Schedule for 1996
27.2* -- Financial Data Schedule for Third Quarter 1997
99.1 -- Form of Letter of Transmittal
99.2 -- Form of Notice of Guaranteed Delivery
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
+ Confidential material has been redacted and filed separately with the
Securities and Exchange Commission.
<PAGE> 1
Exhibit 5.1
[SHEARMAN & STERLING LETTERHEAD]
December 8, 1997
Hermes Europe Railtel B.V.
Terhulpsesteenweg 6A
1560 Hoeilaart, Belgium
Ladies and Gentlemen:
We have acted as special United States counsel to Hermes Europe Railtel
B.V., a Netherlands company (the "Company"), in connection with the filing by
the Company under the Securities Act of 1933, as amended (the "Act") of a
registration statement on Form S-4 (the "Registration Statement") with the
United States Securities and Exchange Commission (the "Commission"). Pursuant to
the Registration Statement, up to U.S.$265,000,000 aggregate principal amount of
the Company's outstanding 11 1/2% Senior Notes due 2007 (the "Outstanding
Notes") are exchangeable for up to a like principal amount of the Company's
11 1/2% Senior Notes due 2007 (the "Exchange Notes"). The Outstanding Notes
were, and the Exchange Notes will be, issued pursuant to an indenture (the
"Indenture") dated as of August 19, 1997 among the Company, Global TeleSystems
Group, Inc. and The Bank of New York, as trustee (the "Trustee"), registrar,
paying agent and transfer agent. The Exchange Notes and the Outstanding Notes
are collectively referred to herein as the "Notes."
In our capacity as special United States counsel to the Company, we
have examined the Registration Statement, the Indenture filed as Exhibit 4.3 to
the Registration Statement, the Outstanding Notes, a form of the Exchange Notes
contained in such Indenture and originals or copies certified or otherwise
identified to our satisfaction of such documents as we have deemed necessary or
appropriate to enable us to render the opinions expressed below.
Based upon the foregoing, it is our opinion that when the Exchange
Notes are exchanged for the Outstanding Notes as contemplated in the
Registration Statement, assuming they have been duly authorized, executed,
issued and delivered by the Company under the laws of the Netherlands and have
been duly authenticated by the Trustee, the Notes will constitute the legal,
valid and binding obligations of the Company, enforceable against the Company in
accordance with their terms, except as enforcement thereof may be limited by
bankruptcy, insolvency (including, without limitation, all laws relating to
fraudulent
<PAGE> 2
Hermes Europe Railtel B.V. 2 December [__], 1997
transfers), reorganization, moratorium and other similar laws relating to or
affecting enforcement of creditors' rights generally and by possible judicial
action giving effect to foreign governmental actions or foreign laws affecting
creditors' rights and except as enforcement thereof is subject to general
principles of equity (regardless of whether such enforcement may be sought in a
proceeding in equity or law).
The opinion set forth in the above paragraph is qualified to the extent
that we have assumed the due authorization, execution and delivery of the
Indenture by the Trustee and the Company.
We are attorneys admitted to practice law in the State of New York and
we do not express herein any opinion as to any matters governed by or involving
conclusions under the laws of any other jurisdiction other than the federal law
of the United States of America. In rendering the opinion expressed herein, we
have, with your approval, relied without independent investigation as to all
matters governed by or involving conclusions under the law of the Netherlands
upon the opinion (including the qualifications, assumptions and limitations
expressed therein) of Loeff Claeys Verbeke, Dutch counsel for the Company, of
even date herewith, a copy of which is attached hereto.
This opinion may be delivered to Loeff Claeys Verbeke which may rely on
this opinion to the same extent as if such opinion were addressed to it.
We hereby consent to the use of this opinion as Exhibit 5.1 to the
Registration Statement and to the use of our name under the caption "Legal
Matters" contained in the prospectus which is included in the Registration
Statement.
Very truly yours,
[Shearman & Sterling]
JDM/MJS/FJE
<PAGE> 1
EXHIBIT 8.1
[SHEARMAN & STERLING LETTERHEAD]
(212) 848-4247
December 5, 1997
Hermes Europe Railtel B.V.
Terhulpsesteenweg 6A
1560 Hoeilaart, Belgium
Ladies and Gentlemen:
We have acted as special United States counsel to Hermes
Europe Railtel B.V., a Netherlands company (the "Company"), in connection with
the filing by the Company under the Securities Act of 1933, as amended (the
"Act") of a registration statement on Form S-4 (the "Registration Statement")
with the United States Securities and Exchange Commission (the "Commission").
Pursuant to the Registration Statement, up to U.S. $265,000,000 aggregate
principal amount of the Company's outstanding 11 1/2% Senior Noted due 2007
(the "Outstanding Notes") are exchangeable for up to a like principal amount of
the Company's 11 1/2% Senior Notes (the "Exchange Notes"). The Outstanding
Notes were, and the Exchange Notes will be, issued pursuant to an indenture
(the "Indenture") dated as of August 19, 1997 among the Company, Global
TeleSystems Group, Inc. and The Bank of New York, as trustee (the "Trustee"),
registrar, playing agent and transfer agent.
We are of the opinion that the discussion under the caption
"Certain Tax Considerations - The United States," insofar as it relates to
statements of law or legal conclusions under the laws of the United States or
matters of United States law fairly presents the information called for and
fairly summarizes the matters referred to therein.
Very truly yours,
/s/ SHEARMAN & STERLING
<PAGE> 1
Exhibit 10.1
AMENDED AND RESTATED
SHAREHOLDERS AGREEMENT
DATED JULY _, 1997
BETWEEN
(1) HIT RAIL B.V.
(2) GTS-HERMES, INC
(3) NATIONALE MAATSCHAPPIJ DER BELGISCHE SPOORWEGEN
(NMBS/SNCB)
(4) AB SWED CARRIER
AND
(5) HERMES EUROPE RAILTEL B.V.
<PAGE> 2
- 2 -
TABLE OF CONTENTS
Page
Article 1 - Definitions 5
Article 2 - Issue of shares. Amendment Articles 6
Article 3 - The Business 8
Article 4 - Representations and Warranties 8
Article 5 - Covenants 12
Article 6 - Governance 15
Article 7 - Conduct of Business 21
Article 8 - Issue and Transfer of Shares; Pre-emptive Rights 23
Article 9 - Provide Fibre Capacity 25
Article 10 - Term and Termination of Agreement 25
Article 11 - Confidential Information 25
Article 12 - Miscellaneous 26
Article 13 - Applicable Law and Choice of Forum 29
<PAGE> 3
- 3 -
This AGREEMENT is made by and between:
1. HIT RAIL B.V., a private limited liability company, registered in
Almere and having its place of business at Boner 1159, 8232 JS
Lelystad. The Netherlands (hereinafter "HIT Rail");
2. GTS-HERMES, INC, a Delaware corporation having its place of business
at 477 Madison Avenue, New York, New York 10022, USA, hereinafter
"GTS Hermes"; and
3. NATIONALE MAATSCHAPPIJ DER BELGISCHE SPOORWEGEN (NMBS/SNCB), a
company incorporated according to the laws of Belgium and having its
registered office at Frankrijkstraat 85, 1060 Brussels, Belgium;
4. AB SWED CARRIER, a 100% owned subsidiary of Swedish State Railways,
a company incorporated according to the laws or Sweden, having its
office address at 01 Stockholm Lan, 80 Stockholm Kommun, 10 125
Stockholm, Sweden;
and
5. HERMES EUROPE RAILTEL B.V. a private limited liability company,
registered and having its place of business at Drentestraat 20, 1083
HK Amsterdam, hereinafter the "Company";
hereinafter collectively referred to as "the Parties" and individually as a
"Party".
<PAGE> 4
- 4 -
WHEREAS:
a. in 1990, HIT Rail was incorporated by the National Railways as
hereinafter defined to carry out telecommunications engineering
activities in order to construct and exploit a data communications
network for railway traffic;
b. HIT Rail established the Company on July 6, 1993 to conduct the
Business as defined in Article 3 of this Agreement;
c. GTS Hermes acquired a fifty percent interest in the Company in 1994
and HIT Rail and GTS Hermes presently own the entire issued share
capital of the Company;
d. the Company has in January 1997 launched a capital restructuring
plan allowing for direct participation of the National Railways and
of selected other participants in the Company's capital and for the
issue of additional shares to the existing shareholders of the
Company;
e. it is the intention of HIT Rail to transfer its shares in the
Company to the HIT Rail Shareholders in proportion to their current
indirect shareholding in the Company and as a result the HIT Rail
Shareholders will become direct shareholders in the Company;
f. with the participation of new parties in the Company's capital there
will be new Shareholders in the Company. Pursuant thereto the
Shareholders wish to amend their existing Shareholders Agreement;
g. the parties wish to enter into this Agreement for the purposes of
recording the terms and conditions of their relationship with each
other and certain aspects of the business and management of the
Company.
NOW IT IS HEREBY AGREED AS FOLLOWS:
<PAGE> 5
- 5 -
ARTICLE 1 - DEFINITIONS
The following definitions shall apply in this Agreement and in the Appendices
hereto:
Affiliated Company: in relation to any Shareholder, any subsidiary or
holding company of such Shareholder and any
subsidiary of such holding company including all
National Railways Shareholders of HIT Rail;
Agreement: this Agreement and all annexes, appendices,
attachments, and schedules hereto:
Articles of Association: the amended articles of association of the Company
in the form agreed upon by the Parties and set out
in Annex 1 hereto;
Board of Supervisory
Directors: the board of non-executive directors ("Raad van
Commissarissen") of the Company;
Business Plan: the Business Plan of the Company as adopted by the
Management Board with the prior approval of the
Board of Supervisory Directors, including any
agreed amendments thereto;
Management Board: the Board of Managing Directors ("Directie") of
the Company;
General Assembly: a General Meeting of Shareholders;
HIT Rail Shareholders: the parties as Listed in Schedule 1;
Licenses: permits and authorizations granted by the
competent licensing authorities in the countries
where the Company carries out its Business;
<PAGE> 6
- 6 -
National Railways: Osterreichische Bundesbahnen, Nationale
Maatschappij der Belgische Spoorwegen (NMBS/SNCB),
Danske Statsbaner, Societe Nationale des Chemins
de Fer Francais ("SNCF"), Deutsche Bundesbahn,
Ente Ferrovie dello Stato, Nederlandse Spoorwegen,
Red Nacional de los Ferrocarriles Espanoles.
Statens Jarnvagar, Schweizerische Bundesbahnen,
and British Rail, provided that other European
national railway companies may in the future
become shareholders of HIT Rail and for this
reason National Railways;
PanEuropean
Telecommunications
Operator: an operator of telecom infrastructure facilities
within Europe, whose scope is limited to providing
cross border services, contracting as a carrier's
carrier with (licensed or otherwise authorized)
telecom-operators and/or service providers. The
providing of telecom services within a country
will not belong to the activities of the Company,
except where requested by a customer and agreed to
by the Participating Shareholder;
Participating Shareholder: a Shareholder who provides infrastructure to the
Company;
Shareholders: the holders of the Shares and parties to this
Agreement;
Shares: any and all issued shares in the capital of the
Company;
ARTICLE 2 - ISSUE OF SHARES, AMENDMENT ARTICLES.
2.1 On 15 January 1997, the Board of Supervisory
Directors has resolved, conditional upon the
execution of an amendment of the articles of
association of the Company in accordance with
the draft of Loeff Claeys Verbeke, (the
<PAGE> 7
- 7 -
"Deed of Amendment" dated May 28, 1997) inter alia to issue new shares
in the Company up to a maximum of 297,000 shares with a nominal value
of NLG 1,000.--. The Shareholders have decided to issue the new shares
to the following Parties:
(a) to HIT Rail 24,007 shares, each share having a par value of
NLG 1,000.-- which shares shall be paid up by off-set by the
Company of its loan debt in the principal amount of NLG
24,007,000.-- owing to HIT Rail;
(b) to GTS Hermes 150,592 shares, each share having a par
value of NLG 1,000.-- which shares shall be paid up to 33%
by off-set by the Company of its loan debt in the principal
amount of NLG 50,197,000.-- owing to GTS Hermes;
(c) to NMBS/SNCB 11,424 shares each share having a par value
of NLG 1,000.- which shares shall be paid up both by off-set
by the Company of its loan debt in the principal amount of
the Dutch guilder equivalent of 3,420,000 ECU and by
contribution of a lease of dark fibre;
(d) to AB Swed Carrier 4,365 shares each share having a par
value of NLG 1,000.-- which shares shall be paid up by
off-set by the Company of its loan debt in the principal
amount of NLG 4,365,000.--
2.2 It is understood by the parties that capital contribution tax will be
levied on the issue of the shares referred to in 2.1 above, which tax
shall be paid by the Company;
2.3 Upon the execution of the Deed of Amendment and the issue of the new
shares to all the Parties (other than the Company), the Shares in the
Company shall be held as follows:
<PAGE> 8
- 8 -
HIT Rail 24,047 shares (12.63%)
GTS Hermes 150,632 shares (79.08%)
NMBS/SNCB 11,424 shares (6.00%)
AB Swed Carrier 4,365 shares (2.29%)
ARTICLE 3 - THE BUSINESS
The activities of the Company (hereinafter collectively the "Business") shall be
to engage in:
(i) becoming a PanEuropean Telecommunications Operator offering
telecommunications services and/or facilities to third parties,
including the Shareholders and their Affiliated Companies, including
but not limited to constructing international telecommunications
network infrastructures (hereinafter referred to as "Hermes
Longlines") for the provision of those services, and offering
international leased lines to third parties;
and
(ii) seeking to influence the legal and regulatory climates in the European
Community, its Member States and adjoining countries and each of the
jurisdictions where the Company engages or intends to engage in the
activities described above.
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES
4.1 HIT Rail represents and warrants to the other Parties that:
(a) it is the type of entity indicated in the heading of this
Agreement, duly formed and validly existing under the laws
of the jurisdiction indicated in the heading of this
Agreement, that it has complied with all its material legal
and statutory obligations and that it has the power under
its constitutive documents to execute and deliver this
Agreement and to perform its obligations thereunder:
<PAGE> 9
- 9 -
(b) the execution of this Agreement by its undersigned
representative and the delivery and performance by it of
this Agreement:
(1) have been duly authorized by all necessary action
and do not violate any applicable law, statute,
rule, regulation, order, ordinance, or requirement
of any governmental entity with applicable
jurisdiction;
(2) do not and shall not result in the breach of, or
constitute a default under, or require any consent
under (except for those that have already been
obtained) its constitutive documents or any
indenture, bank loan or credit agreement,
mortgage, or other agreement or instrument to
which it is a party or by which it or any of its
properties may be bound or affected; and
(3) shall constitute its valid, binding and
enforceable obligations in accordance with the
terms of this Agreement;
(c) HIT Rail's only owners as of the date of this Agreement are
the HIT Rail Shareholders and the national railways of
Slovenia, Slovakia and Luxemburg;
(d) no representation, warranty, or covenant by HIT Rail in this
Agreement is inconsistent with, or would cause HIT Rail to
breach, any other promise or contractual obligation by HIT
Rail; and
(e) HIT Rail has not agreed with any entity other than GTS
Hermes and the Company to assist or cooperate in the
development of the Business or any PanEuropean
Telecommunication Operator.
<PAGE> 10
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4.2 GTS Hermes represents and warrants to the other Parties that:
(a) it is the type of entity indicated in the heading of this
Agreement, duly formed and validly existing under the laws
of the jurisdiction indicated in the heading of this
Agreement, that it has complied with all its material
legal and statutory obligations and that it has the power
under its constitutive documents to execute and deliver
this Agreement and to perform its obligations thereunder.
(b) the execution of this Agreement by its undersigned
representative and the delivery and performance by it of
this Agreement:
(1) have been duly authorized by all necessary action and do
not violate any applicable law, statute, rule,
regulation, order, ordinance, or requirement of any
governmental entity with applicable jurisdiction;
(2) do not and shall not result in the breach of, or
constitute a default under, or require any consent under
(except for those that have already been obtained) its
constitutive documents or any indenture, bank loan or
credit agreement, mortgage, or other agreement or
instrument to which it is a party or by which it or any
of its properties may be bound or affected; and
(3) shall constitute its valid, binding and enforceable
obligations in accordance with the terms of this
Agreement.
4.3 NMBS/SNCB represents and warrants to the other Parties that:
(a) it is the type of entity indicated in the heading of this
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Agreement, duly formed and validly existing under the laws
of the jurisdiction indicated in the heading of this
Agreement, that it has complied with all its material legal
and statutory obligations and that it has the power under
its constitutive documents to execute and deliver this
Agreement and to perform its obligations thereunder;
(b) the execution of this Agreement by its undersigned
representative and the delivery and performance by it of
this Agreement:
(1) have been duly authorized by all necessary action
and do not violate any applicable law, statute,
rule, regulation, order, ordinance, or requirement
of any governmental entity with applicable
jurisdiction;
(2) do not and shall not result in the breach of, or
constitute a default under, or require any consent
under (except for those that have already been
obtained) its constitutive documents or any
indenture, bank loan or credit agreement,
mortgage, or other agreement or instrument to
which it is a party or by which it or any of its
properties may be bound or affected; and
(3) shall constitute its valid, binding and
enforceable obligations in accordance with the
terms of this Agreement.
4.4 AB Swed Carrier represents and warrants to the other Parties
that:
(a) it is the type of entity indicated in the heading
of this Agreement, duly formed and validly
existing under the laws of the jurisdiction
indicated in the heading of this
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Agreement, that is has complied with all its
material legal and statutory obligations and that
it has the power under its constitutive documents
to execute and deliver this Agreement and to
perform its obligations thereunder;
(b) the execution of this Agreement by its undersigned
representative and the delivery and performance by
it of this Agreement:
(1) have been duly authorized by all
necessary action and do not violate any
applicable law, statute, rule,
regulation, order, ordinance, or
requirement of any governmental entity
with applicable jurisdiction;
(2) do not and shall not result in the
breach of, or constitute a default
under, or require any consent under
(except for those that have already been
obtained) its constitutive documents or
any indenture, bank loan or credit
agreement, mortgage, or other agreement
or instrument to which it is a party or
by which it or any of its properties may
be bound or affected; and
(3) shall constitute its valid, binding and
enforceable obligations in accordance
with the terms of this Agreement.
ARTICLE 5 - COVENANTS
5.1 HIT Rail
HIT Rail covenants and agrees with GTS Hermes and the Company that it
shall
(i) use its best efforts to establish such commercial agreements
between individual HIT Rail Shareholders and the Company, to
obtain rights of way
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from individual HIT Rail Shareholders and to cooperate in
obtaining such Licenses as may advance the Business and (ii)
shall use their best efforts to ensure that the HIT Rail
Shareholders cooperate in obtaining such Licenses all in
accordance with the Business Plan of the Company and as may
be necessary or advisable in furtherance or the Company's
Business, (iii) shall not, so long as both HIT Rail and GTS
Hermes are Shareholders and for one year after HIT Rail
ceases to be a Shareholder, agree with any entity other than
GTS Hermes and the Company to assist or cooperate in the
development of any PanEuropean Telecommunications Operator
and (iv) shall use their best efforts to obtain on the
Company's behalf such materials as may be required and
arrange inspection visits of selected rights of way for the
purpose of making initial cost estimates.
5.2 Further Funding
The Parties understand that further funding of the Company
may become necessary through loans or additional
capitalization and the Parties shall do all things
reasonably necessary including the waiving of pre-emptive
rights in accordance with Article 6.2 (c) to facilitate such
further funding. The Shareholders each shall procure that
its nominees on the Board of Supervisory Directors of the
Company, if any, shall not unreasonably oppose additional
capitalization and each accepts the principle of being
diluted in its share holding to the extent that it does not
participate in the subscription for new shares in accordance
with the pre-emption provisions set out in the Articles of
Association. It is the sole discretion of each Shareholder,
whether to participate in such issue(s) of shares. The
period in which pre-emption rights can be exercised will be
four weeks. The Shareholders will inform each other within
four weeks of having been notified of an issue of shares
with a pre-emptive right whether or not they will make use
of such right, and if so, to what extent.
5.3 Non compete
So long as GTS Hermes is a Party to the Agreement GTS Hermes
shall not agree with any other entity than HIT Rail and the
Company to assist or
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cooperate in the development of any PanEuropean
Telecommunications Operator.
5.4 Waiver statutory forced sale rights
GTS Hermes hereby unconditionally and irrevocably waives its
rights to purchase the Shares held by the other Shareholders
in the Company pursuant to article 201 (a) of Book 2 of the
Netherlands Civil Code;
5.5 Employee share options
The Parties acknowledge that it may be desirable from an
incentive point of view to issue share options to the
management and or employees of the Company and, without
prejudice to the provision of Article 8.2 of this Agreement,
the Parties agree to vote in favour of options to issue
shares pursuant to any reasonable and "arms length" share
option agreement containing customary terms and conditions.
5.6 Dividends
It is the intention of the Parties to maximize distributions
of the Company to its Shareholders, taking into
consideration the contractual obligations in relation to
further funding by issuance of shares or notes, as well as
to the extent allowed by law and the Articles of
Association, and subject to the retention in the Company of
sufficient funds to ensure the continued operation and
development of the Company in accordance with its Business
Plan. The Parties will procure that their representatives in
the Board of Supervisory Directors will, pursuant to article
20 paragraph 2 of the Articles of Association, vote to pay
out profits to the Shareholders, taking into account the
aforementioned principle.
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5.7 Articles or Association
The Parties other than the Company shall procure that the
amendment of the currently applicable articles of
association shall be effected as soon as possible following
the date of signing of this Agreement and pending such
amendment the Parties other than the Company agree to be
bound by the Articles of Association (and GTS shall procure
that the same be observed by the Company to the extent
possible) as if they were in force from the date of the
signing of this Agreement onwards.
ARTICLE 6 - GOVERNANCE
6.1 Structure
The Shareholders shall hold General Assemblies, and the
Company shall have a Board of Supervisory Directors and a
Management Board.
6.2 General Assemblies
(a) The Shareholders shall hold an annual General Assembly at
the offices of the Company's headquarters or at such other
place as the Shareholders may agree, and may hold
extraordinary General Assemblies at the request of
Shareholders holding at least 10 percent of the issued share
capital of the Company. The Management Board shall ensure
that notice of any General Assembly and an agenda are
distributed to and received by the Shareholders no less than
fifteen (15) days prior to the date of the General Assembly.
Subject to the provisions of the Articles of Association and
applicable law, the quorum for any General Assembly shall be
four fifths (4/5) of the Shares. If the quorum is not met,
then a second meeting will be called on a date which is at
least 5 business days and not more than 4 weeks after the
date of the first meeting. In such second meeting
resolutions on the subjects put before the first meeting can
be adopted by a majority of votes cast irrespective of the
number of shareholders represented such second meeting.
<PAGE> 16
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(b) The Shareholders shall each vote in favour of the
appointment of all Supervisory Directors duly nominated in
accordance with the Articles of Association and Articles
6.3(d) and 6.5 of this Agreement.
(c) All decisions of the General Assembly shall be adopted by a
simple majority of the votes cast, with the exception of the
following decisions which shall require at least eighty-five
(85)% of the votes cast:
(i) the purchase by the Company of Shares in its own
capital and any redemption of Shares;
(ii) the exclusion of pre-emptive rights in the case
of an issue of new shares and the transfer of
Shares held by the Company, except in the event of
a public listing of the Shares or of new shares or
of an offering of Shares or options on new shares
(warrants) to professional investors in order to
obtain further funding;
(iii) a winding up or dissolution of the Company;
(iv) any amendment of the Articles of Association of
the Company other than those pertaining to
increases in the authorized capital of the Company
or to convert the Company into an N.V. ("Naamloze
Vennootschap") to enable a public listing of
Shares or new shares;
(v) any amendment of the scope of business of the
Company;
(vi) the declaration of dividends; and
(vii) the admission of new shareholders to this
Agreement.
6.3 Board of Supervisory Directors
(a) Subject to the provisions of this Agreement and the Articles
of Association, the Board of Supervisory Directors shall
have complete and exclusive power to supervise the policy of
the Management Board and the general course of affairs of
the Company and the Business.
(b) Subject to the provisions set forth below and the Articles
of Association and unless otherwise agreed by the
Shareholders, the number of persons comprising the Board of
Supervisory Directors shall not exceed ten (10) members and
shall
<PAGE> 17
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not be less than four (4) members.
(c) The Board of Supervisory Directors shall designate its
Chairman and Vice Chairman and the Shareholders shall
procure that the Board of Supervisory Directors appoints as
Chairman and Vice Chairman the persons so designated. The
Chairman shall prepare an agenda for the meetings of the
Board of Supervisory Directors, without prejudice to the
right of the members to put up for discussion at meetings
issues other than those set out in the agenda. The Chairman,
or in his absence the Vice Chairman, shall preside the
meetings.
(d) Each Participating Shareholder who holds an interest of at
least 6.8% in the issued capital of the Company shall be
entitled to make a binding nomination for the appointment of
one (1) Supervisory Director, and, the other Participating
Shareholders together to the extent each holds less than
6.8% shall be entitled by rotation to make a binding
nomination for the appointment for 2 years of one (1)
Supervisory Director, provided that, so long as HIT Rail is
the legal owner of at least one (1) Share. HIT Rail shall be
entitled to nominate at least one (1) Supervisory Director.
If the Participating Shareholders together holding less than
6.8% cannot agree on the person to be appointed, any one of
them may refer the decision to appoint a new member to the
Supervisory Board whose decision shall be binding on the
Participating Shareholders. So long as GTS Hermes is the
legal owner of 50% of the Shares, GTS Hermes shall have the
right to make a binding nomination for appointment of such
number of members of the Board of Supervisory Directors as
matches the number of members appointed by the other
Shareholders. If GTS Hermes is the legal owner of two-thirds
(2/3) or more of the Shares, GTS Hermes shall have the right
to make a binding nomination for appointment of such number
of members to the Board of Supervisory Directors equal to
one member more than appointed pursuant to the nominations
by all the other Shareholders. The percentage of 6.8%
reflects the estimated increase of the interest of NMBS in
the Company after the HIT Rail Shareholders have become
direct shareholders of the Company as mentioned in the
"WHEREAS" clause under e., and consequently, such percentage
is subject to change if the issued capital of the Company as
set forth in Article 2, is increased.
<PAGE> 18
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(e) The Board of Supervisory Directors shall meet at least
quarterly at the office of the Company's headquarters,
unless the Board agrees to meet elsewhere. Notice of Board
meetings shall be provided by the Chairman no less than four
(4) weeks in advance and the proposed agenda for such
meeting shall be provided by the Chairman no less than two
(2) weeks in advance. The quorum for meetings of the Board
of Supervisory Directors validly convened shall be a simple
majority of the members of the Board of Supervisory
Directors. If the quorum is not represented in such meeting,
a second meeting of the Board of Supervisory Directors will
be called on a date which is at least 5 business days and
not more than 4 weeks after the date of the first meeting.
In such second meeting, resolutions on the subjects put
before the first meeting can be adopted by a majority of the
votes cast irrespective of the number of Supervisory
Directors represented at such second meeting. Each
Supervisory Director may designate any other Supervisory
Director to serve as his attorney-in-fact at any such
meeting. The Company shall bear the reasonable costs and
expenses of the attendance of the members at the meetings of
the Board of Supervisory Directors.
(f) At each of its regular meetings, the Board of Supervisory
Directors shall determine the time and place of the Board's
next regular meeting. The Chairman may, on his own
initiative or at the request of any other member, call
non-regular meetings of the Board of Supervisory Directors.
(g) The Board of Supervisory Directors may also convene and/or
take action by telephone or video-conferencing, provided
that the quorum set out in paragraph (e) above is present
thereat. The Board may also take action by unanimous written
consent.
(h) Subject to the Articles of Association, issues arising at
any meeting shall be decided by a simple majority of the
members of the Board of Supervisory Directors.
(i) Each Supervisory Director has one vote. If an equal number
of votes is cast in favour of and against a proposal, the
Chairman shall not have a deciding vote.
<PAGE> 19
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In respect of any such proposal:
(i) the proposal shall be referred to the Chief
Executive Officer of each of the Shareholders or
his designee, who shall use their best efforts to
reach agreement with respect to such proposal
within 30 days of such meeting; their agreement
shall be considered a resolution of the Board of
Supervisory Directors; and
(ii) if they fail to come to an agreement on the
proposal, the deadlock mechanism provided for in
paragraph 4 of Article 18 of the Articles of
Association shall mutatis mutandis apply. The
committee of experts appointed in accordance with
such provision will be instructed to render a
decision within 60 days.
6.4 Management Board
(a) Taking into account the terms of this Agreement and the
Articles of Association the Management Board shall:
(1) carry out the Business Plan of the Company as
amended from time to time;
(2) organize preparation for carrying out decisions of
the Board of Supervisory Directors made in
accordance with the relevant provisions of the
Articles of Association and submit reports on
their accomplishment;
(3) prepare a proposed revision to the Business Plan
on an annual basis and present it to the Board of
Supervisory Directors;
(4) prepare a proposed budget setting forth a detailed
plan for capital and any other investment,
expenses, and projected revenue for the Company in
connection with its activities over the fiscal
year covered by such budget period, and present
the proposed budget to the Board or Supervisory
Directors;
(5) manage Company property including its cash funds
within such guidelines as may be set by the Board
of Supervisory Directors;
(6) conclude contracts and agreements in the Company's
name and ensure
<PAGE> 20
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their fulfillment;
(7) distribute profits in accordance with
the relevant provisions of the Articles
of Association;
(8) adequately insure and keep so insured
the Company against all risks usually
insured against by companies carrying on
the same or similar business;
(9) carry out other functions based on the
Articles of Association that are not
inconsistent with the provisions of this
Agreement or the direction of the Board
of Supervisory Directors; and
(10) subject to Article 12.2, represent the
Company in its relations with
organizations, state organizations,
firms, and institutions concerning the
Business.
(b) GTS Hermes shall procure that the Management Board
shall not without the prior written approval from
the Board of Supervisory Directors permit the
Company to engage in any dealings with relatives
(in the case of an individual) of members of the
Management Board or enter into any contracts with
any Shareholder or Affiliated Company which are
not in the ordinary course of business for the
Company or which am not on normal commercial terms
such as would be offered any unrelated third
party.
(c) GTS Hermes shall have the right to nominate for
removal or appointment of the Managing Director
and the other Shareholders agree, subject to the
provision set out in paragraph (d) below, to vote
in favour of any such nomination, unless it cannot
reasonably be expected to do so, and GTS Hermes
agrees to indemnify and hold the other
Shareholders harmless from and against any
liabilities which it might incur as a result of
any removal contemplated above.
(d) Any Managing Director to be appointed in
accordance with the above shall have submitted to
the Shareholders prior to his appointment a
written statement agreeing to be bound by the
confidentiality covenant set out in Article 11 of
this Agreement in respect of any information
labelled confidential by the Shareholders.
<PAGE> 21
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(e) GTS Hermes covenants with the other Parties that it shall at all times
procure that the Company complies with all of its obligations under
this Agreement and the Articles of Association.
6.5 Removal; Successors
From time to time during the term of this agreement, any Shareholder
may request the removal or suspension of a Supervisory Director
previously nominated by that Shareholder in accordance with Article
6.3, and, the other Shareholders undertake upon the making of such
request to exercise their voting rights in favour of such removal or
suspension and, in case of removal, in favour of the appointment of a
successor nominated by that Shareholder, which nominee the
Shareholders undertake to promptly appoint in the place of the removed
Supervisory Director. Unless the Shareholders agree otherwise, if a
Shareholder removes a Supervisory Director previously nominated by
that Shareholder, that Shareholder shall bear any liability for such
removal and shall indemnify the other Shareholders and the Company
against any costs that they may incur in connection with such removal.
ARTICLE 7 - CONDUCT OF BUSINESS
7.1 Shareholder Representatives
(a) Each Shareholder shall appoint one (1) natural person to serve as its
representative at the General Assemblies and to carry out other
responsibilities of Shareholders as provided in this Agreement. A
representative may, after giving reasonable written notice to the
other representatives, designate any natural person to serve as a
substitute at any General Assembly and for any other purpose under
this Agreement.
(b) Each Shareholder may remove its representative from time to time. Upon
the death, disability, resignation, or removal of its representative,
a Shareholder shall appoint a successor representative and shall
promptly notify the other Parties of such appointment.
<PAGE> 22
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(c) A person designated as the representative of a Shareholder shall be
deemed to continue as such unless and until the Company and all the
other Shareholders receive a written notice signed by the appointing
Shareholder designating a successor representative. The Company and
each Shareholder shall be entitled to rely on the authority of the
most recently appointed representative of whose appointment they have
received notice with respect to any matter for which a Shareholder's
representative may act under this Agreement.
(d) Each Shareholder shall ensure that this representative has appropriate
authorization to act on its behalf with respect to any actions
required, permitted, or provided under this Agreement to be taken by
its appointing Shareholder and noted on the agenda for a particular
meeting, including without limitation giving or receiving notices,
offers, acceptances, and other communications provided for in this
Agreement.
(e) Unless the Shareholders agree otherwise, if a Shareholder removes its
representative pursuant to Article 7.1 (b) hereof, that Shareholder
shall bear any liability for such removal and shall indemnify the
other Shareholders and the Company against any costs that they may
incur in connection with such removal.
7.2 Award of Licenses
Each Shareholder agrees to cooperate with the Company in obtaining the
Licenses and operating the Business in connection therewith in
accordance with the Business Plan.
7.3 Shareholder Advisory Council (SAC)
To ensure sufficient Shareholder representation regarding key business
issues, the Management Board will form a Shareholder Advisory Council
(SAC) to be populated by a representative from each Participating
Shareholder. This will not be a voting body or a decision-making body,
but rather a group of active and
<PAGE> 23
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interested Shareholders willing to both offer advice and counsel to
the Management Board as well as to ensure awareness within their own
organization of Company issues and progress. The SAC would normally
convene six times per year.
ARTICLE 8 - ISSUE AND TRANSFER OF SHARES; PRE-EMPTIVE RIGHTS
8.1 The Shareholders agree to grant their consent pursuant to paragraph 1
of Article 8 of the Articles of Association to any transfer of Shares
to a transferee who is and remains an Affiliated Company of the
transferor Shareholder and the Shareholders may, when entitled under
this Agreement to be issued additional Shares, designate an Affiliated
Company to take up such Shares provided that:
(1) the obligations of the transferor Shareholder under this
Agreement will remain unaffected by the transfer
contemplated above; and
(2) the Shares will be retransferred to the transferor
Shareholder (or in the event there have been a series of
transfers between Affiliated Companies, then to the first
transferor Shareholder) immediately prior to the ultimate
transferee ceasing to be an Affiliated Company of the
transferor Shareholder except if the (first) transferor
Shareholder has been voluntarily liquidated; and
(3) the transferor Shareholder warrants that it shall
unconditionally and irrevocably guarantee the performance of
the Affiliated Company's obligations under this Agreement.
8.2 Except in case of a public listing or an issue of new shares or Shares
or options on shares (warrants) to professional investors to obtain
further funding, it shall be a condition precedent to any issuance of
shares by the Company to a third party and to the right of any
Shareholder to transfer its Shares to any third party (including
Affiliated Companies) or to designate the allotment of additional
shares to an Affiliated Company that the transferee or allottee
becomes a Party to this Agreement. The joining of such transferee
or allottee as a Party to this Agreement will take place by means of,
and as of the date of,
<PAGE> 24
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the signing of an admittance statement by such third party in the
format as attached hereto as Annex 2. The transferee or allottee shall
send the admittance statement to the Company, which shall provide
each of the Parties with a copy thereof. The Shareholders hereby agree
for the future to the amendment of this Agreement at any time an
admittance statement becomes effective.
8.3 The Shareholders and the Company shall do or procure to be done all
such acts and things as may be necessary to give full effect to the
transfers contemplated in this Article 8 and the registrations
thereof.
8.4 Subject to Article 8.1. if a Shareholder transfers all of its
Shares, the transferor Shareholder shall upon completion of such
transfer and the transferee becoming a party to this Agreement be
released from all its obligations and liabilities under this
Agreement, with the exception of:
(i) any liability resulting from antecedent breaches of this
Agreement; and
(ii) those provisions of this Agreement stated to continue after
termination hereof.
8.5 Except where the transfer is in accordance with this Article 8, upon
the transfer by a Shareholder of all its Shares, such Shareholder
shall deliver to the Company the written resignations of all those
Members of the Board of Supervisory Directors nominated by such
Shareholder pursuant to the provisions of Article 7.
8.6 Notwithstanding any other provision of this Agreement, if any binding
measure of the Commission or Council of the European Communities or
any judgement of any court or tribunal or any regulation or
legislation of any other relevant authority shall prohibit or in any
way restrict the holding of Shares by a Shareholder (the Prohibited
Shareholder), then the Prohibited Shareholder may give a written
notice (the Transfer Notice) to the other Shareholders and the Company
to transfer some or all of its Shares to a third party and, where a
prohibited Shareholder shall be entitled under this Agreement to be
issued any additional Shares or require or accept a transfer of any
Shareholder's Shares,
<PAGE> 25
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it may designate a third party, in each case, acceptable to the
other Shareholders to take up such Shares (or the rights to be
allotted Shares) within thirty-five (35) days of receipt of notice
that such third party is acceptable provided that if the other
Shareholders shall not accept such third party within twenty-one
(21) days of receipt of the Transfer Notice, and unless otherwise
agreed by the Shareholders, the other Shareholders shall be
obliged to purchase all of the Shares held by the Prohibited
Shareholder on a pro rata basis within thirty-five (35) days of
receipt of the Transfer Notice, failing which the Prohibited
Shareholder shall be obliged to transfer such Shares (or the
rights to be allotted Shares) to such third party who shall be
deemed to be acceptable to the other Shareholders. The purchase
price of any transferred Shares shall be determined pursuant to
the procedures set forth in Article 8 of the Articles of
Association.
ARTICLE 9 PROVIDE FIBRE CAPACITY
The Company or its designated vendor will provide fibre capacity in its network
for use by the Shareholders on fair commercial terms, use, quantity and price to
be negotiated on a bilateral basis between the relevant Shareholder and the
Company or its designated vendor.
ARTICLE 10 - TERM AND TERMINATION OF AGREEMENT
Except for obligations under Article 11 which shall survive termination, and
obligations or liabilities not discharged upon termination, this Agreement shall
terminate in respect of all Parties simultaneously pursuant to a decision to
terminate this Agreement as of a certain date, provided that such decision has
been approved in writing by such a number of Parties together holding at least
eighty-five (85)% of the voting Shares. In addition all rights and obligations
under this agreement (except for obligations and liabilities which have not been
discharged or which survive termination) shall terminate automatically in
respect of any Party, if such Party no longer holds Shares in the Company.
ARTICLE 11 - CONFIDENTIAL INFORMATION
The Parties shall not and shall procure that none of their officers, employees,
Managing or
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Supervisory Directors, or Affiliated Companies or their officers, employees,
Managing or Supervisory Directors, or the Company or any of its Managing or
Supervisory Directors, or employees shall at any time hereafter, save when
required by law, make use of or disclose or divulge to any third party any
information relating to the Company which has been designated in writing as
confidential by the disclosing Party.
ARTICLE 12 - MISCELLANEOUS
12.1 Government Notification and Information
If the Shareholders jointly conclude that any applicable antitrust or
competition regulatory requirement of the European Communities or any
other governmental body requires a notification or information, or if
the Shareholders jointly conclude that it would be desirable to submit
such notification or information, then the Shareholders shall
cooperate in the preparation and delivery of the notification or
information.
12.2 Publicity
For the duration of this Agreement, any formal press, public
announcement, news release or other form of major publicity relating to
this Agreement or any of its terms shall be made only after prior
consultation between the Parties and if the substantive content is
mutually agreed upon. No party shall unreasonably withhold or delay its
consent to any formal press, public announcement, news release,
filings, or other form of major publicity relating to the existence of
this Agreement or its terms, if such is required by the laws of any
jurisdiction governing any of the Parties or in connection with the
procurement of capital.
12.3 Severability
Each and every obligation under this Agreement shall be treated as a
separate obligation and shall be severally enforceable as such and in
the event of any obligation or obligations being or becoming
unenforceable in whole or in part such
<PAGE> 27
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part or parts as are unenforceable shall be deemed deleted from this
Agreement and any such deletion shall not affect the enforceability of
the remainder of this Agreement.
12.4 Force Majeure
The failure or delay of any Shareholder (the "Affected Shareholder") to
perform any obligation under this Agreement or the Company being unable
to conduct its business solely by reason of acts of civil or military
authority, civil disturbance, war, strikes or other labour disputes (by
employees of any third party) or disturbances, fire, or laws,
regulations, acts, or orders of any governmental agency or official
thereof, other catastrophes, or any other circumstances beyond its
reasonable control ("Force Majeure") shall not be deemed to be a breach
of this Agreement so long as the Affected Shareholder or its Affiliated
Company shall not have contributed to such Force Majeure, shall have
used its best reasonable efforts to avoid such Force Majeure or to
ameliorate its effects, and shall continue to take all actions within
its power to comply to the extent possible with the terms of this
Agreement. In the event of any such failure or delay, performance of the
obligations shall be deferred until the Force Majeure ceases to affect
the performance of obligations hereunder, provided that if the Force
Majeure affects the performance of a material obligation and has not
ceased within nine (9) months, any Affected Shareholder may withdraw as
a Party to this Agreement.
12.5 Entire Agreement
This Agreement and the agreements to be entered into pursuant to it
supersede all prior agreements among the Parties with respect to the
subject matter hereof and contain the entire agreement among the Parties
with respect to the subject matter hereof, including the Annexes. Each
party confirms to each of the others that it is not relying on any
representation, warranty, or commitment of any kind save as set out in
or explicitly contemplated by this Agreement and the Annexes and, for
the avoidance of doubt, the Parties (other than the Company) acknowledge
that their respective Shareholders are not parties hereto and are in no
way whatsoever bound by, and will not be held to by the Company, any
Shareholder or any of their
<PAGE> 28
- 28 -
respective Affiliated Companies, any of the terms hereof.
12.6 Amendment
This Agreement may not be amended, supplemented, or discharged, and no
provision may be modified or waived, except as expressly provided in
this Agreement or by an instrument in writing signed by such a number of
Parties together holding at least (eighty-five) (85)% of the voting
shares in the capital of the Company, in which case the amended
Agreement shall be effective in respect of all Parties to the Agreement
as of the date of the signed instrument, notwithstanding the fact that
any one Party has not approved such amendment. No waiver of any
provision hereof by any Party shall be deemed a waiver by or in favour
of any other Party, nor shall any such waiver by any Party be deemed a
continuing waiver of any matter or a waiver of any other matter by such
Party. No allowance of time or other indulgence shall constitute a
waiver or preclude the subsequent assertion or enforcement of the right
or remedy concerned or any other right or remedy. No exercise of any
right or remedy shall be deemed to imply a waiver of, or prevent the
subsequent assertion or exercise of, any other right or remedy in
respect of the same or any other matter. No amendment, modification,
supplement, discharge, or waiver hereof or hereunder shall require the
consent of any person not a Party to this Agreement except as required
by law.
12.7 Variations in Terms and Pronouns
All terms, pronouns, and any variations thereof, shall be deemed to
refer to the masculine, feminine, neuter, singular, or plural as the
identify of the person or persons or entity or entities require.
12.8 Headings
All captions or headings contained in this Agreement are for convenience
or the Parties only and shall not affect the interpretation of any
provision of this Agreement.
<PAGE> 29
- 29 -
12.9 Language
All meetings of the Company and all documentation relating to the
Company shall be in the English language unless otherwise required by
applicable law.
12.10 Costs
The Company shall bear the reasonable legal fees and expenses
incidental to the registration, preparation and completion of this
Agreement.
12.11 Counterparts
This Agreement may be executed and delivered (including by facsimile
transmission) in one or more counterparts, and by the different
parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original but all of
which taken together shall constitute one and the same agreement. This
Agreement shall be binding as of the date of signing by at least two
Parties and shall be binding an each other Party as of the date of its
signing.
ARTICLE 13 - APPLICABLE LAW AND CHOICE OF FORUM
(a) This Agreement shall be governed by and construed in accordance with
the laws of The Netherlands.
(b) In the event that disagreements or disputes arise with respect to the
interpretation or performance of this Agreement or any of its
provisions, the Parties will use their best efforts to resolve them
through consultation. Disagreements or disputes that have not been
settled by such consultation within thirty (30) days after the first
notification thereof by one Party to the other will, at the request of
either Party, be submitted to and finally settled by arbitration in
accordance with the Rules of The Netherlands Arbitration Institute.
The arbitration shall be conducted in Amsterdam, The Netherlands, in
the English language.
Signed in five counterparts
<PAGE> 30
-30-
HIT RAIL B.V. GTS HERMES, INC.
/s/Illegible
______________________________ ________________________________
By: S. Laursen By:
Title: M.O. HIT Rail B.V. Title:
Date: 4. December 1997 Date:
NMBS/SNCB AB SWED CARRIER
______________________________ ________________________________
By: By:
Title: Title:
Date: Date:
HERMES EUROPE RAILTEL B.V.
______________________________
By:
Title:
Date:
<PAGE> 31
-30-
HIT RAIL B.V. GTS HERMES, INC.
/s/Gerald W. Thames
______________________________ ________________________________
By: By: Gerald W. Thames
Title: Title: President & CEO
Date: Date:
NMBS/SNCB AB SWED CARRIER
______________________________ ________________________________
By: By:
Title: Title:
Date: Date:
HERMES EUROPE RAILTEL B.V.
______________________________
By:
Title:
Date:
<PAGE> 32
-30-
HIT RAIL B.V. GTS HERMES, INC.
______________________________ ________________________________
By: By:
Title: Title:
Date: Date:
NMBS/SNCB AB SWED CARRIER
/s/Illegible
______________________________ ________________________________
By: By:
Title: Title:
Date: Date:
HERMES EUROPE RAILTEL B.V.
______________________________
By:
Title:
Date:
<PAGE> 33
-30-
HIT RAIL B.V. GTS HERMES, INC.
______________________________ ________________________________
By: By:
Title: Title:
Date: Date:
NMBS/SNCB AB SWED CARRIER
______________________________ ________________________________
By: By:
Title: Title:
Date: Date:
HERMES EUROPE RAILTEL B.V.
/s/Jan Loeber
______________________________
Hermes Europe Railtel B.V.
By: Jan Loeber
Title: Managing Director
Date: 4. Dec 97
<PAGE> 1
Exhibit 10.8
Brussels, 7/26/96
I B P T HERMES EUROPE RAILTEL bv
Attn: Mr. Hartmut Seibel
Terhulpsesteenweg 6A
1560 Hoeilaart
Management 2 -- NRS
Matter handled by J. Vannieuwenhuyse
Telephone 02/226 87 59
Your letter dated Your Reference Our reference Exhibit(s)
7/16/96 NRS/96/4002/1 1473
Dear Sir:
I hereby inform you that, pursuant to the ministerial decision dated
3/29/1996 for the trial projects mentioned in your aforementioned letter, IBPT
can allow an exception to Article 92, ss. 1 of the law dated March 21st
pertaining to reform of certain semi-public corporations.
The projects have been registered under the number
NRS/96/4002/1
As stated in the declaration, they comply with specific criteria, namely:
- - they will be carried out on a clearly defined layout, geographically
limited from Brussels to Essen via Anvers;
- - the duration is limited from 8/15 to 12/15/96 inclusive;
- - there is no commercial development;
- - no communication for the public in general is possible.
The competent supervisory department has been informed of this letter.
Finally, I hope that the trials will have the outcome anticipated. Future
projects may always be certified in the same way.
Sincerely,
E. Van Heesvelde
-----------------
E. VAN HEESVELDE
General Manager
<PAGE> 1
Exhibit 10.9
CONFIDENTIAL
Ministry of Transport
and Communications Decision on wired broadcasting
Telecommunications and Postal Division and cable systems
Networks and Services Inspectorate
Hermes Europe Railtel BV
Mr. H. Seibel
Terhulpsesteenweg 6AA
B-1560 Hoeilaart
Belgium
Contact Direct line
drs. M. De Natris (070) 315 3534
Date Enclosures
1 August 1996 2
Our ref
HDTP/TMV/96/3240
Subject
Approval under Art. 23 of the Telecommunications Act
Dear Mr. Seible
With reference to your application for approval under Art. 23 of the
Telecommunications Act, as amended (status book 323, 1996), I hereby inform you
that I have granted you or the company in whose name the application was made
the approval requested.
I enclose the approval document.
The holder of the approval is allowed to extend the cable system. You do not
need to submit a new application for this.
If you wish to offer leased lines to third parties, you must register with us
first.
Your licence holder must not cause any disturbance or hindrance to other cable
networks or other electrical or electronic equipment when laying, maintaining or
using the network. The EMC directive applies to this approval. At the same time,
the approval holder must provide cooperation in handling complaints about
interference caused by his cable system
1
<PAGE> 2
CONFIDENTIAL
in accordance with the Regulation on handling of complaints,, electrical and
electronic equipment (Stcrt 1995, no. 163 - Dutch Official Journal).
The holder of the approval must inform the Networks and Services Inspectorate of
the Telecommunications and Postal Services Division immediately in writing
about:
a. changes in the correspondence address;
b. changes in the ownership of the cable system;
c. termination of the maintenance and/or use of the cable system.
Under the "Regulation on payments for telecommunications systems TND 1996", you
will have to pay a one-off fee of NLG 103 for the granting of approvals for
telecommunications systems using cables or cable networks. You will be receiving
an invoice for this shortly. Thereafter, you will have to pay an annual fee, the
amount of which is set each year.
You must comply with the information obligation under Article 47, paragraph 2 of
the Telecommunications Act.
Interested parties who disagree with the approval may appeal to the Minister of
Transport and Communications within six weeks starting on the day after
publication of the decision. The appeal is to be addressed to:
Ministry of Transport and Communications
Postbus 90420
2509 LK THE HAGUE
marked "Appeal". The appeal must be signed and must in all cases indicate the
content of the decision and the grounds for the appeal. Wherever possible,
extracts of the decision and other relevant documents should be enclosed.
Your faithfully
for
THE MINISTER
Meester A.T. Kroes
Head of Approvals Department
2
<PAGE> 3
CONFIDENTIAL
Ministry of Transport and Communications
Place and date
The Hague, 1 August 1996
Number
10909E
Subject
Approval for cable system
THE MINISTER FOR TRANSPORT AND COMMUNICATIONS
Considering Article 23 of the Telecommunications Act:
DECIDES:
to grant
Hermes Europe Railtel B.V., Terhulpsesteenweg 6-a
Hoeilaart, Belgium
approval as defined in that article, to lay, maintain or use a system intended
for telecommunications by means of cables and cable networks; which is not a
wired communication system in whole or in part, to be laid on or above public
land.
The approval is granted for an unspecified period.
for
THE MINISTER
Meester A.T. Kroes
Head of Approvals Department
3
<PAGE> 4
CONFIDENTIAL
ss.4 Telecommunications system using cables and cable networks
Article 23
1. Notwithstanding the provisions of Article 13o, it is prohibited, other
than pursuant to the concession or under an infrastructure approval, to
lay, maintain or use a system wholly or partly in; on or above public
land, intended for telecommunications by means of cables or cable
networks, unless this is approved by our Minister.
2. An approval for such a system will be refused unless it meets the rules
under Article 30b, first paragraph, point a.
3. An approval may still be refused if the application does not comply with
the rules laid down in Article 15.
4. Conditions and restrictions may be imposed on a authorisation, but only in
relation to
a. the duration of the approval;
b. the technical features and structure of the system.
5. An approval may only be withdrawn if:
a. the holder o the approval fails to comply with the rules laid down by law
or the conditions and restrictions contained in the approval;
b. the grounds on which the approval was granted no longer apply;
6. Our Minister may allocate numbers to the holder, or reserve numbers for
the provision of telecommunication service over its telecommunication
system by itself or by third parties, in which connection conditions and
restrictions may be applied.
Article 23a
1. The holder of an approval for a telecommunications system using cables and
cable networks as defined in article 23 is only allowed to supply leased
lines to third parties if registered for this purpose by our Minister.
2. With regard to registration referred to in the first paragraph, the
provisions of Article 22a, second to seventh paragraph applies
accordingly.
Article 23b
With regard to the supply of leased lines to third parties, the holder of an
approval for a telecommunications system using cables and cable networks as
defined in Article 22, the provisions of Article 22b, indent and sub-sections b
to g inclusive apply.
Article 23c
4
<PAGE> 5
CONFIDENTIAL
The holder of an approval for a telecommunications system using cables and cable
networks as defined in Article 22 is prohibited from acting in contravention of
Articles 23a and 23b.
5
<PAGE> 6
CONFIDENTIAL
Ministry of Transport
and Communications Decision on wired broadcasting
Telecommunications and Postal Division and cable systems
Networks and Services Inspectorate
Section 1 - Definitions
Article 1
In this decision and the stipulations based thereon, the following definitions
apply:
a. the law: the law on telecommunications facilities;
b. our Minister: the Minister of Transport and Communications;
c. a regulator: an official as defined in Article 48 of the law;;
d. a cable system: a system as defined by Article 23 of the law;
e. registration: a registration as defined by Articles 22a and 23a of the
law.
Section 2 - Application
ss.1 Submission of the application
Article 2
An application for the grant, amendment or withdrawal of approval for a wired
broadcasting system or a cable system is to be submitted in the manner laid down
by our Minister.
Article 3
1. The application for the grant or amendment of approval for a wired
broadcasting system shall contain the following data:
a. the number of homes or the area affected by the application;
b. data showing that the continuity of the operation of the wired
broadcasting system is adequately guaranteed.
Articles 4 and 5 no longer applicable.
Article 6
6
<PAGE> 7
CONFIDENTIAL
An application for withdrawal or an approval for a wired broadcasting system or
for a cable system shall contain at least the reasons for the application.
Articles 7 and 8 no longer applicable.
ss.2 Processing of an application
Article 9
1. If several applications are being submitted for grant or amendment of an
approval for a wired broadcasting system; the first application that
satisfies the requireents of Article 42, first paragraph of the General
Law on Administrative Law and Article 3, first paragraph, point a. will be
taken into consideration for processing.
2. If the application taken into consideration pursuant to the first
paragraph should be refused, then the application that was received next
will be taken into consideration.
Articles 10, 11 and 12 no longer applicable.
7
<PAGE> 1
Exhibit 10.10
LICENSE CLASS 3 LICENSE
for the operation of transmission paths
for the offering of telecommunication services
to the public
by the licensee or others
The Federal Ministry for Post and Telecommunications (licensor)
hereby grants, on the basis of the application of 4/25/1997,
pursuant to Section 6 Para. 1 No. 1, Para. 2 No. 1 Item c) in
conjunction with Section 8 Para. 1 through 3 and Section 50 Para. 2 Clause 1
of the Telecommunications Act (TKG) of July 25, 1996 (Federal Law
Gazette I, p 1120), a License Class 3 license to
HERMES EUROPE RAILTEL B.V.,
DRENTESTRAAT 20, NL-1083 HK AMSTERDAM (THE NETHERLANDS)
(LICENSEE)
for the operation of transmission paths for telecommunication
services for the public by the licensee or others.
The application of 4/25/1997 is an integral part of this license.
This license is registered under Number 97 03 067.
<PAGE> 2
1 OBJECT OF THE LICENSE
1.1 MATERIAL SCOPE
With this license, the licensee acquires the right, in compliance with the
Telecommunications Act and the legal regulations based on it, to operate
transmission paths in the licensed territory within the framework of License
Class 3, across which telecommunication services are offered to the public by it
or by others.
The licensee is also entitled to operate transmission paths in the form of radio
links, insofar as the necessary frequencies have been assigned to it in keeping
with Sections 44 through 48 TKG and the frequency regulations based
thereupon. Such frequency assignments are an integral part of this license. The
right to further specify the object of the license is reserved if radio
frequencies are used for services within the framework of License Class 3.
The license does not entitle the licensee to offer voice telephone
service (Section 6 Para. 2 No. 2 TKG), to operate transmission paths for
mobile phone services or satellite phone services for the public
(Section 6 Para. 2 No. 1 Items a) and b) TKG), or to operate
transmission paths for which an assignment of frequencies for the
transmission of broadcast programs (Section 47 Para. 3 TKG) is
necessary.
1.2 TERRITORIAL SCOPE
The license pertains to the single toll trunks:
1. From the border crossing with the Netherlands (from the
direction of Amsterdam) to the Dusseldorf center city;
2. From the border crossing with Switzerland (from the direction
of Basel) to the Stuttgart center city;
3. From the border crossing with France (from the direction of
Strasbourg) to the Stuttgart center city;
4. From the Dusseldorf center city to the Frankfurt am Main center
city;
5. From the Frankfurt am Main center city to the Stuttgart center
city;
and single local trunks within:
6. Dusseldorf;
7. Frankfurt am Main;
8. Stuttgart.
<PAGE> 3
2 USE OF THE TRAFFIC ROUTES
Based on Section 50 Para. 2 Clause 1 TKG, the licensor conveys to the licensee
the right to use, at no charge, public traffic routes for telecommunication
lines (Section 3 No. 20 TKG) which it needs to exercise the licensed rights, in
accordance with Sections 50 through 58 TKG, insofar as such use does not
perpetually restrict the established purpose of the traffic route.
3 INCIDENTAL PROVISIONS
3.1 Changes in the Commercial Register shall be reported to the licensor without
delay, with attachment of a certified excerpt from the Commercial Register. The
information is needed to allow an evaluation of the continued presence of the
license preconditions pursuant to Section 8 Para. 3 Clause 2 No. 2 TKG and to
ensure compliance with the obligations upon a change in the licensee and/or a
change of ownership status pursuant to Section 9 TKG.
3.2 The offering of transmission paths in accordance with Annex II of the
"Directive 92/44/EEC by the Council of June 5, 1992 on Introducing Open Network
Access to Leased Lines" (EC Gazette No. L 165 of 6/19/92, p 27), amended by the
Commission Decision 94/439/EEC of June 15, 1994 (EC Gazette No. L 181 of
7/15/94, p 40), shall be reported to the licensor without delay. The information
is needed in order to determine the market share with regard to the obligation
to provide universal services pursuant to Section 18 Para. 1 TKG.
3.3 The licensee is instructed to appoint the safety
representative, to submit the documents named in Section 87 Para. 2 TKG,
and to issue the statement pursuant to Section 87 Para. 2 Clause 2 TKG,
all prior to the initial commissioning.
4 REMARKS
4.1 As long as transmission capacity is provided by the licensee's
telecommunications installation exclusively in the manner depicted under Points
5.1 through 5.3 of the license application and no end-customers are connected to
the telecommunications installation, no technical precautions shall be
instituted to apply monitoring measures pursuant to Section 88 of the
Telecommunications Act, until further notice. Such precautions are necessary as
soon as end-customers are connected to the telecommunications installation. They
can similarly become necessary if telecommunication services other than those
indicated in the license application are provided by way of the
telecommunications installation.
<PAGE> 4
The licensee is urged to comply with this provision in the planning and
execution of its telecommunications installation; noncompliance can result in
revocation of the license pursuant to Section 15 of the Telecommunications Act.
The fundamental statutory obligations from the provisions of Sections 100a
and 100b of the Code of Criminal Procedure, the Law on Restricting Mail, Postal,
and Communications Confidentiality, and Sections 39 through 43 of the
External Economic Relations Act are
unaffected by this license provision.
4.2 Granting of the license is subject to a fee pursuant to Section 16
Para. 1 Clause 1 TKG. The fee is established through a separate
ruling, based on the legal regulation to be issued pursuant to
Section 16 Para. 1 Clause 2 TKG.
4.3 Any assignments of frequencies to operate transmission paths in the form of
radio links are subject to a fee and to contributions pursuant to Section 48 TKG
and the legal regulations issued on the basis of this provision. Frequency
assignment fees and frequency usage contributions are established through
separate rulings. Changes in assignment and new assignments of frequencies are
effected through independent administrative acts.
4.4 Under Section 8 Para. 2 Clause 2 TKG, further incidental provisions
can be added to this license even after it is granted.
4.5 It is pointed out that in addition to this license, the special provisions
of the TKG must be complied with.
INSTRUCTIONS ON RIGHT OF APPEAL
Action can be brought against this administrative act within one month of
publication before the Cologne Administrative Court, Appellhofplatz, 50667
Cologne, in written form or through recording by the court clerk. The statement
of claim must indicate the plaintiff, the defendant, and the subject of the
dispute. It should contain a specific petition. The supporting facts and
evidence should be indicated. Enclosed with the statement of claim and annexes
should be as many copies as is necessary for all involved parties to receive a
copy.
Federal Ministry for
Post and Telecommunications Bonn, 7/18/1997
Signed,
[signature]
Knobloch [illegible seal]
<PAGE> 1
CONFIDENTIAL TREATMENT
Exhibit 10.11
Note: Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment filed with the SEC under Rule 406. The omitted
confidential material has been filed separately with the SEC. The location of
the omitted confidential information is indicated herein by a legend stating,
"MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT."
DATED 1st April 1997
EASTERN GROUP TELECOMS LIMITED (1)
- and -
HERMES EUROPE RAILTEL B.V. (2)
NETWORK SERVICES AGREEMENT
Hewitson Becke+Shaw
Solicitors
CAMBRIDGE
<PAGE> 2
AGREEMENT dated the 1st day of April 1997
Made BETWEEN:
(1) EASTERN GROUP TELECOMS LIMITED (Registered No. 2937788) whose registered
office is Wherstead Park Wherstead Ipswich, Suffolk IP9 2AQ ("EGT"); and
(2) HERMES EUROPE RAILTEL B.V. a company incorporated under the laws of the
Netherlands whose registered office is Drentestraat 20, 1083 HK,
Amsterdam, the Netherlands ("the User")
together "the Parties"
BACKGROUND
(A) EGT operates a telecommunications network ("the Network") under its Public
Telecommunications Operator Licence dated 24 July 1996.
(B) The User wishes to acquire the right to use optical fibres from EGT as set
out in Schedule 1 on the Network from Aldeburgh to London and from Margate
to London.
OPERATIVE PROVISIONS
The Services will be provided in accordance with the attached Schedules and
their associated Appendices which subject to Clause 11.7 of Schedule 2 comprise
the entire agreement between the parties.
Schedule 1 Service Definition
Appendix A Technical Definition
Appendix B Implementation Plan
Schedule 2 Standard Terms and Conditions
Schedule 3 Performance Specifications
Schedule 4 Maintenance and Support
Appendix A Support and Maintenance Operating Procedures
-1-
<PAGE> 3
Contents
BACKGROUND...................................................................1
OPERATIVE PROVISIONS.........................................................1
SCHEDULE 1 SERVICE DEFINITION................................................3
Appendix A Technical Definition.............................................10
Appendix B Implementation Plan..............................................23
SCHEDULE 2 STANDARD TERMS AND CONDITIONS....................................25
1. Interpretation.........................................................25
2. Provision Of The Service...............................................30
3. Covenants By EGT.......................................................30
4. Covenants By The User..................................................31
5. Maintenance............................................................33
6. Payments...............................................................34
7. Duration And Termination...............................................35
8. Warranties And Liability...............................................37
9. Confidentiality And Intellectual Property..............................38
10. Expert Determination...................................................39
11. Insurance..............................................................40
12. General................................................................40
SCHEDULE 3 PERFORMANCE SPECIFICATIONS.......................................43
SCHEDULE 4 MAINTENANCE AND SUPPORT..........................................44
1. Introduction...........................................................44
2. Interpretation.........................................................44
3. Duties Of The User.....................................................45
4. Duties Of EGT..........................................................47
5. Corrective Maintenance.................................................48
6. Planned Work...........................................................50
7. Service Acceptance Tests...............................................51
8. Control, Implementation And Execution Of The Services..................51
9. Accommodation Maintenance..............................................51
10. Priority of Restoration................................................52
11. User's Cable Maintenance...............................................52
12. Liability..............................................................53
Appendix 1 to Schedule 4 Support and Maintenance
Operating Procedures.......................................................54
<PAGE> 4
EXECUTED AS AN AGREEMENT on the day first above written.
SIGNED by )
duly authorised for and on )
behalf of EASTERN GROUP ) /s/ [ILLEGIBLE]
TELECOMS LIMITED in the )
presence of:- )
SIGNED by )
duly authorised for and on ) /s/ [ILLEGIBLE]
behalf of HERMES EUROPE )
RAILTEL B.V. in the presence of:- )
-2-
<PAGE> 5
CONFIDENTIAL TREATMENT
SCHEDULE 1 - SERVICE DEFINITION
This Schedule forms part of the Network Services Agreement and is subject to the
Interpretations and Provisions therein.
SERVICE PARAMETERS
1 The Services EGT will provide the User with the exclusive
right to use two pairs of non-specific
optical fibres ("the Fibres") in EGT's
Network in accordance with the Technical
Definition attached at Appendix A to
Schedule 1 and Performance Specifications
attached at Schedule 3 on each of the Routes
specified in Clauses 1.1 and 1.2 below. EGT
will have the right to designate which
fibres shall be provided to the User and to
change the designation from time to time
provided, however, that no change in
designation causes a Disruption and provided
also that the User is kept aware of any
changes in designation.
The User may request and where available EGT
will provide additional fibre pairs on the
Routes at the prices given in Clause 6 below
in accordance with forecasts periodically
reviewed and agreed between the Parties in
accordance with Clause 11. The terms and
conditions of this Agreement will apply to
additional fibres in the same manner as the
Fibres.
The User is responsible for the provision of
all electronic equipment needed to make use
of the Fibres in accordance with the
Standard Terms and Conditions set out in
Schedule 2.
1.1 Route 1 Route 1 shall be between a Terminal Station
to be established in ## MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ## and EGT's
equipment in ## MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ## and
1.2 Route 2 Route 2 shall be between a Terminal Station
to be established in ## MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ## and EGT's
equipment in ## MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ## including a
splicing chamber to connect to the Users ##
MATERIAL OMITTED AND SEPARATELY FILED UNDER
A REQUEST FOR CONFIDENTIAL TREATMENT ## at
locations to be reasonably agreed by EGT.
-3-
<PAGE> 6
CONFIDENTIAL TREATMENT
The Parties shall agree the exact cable end
locations and method of connection in
relation to the locations identified in
Appendix A to this Schedule, the optical
losses between the cable end locations (such
losses to be measured by means of a
calibrated optical source and power meter),
the number and location of the Regenerator
Sites, the length in kilometres of each
Section and having so agreed shall include
this information in amendments to Appendix A
to Schedule 1.
1.3 Terminal Stations EGT will manage and maintain the Terminal
Stations in ## MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ## (to be provided by
EGT) and ## MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ## (whether owned by EGT or the
User) and these will accommodate and provide
a suitable environment for User's and
Customers' equipment in accordance with the
Technical Definition attached at Appendix A
to Schedule 1.
EGT will accommodate the User's and/or
Customers' cable, ducts and equipment at the
Terminal Stations and enable them to connect
their networks to the User's submarine cable
provided that:
1.3.1 the User's and Customers' equipment space
requirements do not exceed those specified
in the floor space diagram contained in the
Technical Definition attached at Appendix A
to Schedule 1; and
1.3.2 Customers' equipment power requirements are
consistent with the User's equipment power
requirements set out in the Technical
Definition attached at Appendix A to
Schedule 1,
EGT shall permit Customers access to the
Terminal Stations and EGT Sites to install,
maintain and repair the said equipment,
cabling and ducts upon the terms set out in
Clauses 3.7, 3.8 and 4.5 of Schedule 2.
1.4 Regenerator Sites EGT will provide then manage and maintain
Regenerator Sites at locations to be
indicated in Appendix A to Schedule 1.
1.5 Maintenance Maintenance and support of the Services is
to be provided in accordance with the
provisions of Schedule 4.
-4-
<PAGE> 7
CONFIDENTIAL TREATMENT
2 Designated Purpose The conveyance of traffic and Signals
through the User's equipment between cable
ends (i.e. ## MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ##). The User will
also be permitted to make an in-span User
Breakout to establish a connection to ##
MATERIAL OMITTED AND SEPARATELY FILED UNDER
A REQUEST FOR CONFIDENTIAL TREATMENT ##.
The User will not be permitted to transfer
the right to use the Fibres to any other
person in dark or dim form but will
otherwise be allowed to exercise the right
to use the Fibres as it sees fit including
increasing capacity or leasing capacity.
Capacity means bandwidth over a fibre pair
between multiplexing equipments wholly owned
and operated by the User.
EGT will consider written requests for
variations to the Designated Purpose. Such
variations may give rise to additional or
increased payments.
3 Initial Term Commencing on the date of this Agreement and
continuing in relation to each Route for the
period of 15 (fifteen) years from the
Provision Date for that Route.
3.1 Term The Initial Term and thereafter unless and
until terminated in accordance with the
Notice Period.
4 Notice Period Notice of at least ## MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ## months given at
any time to expire at the end of the Initial
Term or on any date thereafter.
5 Dates
5.1 Ready for Testing Dates The Routes shall be Ready for Testing on the
following dates or such later dates as may
be agreed in writing between the Parties
- Route 1 1st September 1997
- Route 2 1st September 1997
5.2 Provision Date The Provision Date for each Route shall be
the date when EGT has demonstrated that the
Services on the Route satisfy the Acceptance
Tests contained in Schedule 3.
-5-
<PAGE> 8
CONFIDENTIAL TREATMENT
6 Usage Payment Payments for each Route as defined below are
due per annum paid in equal Quarterly
installments in advance and subject to RPI
Uplift on each anniversary of its Provision
Date in accordance with Clause 6 of Schedule
2 of this Agreement.
The first year payment for the right to use
additional fibre pairs will be adjusted by
the RPI Uplift from the prices given below
from the Provision Date for the Route
concerned.
Route 1 ## MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT
##
Usage Payment
Dark fibre service at Provision Date
First pair ## MATERIAL OMITTED
AND SEPARATELY FILED
UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT
##
Second pair ## MATERIAL OMITTED
AND SEPARATELY FILED
UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT
##
Each additional pair ## MATERIAL OMITTED
AND SEPARATELY FILED
UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT
##
Route 2 ## MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT
##
Usage Payment
Dark fibre service at Provision Date
First pair ## MATERIAL OMITTED
AND SEPARATELY FILED
UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT
##
Second pair ## MATERIAL OMITTED
AND SEPARATELY FILED
UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT
##
Each additional pair ## MATERIAL OMITTED
AND SEPARATELY FILED
UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT
##
No Usage Payment is due for a Route for any
period when, following initial Acceptance of
the Route, the Route is not available for
transmission of Signals (the period of which
shall be determined in accordance with
Schedule 4) except where due to any
negligent act or omission or default or
breach of this Agreement by the User. The
Usage Payment due for the following Quarter
will be adjusted on the invoice to take
account of such loss of service.
6.1 The total Usage Payment will be reduced by
## MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT
## per Quarter adjusted by RPI Uplift for
each fibre pair or supply of bandwidth
services from the User's submarine cable
provided during that Quarter by EGT to a
third party along a Route at or above the
price of ## MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ## on Route 1 and ## MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT ## on Route 2,
such deduction to be made commencing the
first full Quarter for which the third party
takes the service.
-6-
<PAGE> 9
CONFIDENTIAL TREATMENT
6.2 RPI Uplift The RPI uplift effective on any anniversary
of the Provision Date will be at a rate of
## MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT
## less than the published RPI percentage
increase for the immediately preceding
twelve month period, up to a maximum uplift
of ## MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT
## for that period.
7 Time Limits Return to service following notification of
a fault in accordance with Schedule 4 of
this Agreement:
- Equipment module, connector
or splice fault within 6 hours
- Fibre fault within 15 hours
8 Loss of Service Payments In the event of a loss of service
attributable to a fault on EGT's Network or
Interface Equipment notified in accordance
with Schedule 4 of this Agreement, where EGT
fails to restore the Services within the
Time Limits at Clause 7 above EGT will make
a deduction of ## MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ## (subject to RPI
Uplift) for each additional hour from the
invoice for the following Quarterly
instalment of the Usage Payment, up to a
maximum total deduction in any twelve month
period of ## MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ## of the Usage Payment for that
year.
Payments under this Clause 8 will only be
made where the failure to restore service
within the Time Limits is not due to Force
Majeure or any negligent act or omission, or
default or breach of this Agreement by the
User.
9 Liquidated Damages For failures to meet the Ready for Testing
Dates for each Route the following
Liquidated Damages will apply:
- for being Ready for Testing on or before
31st October l997 ## MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ## Liquidated Damages
are due
- for each complete week after 31st October
1997 that the ## MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ## Route is not Ready
for Testing ## MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ##
- for each complete week after 31st October
1997 that the ## MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ## Route is not Ready
for Testing ## MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ##
-7-
<PAGE> 10
CONFIDENTIAL TREATMENT
The limit payable by EGT as Liquidated
Damages under this clause is ## MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT ## EGT shall not
be responsible for failures to meet Ready
for Testing Dates to the extent such
failures are attributable to Force Majeure.
The User may set off any Liquidated Damages
payment against initial Usage Payments.
The Parties agree that the Liquidated
Damages provided for above are a genuine
pre-estimate of the damages the User would
suffer as a consequence of any delay in the
initiation of service by the User to
Customers and are not to be regarded as
onerous or as a penalty.
10 Service Levels In addition to its rights under Clause 7 of
Schedule 2, the User may terminate this
Agreement by not less than 30 (thirty) days
notice in writing to EGT in the event that:
10.1 there are ## MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ## Disruptions (of whatever
duration and howsoever caused other than by
third party damage) in respect of the
Services on a Route in any ## MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT ## month period;
or
10.2 there are ## MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ## Planned Outages of more than
twelve hours duration (not including outages
planned for that duration at the request of
the User or ## MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ## Planned Outages
where one or more is as a consequence of
cable relocation requirements of a Local
Authority or Statutory undertaking
(excluding EGT) in respect of the Services
on a Route in any ## MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ## month period;
10.3 there are ## MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ## Planned Outages or Disruptions
howsoever caused of:
10.3.1 more than ## MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ## in duration where the User has
the right to use up to and including ##
MATERIAL OMITTED AND SEPARATELY FILED UNDER
A REQUEST FOR CONFIDENTIAL TREATMENT ##
fibre pairs; or
10.3.2 more than ## MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ## duration where the User has the
right to use more than ## MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ## fibre pairs;
-8-
<PAGE> 11
CONFIDENTIAL TREATMENT
in respect of the Services on a Route in any
## MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT
## month period.
11 Future Provision Once a year the User will discuss with EGT a
## MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT
## year forecast showing its future fibre
and facilities requirements along the Routes
with a view to agreeing additional
provision.
Any additional fibre provision shall be at
the price determined under Clause 6 of this
Schedule for additional pairs and for the
purposes of this Agreement additional fibre
shall be treated as "Fibres" from the
Provision Date.
The following initial contact points will apply, these may be changed by written
notice when required by the Parties.
12 EGT contacts Commercial Owen Williams tel: 0044 1473 553170
fax: 0044 1473 553166
Operations Bill Hughes tel: 0044 1473 542700
fax: 0044 1473 542166
Fault Control EGT NMC tel: 0044 1473 542244
fax: 0044 1473 544766
13 User Contacts Commercial John Green tel: 0032 2 6585166
fax: 0032 2 6585107
Operations Arnaud tel: 0032 2 6585269
van Rietschoten fax: 0032 2 6585107
Fault Control HER NOC tel: 0032 2 6585454
fax: 0032 2 6585106
-9-
<PAGE> 12
CONFIDENTIAL TREATMENT
APPENDIX A TO SCHEDULE 1 - TECHNICAL DEFINITION
1. PURPOSE
The purpose of this Appendix is to define the planing and design
requirements for the Routes specified in Clauses 1.1 and 1.2 of Schedule
1.
2. BACKGROUND
In accordance with its network implementation the User is installing 2
submarine cables:
## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ## (Northern route)
## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ## (Southern route)
The diagram below outlines the scope of this Appendix:
Section covered by this Appendix
[GRAPHIC OMITTED]
## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ##
-10-
<PAGE> 13
CONFIDENTIAL TREATMENT
3. PLANNING INFORMATION
3.1 Safety and Security
EGT will adopt appropriate safety and security measures at both the
Terminal Stations and Regenerator Sites. EGT's security officer will
liaise closely with the User's security officer in formulating such
measures.
3.2 Routes
The User requires the following Routes to be provided:
Route 1
o Linking the Terminal Station at ## MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ## with ## MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ##
o Regenerator Site at ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT ## intermediate points.
Route 2
o Linking the Terminal Station at ## MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ## with ## MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ## including a
User Breakout.
Regenerator Site at ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT ## or possibly ## MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ##
intermediate points.
-11-
<PAGE> 14
CONFIDENTIAL TREATMENT
3.3 Route Diversity
The User requires total diversity of its core network and as such requires
the following:
[GRAPHIC OMITTED]
## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ##
3.3.1 ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ## will have duct diversity for building entry
and exit points ideally of ## MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ##
3.3.2 Where practical internal fibre cabling within the ## MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ## will
maintain a separation of at least ## MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ## metres before entry
into the ODF from the building entry/exit points.
3.3.3. The User Breakout will be a minimum of ## MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ## from ##
MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ##
3.4 Fibre Optic Cable
The EGT fibre optic cable specification is detailed in Schedule 3 of
this Agreement.
-12-
<PAGE> 15
CONFIDENTIAL TREATMENT
4. ROUTE 1
Route 1 is as shown indicated in the diagram below:
e = estimated distance
[GRAPHIC OMITTED]
## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ##
Note: The exact routings have not been finalised. EGT will advise the User of
the Section losses when the fibre route has been finalised. The exact routings
including maps will be provided by EGT as soon as possible in accordance with
the implementation plan and will be appended to Schedule 1.
-13-
<PAGE> 16
CONFIDENTIAL TREATMENT
5. ROUTE 2
The Route 2 is as shown in the diagram below:
[GRAPHIC OMITTED]
## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ##
Note: The exact routings and number of Regenerator Sites have not been
finalised. EGT will advise the User of the section losses when the fibre route
has been finalised. The exact routings including maps will be provided by EGT as
soon as possible in accordance with the Implementation Plan and will be appended
to Schedule 1.
6. TERMINAL STATION SITES
EGT will provide the following at the Terminal Stations at ## MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ##
and ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ##
o Floor space as shown in the diagram below
o Maximum floor loadings ## MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ## per cabinet
o Power with battery backup for ## MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ## with diesel
generator
o External alarm provision to a suitable termination point
o Interface Point (ODF)
o Maintenance of the building and surrounding land.
-14-
<PAGE> 17
CONFIDENTIAL TREATMENT
FLOOR SPACE DIAGRAM
[GRAPHIC OMITTED]
## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ##
-15-
<PAGE> 18
CONFIDENTIAL TREATMENT
EGT will provide the following power and associated circuit breakers:
- --------------------------------------------------------------------------------
Equipment type Unit Power Number of Circuit Circuit Breaker -
(Watts) Breakers Value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
- --------------------------------------------------------------------------------
CONFIDENTIAL TREATMENT ##
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EGT will provide a suitable termination point for the non SDH alarms detailed
below. The User will provide its own alarm monitoring device for those alarms
asterixed and will be responsible for their onward transmission to the User.
- --------------------------------------------------------------------------------
Power Environmental Security
- --------------------------------------------------------------------------------
Input Power Fail High Temperature* Rack Door Entry*
- --------------------------------------------------------------------------------
Battery Low volts Low Temperature* Smoke Detector*
- --------------------------------------------------------------------------------
Battery High Volts Flood detector *
- --------------------------------------------------------------------------------
EGT will provide the User with interface points at the Terminal Stations on an
ODF as shown in the diagram below. It should be noted that although the User
will provide the optical cord from the ODF to the SDH equipment, EGT will be
responsible for maintaining it.
[GRAPHIC OMITTED]
## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ##
Note: EGT will provide the ODF for the ## MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ## fibre pairs for the sub sea cable
termination.
-16-
<PAGE> 19
CONFIDENTIAL TREATMENT
7. INTERMEDIATE REGENERATOR SITES
EGT will provide the following at the intermediate Regenerator Sites:
o Floor space as shown in the diagram below
o Maximum floor loadings ## MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ## per cabinet
o Power with battery backup for ## MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ## hours with
diesel generator
o External alarm provision to a suitable termination point
o Interface Point (ODF) Maintenance of the building and surrounding
land
-17-
<PAGE> 20
CONFIDENTIAL TREATMENT
[GRAPHIC OMITTED]
FLOOR SPACE DIAGRAM
## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ##
-18-
<PAGE> 21
CONFIDENTIAL TREATMENT
EGT will provide the following power and associated circuit breakers:
- --------------------------------------------------------------------------------
Equipment type Unit Power Number of Circuit Circuit Breaker -
(Watts) Breakers Value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
- --------------------------------------------------------------------------------
CONFIDENTIAL TREATMENT ##
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EGT will provide a suitable termination point for the non SDH alarms detailed
below. The User will provide their own alarm monitoring device for those alarms
asterixed and will be responsible for their onward transmission to the User.
- --------------------------------------------------------------------------------
Power Environmental Security
- --------------------------------------------------------------------------------
Input Power Fail High Temperature* Rack Door Entry*
- --------------------------------------------------------------------------------
Battery Low Volts Low Temperature* Smoke Detector*
- --------------------------------------------------------------------------------
Battery High Volts Flood Detector *
- --------------------------------------------------------------------------------
EGT will provide the User with interface points at the Regenerator Sites on an
ODF as shown in the diagram below. It should be noted that although the User
will provide the optical cord from the ODF to the SDH equipment, EGT will be
responsible for maintaining it.
[GRAPHIC OMITTED]
## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ##
-19-
<PAGE> 22
8. CABLE TESTING & ACCEPTANCE
Prior to hand over EGT will provide the User with the following for all
new and existing cables:
o OTDR test results completed at the time of commissioning the new
cable
o Manufacturers test results for the cable provided
The User in inspecting the above figures may request a verification OTDR
test if doubts exist as to the suitability of the cable in accordance with
Clause 5 of Schedule 2 to the Agreement.
The User will perform OTDR tests ODF to ODF at the time of installing the
SDH equipment.
9. EGT SECURITY MEASURES
EGT's standard security measures are detailed below. More in depth
measures may be implemented by mutual agreement and would be subject to
separate negotiation.
9.1 Equipment Rooms
EGT equipment rooms will be built out of materials designed to provide a
minimal protection of 2 hours against fire coming from the adjoining
spaces both internal or external. All holes in walls, floor and ceiling of
the room, i.e. for pipes, wires, etc. are filled with fire proof materials
and ducts are equipped with fire barriers.
Normally windows are not fitted but where they are special protection
measures are taken.
9.2 Doors
Doors will be made of 1 hour fire proof material and will be equipped with
panic bars. Door entry alarms will be fitted which will be remotely
monitored by the EGT Network Management Centre.
-20-
<PAGE> 23
9.3 Locks
Doors will be fitted with a security lock for which keys cannot be
reproduced without the agreement of EGT. Access control and management of
key distribution will be implemented.
9.4 Fire Extinguishing System
Where Sites are not located close to a 24 hours a day, 7 days a week basis
security centre allowing rapid intervention of less than 3 minutes in case
of fire detection, such Sites will be protected by a halon free
extinguishing system (type Argonite, Inergen or other). This system will
be connected to a fire detection system which operates automatically after
a predetermined time in case of fire detection. The system will generate
as a minimum the following alarms which will be remotely monitored by the
EGT Network Management Centre:
o Fault
o Operation
9.5 Fire Extinguishers
A minimum of two CO2 fire extinguishers will be installed in all equipment
rooms.
9.6 Lightning Protection
Buildings will be equipped with an appropriate number of lightning
conductors. External inputs to the building such as, cables, pipes, power
supplies, ducts, etc. will also be protected against lightning strikes
9.7 HVAC
The temperature and humidity of equipment rooms is controlled and
maintained between the following parameters:
o Temperature: 20 (degree)C +/ 2 (degree)C
o Humidity: 50% +/ 10%
-21-
<PAGE> 24
The system will generate as a minimum the following alarms which will be
remotely monitored by the EGT Network Management Centre:
o Fault
o Shutdown
9.8 Signs
Signs will be fitted in accordance with relevant Health and Safety
Regulations and will include the evacuation procedure and the list of
important numbers such as police, fire brigade etc.
9.9 Electrical Network
A simplified diagram showing the electrical path and location of equipment
from the public power supply network inlet to all equipment will be
available and maintained.
9.10 Inspection
The following will be inspected at least annually to ensure they are fully
functional and safe:
o Fire Extinguishing System
o Fire extinguishers
o Power and electrical systems
o HVAC system
o Lightning Protection
-22-
<PAGE> 25
CONFIDENTIAL TREATMENT
APPENDIX B TO SCHEDULE 1 - IMPLEMENTATION PLAN
ROUTE 1
1 General
Agreed Design Report for Route 1 30/4/97
Agreed Project Plan for Route 1 30/4/97
2 Terminal Station
Purchase site *30/4/97
Planning permission *31/5/97
TS Design *30/4/97
Build infrastructure *30/6/97
Fit out TS *31/7/97
RFS to the User *1/8/97
3 ## MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ##
Plan for existing site *30/4/97
EGT/User site survey *30/4/97
Remedial work *31/7/97
RFS to the User *1/8/97
4 ## MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ##
Plan for existing site *30/4/97
EGT/HER site survey *30/4/97
Remedial work *31/7/97
RFS to the User *1/8/97
5 Cable Route
## MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ## Route design *30/4/97
Wayleaves/PP *30/4/97
Contract award *30/4/97
Duct installed *30/6/97
Cable installed *31/7/97
ODF-ODF tests *14/8/97
RES to the User *15/8/97
## MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ## Handover test results to
the User *30/4/97
RFS to the User *15/8/97
## MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ## Route design *30/4/97
Wayleaves/PP *30/4/97
Contract award *30/4/97
Duct installed *30/6/97
Cable installed *31/7/97
ODF-ODF tests *14/8/97
RFS to the User *15/8/97
* DATES IN ITALICS ARE NOT BINDING. BINDING DATES WILL BE ESTABLISHED IN THE
AGREED PROJECT PLAN.
-23-
<PAGE> 26
CONFIDENTIAL TREATMENT
ROUTE 2
1 General
Agreed Design Report for Route 2 30/4/97
Agreed Project Plan for Route 2 30/4/97
2 Terminal Station
Purchase site *30/4/97
Planning permission *31/5/97
TS Design *30/4/97
Build infrastructure *30/6/97
Fit out TS *31/7/97
RFS to the User *1/8/97
3 ## MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ##
Purchase site *30/4/97
Planning permission *30/4/97
Regen Design *30/4/97
Build infrastructure *30/6/97
Fit out TS *31/7/97
RFS to the User *1/8/97
4 ## MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ##
Plan for existing site *30/4/97
EGT/User site survey *30/4/97
Remedial work *31/7/97
RFS to the User *1/8/97
5 Cable Route
## MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ## Route design *30/4/97
Wayleaves/PP
Contract award *30/4/97
Duct installed *31/6/97
Cable installed *31/7/97
ODF-ODF tests *14/8/97
RFS to the User *15/8/97
## MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ## Route design *30/4/97
Wayleaves/PP *30/4/97
Contract award *30/4/97
Duct installed *30/6/97
Cable installed *31/7/97
ODF-ODF tests *14/8/97
RFS to the User *15/8/97
* DATES IN ITALICS ARE NOT BINDING. BINDING DATES WILL BE ESTABLISHED IN THE
AGREED PROJECT PLAN.
-24-
<PAGE> 27
SCHEDULE 2 - STANDARD TERMS AND CONDITIONS
These terms and conditions apply to the Services except where expressly
overridden or qualified by Schedule 1 to this Agreement. Words defined in such
Schedule 1 shall have the same meaning throughout this Agreement
1. INTERPRETATION
In this Agreement the following expressions shall have the following
meanings unless the context otherwise requires.
"Agreement" means the Agreement of which this forms
part;
"Confidential Information" means all know-how, techniques, ideas,
principles and concepts which underlie any
of the Services and business or commercial
information and all other information in
whatever form obtained by either Party
directly or indirectly from the other Party
pursuant to this Agreement or prior to and
in contemplation of it;
"Customer" means any customer of the User, or of any
company within the Group of companies of
which the User is a member which is using
the Services;
"Designated Purposes" means the designated purpose as defined in
Schedule 1;
"Disruption" means a failure defect or damage to the
Network or Interface Equipment not being a
Planned Outage which causes a deterioration
in the performance of the Services below the
standards set out in the Performance
Specification or below such other measures
of performance as may be agreed between the
Parties while carrying out a Temporary
Repair in accordance with Clause 5.3 of
Schedule 4 and "Disrupt" and "Disrupted"
shall be construed accordingly;
"EGT's Sites" means those sites belonging to, leased by or
otherwise made available for use by EGT
during the Term which are not owned by
leased by or
-25-
<PAGE> 28
otherwise provided by the User;
"End Date" means the date when due to expiry or earlier
termination of this Agreement the Services
are no longer available to the User;
"Expert" means the person appointed in accordance
with clause 10;
"Expert Determination" means determination of any issue,
disagreement or dispute between the Parties
pursuant to the provisions of Clause 10;
"Force Majeure" means any cause beyond a Party's reasonable
control that prevents its performance of all
or some of its obligations hereunder
including without limitation failure or
delay in obtaining Infrastructure Requisite
Consents or Telecommunications Requisite
Consents provided that the failure or delay
has not been caused or contributed to the by
the party invoking the force majeure any act
of God tempest failure or shortage of power
supplies flood subsidence lightning or fire
strike lockout trade dispute or labour
disturbances the act or omission of
government highway authorities or other
competent authority or public
telecommunications operators (other than the
parties) war military operations riot
difficulty delay or failure in manufacture
production or supply by third parties of
spare parts for the Network or Interface
Equipment but for the avoidance of doubt
lack of financial or other non-labour
resources shall not be an event of Force
Majeure;
"Group" means the User and any other body corporate
which is its holding company or subsidiary
and any other body corporate which is a
subsidiary of that holding company, as
defined by section 53A of the Companies Act
1989; and "holding company" and "subsidiary"
have the meanings given by section 736 of
the Companies Act 1985;
"Infrastructure Requisite
Consents" means those permissions consents approvals
wayleaves or licences which are
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<PAGE> 29
necessary lawfully to construct and run the
Network and to maintain and repair the
Network so that the User may use and enjoy
the Services;
"Interface Equipment" means any accommodation, power supplies,
cabling, equipment or other facilities that
are to be provided by EGT under this
agreement to enable the User to enjoy the
Services;
"Initial Term" shall have the meaning set out in Schedule
1;
"Network" means EGT's communications network as it may
exist from time to time including the fibre
optic cable and all ancillary apparatus and
equipment which is owned or operated by EGT
whether owned leased or made available under
some other form of agreement with a third
party and which is essential to the totality
of the operation of EGT's communication
network;
"Permanent Repair" has the meaning set out in Schedule 4 to the
Agreement;
"Planned Outage" means an interruption to the Services
planned by EGT and advised to the User in
accordance with the procedure set out in
Schedule 4 and in particular Planned Outage
includes:-
(i) any interruption to or degradation of
the Services caused by EGT effecting a
Permanent Repair following a Temporary
Repair; and
(ii) any interruption to or degradation of
the Services caused by changes to the
Network or Interface Equipments;
but does not include any interruption to or
degradation of the Services caused by the
provision of a new User Breakout;
"Provision Date" shall have the meaning set out in Schedule
1;
"PTO Licence" means a licence to operate a public
telecommunications system granted by the
Secretary of State for Trade and Industry
under the Telecommunications
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<PAGE> 30
Act 1984;
"Quarters" Three month periods where the first Quarter
starts on the Provision Date and subsequent
Quarters commence at three, six and nine
months after the Provision Date or the
anniversaries thereof.
"RPI" means the general index of retail prices in
respect of all items as published in the
monthly digest of statistics by the Central
Statistics Office or if such index shall
cease to be published such other index as
may be officially published in substitution
thereof or if not officially published that
which most closely resembles such index;
"Services" shall have the meaning set out in Schedule
1;
"Signals" means any form of electrical or optical
signal connecting to the Network or
Interface Equipments including but not
limited to its physical properties, data
coding and data structures;
"Telecommunications
Requisite Consents" means those permissions, consents,
approvals, wayleaves, licences, certificates
and permits in legally effectual form
necessary for the User and Customers
lawfully to have access to EGT's Sites in
connection with this Agreement so that the
User may use and enjoy the Services for the
Designated Purposes;
"Temporary Repair" has the meaning set out in Schedule 4;
"Type Approved" means equipment for which the User has
provided performance specifications to EGT
and for which EGT has confirmed in writing
to the User that any equipments meeting the
said performance specifications may be
connected to the Network or Interface
Equipment such confirmation not to be
unreasonably withheld or delayed;
"Usage Payment" shall have the meaning set out in Schedule
1;
"User Breakout" means the point on the Network where the
User
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<PAGE> 31
makes a connection to another network, the
location of such point to be agreed by EGT,
such agreement not to be unreasonably
withheld;
"User's Equipment" means any cable or equipment that is to be
provided by or on behalf of the User which
connects to the Network or the Interface
Equipment, or transmits or receives Signals
over the Network;
"User's Personnel" means any employee duly authorised agent or
contractor of the User;
"VAT" means Value Added Tax at the then currently
applicable rate.
1.2 In this Schedule:
1.2.1 the reference to "the Parties" shall include a reference to their
successors and permitted assigns
1.2.2 unless the context otherwise requires all references to a particular
Clause or Sub-Clause, shall be a reference to that Clause or
Sub-Clause in this Schedule, reference to this Schedule shall be to
this Schedule 2 to the Agreement, all other references to Schedules
are to other respective schedules to the Agreement;
1.2.3 words importing the singular shall include the plural and vice versa
and words importing the masculine gender shall include the feminine
and vice versa;
1.2.4 headings are for convenience only and shall be ignored in
interpreting this Agreement;
1.2.5 unless the contrary intention appears words denoting persons shall
include any individual, partnership, company, corporation, joint
venture, trust, association, organisation, or other entity, in each
case whether or not having separate legal personality;
1.2.6 the words "include" or "including" are to be construed without
limitation to the generality of the preceding words;
1.2.7 references to a statute include any statutory modification,
extension, or re-enactment of that statute.
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<PAGE> 32
1.2.8 where the context so permits the word User shall be deemed to
include "User's Personnel";
1.3 The following documents form part of this Agreement, and any
inconsistencies between them shall be resolved by giving them the
following order of precedence, unless expressly stated to the contrary:
1.3.1 Schedule 1 and its appendices;
1.3.2 Schedules 3 and 4;
1.3.3 Schedule 2.
2. PROVISION OF THE SERVICE
2.1 EGT will provide the Services throughout the Term in accordance with
Schedule 1.
2.2 The Services will be available to the User continuously throughout
the Term save when there is a Disruption or Planed Outage.
2.3 EGT will carry out maintenance in accordance with Schedule 4 and in
the event of a Disruption or Planed Outage restore the Services as
soon as is reasonably practicable and will where due credit Loss of
Service Payments to the User in accordance within Clause 8 of
Schedule 1 and otherwise adjust the Usage Payments in accordance
with Clause 6.7 of this Schedule.
2.4 Provision of the Services does not prevent EGT from using its
Network and Interface Equipments to provide services to others save
as expressly limited in Schedule 1.
3. COVENANTS BY EGT
3.1 EGT will not tamper with, modify, or deal in and not without the
prior consent of the User, repair, or alter in any way whatsoever
(whether directly or indirectly) the whole or any part of the User's
Equipment or Customer's Equipment situated at any premises or
locations (whether in EGT's ownership, control, occupation or not)
other than as may be reasonably necessary in relation to EGT
fulfilling its obligations under this Agreement.
3.2 Without prejudice to the generality of the foregoing paragraph, EGT
will not knowingly take any action that could contribute to the
degradation of the User's Equipment or Customer's Equipment.
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<PAGE> 33
3.3 EGT will obtain and maintain and renew all Infrastructure Requisite
Consents and all Telecommunications Requisite Consents from time to
time as may be required.
3.4 EGT will support and maintain the Network and Interface Equipments
in accordance with the procedures set out in Schedule 4.
3.5 EGT will give the User reasonable notice (being at least 30 days
when practicable) of any proposed changes to the Network or
Interface Equipments of which it is aware which might affect the
Services.
3.6 EGT shall diligently carry out the design and construction of the
Routes in accordance with the Technical Definition appended to
Schedule 1 and will use its reasonable endeavours to ensure that the
Routes are available for Acceptance Testing by the Ready for Testing
dates and develop and comply with the Implementation Plan in
conjunction with the User for such purposes.
3.7 EGT grants to the User and its employees and Customers and EGT
approved agents and contractors, access to EGT Sites on which the
User's Equipment or Customer's equipment is located. Access will be
available at any reasonable time for the purposes of maintenance to
the User's or Customers' equipment and will be available during
normal working hours upon reasonable written notice to EGT for other
purposes.
3.8 EGT grants access to the Terminal Stations for the purpose of
connecting Customers of the User to the Users Equipment. This access
shall be as arranged by prior written agreement with EGT.
3.9 EGT grants the User the right to connect its cable and User's
Equipment to the Network at the cable end locations and the User
Breakouts.
3.10 EGT shall at all times throughout the Term and any period under
Clause 7.9 comply in all material respects with the provisions of
its PTO licence and all statutes and regulations applicable to the
provision of the Services.
4 COVENANTS BY THE USER
Throughout the Term the User shall and in relation to Clauses 4.7-4.11
shall procure that its Customers when acting as Customers will:
4.1 In relation to the use and/or the operation of the Services comply
with reasonable rules, instructions or operations manuals, guidance
notes, user documentation, operation procedures and similar from
time to time notified by EGT to the User and all statutes and
regulations applicable to such use and/or operation;
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<PAGE> 34
4.2 Immediately and without delay inform EGT using the fault reporting
procedure set out in Schedule 4 of any defect or problem experienced
by the User in relation to the Services as and when such defect or
problem arises;
4.3 Ensure all necessary consents and approvals (including BABT approval
where appropriate) required for the lawful installation and
connection of the User's equipment to the Network and/or Interface
equipments have been obtained prior to such installation and
connection;
4.4 Ensure that throughout the Term or the period during which the User
has equipment connected to the Network or Interface Equipments that
the User has the requisite permits to provide its services including
but not limited to a suitable licence under the Telecommunications
Act of 1984 or the Broadcasting Act 1990 if appropriate and that in
the event of the User ceasing to hold such permits the User will
immediately notify EGT in writing;
4.5 Remain responsible for compliance by those accessing the EGT Sites
pursuant to Clauses 3.7 and 3.8 or otherwise under this Agreement
with all reasonable regulations or procedures, or safety or security
instructions of EGT in force at those EGT Sites which have been
communicated to the User or the persons accessing the EGT sites and
the User shall subject to the limitations on liability in Clause 8
of Schedule 2 indemnify EGT from and against all losses, costs,
claims, damages and liabilities arising from any failure to comply
with those regulations, procedures or instructions or any negligent
act or omission or wilful default on the part of those accessing the
EGT Sites pursuant to this Agreement,
4.6 Use the Services for the Designated Purpose and not use the Services
for any other purpose without first obtaining the written agreement
of EGT;
4.7 Not damage, tamper with, modify, deal, repair, reverse engineer or
alter in any way whatsoever (whether directly or indirectly) the
whole or any part of the Network or Interface Equipments situated at
any premises or locations (whether in EGT's ownership, control,
occupation or not);
4.8 Under no circumstances whatsoever substitute, remove, add, or expand
any cable, wiring, equipment, software, or fibre comprising part of
the Network or Interface Equipment, hardware or software connected
(whether directly or indirectly) to the Network without EGT's
written prior permission;
4.9 Only connect equipment to the Network or Interface Equipment that
has been Type Approved by EGT and the User must submit
specifications for any Signals to be carried over the network for
approval by EGT before transmitting such Signals. Furthermore the
User warrants that all approved equipment connected or to be
connected to the Network is operating within its performance
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<PAGE> 35
specifications to the best of the User's reasonable knowledge;
4.10 Without prejudice to the generality of the foregoing subclause
4.1-4.2, 4.6-4.9, not knowingly take any action that could
contribute to the degradation of the Network or Interface Equipment,
affect other users of the Network, or adversely impact on EGT's
ability to provide the Services;
4.11 Provide EGT with all information which EGT may reasonably require
from the User in order to efficiently establish and provide the
Services and to restore the Services following a Disruption or
Planned Outage;
4.12 Not use the Services or knowingly permit them to be used for any
transmission of anything contrary to any terms of EGT's PTO Licence.
5. MAINTENANCE
5.1 EGT may modify, change, maintain, repair or replace any part of the
Network or Interface Equipments at any time at its own expense in
accordance with Schedule 4 provided there is no deterioration to the
Services.
5.2 EGT shall use its reasonable endeavours to ensure that the Fibres
and Interface Equipment are fully prepared to be connected to the
User's Equipment or the User's fibre by the Ready for Testing dates
set. Once the Fibres and Interface Equipment are so prepared the
User shall carry out the connection.
5.3 EGT and the User shall each carry out the Acceptance Tests
designated as their responsibility in the Technical Definition and
exchange test results. Each party shall complete their Acceptance
Tests within 3 weeks.
5.4 On satisfactory completion of the Acceptance, EGT and the User shall
each sign a Certificate of Readiness indicating the Provision Date.
5.5 If an Acceptance Test ("the Initial Acceptance Test") is not
satisfactorily completed, the parties agree to co-operate in order
to identify the cause of the failure of the Acceptance Test. EGT and
the User shall use best efforts to resolve the problem. Once the
problem has been resolved, the parties shall carry out the
Acceptance Tests ("the Further Acceptance Tests") in accordance with
the provisions of the Annex. Unless the failure of the Initial
Acceptance Test is due to any negligent act, omission or breach of
contract by the User the costs of Further Acceptance Tests will be
borne by EGT.
5.6 If the cause of the failure of the Acceptance Tests has not been
identified within 5 Business Days of the date upon which the Initial
Acceptance Test failed to be
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<PAGE> 36
CONFIDENTIAL TREATMENT
satisfactorily completed EGT shall use reasonable endeavors to
identify suitable alternative fibres (which shall themselves be
subject to Acceptance Testing under this Clause); or an alternative
solution that will meet the Acceptance Tests.
6. PAYMENTS
6.1 In consideration of EGT providing the Services, and the other
obligations assumed by EGT pursuant to the Agreement, the User
shall at the due dates pay Usage Payments (less any payments due
under Clauses 6, 8 or 9 of Schedule 1) to EGT.
6.2 EGT will invoice the User for Usage Payment Quarterly in advance.
6.3 The User shall pay the said invoices within 45 days of the date of
the said invoices.
6.4 The Usage Payment will be subject to annual review and uplift on
each anniversary of the Provision Date using the formula below:
new Usage Payment = last Usage Payment x (## MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ## +
fractional change in RPI since last annual review - ## MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ##)
limited to a maximum uplift of ## MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ## for any one
annual period.
For the purposes of this calculation the new RPI used shall be the
one published most recently prior to the relevant anniversary of the
Provision Date.
All RPI Uplifts shall be calculated on this basis.
6.5 If the User fails to pay for the Services on or before the due date,
EGT may without prejudice to any rights or remedies it may have:
6.5.1 if payment in full is not made within 30 days of due date
cancel or suspend any further provision to the User of the
Services;
6.5.2 charge the User interest on the outstanding amounts (both
before and after any judgment) at the rate of ## MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ## above the National Westminster Bank Plc base rate
per annum calculated on a daily basis from the date the
payment was due until the total sum has been paid.
6.6 The Usage Payment is expressed exclusive of VAT and any VAT
chargeable shall be paid in addition by the User.
6.7 Loss of Service Payments and payments under Clause 6 of Schedule 1
shall appear as a deduction from the Usage Payment otherwise payable
on User's account for the Quarter following the Quarter in which the
Loss of Service Payment arose.
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<PAGE> 37
7. DURATION AND TERMINATION
7.1 The Agreement shall come into force the day it is executed by the
last Party but other than as indicated in the Implementation Plan
EGT shall not be obliged to provide the Services until the Provision
Date.
7.2 Subject to Clauses 7.3 and 7.6 and Schedule 1, Clause 10, the
Agreement shall continue in force throughout the Initial Term and
thereafter unless either party gives not less than the Notice Period
written notice to the other of termination.
7.3 Either Party shall be entitled to terminate this Agreement by 30
days written notice to the other if:
7.3.1 the other commits any material breach of the provisions of
this Agreement and in the case of such breach which is capable
of remedy, fails to remedy the same within 90 days of receipt
of a written notice giving full particulars of the breach and
requiring its remedy;
7.3.2 an encumbrancer takes possession or a receiver is appointed
over any property or assets of the other;
7.3.3 the other makes an involuntary arrangement with its creditors
or becomes subject to an administration order;
7.3.4 the other goes into liquidation (except for the purposes of
solvent amalgamation, reconstruction or other reorganisation
and in such manner that the company resulting from the
reorganisation effectively agrees to be bound to or to assume
to obligations imposed on the other by this Agreement);
7.3.5 the other ceases, or threatens to cease to carry on business.
7.4 A breach shall be considered capable of remedy for the purposes of
Clause 7.3.1 if the defaulting party can comply with the provisions
in question in all respects other than as to the time of performance
(provided that the time of performance is not of the essence).
7.5 Termination of the Agreement shall be without prejudice to the
rights by the party accrued prior to termination including any right
to payment of any sum and any right to sue in respect of any
antecedent breach of this Agreement.
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<PAGE> 38
7.6 The User may, by written notice to EGT, terminate the whole of this
Agreement or either Route in any of the following circumstances
which are not caused or contributed to by Force Majeure or any
negligent act or omission, breach of contract or willful default by
the User:
7.6.1 At any time the design and construction of the Routes is more
than ninety (90) days or such other period as may be agreed
between the parties behind the schedule provided for in the
then current Implementation Plan; or
7.6.2 The Routes are not Ready for Testing (or EGT acknowledges in
writing that they will not be ready) by 1 March 1998.
7.7 Termination shall not:
7.7.1 affect any provision of the Agreement which in order to give
full effect to its meaning needs to survive termination
including Schedule 1 Clauses 8 and 9 and Schedule 2, Clause
7.9 and 7.10; or
7.7.2 bring to an end the confidentiality obligations of the Parties
under this Agreement which shall survive for a period of 3
years after termination.
7.8 Upon termination of the Agreement by EGT pursuant to Clause 7.3 all
sums properly invoiced to the User shall become immediately due and
payable.
7.9 Following termination under Clause 7 or under Schedule 1 Clause 10
otherwise than pursuant to termination by EGT under Clause 7.3.2 to
7.3.5 the User shall be entitled to continue to use the Services for
a period of 18 months (or such lesser period as it shall specify by
no less than thirty days notice in writing given at any time during
such period) upon and subject to provisions of this Agreement which
notwithstanding termination shall apply to such use.
7.10 Upon termination of this Agreement by EGT pursuant to Clauses
7.3.2-7.3.5 or at the expiry of any Notice Period or of the period
determined under Clause 7.9:
7.10.1 EGT shall forthwith disconnect the User's and the Customers'
equipment from the Network.
7.10.2 The User shall within 14 days remove the User's equipment and
shall (unless EGT direct otherwise) cause the Customer to
remove the Customer's equipment from EGT Sites forthwith
making good and otherwise indemnifying EGT against all damage
or loss occasioned thereby to the reasonable satisfaction of
EGT.
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<PAGE> 39
CONFIDENTIAL TREATMENT
7.10.3 EGT shall within 7 days forward to the User a statement of
all monies due under the Agreement and/or pursuant to Clause
7.9 and the User shall within 14 days of receipt of such
statement pay the invoices then due to EGT with interest
thereon in default of payment in accordance with the
provisions of Clause 6.5.2.
8. WARRANTY AND LIABILITY
8.1 Each Party represents and warrants to the other that it has legal
power, authority and right to enter into the Agreement and to
perform its respective obligations in the Agreement.
8.2 Each Party shall be liable for death or personal injury arising as a
direct result of the negligence of that Party or its employees.
8.3 EGT's liability to the User shall be limited in the following
respects at all times during the Term and during any period under
Clause 7.9:
8.3.1 for failure to meet the Ready for Testing Dates, to Liquidated
Damages as set out in Clause 9, Schedule 1.
8.3.2 For failure to restore Services within the Time Limit, to Loss
of Service Payments as set out in Clause 8, Schedule 1.
Nothing in this Clause 8.3 shall prejudice or limit the quantum of
damages the User is entitled to recover consequent upon termination
pursuant to Clause 7 of Schedule 2 and Clause 10 of Schedule 1
8.4 Neither party shall be liable to the other in respect of any breach
of the provisions of this Agreement to the extent contributed to by
the negligence, act or omission of the other, or Force Majeure.
8.5 In no event shall either party be liable to the other in tort,
negligence, breach of statutory duty or otherwise for any loss,
damage, cost or expense of any nature incurred or suffered by the
other party of an indirect, consequential, incidental, special or
exemplary nature including any economic loss or other loss of
opportunity, turnover, profit, business or goodwill.
8.6 The maximum liability of each party to the other, whether during the
Term or following termination, in respect of any breach of this
Agreement (including any breach under this Clause 8 but excluding
breaches under Clause 8.2) or arising as a consequence of the tort,
negligence or breach of statutory duty shall be a total of ##
MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ## per event or series of connected events
and ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ## in any 12 month period.
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<PAGE> 40
8.7 Not withstanding the provisions of this Clause 8, each party shall
idemnify the other against all losses caused to the property of
the other as a consequence of any breach of any provision of this
Agreement up to the limits of insurance set out in Clause 11.
9. CONFIDENTIALITY AND INTELLECTUAL PROPERTY
9.1 Each Party agrees to keep confidential all Confidential Information
of the other Party and to use the same exclusively for the purposes
of or as contemplated by the Agreement and to disclose the same only
to those of its employees, Group companies, agents and
sub-contractors pursuant to the Agreement (if any) to whom and to
the extent that such disclosure is reasonably necessary for the
purposes of the Agreement.
9.2 The obligations and restrictions contained in this Clause 9 shall
not apply to information:
9.2.1 which is now or subsequently becomes available to the public
otherwise than by breach of the Agreement by the receiving
Party;
9.2.2 which the receiving Party can prove by documentary evidence
was already in the receiving Party's possession and at its
free disposal prior to obtaining the same directly or
indirectly from the other Party;
9.2.3 which is subsequently disclosed to the receiving Party free of
restrictions on disclosure and use by a third party not acting
on behalf of the other Party or directly or indirectly bound
to the other Party by obligations of confidentiality or
non-use in relation to such information; or
9.2.4 which the receiving Party is required by any reason of law to
disclose.
9.3 For the avoidance of doubt nothing in this Clause 9 shall be
interpreted as preventing either Party making full and unrestricted
use of its knowledge and expertise pertaining generally to the
industry of the other Party.
9.4 All intellectual property relating to the subject matter of this
Agreement conceived, originated, devised, developed, or created by
EGT, its officers or employees shall vest in EGT.
9.5 The User acknowledges that it shall have no licence, right, title or
interest in or to any intellectual property relating to the Network
or Services.
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<PAGE> 41
10. EXPERT DETERMINATION
10.1 All disputes or differences which shall at anytime hereafter arise
between EGT and the User in respect of the construction or effect of
this Agreement or the rights duties and liabilities of the Parties
hereunder or any matter or event connected with or arising out of
this Agreement (a "Relevant Event") shall be referred to a director
(or his nominee) of each of the Parties within 5 business days of
the Relevant Event arising and they shall endeavour to reach a
mutually acceptable solution. In the event that a Relevant Event
cannot be settled by the directors (or their nominees) within 5
business days of it being referred to the Parties' directors then if
both the Parties so decide the provision of Clause 10.2 shall apply.
10.2 If both Parties agree to refer an issue to an Expert and the Parties
fail to nominate or agree such Expert within 10 days, then the
Expert may be nominated at the request of either Party by the
President or other duly appointed officer of such UK professional
body as the parties may agree or in the absence of agreement:
10.2.1 in the case of a dispute as to the interpretation or
construction of this Agreement, by the President or other
authorised officer of the Law Society of England and Wales;
10.2.2 in the case of a dispute as to the sum payable under this
Agreement by the President or other authorised officer of the
Institute of Chartered Accountants in England and Wales; and
10.2.3 in the case of all other disputes concerning the operation
and maintenance of the Network or the provision of the
Services, by the President or other authorised officer of the
Institution of Electrical Engineers or equivalent as
appropriate in the circumstances.
10.3 Each of the Parties shall be entitled to provide the Expert with
such information and such written representation as may be necessary
to assist in the determination of the dispute in question provided
such information and/or representations are made within 30 days of
the date of the referral.
10.4 The Expert shall be entitled to seek expert evidence at his
discretion as to the circumstances relating to the dispute between
the Parties and the most expeditious method of its resolution.
10.5 The Expert shall be required by the Parties to reach a determination
of the issues referred to him as soon as is reasonably practicable
and unless the Parties otherwise agree within 45 days of his
appointment.
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<PAGE> 42
CONFIDENTIAL TREATMENT
10.6 The Expert shall act as an expert and not as an arbitrator and his
decision shall be notified to both Parties simultaneously and
implemented a soon as is practicable upon notification. Unless both
Parties agree in writing prior to the appointment of the Expert, the
Expert's decision (including his decision as to costs) shall be
final and binding on both Parties.
11. INSURANCE
11.1 EGT shall procure prior to the Provision Date for each Route and
maintain in force during the Term:
11.1.1 All risk physical damage insurance (subject to all usual
exclusions) for damage caused by EGT and/or its equipment in
an amount no less than ## MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ## covering
the EGT Sites and the cable and equipment at the EGT Sites
belonging to EGT, the User and the Customers. All losses
recoverable under this Clause shall be payable to the User,
EGT and their Customers, as their respective interests may
appear.
11.1.2 Public liability insurance at the Insurance Sites in an amount
no less than ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT ##.
11.2 The User shall procure all risks physical damage insurance and
public liability insurance on the terms and for the period set out
in Clause 11.1 and shall maintain such insurance for so long as the
User's or customers' equipment shall remain at the EGT Sites. Such
insurance shall cover the cable and equipment at the EGT Sites
belonging to the User, the Customer and EGT and its customers, for
damage, personal injury or loss caused by the User or its Equipment.
11.3 EGT and the User will provide each other with satisfactory evidence
of the existence of said coverages on request.
12. GENERAL
12.1 Except as provided in this Clause, neither EGT nor the User may
assign any of its rights or obligations under this Agreement without
the prior written consent of the other party such consent not to be
unreasonably withheld or delayed. The User may assign all, but not
part, of its rights and obligations under this Agreement to a wholly
owned subsidiary of the User provided that the User remains fully
responsible to EGT for the performance by the assignee of its
obligations under this Agreement. The User shall enter into a
guarantee of the assignee's obligations to EGT if requested to do so
by EGT.
12.2 EGT may sub-contract the performance of any of its obligations under
the Agreement to any third party.
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<PAGE> 43
12.3 Neither Party shall be deemed to be in breach of the Agreement, or
otherwise liable to the other by reason of any delay in performance,
or non-performance of any of its obligations under this Agreement to
the extent that delay or non-performance is caused by Force Majeure.
Any Party affected by such circumstances shall notify the other
Party and use all reasonable endeavours to avoid or overcome
circumstances of Force Majeure.
12.4 The Agreement shall be governed by and construed in accordance with
English law and the Parties submit to the non-exclusive jurisdiction
of the English Courts.
12.5 No delay by either Party in enforcing the provisions of the
Agreement shall be deemed a waiver of that Party's right to enforce
that provision.
12.6 The illegality or invalidity of any part of the Agreement shall not
affect the legality or validity of the remainder of it.
12.7 The Agreement together with its appendices and schedules and all
information contained and referred to therein and the letter from
EGT to the User of even date respecting the Margate Terminal Station
embody the entire understanding between the Parties concerning the
subject matter of this Agreement and override and supersede any
prior promises, representations, undertakings and implications
between the Parties concerning the subject matter of this Agreement.
12.8 This Agreement may only be varied in writing signed by an authorised
representative of each Party.
12.9 Any notice given under this Agreement shall be in writing and sent
or delivered to the address of the recipient Party given in this
Agreement (or as from time to time otherwise notified) by:
12.9.1 facsimile transmission, in which case it will be deemed
received when sent; or
12.9.2 hand (including courier) in which case it will be deemed
received when delivered; or
12.9.3 air mail (where appropriate) in which case it will be deemed
received 5 days after posting; or
12.9.4 ordinary first class mail (where the recipient is within the
same jurisdiction as the sender) in which case it will be
received 2 days after posting.
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12.10 None of the provisions of this Agreement shall be deemed to
constitute a partnership between the Parties and neither of them
shall have the authority to bind the other in any way except as
provided in this Agreement.
12.11 Each Party shall bear its own legal costs, legal fees and other
expenses incurred in the preparation and execution of this
Agreement.
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CONFIDENTIAL TREATMENT
SCHEDULE 3- PERFORMANCE SPEClFICATIONS
EGT Single Mode Optical Fibre Cable Parameters
================================================================================
TYPE AND CONSTITUTION
Single mode, complying with recommendation: CCITT G 652
================================================================================
GEOMETRICAL PROPERTIES
- ----------------------
Mode field diameter at ## MATERIAL ((mu)m) ## MATERIAL OMITTED AND
OMITTED AND SEPARATELY FILED UNDER SEPARATELY FILED UNDER A
A REQUEST FOR CONFIDENTIAL REQUEST FOR CONFIDENTIAL
TREATMENT ## TREATMENT ##
Reference Surface diameter ((mu)m) ## MATERIAL OMITTED AND
SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL
TREATMENT ##
Primary Coating diameter ((mu)m) ## MATERIAL OMITTED AND
SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL
TREATMENT ##
Core non circularity (%) ## MATERIAL OMITTED AND
SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL
TREATMENT ##
Reference surface non circularity (%) ## MATERIAL OMITTED AND
SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL
TREATMENT ##
Core/cladding concentricity error ((mu)m) ## MATERIAL OMITTED AND
SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL
TREATMENT ##
Primary coating concentricity error ((mu)m) ## MATERIAL OMITTED AND
SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL
TREATMENT ##
- --------------------------------------------------------------------------------
OPTICAL PROPERTIES
- ------------------
Cut-off-wavelength (nm) ## MATERIAL OMITTED AND
SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL
TREATMENT ##
Attenuation:
## MATERIAL OMITTED AND SEPARATELY (dB/km) ## MATERIAL OMITTED AND
FILED UNDER A REQUEST FOR SEPARATELY FILED UNDER A
CONFIDENTIAL TREATMENT ## REQUEST FOR CONFIDENTIAL
TREATMENT ##
## MATERIAL OMITTED AND SEPARATELY (dB/km) ## MATERIAL OMITTED AND
FILED UNDER A REQUEST FOR SEPARATELY FILED UNDER A
CONFIDENTIAL TREATMENT ## REQUEST FOR CONFIDENTIAL
TREATMENT ##
Total Dispersion:
## MATERIAL OMITTED AND SEPARATELY (ps/nm.km) ## MATERIAL OMITTED AND
FILED UNDER A REQUEST FOR SEPARATELY FILED UNDER A
CONFIDENTIAL TREATMENT ## REQUEST FOR CONFIDENTIAL
TREATMENT ##
## MATERIAL OMITTED AND SEPARATELY (ps/nm.km) ## MATERIAL OMITTED AND
FILED UNDER A REQUEST FOR SEPARATELY FILED UNDER A
CONFIDENTIAL TREATMENT ## REQUEST FOR CONFIDENTIAL
TREATMENT ##
Zero Dispersion Wavelength (nm) ## MATERIAL OMITTED AND
SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL
TREATMENT ##
- --------------------------------------------------------------------------------
MECHANICAL PROPERTIES
- ---------------------
Proof test (%) ## MATERIAL OMITTED AND
SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL
TREATMENT ##
Macro bend attenuation at (dB) ## MATERIAL OMITTED AND
## MATERIAL OMITTED AND SEPARATELY SEPARATELY FILED UNDER A
FILED UNDER A REQUEST FOR REQUEST FOR CONFIDENTIAL
CONFIDENTIAL TREATMENT ## (## MATERIAL TREATMENT ##
OMITTED AND SEPARATELY FILED UNDER
A REQUEST FOR CONFIDENTIAL
TREATMENT ## turns on ## MATERIAL
OMITTED AND SEPARATELY FILED UNDER
A REQUEST FOR CONFIDENTIAL
TREATMENT ## diameter mandrel)
Fibre Strain non uniformity (%) ## MATERIAL OMITTED AND
SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL
TREATMENT ##
Splice Losses (Maximum) dB ## MATERIAL OMITTED AND
SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL
TREATMENT ##
Connector Type Diamond ## MATERIAL OMITTED AND
SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL
TREATMENT ##
================================================================================
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SCHEDULE 4 - MAINTENANCE AND SUPPORT
1. INTRODUCTION
This Schedule and its Appendix sets out the responsibilities of the User
and of EGT in respect of the Corrective Maintenance and Preventative
Maintenance for the Services, Fibre and cable maintenance and
accommodation maintenance.
2. INTERPRETATION
2.1 In this Schedule the Interpretations in the Network Services
Agreement will apply and in addition the following expressions shall
have the following meanings unless the context otherwise requires:
"Acceptance Test" means all those tests and proving
works set out in Appendix A to
Schedule 1 which will be carried out
by EGT and may be witnessed by the
User to demonstrate that the Services
are functioning in accordance with the
Performance Specification;
"Connection Number" means the number that uniquely
identifies on EGT's Interface
Equipment the point at which the
connection to the User's Equipment is
made;
"Corrective Maintenance" means works necessary to repair the
Network or Interface Equipments to
restore the Services following a
Disruption;
"Fault Control Point" means the EGT Network Management
Centre or HER Network Operation Centre
as specified in Schedule 1 Clauses 12
and 13 being the single point of
contact for all maintenance
activities;
"Permanent Repair" means a repair of a standard such that
the Services are re-instated in
accordance with the Performance
Specification and no further attention
as a result of the cause of the
associated Disruption is required by
EGT;
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<PAGE> 47
Planned Work" means all work required to be carried
out by this Schedule which is
programmed for execution at a future
time;
"Preventative Maintenance" means the reasonable planned
systematic testing and inspection of
the Network and Interface Equipment to
identify (so far as such reasonable
tests are capable of identifying)
faults and defects in the Network or
Interface Equipment or a state of
affairs which could reasonably be
expected to give rise to such faults
and defects;
"Section" means a length of the Network between
two adjacent User Breakout points;
"Temporary Repair" means a repair made using any
technique chosen by EGT to restore or
re-instate the Services until a
Permanent Repair has been completed.
3 DUTIES OF THE USER
3.1 The User shall monitor the Services in order to detect any
Disruption to the Service.
3.2 In the event that:-
3.2.1 The User detects a Disruption and such Disruption continues;
and
3.2.2 The User requires EGT to carry out Corrective Maintenance to
the Network or Interface Equipments following the detection of
a Disruption;
the User shall so notify EGT (such notice herein after referred to
as a "Fault Notice").
3.3 A Fault Notice shall contain the following information:-
3.3.1 a unique fault reference number allocated by the User;
3.3.2 the time at which the User issued the Fault Notice to EGT;
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3.3.3 the Section in which the fault or defect giving rise to the
Disruption is located;
3.3.4 the Connection Number of the Service that is Disrupted; and
3.3.5 any further information available to the User which may assist
EGT in locating the fault and restoring the Services;
all of the foregoing information will be notified to the EGT Fault
Control Point by telephone and within 2 hours thereafter confirmed
by the User by facsimile transmission.
3.4 Subject to Clause 5.1.2. the User shall provide reasonable
assistance in connection with the location of a fault or defect
within a Section giving rise to a Disruption. The User shall act
reasonably and without delay in determining whether it shall agree
to such request and shall not delay in notifying EGT of its
decision. Each Party shall bear its own costs incurred in attempting
to locate any such fault or defect within a Section.
3.5 If upon service of a Fault Notice:
3.5.1 it shall be found that the Fault Notice contains a material
inaccuracy; or
3.5.2 it is found that the deterioration in the Service which is the
subject of the Fault Notice has been caused by the act or
omission of the User or its Customers contrary to the notified
requirements of EGT or to the ordinary and proper standards of
usage applicable to the Designated Purpose; or
3.5.3 it is found that the deterioration in the Service which is the
subject of the Fault Notice is not due to a Disruption;
(any such Fault Notice hereinafter referred to as a "Defective
Notice") then:-
3.5.4 immediately on becoming aware of a matter referred to in
Clauses 3.5.1, 3.5.2 and 3.5.3 the User shall advise EGT
accordingly (unless the User was made aware of such matter by
EGT); and
3.5.5 the User shall pay to EGT within 28 days of demand a fee equal
to such reasonable costs if any as EGT shall have incurred in
responding to the Defective Notice and attempting to carry out
Corrective Maintenance; and
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3.5.6 the Defective Notice shall cease to have effect and all
provisions in respect of Time Limits for the completion of
Corrective Maintenance and the provisions in respect of the
Loss of Service Payments in the Agreement shall cease to have
effect in respect of the Defective Notice but without
prejudice to other relevant provisions in the Agreement; and
3.5.7 in the event that:
3.5.7.1 The Defective Notice is in respect of a Disruption;
and
3.5.7.2 the User continues to require EGT to carry out
Corrective Maintenance hereunder;
the User shall issue a further Fault Notice which shall
validly contain the information referred to in Clause 3.3
hereof.
3.6 Subject to Clause 5.1.4 the User shall provide assistance to carry
out the above Corrective Maintenance in which case the User shall
act reasonably and without delay in determining whether it will
agree to such a request and shall not delay in notifying EGT of its
decision. For the avoidance of doubt the User will not be requested
to provide on-site assistance.
3.7 For the avoidance of doubt the User shall be responsible for all
corrective maintenance, preventative maintenance and all other works
or tests of whatsoever kind to the User's Equipment for the purpose
of using the Services but shall not carry out Corrective Maintenance
or Preventative Maintenance.
3.8 It is recognised by the User that in certain circumstances EGT may
require the User to power down the lasers and otherwise make safe
the User's Equipment to allow work to take place on the Network or
Interface Equipments; the User will comply with all such requests
and will leave the User's Equipment in such condition until
authorised by EGT's Fault Control Point that it may be restored to
its operational condition. Such requirements will be considered
Corrective Maintenance or Preventative Maintenance as appropriate.
4 DUTIES OF EGT
4.1 EGT shall supply the User with such accurate records of the Network
and interface Equipment as the User may reasonably request in order
to enjoy the Services within four weeks of the Provision Date or
within six weeks of any change to the Network or Interface
Equipments that might impact on the User's enjoyment of the
Services. Such records to include drawings, specifications and
results of tests in a format to be agreed carried out under Clause 7
hereof as appropriate to the Services. EGT retains all copyright in
such records and they
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CONFIDENTIAL TREATMENT
shall form part of EGT's Confidential Information.
4.2 When carrying out work on the Network or Interface Equipments EGT
will provide for itself communications facilities (other than mobile
phones, which may interfere with the User's Equipment) independent
of the Services to allow EGT on-site work teams to maintain contact
with the EGT Fault Control Point.
4.3 In respect of Preventative Maintenance:-
4.3.1 EGT shall plan and carry out all Preventative Maintenance
which EGT deems necessary to the Network or Interface
Equipment;
4.3.2 EGT shall consult with the User and use reasonable endeavours
to take account of the User's reasonable requirements and its
obligations under Clause 6.3 of this Schedule when planning
Preventative Maintenance; and
4.3.3 all works in respect of such Preventative Maintenance shall be
carried out by EGT as Planned Work in accordance with Clause
6.
4.4 EGT shall carry out Corrective Maintenance to the Network and
Interface Equipment upon:-
4.4.1 receipt of a Fault Notice in accordance with Clause 3.2; such
Corrective Maintenance shall be carried out by EGT in
accordance with Clause 5;
4.4.2 detecting a state of affairs which could give rise to a
Disruption whilst carrying out Preventative Maintenance to the
Network or Interface Equipment; such Corrective Maintenance
shall be carried out by EGT in accordance with Clause 6.
However notwithstanding the provisions of Clause 6 the Parties
hereby acknowledge that they may agree to carry out works at a
time affording the User less notice than specified in Clause
6.
5 CORRECTIVE MAINTENANCE
5.1 Upon receipt of the Fault Notice under Clause 3.2 EGT shall:-
5.1.1 acknowledge receipt of the Fault Notice (such acknowledgement
confirming the time at which EGT received the Fault Notice for
the purposes of Clause 3.3);
5.1.2 If it requires the assistance of the User under Clause 3.4 so
notify the User within ## MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ## of receipt
of the Fault Notice;
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CONFIDENTIAL TREATMENT
5.1.3 use its reasonable endeavours, including the use of any test
equipment which EGT considers appropriate, to locate the cause
of the Disruption within the Section and notify the User with
an estimate of when in EGT's opinion the Services are likely
to be re-instated;
5.1.4 within ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT ## of notifying the User of
the location of the fault or defect notify the User if the
User is required to give assistance under Clause 3.6.
5.1.5 update the User on an hourly basis of progress in resolving
the Fault Notice.
5.2 Subject to Clause 3.5.6 and Clause 5.3 upon receipt of a Fault
Notice EGT shall complete Corrective Maintenance within the Time
Limits specified in Schedule 1.
5.3 In respect of fibre maintenance EGT may make a Temporary Repair
using whatever techniques it considers to be suitable to remedy a
Disruption providing that it advises the User of the likely impact
if any of such Temporary Repair on the quality of the Services and
the parties agree on such measures of performance during such
Temporary Repair. Thereupon EGT and the User shall agree a time to
complete a Permanent Repair (each Party shall act reasonably in this
respect). Such works in completing a Permanent Repair shall be
carried out as Planned Work.
5.4 For the avoidance of doubt in respect of a Disruption remedied by a
Temporary Repair for the purpose of calculating time elapsed under
the Time Limit in Clause 5.2 Corrective Maintenance shall be deemed
to have been completed upon issue of the Notice referred to in
Clause 7.1.2.
5.5 EGT may restore the Services by repairing or substituting
alternative Interface Equipment, Network equipment, cables,
conductors or optical fibres provided that the Services when so
restored comply with the Performance Specification and provided EGT
issues the User with revised drawings, specifications and test
results as appropriate for the User to enjoy the Services.
5.6 For the purpose of calculating time elapsed in respect of any Time
Limit under this Schedule each Party shall keep, maintain and upon
request disclose to the other Party proper written records of the
following periods:
5.6.1 any period during the Time Limit where the User shall have
been in default of this Agreement;
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5.6.2 any period wherein EGT was unable to perform its obligations
contained in this Schedule due to an act or omission of the
User (which shall include any delay by the User in performing
any of its obligations under this Schedule);
5.6.3 any period during which an event of Force Majeure prevents
Corrective Maintenance being carried out.
6 PLANNED WORK
6.1 Before EGT carries out any Planned Work to the Network or Interface
Equipments, EGT shall give the User notice of such Planned Work as
follows:-
6.1.1 for Planned Work to the Network or Interface Equipments not
involving an interruption to the Services EGT shall give three
working days notice of the commencement of the work;
6.1.2 should it be necessary for Planned Work to involve
interruption to the Services EGT shall give the User as much
notice as it is reasonably able to give but in any event not
less than 30 days notice of the commencement of such Planned
Work and the User shall afford all assistance to EGT to enable
the work to commence on the planned date and for it to be
completed efficiently;
6.1.3 Planned Work undertaken in order to complete a Permanent
Repair under Clause 5.3 hereof shall be carried out at the
time agreed by the Parties in accordance with Clause 5.3
hereof.
6.2 For the avoidance of doubt, a Planned Outage which lasts longer than
has been scheduled shall be treated as a Disruption for the
remainder of its duration.
6.3 EGT shall not arrange for Planned Outages on both Routes at the same
time under any circumstances; subsequent Planned Outages shall be at
least 3 working days apart. Furthermore, EGT shall use reasonable
endeavours not to implement any Planned Outage when the User
notifies EGT that there is or is likely to be an isolation of one of
the User's nodes (bearing in mind the impact on EGT's Network of
carrying out the works against the impact of delaying the works
until the outage on the User's Network is repaired).
6.4 For the purpose of calculating time elapsed during a Planned Outage,
Planned Work shall be deemed to have commenced at the time agreed
between the parties under Clause 6.1.3 hereof and ended on issue of
a notice under Clause 7.1.2 hereof.
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7 SERVICE ACCEPTANCE TESTS
7.1 Upon completion of Corrective Maintenance whether by Temporary
Repair or Permanent Repair or on completion of Planned Work to the
Network or Interface Equipment EGT shall:-
7.1.1 carry out Acceptance Tests in accordance with Clause 8 of the
Technical Definition at Appendix A to Schedule 1; and
7.1.2 upon satisfactory completion of the Acceptance Tests issue a
Notice to the User of the results of such tests.
7.2 For the purposes of calculating time elapsed under any Time Limit
contained in Clause 5.2 Corrective Maintenance shall be deemed to
have commenced on issue of a valid notice under Clause 4.2 and been
completed upon issue of the Notice referred to in Clause 7.1.2.
7.3 Any dispute under this Clause 7 in relation to any matter in
connection with Acceptance Tests shall be referred to the Expert in
accordance with the Agreement.
8 CONTROL, IMPLEMENTATION AND EXECUTION OF THE SERVICES
8.1 EGT and the User shall nominate suitably skilled and equipped staff
with responsibility for the reporting control implementation
execution and review of the maintenance and support provided under
this Schedule for the Services.
8.2 Regular meetings shall take place between the Parties to monitor the
operation of this Schedule amid to revise where and when necessary
the Support and Maintenance Operating Procedures which will be
agreed between the parties prior to the Provision Date.
9 ACCOMMODATION MAINTENANCE
9.1 EGT shall ensure that, at all times, the Terminal Stations and
Regenerator Sites are kept in a good state of repair.
9.2 EGT shall and the User shall to the extent that it is within its
control take proper precautions to ensure that, at all times, the
Terminal Stations and Regenerator Sites are kept clean and tidy and
in conformity with all applicable health and safety standards and
free from environmental hazards such as flammable materials and
asbestos or other hazards which may reasonably be held to present a
risk to any equipment or to persons working on or inspecting such
equipment.
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<PAGE> 54
9.3 EGT shall monitor and give notice to the User of any environmental
or other incidents which are likely to have an immediate or
potential effect upon the User Equipment and/or the Services.
9.4 EGT shall keep the Terminal Stations and Regenerator Sites secure at
all times and ensure that only persons authorised under this
Agreement and persons authorised by EGT shall have access to those
sites.
9.5 EGT shall install or permit the User to install or have installed at
the Terminal Stations and regenerator sites alarm systems for
detection of smoke, temperature changes, water presence and other
similar events.
9.6 Where EGT fails to provide the accommodation maintenance in
accordance with this Clause, without prejudice to the User's other
rights and remedies, EGT shall permit and enable the User to provide
such maintenance.
10 PRIORITY OF RESTORATION
10.1 EGT shall give at least equal priority to the restoration of Links
on the Network as it gives to restoration of its own services and
those provided to EGT's other Customers
10.2 EGT represents to the User that all Maintenance provided by EGT to
the User under this Agreement are provided at prices and upon terms
and service levels that are no less favourable in aggregate to the
User than the prices, terms and service levels offered to its most
favoured customers for substantially similar services. EGT will
improve its service levels as necessary to remain in compliance
with the commitment on a going forward basis.
11 USER'S CABLE MAINTENANCE
11.1 EGT shall provide maintenance to the User's network from the
Terminal Stations to the User's beach manhole in accordance with the
terms of this Schedule provided that:
11.1.1 the User shall provide to EGT all spare cable to be used for
maintenance;
11.1.2 EGT shall store the spare cable in a secure location on an
EGT Site, the exact site to be agreed between the Parties;
11.1.3 the User shall provide 1 day of training for up to 15 persons
to EGT on maintenance of the land/subsea cable joints;
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11.1.4 the user shall pay to EGT its costs incurred in carrying out
this maintenance activity. The payment terms in Schedule 2
Clause 6 shall apply.
12 LIABILITY
12.1 For the avoidance of doubt the liability of the Parties under this
Schedule shall be limited in accordance with the Clauses of the
Agreement as if the same had been expressly set out herein.
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APPENDIX 1 TO SCHEDULE 4 - SUPPORT AND MAINTENANCE OPERATING PROCEDURES
To be agreed between the Parties prior to the earliest Provision Date under the
Agreement.
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<PAGE> 1
CONFIDENTIAL TREATMENT
Exhibit 10.12
Note: Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment filed with the SEC under Rule 406. The omitted
confidential material has been filed separately with the SEC. The location of
the omitted confidential information is indicated herein by a legend stating,
"MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT."
SNCB/NMBS Fibre Agreement Confidential
Dated 16 January 1997
(1) SOCIETE NATIONALE DES CHEMINS DE FER
BELGES S.A. DE DROIT PUBLIC / NATIONALE
MAATSCHAPPIJ DER BELGISCHE SPOORWEGEN
N.V. VAN PUBLIEK RECHT
(2) HERMES EUROPE RAILTEL B.V.
FIBRE AGREEMENT
<PAGE> 2
SNCB/NMBS Fibre Agreement Confidential
CONTENTS
1. Definitions 4
2. Provision and Use of Railway Fibre 9
3. Term 9
4. Charges 9
5. Standards of Fibre and Equipment 10
6. Connection to the Fibre 11
7. Acceptance Tests 11
8. Approvals and Authorisations 12
9. Cuts and Degradation 13
10. Planned Works 15
11. Back-up Provision 15
12. Provision of Bandwidth 16
13. Railway Fibre Forecasts and Railway Fibre Ordering Procedures 16
14. Warranties 16
15. Liability 18
16. Insurance 19
17. Exoneration 19
18. Assignment and Transfer 20
19. Review 21
20. Events of Default 21
21. Suspension 22
22. Termination 23
23. Not used 24
24. Project Management and Dispute Resolution 24
25. Provision of Information and Confidentiality 24
26. Notices 25
27. Waivers and Variations 26
28. Entire Agreement 26
29. Severability 26
30. No Partnership 26
31. Proper Law 26
32. Obligations 27
SCHEDULES:
1. Fibre Description, Service Levels And Interface Standards 28
2. Railway Fibre Ordering Procedures 30
3. Charges, Billing, Payments And Credits 31
4. Dispute Resolution 33
5. Provision Of Bandwidth 35
6. Disclosure Against Warranties 42
ANNEXES
1. Optical Cable Specifications and testing for the Hermes Network (Issue 6.0)
2. Technical Specification for the Provision of Services
2 of 42
<PAGE> 3
SNCB/NMBS Fibre Agreement Confidential
Dated 16 January 1997
PARTIES:
(1) SOCIETE NATIONALE DES CHEMINS DE FER BELGES SA DE DROIT PUBLIC/ NATIONALE
MAATSCHAPPIJ DER BELGISCHE SPOORWEGEN NV VAN PUBLIEK RECHT ("the
Participating Railway") an autonomous public enterprise, whose office is
at rue de France 85, 1060 Brussels; and
(2) HERMES EUROPE RAILTEL B.V. ("HER") a corporation organised and existing
under the laws of the Netherlands whose registered office is at
Drentestraat 20, 1083 HK, Amsterdam, Netherlands.
INTRODUCTION:
(A) The Railway Fibre is owned by the Participating Railway and in the public
domain.
(B) HER intends to develop and operate a pan-European telecommunications
network, that will run primarily along the route of railway lines for the
transport of international telecommunications traffic as a Carriers'
Carrier.
(C) On [ ] 1996, the Parties together with the Supplier entered into an
agreement ("the Railway Framework Agreement") under which the
Participating Railway agreed, amongst other things, to provide dark fibre
to HER to be used in connection with the HER Network.
(D) The Fibre Agreement sets out the detailed terms now agreed between the
Parties in relation to the provisions of Railway Fibre.
3 of 42
<PAGE> 4
SNCB/NMBS Fibre Agreement Confidential
AGREED TERMS:
1. Definitions
Unless the context requires otherwise, in this Agreement the following
terms shall have the meaning set out against them below:
"Acceptance Tests" the tests described in the Annex which are to be
carried out in accordance with the procedures also
described in the Annex;
"Affiliate" in the case of a party:
(a) any company over which it has a Controlling
Interest;
(b) any company which has a Controlling Interest
in that party (a holding company); or
(c) any company which has the same holding
company as that party;
"this Agreement" this Fibre Agreement, the Schedules and the
Annexes;
"Business Day" Monday to Friday (inclusive) excluding any day
which is a public holiday in Belgium;
"Calculation Month" the month of March immediately preceding the
Calculation Date referred to in Schedule 3;
"Carriers' Carrier" a telecommunications operator solely concerned
with the carriage of telecommunications traffic
for and on behalf or other (licensed or otherwise
authorised) telecommunications operators;
"Charges" the charges to be paid in respect of the Railway
Fibre and maintenance services as set out in
Schedule 3;
Page 4 of 42
<PAGE> 5
SNCB/NMBS Fibre Agreement Confidential
"Confidential Information" any information in any form which is identified at
the time when it is disclosed as being
confidential or is by its nature confidential and
including Confidential Information which has
already been disclosed by either party to the
other prior to the date of this Agreement
including pre-contractual correspondence, but
excluding:
(a) information which is in the public domain
other than by reason of a breach of this
Agreement;
(b) information which is previously known to the
other party to whom it is disclosed at the
time of its receipt other than in breach of
this Agreement; and
(c) information which is independently developed
or discovered at any time by or for the
party to whom it is disclosed;
"Controlling Interest" (a) holding a majority of the voting rights; or
(b) being a member of the company with a right to
appoint or remove a majority of that
company's board of directors;
the credits which fall due to HER where the
Railway Fibre is Cut or suffers from Degradation;
"Credits"
network terminating equipment and other equipment
as may be required based on customers needs used
"Customer Equipment" by HER customers in order to pass messages from
the customer network to the HER Network;
unavailability of Railway Fibre for the
transmission of Messages for more than five
"Cut" minutes other than due to a Planned Outage;
failure of the Railway Fibre to conform with the
Optical Specification of Annex I, other than for
"Degradation" reasons of a Cut or a Planned Outage;
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"Design Report" the Phase 1 Design Report and any other report
prepared by the Supplier with the assistance of
the Participating Railway for each network build
out phase of the HER Network detailing network
implementation works by country;
"Disaster Recovery Plan" a plan to be agreed jointly between the parties to
identify the procedures that will be complied with
by Participating Railway in the event of a Cut or
Degradation to ensure that the Service Levels are
complied with; including but not limited to:
- fault reporting;
- supply and provision of temporary fibre;
- engineer availability and response times;
"Failure to Maintain" a serious diversion from the Disaster Recovery
Plan by the Participating Railway whereby:
(a) a Cut occurs, or is not repaired within the
Service Levels; and
(b) there is an isolation of a Multiplexor node
on the HER Network;
"Facilities Agreement" an agreement dated [ ] entered into between HER
and the Participating Railway for the provision of
rights and facilities to house HER Equipment and
other equipment;
"Fibre Description" the technical description of the Fibre set out in
Schedule 1;
"HER Equipment" all equipment (other than HER Fibre) owned by HER
or provided to HER by a third party forming part
of the HER Network, including optical connectors
from HER transmission equipment to Railway Fibre;
"HER Fibre" optic fibre owned by HER, or provided to HER by a
third party which is to be connected with the
Railway Fibre in the development of the HER
Network;
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"HER Network" the integrated pan-European trunk
telecommunications network to be developed by HER
comprising of fibre optic cables laid primarily
along railway tracks in Europe and including the
Railway Fibre, HER Fibre and HER Equipment;
"Index" the health index for Belgium as published by
Staatsblad Financ. Econ. Tijd or any other
official publication used for labour costs in
Belgium substituted therefor;
"Interface Standards" the technical standards set out in Schedule 1 with
which the "HER Fibre, the Railway Fibre and HER
Equipment must comply in order for there to be
full connectivity and interoperability of the HER
Network and the Participating Railway Network and
to enable them to be connected at the Points of
Connection;
"Licences" all licences approvals and authorisations required
under local, national, European or international
laws;
"Link" a physical link between two Points of Connection
by use of Railway Fibre;
"Message" speech, sounds, data, visual images and any other
signals serving to impart any matter;
"National Centre" The Participating Railways single point of contact
for HER as further specified in the Facilities
Agreement;
"NOC" the HER Network Operations Centre located at
Terhulpsesteenweg, 6A - 1560 Hoeilaart or such
other address as HER may notify the Participating
Railway from time to time;
"Planned Outage" unavailability of the Railway Fibre for the
Transmission of Messages due to Planned Works of
the Railway Fibre which does not exceed one hour;
"Planned Works" planned works or maintenance of the Railway Fibre
or the cable containing Railway Fibre or planned
alteration to the Participating Railway fibre
network;
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"Points of Connection" one or more physical points at which the HER Fibre
or HER Equipment is no be connected no the Railway
Fibre;
"Railway Fibre" optical dark fibre provided by the Participating
Railway to HER and described in Schedule 1.
Railway Fibre extends to and includes the fibre
terminating equipment owned by the Participating
Railway and may include optical connectors as
specified in Schedule 1 for border crossing
points;
"Railway Fibre an order for Railway Fibre given by HER to the
Order" Participating Railway in accordance with Schedule
2;
"Ready for Service" trackside lands and other property, buildings and
structures including, without limitation, tracks,
gutters, ducts, gantries, poles, accommodation,
buildings power and telecommunications facilities
and storage areas owned by the Participating
Railway over or through which HER and the Supplier
and their respective employees and agents may
reasonably wish to have access in order to benefit
from this Agreement and any other land over which
the Participating Railway has sufficient rights
from time to time to permit or procure access for
such purposes;
"Railway Lands" the date on which the parties have signed the
Certificate of Readiness provided for in Clause 7
certifying that the Railway Fibre is available and
complies with the Fibre Description;
"Relevant Equipment" HER Equipment and Customer Equipment;
"Service Levels" the service levels set out in Schedule 1 in
accordance with which the Railway Fibre must be
provided; and
"The Supplier" Alcatel Bell N.V., a Belgian company whose
registered office is at Francis Wellesplein 1,
2018 Antwerp, Belgium, Alcatel Italia S.p.A. an
Italian company whose registered office is at
33/39 Viale Luigi Bodio, 20158 Milan, Italy; and
Alcatel Contracting S.A. a French
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company whose registered office is at 30, Rue des
Chasses 92111 Clichy, France.
2. Provision and Use of Railway Fibre
2.1 The Participating Railway shall provide to HER the Railway Fibre in
accordance with the provisions of this Agreement and in particular the
provisions of Schedule 1.
2.2 The Participating Railway agrees that only HER shall have the right to use
the Railway Fibre referred to in Schedule 1.
2.3 Subject to Clause 12, in relation to traffic into and out of Belgium, HER
is only enabled to provide cross-border managed bandwidth contracting as a
Carriers' Carrier.
2.4 Subject to Clause 10, the Participating Railway shall not interfere with
or disrupt HER's right to use the Railway Fibre.
2.5 This Agreement shall not transfer to HER any right, title or interest in
the Railway Fibre other than the right to use the Railway Fibre in
accordance with this Agreement.
3. Term
3.1 This Agreement shall commence on date of signature and shall continue for
a period of ten (10) years or until terminated in accordance with the
provisions of Clause 22.
3.2.1 HER and the Participating Railway agree that ## MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ## from the
date of the signing of this Agreement the parties will commence good faith
negotiations on a reasonable basis and use reasonable endeavours to renew
this Agreement.
3.2.2 In the event that HER and the Participating Railway fail to reach an
agreement by the expiry of this Agreement the parties agree that there
shall be no referral to any form of dispute resolution and this Agreement
will terminate in accordance with the provisions of Clause 22.
4. Charges
4.1 HER agrees to pay to the Participating Railway the Charges set out in
Schedule 3 in the manner and on the dates provided for in Schedule 3.
Charges are exclusive of any value
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added or sales tax due and payable in relation to the same. No sales tax
will become due until a valid sales tax invoice is received.
4.2 Liability for payment of Charges shall begin one month after when the
Railway Fibre is Ready for Service.
4.3 The Charges for maintenance of the Fibre shall be reviewed at the times
and in accordance with the indexation procedures set out in Schedule 3.
4.4 All sums due or payable by either party under this Agreement shall be paid
free and clear of any deduction or withholding except as may be required
by law.
4.5 HER shall indemnify the Participating Railway against all taxes which are
now or may be payable in respect HER's right to use of the Railway Fibre
excluding any tax (other than sales tax) assessable on the Participating
Railway in respect of the Charges or on the sale of the Railway Fibre or
on assignment of this Agreement.
4.6 HER shall pay the fees referred to in Clause 8.1 for licences and
authorisation to the manner and extent set out in that Clause.
5. Standards of Fibre and Equipment
5.1 HER shall ensure that the HER Fibre and HER Equipment and the
Participating Railway shall ensure that the Railway Fibre comply with the
requirements and Interface Standards set out in part 3 of Schedule 1.
5.2 It is acknowledged by the parties that Interface Standards may vary from
time to time. Schedule 1 may be amended to reflect technical and
operational requirements of the parties or changes in industry standards
from time to time by agreement between the parties or, failing such
agreement, in accordance with the dispute resolution procedures under
Clause 24.
5.3 The Participating Railway agrees that the Railway Fibre shall perform in
accordance with the Service Levels throughout the term of this Agreement.
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6. Connection to the Fibre
6.1 The HER Fibre and/or HER Equipment and the Railway Fibre shall be
connected at the Points of Connection. Such work to be carried out by or
on behalf of HER at its own risk. Any HER fibre on Railway Land shall
comply with regulation 2444C.
6.2 In order to enable connection of the Railway Fibre and HER Equipment, the
Participating Railway shall ensure that the Railway Fibre (including
terminators and connectors) is fully prepared to be connected to HER
Equipment without necessity for HER or the Supplier to carry out any
further works to the Railway Fibre or Railway Lands prior to attaching it
to the HER Equipment or HER Fibre.
6.3 Where HER provides its own accommodation for HER Equipment, the
Participating Railway shall to the extent it is able to do so grant HER
sufficient rights to connect the Railway Fibre to HER Equipment.
7. Acceptance Tests
7.1 The Participating Railway will use its best endeavours to ensure that the
Railway Fibre is available for Acceptance Tests by the dates set out in
the Railway Fibre Order.
7.2 The Participating Railway small permit HER or its Supplier and their
respective sub-contractors agents and employees access to the Railway
Fibre at the Points of Connection to carry out Acceptance Tests of the
type and in accordance with the procedure set out in the Annex.
7.3 HER will procure that the Supplier shall carry out the Acceptance Tests in
the presence of the Participating Railway and HER and/or their agents.
7.4 On satisfactory completion of the Acceptance Tests, the test results
sheets shall be produced to the Participating Railway for signature; these
will be countersigned by the Supplier and approved by HER. The
Participating Railway and HER shall then each sign a Certificate of
Readiness following which the Railway Fibre shall be deemed Ready for
Service. A copy of the Certificate of Readiness, together with test
results will be supplied to the Participating Railway.
7.5 If the Acceptance Test ("the Initial Acceptance Test") is not
satisfactorily completed, the parties agree to cooperate in order to
identify the cause of the failure of the Acceptance Test
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and to make all reasonable efforts to resolve the problem without delay.
Once the problem has been resolved, the parties shall carry out the
Acceptance Tests ("the Further Acceptance Tests") in accordance with the
provisions of the Annex.
7.6 If the cause of the failure of the Acceptance Tests has not been
identified within 5 Business Days of the date upon which the Initial
Acceptance Tests failed to be satisfactorily completed both parties shall
use their best endeavours to identify suitable alternative Railway Fibre
(which itself shall be subject to Acceptance Testing under this Clause).
7.7 The costs of further Acceptance Test should be borne equally between the
parties.
8. Approvals and Authorisations
8.1.1 The Participating Railway shall use best endeavours to obtain and renew
any Licences required in order to provide Railway Fibre and fulfil its
obligations under this Agreement and shall comply with all of their terms
to be observed on its part. If despite using its best endeavours the
Participating Railway fails to obtain such Licences or if they are revoked
in shall not face any claim for loss damage or compensation from HER;
8.1.2 The Participating Railway shall on a continuing basis consult with HER on
its strategy for obtaining the Licenses and to the extent that a licence
fee, tender prices or similar payment is due for the Licences inform HER
of the amount of such fee and use best endeavours to reduce the amount of
such fee;
8.1.3 Subject to sub-clauses 8.1.2 and 8.1.4 HER shall indemnify the
Participating Railway against any fee, tender price or similar payment (or
a reasonable part of it) or payment for universal service which is clearly
identifiable prior to obtaining the licence as solely relating to the
provision by the Participating Railway of the Railway Fibre to HER;
8.1.4 Failure by HER to comply with its obligation to indemnify the
Participating Railway under sub-clause 8.1.3 within 30 days of demand
shall entitle the Participating Railway (during the following 30 days) to
terminate this Agreement immediately without either party having further
recourse for breach of this Clause 8.1 other than for all reasonable
administrative costs and expenses incurred in complying with this clause
8.1. On termination Clause 22.2 shall apply. If the Participating Railways
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does non exercise this right to terminate this Agreement shall continue in
full force and effect.
8.2 HER shall be responsible for compliance with all law, licences, approvals
and other authorisations to be observed on its part relating to the use of
the Railway Fibre for the conveyance of Messages over the HER Network and
all other matters relating to its performance of this Agreement and will
use best efforts to procure that its customers accept and abide by similar
obligations in respect of the conveyance of Messages. Any evidence
produced by HER's Customer of compliance with this obligation shall, if
not in breach of HER's confidentiality requirements be notified to the
Participating Railway.
8.3 The parties will consult with each other and provide each other with
reasonable assistance in complying with their respective obligations under
Clauses 8.1 and 8.2.
8.4 HER shall, in exercising its rights under this Agreement, comply with, and
shall procure the compliance of HER's authorised agents and employees
with, all railway industry procedures of general application of which the
Participating Railway has previously provided sufficient information to
allow compliance.
8.5 The parties agree that the Participating Railway has no responsibility for
the content of Messages transmitted over the HER Network and HER shall
indemnify the Participating Railway and hold in harmless against all
direct liability, losses and damages incurred or suffered by the
Participating railway arising out of any claims by third parties in
respect of the content of transmitted Messages unless in any of the above
cases such Messages were transmitted by or received from the Participating
Railway and shall assist the Participating Railway in defending any action
brought against it.
8.6 Notwithstanding the provisions relating to telecoms licences in Clause 8.1
above, the Participating Railway shall, an its own expense, use best
endeavours to obtain all other necessary consents wayleaves and other
rights as may be required from any third party in respect of the
connection of the HER Fibre and HER Equipment with the Railway Fibre
within Railway Lands. If despite using its best endeavours the
Participating Railway fails to obtain such Licences or if they are revoked
it shall not face any claim for loss damage or compensation from HER;
9. Cuts and Degradation
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9.1 The Participating Railway shall use all reasonable efforts to protect the
Railway Fibre and minimise the likelihood of Cuts or Degradation occurring
and shall provide maintenance services in order to ensure compliance of
the Railway Fibre with the Fibre Description and Service Levels.
9.2 Where the Railway Fibre is Cut:
(a) the parties agree to report any faults occurring with the Railway
Fibre to the other party as soon as reasonably practicable after
they become aware of the same in accordance with fault reporting
procedures. These procedures will be agreed between the parties
before any Railway Fibre is Ready for Service and updated from time
to time;
(b) the Participating Railway agrees to use its best endeavours to
restore full availability of the Railway Fibre (either by repair or
replacement) as soon as reasonably possible and in accordance with
the Service Levels and (when available) the Disaster Recovery Plan;
and
(c) HER shall be entitled to Credits in accordance with the provisions
of Schedule 3.
9.3 Where the Railway Fibre is not performing to the Optical Specification:
(a) HER shall notify the National Centre as soon as it is aware of any
interference with Message which is reasonably believes arises from
Degradation of the Railway Fibre in accordance with Clause 9.2(a);
(b) upon receipt of such notice the Participating Railway shall carry
out an Optical Time Domain Reflection, (OTDR), Test to test the
Railway Fibre for Degradation. The OTDR test shall be carried out
under the supervision of HER and shall be treated as a Planned
Outage;
(c) the Participating Railway shall immediately pass the test results to
HER who shall have the right to review them;
(d) if the test shows no Degradation HER shall reimburse to the
Participating Railway the cost of carrying out the test;
(e) if the test results show Degradation the Credits shall be deducted
from the Charge from the date of the test until the Degradation is
repaired (except for any period during which suitable alternative
fibre is provided under Clause 11);
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(f) the Participating Railway shall use its best endeavours to repair
Degradation;
(g) repair of Degradation shall only be proved by the Participating
Railway by the carrying out of a test in accordance with Clause
9.3.(b); and
(h) for the avoidance of doubt if there is Degradation on the Railway
Fibre to the extent that it becomes unavailable for the transmission
of Messages the Degradation shall be treated as a Cut and Clause 9.2
shall apply.
10. Planned Works
10.1 The Participating Railway shall give HER (at the NOC) at least 30 calendar
days advance written notice of Planned Works.
10.2 The notice under Clause 10.1 shall state the place, time, date and
duration of the Planned Works and the nature effect and technical details
of the potential impact on the HER Network.
10.3 The parties shall work together to reduce the potential impact of the
Planned Works on the HER Network and the Participating Railway shall
continue to provide information on the manner in the notice to HER.
10.4 For the avoidance of doubt the unavailability of Railway Fibre due to
Planned Works shall be treated as Cut from the moment in exceeds the
duration of 1 hour and Clause 9.2 shall apply.
11. Back-up Provision
11.1 Where the Participating Railway is unable to restore full availability of
Railway Fibre under sub-clause 9.2(b), or where a test of Degradation
fails under sub-clause 9.3(b), it shall use its best endeavours to provide
temporary fibre (with cable from spare stock) for the entire period of the
Cut or Degradation.
11.2 Where it is not possible to restore full availability of the Railway Fibre
in accordance with the Service Levels or cure the Degradation and no
suitable temporary fibre is provided under Clause 11.1 or the temporary
fibre does not meet the requirements of Schedule 1, the Participating
Railway agrees to use its best endeavours to provide to HER, as soon as
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practicable and at no additional cost to HER, suitable alternative Railway
Fibre which meets all the requirements provided for in Schedule 1. If
suitable alternative Railway Fibre is not provided HER shall have the
right to terminate or suspend this Agreement in accordance with Clauses 20
to 22.
12. Provision of Bandwidth
HER shall provide the Participating Railway with managed bandwidth on the
HER Network strictly in accordance with Schedule 6.
13. Railway Fibre Forecasts and Railway Fibre Ordering Procedures
13.1 HER shall provide the Participating Railway with fibre forecasts from time
to time showing its requirements for fibre in the future. These shall be
used for planning purposes only.
13.2 Railway Fibre Orders shall be made in accordance with the procedure set
out in Schedule 2.
14. Warranties
14.1 The Participating Railway warrants to HER that:
(a) It is a company duly incorporated and validly existing in all
respects under the laws of the jurisdiction of its incorporation,
with full power and authority to own its assets to carry on its
business as it is now being conducted;
(b) No action is being taken or threatened whether by it or any third
party for or with a view to its liquidation, receivership or
analogous process;
(c) Subject to Clause 32, it has the right:
(i) to enter into this Agreement;
(ii) to grant all rights provided for under this Agreement;
(iii) to permit HER to connect HER Fibre to Railway Fibre in order
to construct the HER Network;
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(d) The Participating Railway has not already granted these rights on
any exclusionary basis to any third party that would prevent HER
from having the benefit of these rights;
(e) The execution of this Agreement is being validly authorised and the
obligations expressed as being assumed by it under this Agreement
constitute valid legal and binding obligations, enforceable against
it in accordance with their respective terms except that under
Belgian law the goods of the Participating Railway used for public
service are not subject for enforcement;
(f) No provision of this Agreement is in any way inconsistent with its
constitution (or that of any Affiliate);
(g) it is fully licensed and authorised to lay cable within which
Railway Fibre is provided and in particular in all places where
Railway Fibre is provided under this Agreement and has sufficient
rights to enter the land surrounding the existing cable in order to
properly maintain it in accordance with the terms of this Agreement;
and
(h) subject to Schedule 6, in is not aware of any contracts, licences,
approvals or other authorisations relating to the Railway Fibre
which materially and adversely affect the ability of HER to benefit
from this Agreement.
14.2 HER warrants to the Participating Railway that:
(a) It is a company duly incorporated and validly existing in all
respects under the laws of the jurisdiction of its incorporation,
with full power and authority to own its assets to carry on its
business as it is now being conducted;
(b) No action is being taken or threatened whether by it or any third
party for or with a view to its liquidation receivership or
analogous process;
(c) The execution of this Agreement is being validly authorised and the
obligations expressed as being assumed by in under this Agreement
constitute valid legal and binding obligations, enforceable against
it in accordance with their respective terms; and
(d) No provision of this Agreement is in any way inconsistent with its
constitution or with any Agreements with its shareholders.
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15. Liability
15.1 Credits shall be deducted in respect of periods during which the Railway
Fibre is Cut (whatever the cause of that Cut) or is subject to Degradation
in accordance with the provisions of Schedule 3.
15.2 Nothing in this Agreement shall restrict the liability of either party for
death or personal injury resulting from the negligence of that party or
its employees acting in the course of their employment.
15.3 Subject to Clause 15.6 neither party shall be liable to the other in
respect of any costs, claims, demands or damages that the other may
sustain in connection with this Agreement or the provision of the Railway
Fibre arising out of any claim brought or made against that other party by
a customer of that other party.
15.4 Neither party shall be liable to the other in respect of any loss of
revenue, business, contracts or profits or for any other indirect or
consequential loss whatsoever, howsoever arising.
15.5 Subject to Clauses 15.1 to 15.4, each party shall fully indemnify the
other in respect of all direct losses, costs, claims, demands and damages
arising as a result of any breach of this Agreement such indemnity to be
limited to the aggregate charges for a 12 months period in respect of any
single incident or series of incidents arising out or single breach of
this Agreement unless caused by the wilful default of the party breaching
the Agreement.
15.6 In the event of a Failure to Maintain, the Participating Railway shall
indemnify HER for any proven losses, costs, claims, demands and damages
paid by HER to its Customers, such indemnity to be limited as follows:
(a) for each hour that there is Failure to Maintain ## MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ##
(b) for each incident of a Failure to Maintain - ## MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ## of
the Charges for maintenance services; and
(c) in any 12 months period - the aggregate Charges for maintenance
services for ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT ##
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15.7 The provisions of this Clause shall survive the termination of this
Agreement.
16. Insurance
16.1 Each party shall maintain for the duration of this Agreement fully
comprehensive all risks (including professional indemnity) insurance or
appropriate self insurance with a sum insured adequate to meet any claim
arising under this Agreement and shall on demand, promptly produce written
evidence of this insurance to the other party reasonably requesting that
evidence from time to time.
16.2 Any insurance taken out by any party in relation to this Agreement shall
include a waiver of subrogation rights by the relevant insurer against the
other party under this Agreement.
16.3 Neither party shall do anything which might render void or voidable such
insurance policies or cause the payment of any of such insurance policy
money to be withheld solely or partly because of their act or omission.
16.4 If insurance moneys are withheld due to the act or omission of either
party that party will pay, on demand, to the other all such irrecoverable
sums.
17. Exoneration
17.1. In this Agreement, "Event of Force Majeure" means any abnormal or
overwhelming circumstances which (despite prudent management and
operations) are beyond the control of the party affected and which prevent
that party from fulfilling its obligations under this Agreement in a
timely manner or in compliance with this Agreement, including any storm,
tempest, fire, flood, snow, water, sabotage, riot, rebellion or government
action (save to the extent that the government is acting as shareholder in
the party in question) or industrial disputes by any person other than
employees of the party claiming the benefit of Force Majeure or its
Affiliates, but specifically excluding failures or delays on the part of
the defaulting party, arising out of:
(a) any failure or delay on the part of any defaulting party or any
sub-contractor engaged by the defaulting party which is not itself
caused by Force Majeure; or
(b) shortages of fuel, supplies or services which are not themselves
caused by Force Majeure.
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17.2 A party affected by an Event of Force Majeure or strike action by its
employees shall use its best endeavours to minimise its effects.
17.3 No party shall be responsible for any failure to fulfil its obligations
under this Agreement if, and only to the extent that such failure shall be
caused by an Event of Force Majeure or strike action by its employees
which makes in impossible or impractical for than party to comply with
such obligations.
17.4 If a party considers than any Event of force Majeure has arisen or may
arise, or that strike action by its employees is planned it shall
immediately notify the other Party of its reasons and likely extent of the
delay and the parties shall endeavour to find a means of avoiding the
delay or disruption.
17.5 Credits shall remain payable in accordance with sub-clause 15.1 to be
calculated in accordance with Schedule 3 and the Participating Railway
shall comply with its maintenance obligations in Clause 9 notwithstanding
the fact than a Cut or Degradation may be due to an Event of Force
Majeure.
18. Assignment and Transfer
18.1 The Participating Railway acknowledges that HER may only assign the
benefit of this Agreement in whole or in part to any Affiliate which has
particular responsibility for construction and/or operation of the Network
in Belgium (such Affiliate to be 100% owned by HER; save for any directors
qualifying shares), or to any successor of HER or its Affiliates, so long
as the commercial, legal, and regulatory and ownership interests between
the parties remain unchanged.
18.2 HER acknowledges that the Participating Railway may only assign this
Agreement to any successor of the telecommunications operations of the
Participating Railway, so long as the commercial, legal, and, regulatory
obligations between the parties in relation to this Agreement remain in
force.
18.3 Each party agrees to notify the others immediately upon organisational
change which may result in assignment of all or any portions of this
Agreement.
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19. Review
19.1 HER and the Participating Railway acknowledge that there are likely to be
changes in circumstances which may impact upon the relationship between
them and the provisions contained in this Agreement and which may require
modifications to the services, facilities or rights provided or granted by
one of them to the other under this Agreement. In recognition of this
fact, HER and the Participating Railway agree that, not more than once in
any year of this Agreement:
(i) either of HER or the Participating Railway may give written notice
to the other setting out the details of the relevant change in
circumstances together with the amendments proposed to be made to
the Agreement;
(ii) within two weeks HER and the Participating Railway shall enter into
good faith negotiations with a view to making appropriate amendments
to the Agreement;
(iii) if no agreement has been reached within three months from the
commencement of negotiations, the matter shall be referred for
determination in accordance with the Dispute Resolution Procedures
contained in Clause 24 and Schedule 5 save that HER and the
Participating Railway agree that the matter shall not be referred
for determination by the courts;
(iv) if agreement cannot be reached under (iii) above the Agreement shall
continue in force unamended.
20. Events of Default
20.1 The following shall be an Event of Default:
(a) Breach of Agreement
A material breach of the terms of this Agreement committed by either
Part.
(b) Unavailability or Degradation or Railway Fibre
Any Railway Fibre is Cut for a continuous period of ## MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ## or there are ## MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ## of ## MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ##
or more each in any ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT ## period or suffers Degradation
for a continuous period of ## MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ## beyond a test under
Clause 9.
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20.2 The parties shall notify each other as soon as they become aware of an
Event of Default.
21. Suspension
21.1 Service of a Suspension Notice
(a) A party may serve a Suspension Notice on the other party ("the
Receiving Party") where an Event of Default under sub-clauses
20.1(a) has occurred to the Receiving Party and is reasonably
capable of remedy;
(b) Without prejudice to its right to terminate under Clause 20 HER may
also serve a Suspension Notice upon the Participating Railway if an
Event of Default under sub-clauses 20.1(b) has occurred and is
reasonably capable of remedy and it is agreed that HER shall be
entitled to serve a Suspension Notice in respect of an Event of
Default under sub-clause 20.1(b) even where the cause of Cut or
Degradation is an Event of Force Majeure.
21.2 A Suspension Notice shall specify:
(a) the nature of the Event of Default (including, in respect of an
Event of Default under Clause 20.1(b) details of the relevant
Railway Fibre);
(b) the date and time at which Suspension is to take effect;
(c) the steps reasonably required to remedy the Event of Default;
(d) a reasonable period (of at least 90 days if the notice is served by
the Participating Railway and an least 180 days if the notice is
served by HER) for the defaulting party to remedy it; and
(e) the specific Links in respect of which this agreement is suspended.
21.3 Service of a Suspension Notice
(a) service of the Suspension Notice shall have the effect of suspending
the operation of this Agreement to the extent specified in such
Suspension Notice;
(b) the receiving party shall comply with any reasonable restrictions
imposed on it in the Notice;
(c) without prejudice to any other remedies in this Agreement service of
the Suspension Notice by the Participating Railway shall not affect
the obligations to make payments under this Agreement;
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(d) without prejudice to any other remedies in this Agreement service of
a Suspension Notice by HER shall result in the suspension of
payments for the Railway Fibre during the suspension period;
(e) during the period of a Suspension Notice served by HER, HER shall
continue to provide managed bandwidth along the Railway Fibre
including that offered to the Participating Railway under Clause 12,
unless prevented from providing any managed bandwidth by the
Participating Railway's Event of Default.
21.4 The Receiving Party shall, with all reasonable diligence, take such steps
as shall be reasonable and necessary to remedy the Event of Default and
shall keep the serving party fully informed of the progress which is being
made.
21.5 Where the Receiving Party has complied with the obligations in clause 21.4
and it is reasonable for the Suspension Notice to be revoked the serving
party shall revoke the Suspension Notice as soon as is practicable by
notice in writing.
22. Termination
22.1 A Party may terminate this Agreement in whole or with respect to specific
Links:
(a) If the other party fails to comply with the terms of a Suspension
Notice;
(b) If the other party breaches its obligation to remedy an Event of
Default under clause 21.4; or
(c) except during the period of a Suspension Notice, if the other party
has committed an Event of Default and it is continuing provided
however that where an Event of Default is capable of remedy, a
Suspension Notice has first been served to the other party;
(d) subject to Clause 20.2, if the party terminating has validly served
notice to terminate the Facilities Agreement;
on notice in writing on expiry of the cure period stated in the Suspension
Notice (under clause 21.2(d)) or by 90 calendar days' notice in writing if
the Event of Default is not
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capable of remedy. In the case of a partial termination the notice shall
specify the Links to which the termination shall apply.
22.2 The following shall apply on termination:
(a) save where termination has been invoked by the Participating Railway
due to non payment of the price, this Agreement shall continue in
force beyond termination to the extent that in relates to the
provision of Railway Fibre which HER can demonstrate as necessary in
order to be able to continue to fulfil obligations to its customers
which are in force on the date of termination, up to a maximum
period of eighteen (18) months; and
(b) termination or expiry of this Agreement shall not amount to a waiver
of any breach by either party and shall be without prejudice to any
liabilities or obligations of either party which have accrued up to
the date of termination.
22.3 If either party has terminated only part of the Facilities Agreement so
that certain Railway Fibre no longer forms part of the HER Network (and is
unlikely to form part of the HER Network), they may also terminate this
Agreement in respect of that Railway Fibre only. Subject to this, the
obligations between the parties in respect of all other Railway Fibre
shall remain in full force and effect.
23. Not used
24. Project Management and Dispute Resolution
24.1 Each of the parties shall appoint a Project Manager to act as that party's
representative and prime point of contact in relation to all day-to-day
matters arising in connection with this Agreement. Each Project Manager
shall have the power to commit his principal on day-to-day matters; but he
shall not have the right to vary the terms of this Agreement.
24.2 Any dispute in relation to any matter between the parties arising pursuant
to this Agreement shall be determined in accordance with the provisions of
Schedule 5.
25. Provision of Information and Confidentiality
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25.1 Subject to the party in question having the necessary rights in respect of
relevant intellectual property rights and being free of any obligation of
confidentiality, each party shall provide to the other information about
matters which are relevant to the connection of the Railway Fibre and the
HER Fibre and/or Equipment and the provision of the Railway Fibre under
this Agreement as the other party shall reasonably require at no charge to
the other party to the extent that the information is necessary in order
for that party to perform its obligations under this Agreement and to
benefit from this Agreement.
25.2 Each party will endeavour to ensure that the information provided to the
other party under this Agreement is correct to the best of its knowledge
at the time when it is provided.
25.3 Where a party to this Agreement (the "Disclosing Party") provides to the
other party (the "Receiving Party") Confidential Information, the
Disclosing Party shall ensure that before doing so it has all necessary
consents as may be required in order to disclose the information.
25.4 The Receiving Party shall keep in confidence all Confidential Information
and will not (and will procure that its employees, directors and
professional advisers will not) disclose that information to any third
party.
25.5 The Receiving Party shall be entitled to disclose any Confidential
Information to any of its employees, agents, directors, officers, legal
representatives, consultants or authorised subcontractors or (if approved
in writing by the Disclosing Party) any other third party provided that
the recipient is bound by an undertaking in substantially the same terms
as the provisions of this Clause 25.
25.6 Confidential Information shall only be used for the purposes for which it
was disclosed and/or for the purposes of performing the obligations of the
parties under this Agreement.
25.7 The obligations of Confidentiality in this Clause 25 shall continue for 5
years following the termination of this Agreement for any reason or its
expiry.
26. Notices
26.1 Any Notice served pursuant to this Agreement shall be served personally or
sent by pre-paid first class post, by facsimile or by any other method
agreed between the parties including electronic transmission between the
National Centre and the NOC.
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26.2 All Notices and other documents served pursuant to this Agreement shall be
sent to the Managing Director of HER or the Deputy Director of the
Participating Railway at the respective addresses sent out on page 3 of
this Agreement.
26.3 Notices served personally shall be deemed delivered on delivery, by post
shall be deemed delivered three working days following posting and by
facsimile shall be deemed delivered upon being sent but shall be confirmed
by post. Suspension and Termination notices shall only be deemed delivered
if sent by registered post. Notice of Planned Works under Clause 10 shall
be copied to the Project Manager.
27. Waivers and Variations
27.1 No failure by either party to enforce any of the provisions of this
Agreement shall operate as a waiver of any right of that party relating to
that provision.
27.2 No variation of any provision of this Agreement shall be effective unless
in writing and signed by authorised representatives.
28. Entire Agreement
This Agreement is the entire understanding between the parties relating to
the subject matter of this Agreement and supersedes all previous
understandings or agreements whether written or oral.
29. Severability
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of the remainder of this
Agreement
30. No Partnership
This Agreement shall not create a partnership between the parties and, at
all times, each party shall act as an independent contractor for all
purposes of this Agreement.
31. Proper Law
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31.1 This Agreement shall be governed by and construed in accordance with the
laws of Belgium and the parties agree that the Courts of Belgium shall
have exclusive jurisdiction to settle any dispute which may arise out of
or in connection with this Agreement.
31.2 The language of this Agreement and all documents issued pursuant to and
arising out of this Agreement shall be English and, notwithstanding any
translation which may be made, the construction of this contract in
English shall prevail.
32. Obligations
The obligations of each party are only valid to the extent permitted by
Belgian law.
SIGNED by the parties
SIGNED by ) Date:
duly authorised for and )
on behalf of )
SOCIETE NATIONALE DES )
CHEMINS DE FER BELGES S.A. DE )
DROIT PUBLIC/ )
NATIONALE MAATSCHAPPIJ )
DER BELGISCHE SPOORWEGEN )
N.V. VAN PUBLIEK RECHT )
/s/ [illegible]
SIGNED by ) Date: 18/11/96
duly authorised for and )
on behalf of )
HERMES EUROPE RAILTEL B.V. )
GOEDGEKEURD
/s/ [illegible]
DE GEDELEGEERD-BESTUURDER
E. SCHOUPPE
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SCHEDULE 1
Fibre Description, Service Levels And Interface Standards
1. FIBRE DESCRIPTION
1.1 Technical description
The description of the technical requirements with which the Railway Fibre
must comply is set out in the HERMES Optical Cable Specification which is
set out in the Appendix to this Agreement. Revisions to the HERMES Optical
Cable specification will be agreed by HER and the Participating Railway
and the Appendix will be updated accordingly.
1.2 Geographical description
The Railway Fibre will be provided between Points of Connection. HER's
geographical requirements will be as specified in the appropriate Design
Report and confirmed in the Railway Fibre Order.
2. SERVICE LEVELS
2.1 Availability
2.1.1 Target maximum number of Cuts along whole Railway Fibre: ## MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ##
2.1.2 The target restoration time for repair of the Cut is ## MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ##
2.1.3 Availability requirements will be reviewed to the extent HER expands
the kilometres of the HER Network in Belgium with additional Railway
Fibre.
3. INTERFACE STANDARDS
3.1 HER must be notified by the Participating Railway and agree in writing to
the type of terminator to be used as interface between the Railway Fibre
and the HER Equipment or HER Fibre. The Participating Railway is
responsible for connecting its fibre to the terminator.
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3.2 The Participating Railway will give HER or their designated
representatives access to the terminator for the purposes of Acceptance
Testing as set out in Schedule 3 and for the purposes of connecting HER
Equipment or HER Fibre to the terminator.
3.3 HER shall provide an optical connector from the Railway terminator to
HER Equipment and connect into than terminator.
[graphic omitted]
3.4 The parties agree that ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT ## will be used to connect HER
Equipment with Railway Fibre.
3.5 The responsibility for connecting HER Fibre to Railway Fibre at border
crossings is detailed in the Design Report.
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SCHEDULE 2
Railway Fibre Ordering Procedures
1. RAILWAY FIBRE ORDERS
1.1 The first Railway Fibre Orders are:
i. Number of fibre pairs : ## MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ##
ii. Route: ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ##
iii. Total Distance : ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT ## kilometers
iv. Available for acceptance Tests by: 10 June 1996
v. Fibres to be provided in accordance with Phase I Design Report
(issue number 1.4) and the terms of this Fibre Agreement.
i. Number of fibre pairs : ## MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ##
ii. Route: ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ##
iii. Total Distance : ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT ## kilometers
iv. Available for acceptance Tests by: 30 May 1997
v. Fibres to be provided in accordance with Phase I Design Report
(issue number 1.4) and the terms of this Fibre Agreement.
1.2 Further Railway Fibre Order shall be made as follows:
(i) based on fibre forecasts provided, either party may seek a
commitment from the other by forwarding an offer to the other party,
in writing, stating the same information as in paragraph 1.1 and
commercial terms consistent with the terms of this Agreement;
(ii) each party is required to respond to an offer in paragraph 1 as soon
as is reasonably possible but in any event within one month;
(iii) as soon as terms are agreed both parties shall sign the Railway
Fibre Order which shall be annexed to this Agreement and be
incorporated into it.
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SCHEDULE 3
Charges, Billing, Payments And Credits
1. CHARGES
HER agrees to pay the Participating Railway:
- ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ## ECU/kilometre per fibre pair per year
- maintenance services fees at:
Years ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT ##:
## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ##/kilometre per fibre pair per year
Years ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT ##:
## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ##/kilometre per fibre pair per year
On the anniversary of the date of this Agreement in each year doing which
the Agreement shall remain in force (each such date being called the
"Calculation Date"), the Charges for maintenance services shall be varied
in accordance with the formula set out below:
## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ##
where
RC = Revised Charges
C = Charges listed above as being payable in the relevant year for
maintenance services
CMI(Y) = Index for the month of March immediately preceding the date of
this Agreement
CMI(N) = the Index for the Calculation Month
Note: the CMI(N) figure in any year shall be revised if there is any
change to the reference base for the index so than the above calculation
may be made as if the reference base had not changed.
2. INVOICING AND PAYMENT
2.1 Charges shall be invoiced quarterly in arrears and amounts invoiced shall
be paid within thirty days of the date of the invoice. Payments shall be
made in the currency of account within the European Union from time to
time (currently the ECU). In the event that no such currency exists an the
time of invoicing payment shall be made in the currency of Belgium.
2.2 In the first quarter of each calendar year the Participating Railway shall
issue a credit invoice for the accrued Capacity Credits of the previous
calendar year an the same time as issuing the invoice for the Charges. If
and to the extent that the credit invoice exceeds the charges invoiced on
that quarter, the balance shall be carried forward and deducted from the
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following quarters Charges. Interest is payable on late payment of the
Charges (net of Credits) at the accrued quarterly rate of legal interest
plus ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ## until such payment is made.
3. CREDITS
Credits will be deducted from the Charges an a rate of ## MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ##
hour/fibre pair
Credits shall accrue at the rates set out above from the moment that the
National Centre is informed of the Cut or Degradation until the moment HER
is notified that availability has been restored.
Credits will be reviewed to the extent that HER orders additional Railway
Fibre.
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SCHEDULE 4
Dispute Resolution
1. Any dispute in relation to any matter between the parties arising pursuant
to this Agreement shall in the first instance be referred to the Project
Managers.
2. If the Project Managers are not able to settle the dispute concerned it
shall be referred to the Director of Networks for HER who shall meet the
Chief of Telecommunications Division from the Participating Railway in
Belgium within 10 Business Days of being required to do so by the party
and negotiate in good faith to settle the dispute.
3. If such individuals are unable to resolve the dispute then; the Managing
Director of HER and the Director responsible for telecommunications of the
Participating Railway will meet to attempt resolution. They will meet
within 20 Business Days of being requested to do so.
4. If such group cannot resolve the dispute, then the following group will
meet within 20 Business Days of being requested to do so: the Chief
Executive Officer of Global TeleSystems Group (or such other equivalent
shareholder of HER), the Director General or Chief Executive of the
Participating Railway and the senior railway representative on the HER
Supervisory Board.
5. If this final group cannot resolve the outstanding issue, then either
Party may request to resolve the dispute through mediation conducted by a
mediator agreed by the parties or failing which appointed by the Director
of the Belgian Centre for Study and Practice of National and International
Arbitration (CEPINA) in Belgium which mediator shall be familiar with
Belgian law ("the Project Mediator").
6. Should the Project Mediator be unable or unwilling to serve or continue to
serve, the Parties shall select a replacement. If they are unable to agree
then the matter may be referred by either Party to the Director of CEPINA
who shall be requested to appoint a replacement within twenty eight
calendar days of this request.
7. The mediation procedure shall be determined by the Project Mediator in
consultation with the Parties. It shall allow for delivery and exchange of
brief written summaries of the cases of each Party, with any supporting
documents essential to an understanding of the dispute. The Parties and
the Project Mediator may join in the mediation any other party necessary
for
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a mutually acceptable resolution of the dispute. The Project Mediator may
call upon such experts to assist him in his task as he considers
appropriate.
8. The mediation procedure shall be "without prejudice" and all information,
data or documentation disclosed or delivered by a Party shall be treated
as confidential.
9. The Parties shall endeavour in good faith to reach a mutually acceptable
resolution with the Project Mediator.
10. The fees and expenses of the Project Mediator shall be borne equally by
the Parties unless the Project Mediator shall decide otherwise
11. Notwithstanding the above the Courts of Belgium have exclusive
jurisdiction to settle any dispute which may arise out of or in connection
with this Agreement and nothing in this Schedule shall prevent either
Party at any time seeking any interim or interlocutory relief from the
Court.
12. Preliminary proceedings and disputes in connection with this Agreement
shall be conducted in English. When the dispute is escalated to the
Project Mediator, the language will be agreed between the parties. Where
proceedings take place in the Courts of Belgium, they shall take place in
French or Flemish.
13. Unless the Agreement has already been terminated and subject to the
suspension provisions of clause 19, the Participating Railway shall in
every case continue to grant or procure the rights and comply with all its
obligations under the terms of this Agreement regardless of the nature of
the dispute and notwithstanding the referral of the dispute for resolution
under this Schedule.
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SCHEDULE 5
Provision Of Bandwidth
AGREED TERMS
1. Interpretation
This Schedule forms an integral part of the Fibre Agreement between the
Participating Railway and Hermes Europe Railtel B.V.
Expressions defined and references construed in the Fibre Agreement have
the same meaning in this Schedule. In addition the following expressions
in this Schedule shall have the meaning set out against it below:
"HER Link" are the links as described in the Table in
Paragraph 3.1 of this Schedule;
"Interface Standards" the standards supported by HER at any Point
of Connection which are identified in the
Technical Specifications at Annex 2;
"Loss of Services" a failure by HER to provide any of the Links
listed in Paragraph 3.1 which is not in
whole or in part due to a failure of the HER
Network in Belgium;
"Participating Railway
Equipment the equipment including connectors
connecting the Participating Railway network
to the HER Equipment;
"Services" the provision by HER of managed capacity
between Points of Connection as defined in
the Technical Specifications;
"Service Credits" the amount of ## MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ## ECU per E1 per
hour;
"Service Dates" the date an which the Service relating to a
specific link is effectively available;
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"Technical Specifications" the description of Services, Interface Standards,
Points of Connection and performance
characteristics attached to this Schedule as
Annex A as amended from time to time;
"Thresholds" for Premium service means ## MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ## per annum and for Standard service
means ## MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ## per
annum.
2. Scope, Term and Review of the Service Agreement
2.1 HER agrees to make available Services under the terms and conditions of
this Schedule to the Participating Railway without charge provided the
Services are used solely for its internal railway purposes.
2.2 This Service Agreement shall commence on the date of the signature of the
Fibre Agreement to which it is attached as a Schedule and shall continue
for a period of ten (10) years or until the Fibre Agreement is terminated.
2.3 Except for the right to receive Services, this Agreement shall not
transfer to the Participating Railway any right, title or interest in the
HER Network.
3. Description of Service and Link
3.1 Table
- --------------------------------------------------------------------------------
HER Links Service Level of Availability Quantity
- ---------------------
From To Service Target Dates
- --------------------------------------------------------------------------------
## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ##
- --------------------------------------------------------------------------------
## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ##
- --------------------------------------------------------------------------------
## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ##
- --------------------------------------------------------------------------------
## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ##
- --------------------------------------------------------------------------------
## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ##
- --------------------------------------------------------------------------------
## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ##
- --------------------------------------------------------------------------------
3.2 The provision of Services by HER is subject to availability at the target
dates specified in the Table above. Quantities of E1 in addition to the
quantities specified in the Table will be provided by HER conditionally
upon the Participating Railway demonstrating the need
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within the scope of this Service Agreement and up to a maximum of ##
MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ## for each of the HER Links referred to in the table, each
additional E1 being dependent upon the use by HER of an additional pair of
fibres on that HER Link.
4. Connecting
4.1 The Participating Railway shall be responsible for connecting to the HER
Links at the Point of Connection designated by HER.
4.2 Prior to the connection of the Participating Railway to the HER Links, the
Participating Railway shall comply in all respects with the Technical
specifications and the relevant Interface Standards and with the
provisions of Paragraph 5.
4.3 The Participating Railway shall abide by all technical and operational
conditions laid down from time to time by HER, which are necessary to
maintain the integrity of the HER Network.
5. Regulatory Issues and Approvals
5.1 HER is responsible for obtaining regulatory approvals for the
establishment and operation of the HER Network and the provision of
transmission service in each country over which the HER Network extends
from time to time. HER will use best endeavours to obtain relevant
regulatory approvals.
5.2 The Participating Railway is responsible for obtaining any licences for
the provision of its services over the HER Links, the Participating
Railway shall provide HER with a written Certificate confirming that the
Participating Railway has obtained all licences, clearances or other
regulatory authorisations under national, supranational or local laws,
licences or regulations for the establishment and operations of the
Participating Railway telecommunications systems and the provision of its
services.
5.3 The parties agree that the Participating Railway has full responsibility
for ensuring that all signals transmitted over the HER Links which
originate from or terminate with the Participating Railway comply with all
relevant national, supranational or local laws, licences or regulations in
each country over which the HER Links run.
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5.4 The Participating Railway shall indemnify HER and hold HER harmless
against all direct liability, losses, demands and damages incurred or
suffered by HER arising out of any claims brought by third parties in
respect of the content of Messages transmitted over the HER Links where
those signals originate from or terminate with the Participating Railway.
5.5 If and as soon as HER becomes aware through formal notification that it
will not be able to meet any Service Dates for Services over HER Links as
a result of failing to obtain any necessary regulatory approval in time,
it shall immediately notify the Participating Railway and provide a new
date for service.
6. Maintenance and Modification
6.1 HER and its agents and sub-contractors shall have the right form time to
time to modify, extend, repair or replace any part of the HER Network and
HER shall not be liable to the Participating Railway in respect of any
unavailability of Services.
6.2 HER agrees to keep the Participating Railway informed of its maintenance
activities which may affect the Services. HER agrees to give the
Participating Railway 30 days prior warning of any engineering work to be
carried out under Paragraph 6.1 which may affect the Services and agree a
schedule of work to reduce the impact on the Participating Railway.
6.3 HER agrees to provide 24 tour monitoring or Services and, where Services
become unavailable, to use its best endeavours to restore availability
within the periods provided for in the Technical Specifications.
7. General Obligations on the Participating Railway
7.1 The Participating Railway represents, warrants and undertakes, in favour
of HER that it will, at all times, maintain in force and comply with the
conditions of the licences, laws and regulations under which it provides
its services.
7.2 The Participating Railway represents, warrants and undertakes that it
will, at all times:
(a) comply with any conditions for the time being of any licence of HER,
details of which have been communicated to the Participating Railway
in writing;
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(b) comply with all regulations and or laws in every country over which
the HER Links run which concern the provision of services by the
Participating Railway; and
(c) restrict its use of the Services to the application described in
Paragraph 2.1.
7.3 The Participating Railway shall indemnify HER and hold it harmless against
all actions, proceedings, claims, demands or costs howsoever arising out
of any breach by the Participating Railway of any provision of this
Schedule or any infringement of third party intellectual property rights
arising from the carriage of signals introduced into the HER Network by
the Participating Railway or of any breach by the Participating Railway of
any law, regulation, licence approval authorisation applicable to the
provision or use of Services.
7.4 The Participating Railway and HER agree that, should the Participating
Railway use the Services to provide a commercial service to a third parry
in violation of Paragraph 7.2(c), the appropriate measure of the damage
suffered by HER as result of that breach is an amount equal to the total
revenues derived by the Participating Railway from the provision of such
service.
8. Liability
8.1 Provided that HER is able to offer diverse routing along any HER Link, HER
shall pay Service Credits to the Participating Railway for any Loss of
Service exceeding the Thresholds on that HER Link, arising due to the
gross negligence of HER. The aggregate Service Credits payable in any ##
MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ## period shall not exceed the annual contract value of the
Fibre Agreement
For the avoidance of doubt, HER shall not be liable to the Participating
Railway for any delay in the implementation of the Services or any part
thereof.
8.2 HER shall in no event be liable to the Participating Railway for any loss
of revenue, loss of profit, loss of contract or loss of goodwill, or any
indirect or other consequential loss, howsoever caused, arising under or
in connection with this Schedule.
8.3 The provisions of this paragraph will survive termination of this
Schedule.
39 of 42
<PAGE> 40
SNCB/NMBS Fibre Agreement Confidential
9. Right of Rescission
9.1 If, despite using best endeavours, HER is unable to obtain or maintain any
licences required by HER in any country to establish or operate the HER
Network or any HER Link or to provide transmission services, or if they
are revoked, or if HER's provision of transmission services is challenged
in any country over which the HER Links run by a formal written
communication from any relevant national regulatory authority or Court,
HER shall not face any claim for loss damage or compensation from the
Participating Railway;
10. Termination
10.1 Notwithstanding clauses 21 and 22 of this Agreement, if the Participating
Railway commits a material breach of its obligations under this Schedule
which is capable of remedy, HER shall serve notice in writing on the
Participating Railway, requiring the Participating Railway to cure the
breach:
(a) within two months if it is a breach of the proviso to paragraph 2.1
of this Schedule or a breach of paragraph 7.1 or 7.2 of this
Schedule or if the Participating Railway's use of the Services
damages or disrupts the HER Network; or
(b) within six months for any other material breach.
10.2 on receipt of the notice in paragraph 10.1 the Participating Railway shall
with all reasonable diligence take such steps as shall be reasonable and
necessary to remedy the breach and shall keep HER informed of the progress
being made.
10.3 Without prejudice to paragraph 10.4. in the event that the Participating
Railway disputes that there is a material breach then the parties will
appoint a Project Mediator in accordance with Schedule 4 paragraphs 5 to
10 to resolve the issue within the cure period mentioned above.
10.4 If the breach is not cured within the periods stated above and no solution
has been found under paragraph 10.3 HER shall be entitled to terminate the
Services and clause 22.2(b) shall apply.
10.5 For the avoidance of doubt. In the event and for the period that HER is
using the Railway Fibre after the Participating Railway has terminated
this Agreement, as provided for by sub-clause 22.2(a), HER shall continue
to provide the Services to the Participating Railway.
40 of 42
<PAGE> 41
SNCB/NMBS Fibre Agreement Confidential
11. Assignment
The Participating Railway may not assign or sub-contract its rights or
obligations under this Service Agreement without the prior written consent
of HER.
41 of 42
<PAGE> 42
SNCB/NMBS Fibre Agreement Confidential
SCHEDULE 6
Disclosure Against Warranties
The Regulation relating to the service and resting periods of personnel under
Bundel 541 Article 14
42 of 42
<PAGE> 43
ALCATEL
- --------------------------------------------------------------------------------
OPTICAL CABLE SPECIFICATIONS AND TESTING
FOR THE HERMES NETWORK
- --------------------------------------------------------------------------------
Author: Michel LAURENT Date : 08. 12. 1995
And completed by: Daniel CHALAMET Date : 25. 03. 1996
Daniel CHALAMET Date : 10. 04. 1996
Daniel CHALAMET Date : 02. 05. 1996
Daniel CHALAMET Date : 22. 08. 1996
Daniel CHALAMET Date : 29. 08. 1996
<PAGE> 44
ALCATEL
TABLE OF CONTENTS
1 - INTRODUCTION ........................................................ 3
2 - SPECIFICATIONS FOR NEW CABLES OWNED BY HERMES ....................... 3-4-5
3 - SPECIFICATIONS FOR FIBRES LEASED BY HERMES .......................... 6
3.1. NEW CABLES BUILT BY RAILWAYS .................................. 6
3.2. EXISTING CABLES ............................................... 6
4 - CABLE TESTING ....................................................... 6
4.1. INTRODUCTION .................................................. 6
4.2. GENERALITIES .................................................. 6-7
4.3. TEST TO BE PERFORMED ON SITE FOR NEW CABLES ................... 7
4.3.1. TESTS AFTER LAYING THE CABLE AND BEFORE JOINTING ....... 7
4.3.2. TESTS DURING JOINTING .................................. 7
4.3.3. TESTS AFTER JOINTING ................................... 7
4.4. PARAMETERS TO BE CHECKED ...................................... 7
4.5. LINK ACCEPTANCE TEST .......................................... 8-9
4.6. PRINCIPLES OF WORKING ......................................... 10
4.6.1. LEASED FIBRE LINKS .....................................9-10-11
4.6.2. CABLE LINKS BUILT BY ALCATEL FOR HERMES ................ 12
4.6.3. SUMMARY OF DATA TO BE PROVIDED AND TESTS TO BE EXECUTED. 13
5 - TEST METHODS ........................................................ 12
5.1. POWER LOSS MEASUREMENTS ........................................ 12
5.2. OPTICAL TIME DOMAIN REFLECTOMETRY MEASUREMENTS ................. 12-13
5.3. POLARIZATION MODE DISPERSION MEASUREMENTS ...................... 13
5.4. CHROMATIC DISPERSION MEASUREMENTS .............................. 13
5.5. LIST OF PROPOSED EQUIPMENT ..................................... 14
6 - APPENDIX (LIST) ..................................................... 15
o APPENDIX 1 Test record for fibre splice attenuation (Reflectometry) 16
o APPENDIX 2 Test record for attenuation measurements (Reflectometry)
and return loss ..................................... 17
o APPENDIX 3 Test record for attenuation measurements (Optical
loss measurement) ................................... 18
o APPENDIX 4 Test record for acceptance test certificate .......... 19
o APPENDIX 5 Test record for Polarization Mode Dispersion ......... 20
o APPENDIX 6 Test record for acceptance test certificate .......... 21
o APPENDIX 7 Test record for chromatic dispersion ................. 22
o APPENDIX 8 Test record for acceptance test certificate .......... 23
7 - HISTORY ............................................................. 24
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29 August 1996 OPTICAL CABLE SPECIFICATIONS Page 2/24
ALCATEL 1996 Issue 6.0
<PAGE> 45
ALCATEL
1 - INTRODUCTION:
The purpose of this document is to define the Optical Cable Specifications
relevant to the Phase 1 of the HERMES Project and to give the test
procedures on cables.
2 - SPECIFICATIONS FOR NEW CABLES OWNED BY HERMES:
In the case where new cables are supplied by ALCATEL to HERMES, they will
comply with the technical data shown in Table 1 for single mode fibers,
and in Table 2 for dispersion shifted fibers.
In addition to the cable specification shown in Table 1 and 2, the
following specifications will be applied:
- Maximum Splice attenuation average : 0.1 dB at 1550 nm
- Maximum unitary ODF/S connector attenuation : 0.5 dB at 1550 nm
- Minimum connector Return Loss : 50 dB at 1550 nm
- Maximum value for Polarization mode dispersion : 0.7
ps/(checkmark)Km at 1550 nm
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ALCATEL 1996 Issue 6.0
<PAGE> 46
ALCATEL
- --------------------------------------------------------------------------------
TYPE and CONSTITUTION
Single mode, complying with recommendation : CCITT G 652
The fibres are made of high grade doped silica core surrounded by a silica
cladding; they are coated with a dual layer, UV cured acrylate based coating.
- --------------------------------------------------------------------------------
GEOMETRICAL PROPERTIES
Mode field diameter at 1310 nm (micro-m.) [9 - 10] +/- 10 %
Cladding diameter (micro-m.) 125 +/- 3
Coating diameter (micro-m.) 245 +/- 10
Mode field non circularity (%) <= 6
Cladding non circularity (%) <= 2
Core/cladding concentrity error (micro-m.) <= 1
Cladding/coating concentrity error (micro-m.) <= 15
- --------------------------------------------------------------------------------
OPTICAL PROPERTIES
Cut-off-wavelength (Cabled fibre) (nm) (lambda)cc <= 1280
Attenuation:
Maximum value between 1285 and 1330 nm (dB/km) 0.38
Maximum value at 1550 nm (dB/km) 0.25
Attenuation uniformity (local default) (dB) <= 0.1
Chromatic dispersion:
between 1285 and 1330 nm (ps/nm.Km) <= 3
at 1550 nm (ps/nm.Km) < 20
- --------------------------------------------------------------------------------
MECHANICAL PROPERTIES
Proof test (%) >= 1
(minimum duration 1 s)
Macro bend test
additionnal loss at 1550 nm (dB) <= 0.1
(100 turns on 75 mm diameter mandrel)
- --------------------------------------------------------------------------------
Note: All measurements to be in accordance with CCITT G. 652 recommendations
Table 1
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29 August 1996 OPTICAL CABLE SPECIFICATIONS Page 4/24
ALCATEL 1996 Issue 6.0
<PAGE> 47
ALCATEL
- --------------------------------------------------------------------------------
TYPE and CONSTITUTION
Single mode dispersion shifted, complying with recommendation: CCITT G 653
The fibres are made of high grade doped silica core surrounded by a pure silica
cladding; they are coated with a dual layer, UV cured acrylate based coating.
- --------------------------------------------------------------------------------
GEOMETRICAL PROPERTIES
Mode field diameter at 1550 run (micro-m.) [7.0 - 8.3] +/- 10 %
Cladding diameter (micro-m.) 125 +/- 3
Coating diameter (micro-m.) 250 +/- 10
Cladding non circularity (%) <= 2
Mode field concentrity error (micro-m.) <= 1
Cladding/coating concentrity error (micro-m.) <= 10
- --------------------------------------------------------------------------------
OPTICAL PROPERTIES
Cut-off-wavelength (nm) 1050 <= (lambda)c
<= 1350
Attenuation:
Maximum value at 1550 nm (dB/km) 0.25
Attenuation uniformity (local default) (dB) <= 0.1
Chromatic dispersion
between 1535 and 1575 nm (ps/(nm.Km) <= 2.7
Zero dispersion wavelength (nm) 1530 <= (lambda)o
<= 1590
Zero dispersion slope (ps/(nm(2).Km) <= 0.085
- --------------------------------------------------------------------------------
MECHANICAL PROPERTIES
Proof test % >= 1
(minimum duration 1 s)
Macro bend test
additional loss at 1550 nm (dB) <= 0.2
(100 turns on 60 mm diameter mandrel)
- --------------------------------------------------------------------------------
Note : All measurements to be in accordance with CCITT G. 653 recommendations
Table 2
- --------------------------------------------------------------------------------
29 August 1996 OPTICAL CABLE SPECIFICATIONS Page 5/24
ALCATEL 1996 Issue 6.0
<PAGE> 48
ALCATEL
3 - SPECIFICATIONS FOR FIBRES LEASED BY HERMES
3.1. NEW CABLES BUILT BY THE RAILWAYS:
In the case of new cables built by the RAILWAYS, it is recommended
that, as a minimum, specifications for cables as defined in chapter
2 (including for the cable splices and connectors) are applicable.
The minimum cable specification required for the HERMES Network is
as defined in 3.2. Existing cables
3.2. EXISTING CABLES:
In the case of existing cables owned by the RAILWAYS, the
specifications in Chapter 2 must be met with respect to the
following optical properties at 1550 nm : Attenuation, Chromatic
Dispersion, and Polarization Mode Dispersion. The specifications for
the cable splices and connectors in chapter 2 are also applicable.
4 - CABLE TESTING
4.1. INTRODUCTION:
This chapter describes tests related to cable. For existing and new
leased cables this chapter provides advice to the RAILWAYS on test
procedures to be applied.
It should be noted that all measurements must be carried out by
personnel who are skilled and experienced in the use of test
equipment involved and have proven ability to carry out these
measurements in a field environment.
4.2. GENERALITIES:
The purpose of the testing during and alter installation is:
- To check that cable laying operation did not adversely affect the
attenuation of the optical fibres, compared to that recorded during
factor acceptance tests.
- To check that splices on the optical fibres are satisfactory, and
do not adversely affect the attenuation values.
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ALCATEL 1996 Issue 6.0
<PAGE> 49
ALCATEL
- To establish validity of the link by measuring its performances
from end to end.
Measurements made on optical fibres refer to CCITT recommendation G
652 for single mode fibers and C 653 for dispersion shifted fibers.
The characteristics of optical fibre transmission mostly concern
transmission attenuation and determines the ability to transmit data
across the link. It can also reveal mechanical strains that may
cause later fibre breakage.
There are two types of attenuation measurements:
- Optical power attenuation measurement : measuring the power
launched into the fibre as well as that restored at the receiver
input enables accurate calculation of the complete link attenuation.
Att (dB) = Tx P (dB) - R x P (dB)
- Back scattering measurement: Measuring the light scattered into
the fibre, to draw up the attenuation curve. This measurement shows
any variation in attenuation, and allows the location to be
determined.
4.3. TESTS TO BE PERFORMED ON SITE FOR NEW CABLES:
The tests described in this section are recommended to the RAILWAYS
for new cables leased by HERMES from the RAILWAYS. For new cables
delivered and installed by ALCATEL the tests described here can be
considered as part of ALCATEL's standard practice.
4.3.1. - TESTS AFTER LAYING THE CABLE AND BEFORE JOINTING:
(only in case of difficult laying or important traction
force)
The purpose of this test is to check that the quality of the cable
has not been adveresly affected during laying.
A back-scattering measurement is done at 1550 nm and in both
directions for each fibre, and from each origin of laid sections of
cable.
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ALCATEL 1996 Issue 6.0
<PAGE> 50
ALCATEL
4.3.2. - TESTS DURING JOINTING:
The purpose of this test is to assess the quality of each splice. An
estimate of the attenuation value is directly indicated by the
splicing machine.
4.3.3. - TESTS AFTER JOINTING:
The purpose of this test is to check the quality of the splices in
detail.
An OTDR-based back-scattering measurement is done at 1550 nm and in
both directions for each fibre, and from each origin of laid
sections of cable.
4.4 PARAMETERS TO BE CHECKED:
For leased fibre, the Chromatic Dispersion (CD) and Polarization
Mode Dispersion (PMD) parameters need to be checked by the RAILWAYS
in order to verify whether the fibres meet the specifications of
HERMES as defined in chapters 2 and 3.
If these parameters are not available to the RAILWAYS, they should
request their manufacturer to deliver that data. If PMD data remains
unavailable, it should be measured on site.
For new fibre delivered by ALCATEL, the CD and PMD values will be
made available from factory measurements.
4.5. LINK ACCEPTANCE TEST:
For both fibres leased from the RAILWAYS and cable delivered by
ALCATEL, tests shall be performed in both directions in the 1550 nm
window.
The purpose of the tests is to check that the fibres between two
stations (nodes and/or regenerators) can operate in the 1550 nm
window, according to the technical specifications
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ALCATEL 1996 Issue 6.0
<PAGE> 51
ALCATEL
The following tests are to be performed :
- Back scattering measurements.
- Attenuation measurement.
- Section 5 describes the test Methods to be used
- Section 6 provides blank copies of the tests sheets to be
used
4.6. PRINCIPLES OF WORKING:
4.6.1. - Leased fibre links:
4.6.1.1. - For input into the Design Report, it is required for
existing cables that the RAILWAYS supply measurement values as
defined in 4.6.1.2. For new cables the RAILWAYS are required to
provide a prediction of values as defined in 4.6.1.2. Assumptions
used in the prediction to be stated.
4.6.1.2 - As soon as the fibre is available, fibre measurement
values are to be provided and communicated to ALCATEL / HERMES by
the RAILWAYS. ALCATEL will include these values in the Design
Report.
The following measures are carried out at 1550 nm:
ATTENUATION:
- Total budget of the route or link
- Analysis of each splice and of each particular point where
the average attenuation value is equal or more than 0.1 db
- Analysis of ODF for each section (<= 0.5 db)
- Return loss ODF for each link (>= 50 db)
CHROMATIC DISPERSION:
- Given by the manufacturer of optical fibre cables.
- To be communicated by the RAILWAYS which have this value in
their files.
POLARIZATION MODE DISPERSION:
- To be measured on site for each link, if the tests realised
in factory are not available
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ALCATEL 1996 Issue 6.0
<PAGE> 52
ALCATEL
4.6.1.3. - ALCATEL will provide to HERMES a report that contains the
fibre performance data obtained from the RAILWAYS and complete this
report with an assessment of the received fibre information. If the
leased fibre data shows that the fibre is not compliant with the
HERMES specifications, HERMES will, in collaboration with ALCATEL,
define the necessary actions. Subsequently, HERMES and ALCATEL will
proceed jointly to incorporate any required changes in the planning
and the costs into the Design Report.
If repairs by the RAILWAYS are necessary, ALCATEL will verify the
new fibre data obtained from the RAILWAYS after their repairs and
ALCATEL will issue a new report containing the new fibre parameter
values and the associated assessment by ALCATEL.
If one or several assessments are neccessary, following the refusal
of the second one, ALCATEL will ask for a financial compensation
concerning this extra performance.
ALCATEL will send HERMES its report, no more than ten working-days
after receiving test results from the RAILWAYS.
4.6.1.4. - When asked by HERMES, ALCATEL will perform the acceptance
tests. These tests will be executed to verify the fibre data made
available by the RAILWAYS. ALCATEL will execute the link acceptance
tests as presented in section 4.5. on the fibres that HERMES will
lease for the link envisaged. Furthermore, if the RAILWAYS cannot
provide PMD values from their cable manufacturers, ALCATEL will
verify, at this moment, the PMD through its own tests.
The test data from the tests performed by ALCATEL will be written on
measurements sheets as shown in Section 6.
If the test results obtained from the ALCATEL tests are in
accordance with the HERMES specifications (as outlined in chapters 2
and 3), the test sheets will be chronologically signed by:
- the RAILWAYS first,
- ALCATEL then,
and later approved by HERMES.
If the test results obtained from the ALCATEL tests are not in
accordance with the HERMES specifications, ALCATEL will reject the
acceptance of these fibres. ALCATEL will then ask HERMES how to
proceed.
The tests realised by ALCATEL, at the request of HERMES, will be
executed only once.
ALCATEL will send HERMES its report, no more than ten working-days
after receiving test results signed by the RAILWAYS.
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ALCATEL 1996 Issue 6.0
<PAGE> 53
ALCATEL
4.6.2. - Cable links built by ALCATEL for HERMES:
ALCATEL will execute the link acceptance tests specified in sections
4.3 and 4.5 to verify conformance with the specifications of chapter
2. These tests will be executed as part of installation works. CD
and PMD values will be made available from factory tests.
The test results obtained from the ALCATEL tests and realised by the
country ALCATEL's team, will be in accordance with the HERMES
specifications (as outlined in chapters 2 and 3). The test sheets
provided by it, will be chronologically signed by:
- ALCATEL first,
and later approved by HERMES.
The test results will be provided to HERMES within 5 working-days
after the completion of the tests.
4.6.3. - Summary of data to be provided and tests to be executed:
<TABLE>
<CAPTION>
-------------------------------------------------------------------
Fibre data to be provided by the Fibre acceptance data provided by
RAILWAYS ALCATEL tests
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Leased Fibre Links Required factory data: Link tests data:
(existing or new) - Chromatic dispersion - Attenuation measurements
Optional factory data: (with Wattmeter)
- Polarization Mode Dispersion - OTDR measurement
Required link tests data : - PMD measurement
- Attenuation measurements (if factory data not available)
(with Watt meter)
- OTDR measurement
- PMD measurement
(if factory data not available)
- -----------------------------------------------------------------------------------------
Cable links built by Factory data
ALCATEL for - C D measurement
HERMES - PMD measurement
Link tests data:
- Attenuation measurements
(with Watt meter)
- OTDR measurement
- -----------------------------------------------------------------------------------------
NOTE: All rests will be at 1550 nm.
- -----------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
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ALCATEL 1996 Issue 6.0
<PAGE> 54
ALCATEL
3 - TEST METHODS
5.1. POWER LOSS MEASUREMENTS:
The purpose of this test is to measure accurately the value of the
total end-to-end optical loss along the considered link. (It only
shows the total link loss, without identification of local
concentration of losses). This test is executed in the field, in
both directions at 1550 nm.
The measurement is done with an optical wattmeter connected to one
end of the fibre and an optical laser light source (at 1550 nm) to
the other end of the fibre. Measured attenuation is recorded on a
test sheet, as shown in Section 6 Appendix 3. The test is then
repeated in the opposite direction.
The test equipment must be calibrated according to the prescriptions
of the manufacturer of the test equipment.
The test provides a global and very accurate measurement of the
complete link attenuation, and allows the optical power of the
receiver input to be calculated.
5.2. OPTICAL TIME DOMAIN REFLECTORY MEASUREMENTS (O.T.D.R.):
The purpose of this test is to measure any problem points with
respect to the transmission or reflection losses of the fibre link
and to locate the position of these points. This test is executed in
the field.
This measurement is done with an optical reflectometer, connected to
both fibres end points and is used to perform remote measurements.
The optical reflectometer launches power into the fibre and analyses
the reflected signal, which permits the fibre attenuation due to
scattering, absorption and reflections to be calculated.
Part of the scattered power pulse is sent back to the optical
reflectometer where it is detected and displayed on a
cathode-ray-screen.
The rate of returned power depends on the power launched into the
fibre and on the back scattering factor of the latter.
The optical reflectometer displays on its screen the optical power
of the received signals on a logarithmic scale.
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ALCATEL 1996 Issue 6.0
<PAGE> 55
ALCATEL
Direct reading of the following can be made:
- On the X axis : distance between each point of the fibre and the
measuring instrument.
- On the Y axis : power scattered by each point of the fibre. Any
sudden drop of the curve means punctual attenuation.
This measure is performed in both directions of a link. It is the
average of both results which is considered.
This measure also provides an accurate value of the Return Loss for
each O.D.F. situated at both extremities of the measured link.
5.3. POLARIZATION MODE DISPERSION MEASUREMENTS (P.M.D.):
The purpose of this test is to measure the end to end Polarization
Mode Dispersion of the optical fibre link. This test is routinely
performed in factory; field tests will be performed if factory data
is not available for existing cable.
In this case, this test is carried out in one direction only, and
the results filled on test sheets (Section 6 - Appendices 4 and 6).
The source consists of a LED and of a polarizer (transmitter). The
receiver consists of a MICHELSON's interferometer.
The measurement is performed by analysing the decomposition into two
perpendicularly polarized modes of a light signal injected into the
fibre under test (bi-refrangibility phenomenon).
The two modes do not propagate at the same speed because of the
anomalies of the fibre (ovality of the heart, local constraint,
etc...).
The measured lateness of transmission (in picoseconds) allows to
obtain the Polarization Dispersion value in picoseconds per square
root kilometer (Ps / (checkmark)Km).
5.4. CHROMATIC DISPERSION MEASUREMENTS (C.D.):
The purpose of this test is to measure the end to end Chromatic
Dispersion of the optical fibre link. This test is routinely
performed in factory. For existing cables, factory data should be
made available.
The Chromatic Dispersion is the difference, expressed in
picoseconds, between the propagation times of the different modes at
a specific wavelength (1550 nm), depending on the index of the
materials used for the construction of the fibre.
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ALCATEL 1996 Issue 6.0
<PAGE> 56
ALCATEL
5.5. LIST OF PROPOSED EQUIPMENT:
(which can be used for testing and acceptance tests)
- Complete set for attenuation measurement:
* Monomode Laser source for 1550 nm
* Optical power meter (850 to 1550 nm)
* Optical attenuation (variable)
- Complete set for back-scattering measurement:
* Optical Time Domain Reflectometer (OTDR)
* OTDR accessories
- Complete set/or PMD measurement:
* Optical Transmitter (Polarizer)
* Optical Receiver controlled by computer (PMD Analyser)
* PMD accessories
- Complete set for CD measurement:
* Optical Transmitter
* Optical Receiver
* CD accessories
*NOTE: PMD and CD equipment are not the same.
All equipment that is used for testing has to be suitable to obtain
results within reasonable accuracy. The accuracy should be stated in
the specifications of the equipment and must be guaranteed by
calibration reports of max. one year old.
Any measurement resorts should always state the name of the person
who carried out the measurements the brand, type and serial numbers
of the equipment that were used, the date and number of the
calibration - certificate and of course a unique definition of the
fibre (s) that has been measured.
- Fibre Cleaning Kit:
Before performing any test, each fibre end/connector should be
properly cleaned. Here is a short list (for example) of different
materials to use for cleaning:
* Dry air spray
* Alcohol at 90(degrees)
* Gauze
* Cotton-buds
etc....
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<PAGE> 57
ALCATEL
6 - APPENDIX (LIST)
PAGES
* APPENDIX 1 Test record for fibre splice attenuation (Reflectometry) ..... 16
* APPENDIX 2 Test record for attenuation measurements (Reflectometry) and
return loss ................................................ 17
* APPENDIX 3 Test record for attenuation measurements (Optical loss
measurement) ............................................... 18
* APPENDIX 4 Test record for acceptance test certificate .................. 19
* APPENDIX 5 Test record for Polarization Mode Dispersion ................. 20
* APPENDIX 6 Test record for acceptance test certificate .................. 21
* APPENDIX 7 Test record for Chromatic dispersion ......................... 22
* APPENDIX 8 Test record for acceptance Test certificate .................. 23
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<PAGE> 58
CONFIDENTIAL TREATMENT
APPENDIX 1 (ISSUE 6.0) PAGE 16/24
- -----------------------
NEW OR LEASED CABLE (1)
- -----------------------
FIELD MEASUREMENT VALUES
MONODE OPTICAL FIBRE CABLE
TEST RECORD FOR FIBER SPLICE ATTENUATION (REFLECTROMETRY)
[LOGO FOR ALCATEL]
CABLE ROUTE: ____________________________________________ SSF OR DSF (1)
LINK (1)
OR (ORIGIN (O): _________________________________
SECTION)
(EXTREMITY (E): ______________________________
CABLE MANUFACTURER: ______________________________________
FIBRE MANUFACTUER: _______________________________________
MEASUREMENT EQUIPMENT:
(Make, Model and Serial Number) __________________________
WAVELENGTH: ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
--------------------------------------------------------
FOR CONFIDENTIAL TREATMENT ##
----------------------------
INDEX OF REFRACTION: __________________________________
NUMBER OF SPLICES: __________________________________
DATE: __________________________________
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
[ILLEG.] SPLICE
Fibre CONNECT SPLICE SPLICE SPLICE SPLICE SPLICE SPLICE SPLICE SPLICE SPLICE SPLICE AVERAGE CONNECT
Number "0" 1 2 3 4 5 6 7 8 9 10 BY O.F. "E"
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-> <- AV. -> <- AV. -> <- AV. -> <- AV. -> <- AV. -> <- AV. -> <- AV. -> <- AV. -> <- AV. -> <- AV.
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
AVERAGE OF SPLICES Total splice
average
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Measured by: (2) Transmitted to HERMES by ALCATEL Returned by HERMES for acceptance
Name: Name:
Name: Date: Date:
Signature: Signature: Signature:
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Delete as necessary (2) ALCO or COUNTRY RAILWAYS
</TABLE>
<PAGE> 59
CONFIDENTIAL TREATMENT
APPENDIX 2 (ISSUE 6.0) PAGE 17/24
- -----------------------
NEW OR LEASED CABLE (1)
- -----------------------
FIELD MEASUREMENT VALUE
MONOMODE OPTICAL FIBRE CABLE
TEST RECORD FOR ATTENUATION MEASUREMENTS (REFLECTROMETRY)
AND RETURN LOSS
[LOGO FOR ALCATEL]
CABLE ROUTE: ____________________________________________ SSF OR DSF (1)
LINK (1)
OR (ORIGIN (0): _________________________________
SECTION) )
(EXTREMIT: _________________________________
CABLE MANUFACTURER: _________________________________
NUMBER OF FIBRES: _________________________________
FIBRE MANUFACTUER: _________________________________
TEST EQUIPMENT:
(Make, Model and Serial Number) __________________________
WAVELENGTH: ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
--------------------------------------------------------
FOR CONFIDENTIAL TREATMENT ##
----------------------------
INDEX OF REFRACTION: __________________________________
NUMBER OF SPLICES: __________________________________
AVERAGE OPTICAL LENGTH __________________________________
DATE: __________________________________
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Fibre ATTENUATION (dB) RETURN LOSS Fibre ATTENUATION (dB) RETURN LOSS ATTENUATION (dB)
------------------------- (dB) ------------------------- (dB)
number O -> E E -> O Average O E Number O -> E E -> O Average O E Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------ average |_|
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------ Measured
- ------------------------------------------------------------------------------------------------------------ minimum value |_|
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------ Measured
- ------------------------------------------------------------------------------------------------------------ maximum value |_|
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------ RETURN LOSS (dB)
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------ Measured
Minimum value |_|
- ----------------------------------------------------------------------------------------------------------------------------------
Measured by: (2) Transmitted to HERMES by ALCATEL: Returned by HERMES for acceptance:
Name: Name: Name:
Date: Date:
Signature: Signature: Signature:
- ----------------------------------------------------------------------------------------------------------------------------------
(1) Delete as necessary (2) ALCO or COUNTRY RAILWAYS
</TABLE>
<PAGE> 60
CONFIDENTIAL TREATMENT
APPENDIX 3 (ISSUE 6.0) PAGE 18/24
- -----------------------
NEW OR LEASED CABLE (1)
- -----------------------
FIELD MEASUREMENT VALUE
[LOGO FOR ALCATEL]
MONOMODE OPTICAL FIBRE CABLE
TEST RECORD FOR ATTENUATION MEASUREMENTS (OPTICAL LOSS MEASUREMENT)
CABLE ROUTE: ____________________________________________ SSF OR DSF (1)
LINK (1)
OR (ORIGIN (0): _______________________________
SECTION) )
(EXTREMITY(E): ________________________________
CABLE MANUFACTURER: _______________________________
NUMBER OF FIBRES: _______________________________
FIBRE MANUFACTUER: _______________________________
TRANSMITTER:) Make, Model _________________________________
RADIOMETER: (and Serial Number _________________________________
WAVELENGTH: ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
--------------------------------------------------------
FOR CONFIDENTIAL TREATMENT ##
----------------------------
INDEX OF REFRACTION: __________________________________
CALIBRATION VALUE: __________________________________
DATE: __________________________________
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Fibre Measurement Measurement Average Fibre Measurement Measurement Average
Number Optical loss Reflecto. Number Optical loss Reflecto.
in dB: in dB: in dB: in dB: Total average
way OE way EO dB dB/Km dB way OE way EO dB dB/Km dB in:
dB dB/Km
|_| |_|
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------- Measured
- --------------------------------------------------------------------------------------------------------------------- minimum value
- --------------------------------------------------------------------------------------------------------------------- in dB | |
- ---------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------- Measured
- --------------------------------------------------------------------------------------------------------------------- maximum value
- --------------------------------------------------------------------------------------------------------------------- in dB | |
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Measured by: (2) Transmitted to HERMES by ALCATEL: Returned by HERMES for acceptance:
Name: Name: Name:
Date: Date:
Signature: Signature: Signature:
- ---------------------------------------------------------------------------------------------------------------------
(1) Delete as necessary (2) ALCO or COUNTRY RAILWAYS
</TABLE>
<PAGE> 61
APPENDIX 4 (ISSUE 6.0) PAGE 19/24
[LOGO FOR ALCATEL]
- -----------------------
NEW OR LEASED CABLE (1)
- -----------------------
TEST RECORD FOR ACCEPTANCE TEST CERTIFICATE
- --------------------------------------------------------------------------------
REFLECTOGRAM
- --------------------------------------------------------------------------------
CABLE ROUTE: Link or Section (1):
SSF or DSF (1)
- --------------------------------------------------------------------------------
Number of fibres: Fibre No: measured from:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Date: Measured by: (2) Name:
Signature:
- --------------------------------------------------------------------------------
Transmitted to HERMES by ALCATEL: Returned by HERMES to ALCATEL for
acceptance:
Name: Name:
Date: Date:
Signature: Signature:
- --------------------------------------------------------------------------------
(1): Delete as necessary
(2): ALCO or COUNTRY RAILWAYS
<PAGE> 62
CONFIDENTIAL TREATMENT
APPENDIX 5 (ISSUE 6.0) PAGE 20/24
- ---------------------------------------
NEW OR LEASED CABLE (1) [LOGO FOR ALCATEL]
- ---------------------------------------
FACTORY OR FIELD (1) MEASUREMENT VALUES
MONOMODE OPTICAL FIBRE CABLE
TEST RECORD FOR POLARIZATION MODE DISPERSION
CABLE ROUTE: ____________________________________________ SSF OR DSF (1)
LINK (1)
OR (ORIGIN (0): _________________________________
SECTION) )
(EXTREMITY: (e) _________________________________
CABLE MANUFACTURER: _________________________________
NUMBER OF FIBRES: _________________________________
FIBRE MANUFACTUER: _________________________________
TEST EQUIPMENT: _________________________________
(Make, Model and Serial Number)
WAVELENGTH: ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
--------------------------------------------------------
FOR CONFIDENTIAL TREATMENT ##
----------------------------
INDEX OF REFRACTION: __________________________________
NUMBER OF SPLICES: __________________________________
MEASURED LENGTH: __________________________________
DATE: __________________________________
- --------------------------------------------------------
Fibre number PMD Fibre number PMD REMARKS
in pS/(sq.rt.)Km in pS/(sq.rt.)Km
- --------------------------------------------------------
- --------------------------------------------------------
- --------------------------------------------------------
- -------------------------------------------------------- Measured
- -------------------------------------------------------- minimum value | |
- -------------------------------------------------------- Measured
- -------------------------------------------------------- maximum value | |
- --------------------------------------------------------
- --------------------------------------------------------
- --------------------------------------------------------
- --------------------------------------------------------
- --------------------------------------------------------
- --------------------------------------------------------------------------------
Measured by (2) Transmitted to HERMES by ALCATEL Returned by HERMES to
ALCATEL for acceptance:
Name: Name: Name:
Date: Date:
Signature: Signature: Signature:
- --------------------------------------------------------------------------------
(1): Delete as necessary:
(2): ALCO or COUNTRY RAILWAYS
<PAGE> 63
APPENDIX 6 (ISSUE 6.0) PAGE 21/24
[LOGO FOR ALCATEL]
- ------------------------
LEASED CABLE [ILLEGIBLE]
- ------------------------
FIELD MEASUREMENT VALUE
TEST RECORD FOR ACCEPTANCE TEST CERTIFICATE
- --------------------------------------------------------------------------------
POLARIZATION MODE DISPERSION
- --------------------------------------------------------------------------------
CABLE ROUTE: Link or Section (1):
SSF or DSF (1)
- --------------------------------------------------------------------------------
Number of fibres: Fibre No: measured from:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Date: Measured by: (2) Name:
Signature:
- --------------------------------------------------------------------------------
Transmitted to HERMES by ALCATEL: Returned by HERMES to ALCATEL
for acceptance:
Name: Name:
Date: Date:
Signature: Signature:
- --------------------------------------------------------------------------------
(1): Delete as necessary (2): ALCO or COUNTRY RAILWAYS
<PAGE> 64
CONFIDENTIAL TREATMENT
APPENDIX 7 (ISSUE 6.0) PAGE 22/24
- ---------------------------------------
NEW OR LEASED CABLE (1) [LOGO FOR ALCATEL]
- ---------------------------------------
FACTORY OR FIELD (1) MEASUREMENT VALUES
TEST RECORD FOR CHROMATIC DISPERSION
CABLE ROUTE: ____________________________________________ SSF OR DSF (1)
LINK (1)
OR (ORIGIN (0) _________________________________
SECTION) )
(EXTREMITY (E) _________________________________
CABLE MANUFACTURER: _________________________________
NUMBER OF FIBRES: _________________________________
FIBRE MANUFACTUER: _________________________________
TEST EQUIPMENT: _________________________________
(Make, Model and Serial Number)
WAVELENGTH: ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
--------------------------------------------------------
FOR CONFIDENTIAL TREATMENT ##
----------------------------
INDEX OF REFRACTION: __________________________________
MEASURED LENGTH: __________________________________
DATE: __________________________________
- ----------------------------------------------------
Fibre number CD Fibre number CD REMARKS
in pS/nm, Km in pS/nm, Km
- ----------------------------------------------------
- ----------------------------------------------------
- ----------------------------------------------------
- ---------------------------------------------------- Measured
- ---------------------------------------------------- minimum value |_|
- ---------------------------------------------------- Measured
- ---------------------------------------------------- maximum value |_|
- ----------------------------------------------------
- ----------------------------------------------------
- ----------------------------------------------------
- ----------------------------------------------------
- ----------------------------------------------------
- --------------------------------------------------------------------------------
Measured by (2) Transmitted to HERMES by ALCATEL Returned by HERMES
to ALCATEL for acceptance:
Name: Name: Name:
Date: Date:
Signature: Signature: Signature:
- --------------------------------------------------------------------------------
(1): Delete as necessary
(2): ALCO or COUNTRY RAILWAYS
<PAGE> 65
APPENDIX 8 (ISSUE 6.0) PAGE 23/24
[LOGO FOR ALCATEL]
- ------------------------
LEASED CABLE [ILLEGIBLE]
- ------------------------
FIELD MEASUREMENT VALUE
TEST RECORD FOR ACCEPTANCE TEST CERTIFICATE
- --------------------------------------------------------------------------------
CHROMATIC DISPERSION
- --------------------------------------------------------------------------------
CABLE ROUTE: Link or Section (1)
SSF or DSF (1)
- --------------------------------------------------------------------------------
Number of fibres: Fibre No: measured from:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Date: Measured by: (2) Name:
Signature:
- --------------------------------------------------------------------------------
Transmitted to HERMES by ALCATEL Returned by HERMES to ALCATEL
for acceptance:
Name: Name:
Date: Date:
Signature: Signature:
- --------------------------------------------------------------------------------
(1): Delete as necessary (2): ALCO or COUNTRY RAILWAYS
<PAGE> 66
[LOGO FOR ALCATEL]
7 - HISTORY
- --------------------------------------------------------------------------------
Status Date Author Details of change
- --------------------------------------------------------------------------------
Draft Issue 0.1. 23 novembre 1995 Michel LAURENT First Draft
- --------------------------------------------------------------------------------
Issue 1.0. 8 decembre 1995 Michel LAURENT Minor
modifications
agreed with
HERMES
- --------------------------------------------------------------------------------
Issue 2.0. 25 mars 1996 Daniel CHALAMET UPDATE for Beta
Trial and Phase 1
- --------------------------------------------------------------------------------
Issue 3.0. 10 avril 1996 Daniel CHALAMET Modifications after
the meeting
ALCATEL/HERMES
on April 4th 1996
- --------------------------------------------------------------------------------
Issue 4.0. 02 mai 1996 Daniel CHALAMET Modifications after
the meeting
ALCATEL/HERMES
on May 02th 1996
- --------------------------------------------------------------------------------
Issue 5.0. 22 August 1996 Daniel CHALAMET Modifications after
the meeting
ALCATEL/HERMES
on August 22th 1996
- --------------------------------------------------------------------------------
Issue 6.0. 29 August 1996 Daniel CHALAMET Modifications after
the meeting
ALCATEL/HERMES
on August 29th 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
29 August 1995 OPTICAL CABLE SPECIFICATIONS Page 24/24
ALCATEL 1996 Issue 6.0
<PAGE> 67
CONFIDENTIAL TREATMENT
Confidential
TECHNICAL SPECIFICATION
PART I
Service Definitions
1. Backbone Services
Backbone Services are defined between HER Points of Presence that serve the
Participating Railway. They are provided via the Hermes Europe Railtel
Trans-European Network, which is a fully meshed fiberoptic network that is
SDH-compatible running at ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT ##
"Standard" and "Premium" service levels are available (see below). Both are
supported by the Service Level Agreement in Part II.
1.1 Service Bandwidths and Interfaces
Backbone services are available in the following bandwidth/interface
combinations:
- --------------------------------------------------------------------------------
Bandwidth Interface
- --------------------------------------------------------------------------------
VC-12 (2.04S Mb/s) G.703 at 2.048 Mb/s (PDH electrical)
G.703 at 155.520 Mb/s (SDH electrical)
G.957 at 155.520 Mb/s (SDH optical)
VC-3 (34.368 Mb/s) G.703 at 34.368 Mb/s (PDH electrical)
G.703 at 155.520 Mb/s (SDH electrical)
G.957 at 155.520 Mb/s (SDH optical)
VC-3 (44.736 Mb/s) G.703 at 155.520 Mb/s (SDH electrical)
G.957 at 155.520 Mb/s (SDH optical)
VC-4 (139.264 Mb/s) G.703 at 139.264 Mb/s (PDH electrical)
STM-1 (155.520 Mb/s) G.703 at 155.520 Mb/s (SDH electrical)
G.957 at 155.520 Mb/s (SDH optical)
- --------------------------------------------------------------------------------
Uni-directional, bi-directional, or broadcast configurations are available.
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<PAGE> 68
CONFIDENTIAL TREATMENT
Confidential
1.2 Basic Service
Basic service is offered only to locations where, due to the logistics of
network rollout, only one fiber-optic path exists between two locations. All
procedures and performance measures in the Service Level Agreement apply.
- --------------------------------------------------------------------------------
Characteristic Standard
- --------------------------------------------------------------------------------
Availability Not guaranteed
Restoration mechanism Time to repair
(fiber outage)
Diversity Single route between HER POPs
- --------------------------------------------------------------------------------
Note that Basic service is only a temporary service existing. Subject to
existing contractual commitments, the offering will be withdrawn once Standard
and Premium are available to the location (multiple fiberoptic paths exist).
1.3 Standard service
Standard service has as a prerequisite minimum the availability of two
fiber-optic paths operational between locations. It is designed with extensive
redundancy built-in for high availability performance. The following table
indicates the design criteria and guaranteed operational performance; please see
Schedule 2 for details of the service level agreements.
- --------------------------------------------------------------------------------
Characteristic Standard
- --------------------------------------------------------------------------------
Availability Target: ## MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ##
Guarantee: ## MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT ##
Restoration mechanism Operator re-routing
(fiber outage)
Diversity Multiple routes between HER POPs
Guaranteed SLA Yes
- --------------------------------------------------------------------------------
1.4 Premium Service
Premium service is designed with a dedicated protection path that is physically
diverse end-to-end for highest availability performance. The following table
shows the characteristics that are different to Standard; please also see
Schedule 2 for details of the service level agreements.
- --------------------------------------------------------------------------------
Characteristics Standard
- --------------------------------------------------------------------------------
Availability Target: ## MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ##
Guarantee: ## MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT ##
Restoration mechanism ## MATERIAL OMITTED AND SEPARATELY FILED
(fiber outage) UNDER A REQUEST FOR CONFIDENTIAL TREATMENT
## automatic switch
Diversity ## MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT
## end-to-end physically diverse paths
Guaranteed SLA Yes (see SLA for details)
- --------------------------------------------------------------------------------
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<PAGE> 69
Confidential
PART II
Service Level Agreement
1. Purpose of the Agreement
This document sets out agreed standards and procedures for the provisioning
(service delivery) and operations (fault and performance management) of services
provided by HER to the Participating Railway.
This agreement also sets out measurable entities that allow periodic reviews of
the quality of the provisioning and operations of HER services.
2. Definitions
ADM Add/Drop Multiplexer
AMI Alternate Mark Inversion (line code)
Backbone HER network between two HER POPs
BIS Bringing-Into-Service
CS Customer Services
CSC Customer Services Centre
EI 2.048 Mb/s providing 1984 kb/s usable bandwidth
G.826 Long-term network performance standard defined by ITU-T
HDB3 High Desity Bipolar 3 (line code)
HER Hermes Europe Railtel
ITU Int'l Telecommunications Union
M.2100 Short-term network performance standard defined by ITU-T
NOC Network Operations Centre
OPS Operations
PDH Plesiochronous Digital Hierarchy
SDH Synchronous Digital Hierarchy
POP Point Of Presence
SLA Service Level Agreement
3. Service Delivery
3.1 General Principles
Service delivery is defined as the period between receipt of HER Service Order
and handover of acceptance-tested operational service. HER will accept Service
Orders up to 3 months prior to the planned 'live' date of a HER node.
This process will be managed through single points of contact from both the
Participating Railway and HER; the HER contact will be assigned upon receipt of
Service Order.
3.2 Service Planning Schedule
HER Backbone services will be provided to locations according to the schedule
shown in paragraph 3 of Schedule 5. This schedule will be updated via controlled
document issued to the customer on a quarterly basis.
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<PAGE> 70
Confidential
3.3 Service Order Placement
Service Orders may be initiated via fax or E-Mail to the HER point of contact
listed above, and must contain at minimum the following information:
o request service delivery date
o type of service required (Standard, Premium)
o details of bandwidth required including interfacing details
o the Participating Railway single point of contact for service delivery
planning
Alternatively, the Participating Railway may proceed directly to complete a
Service Order.
Upon receipt of Service Order, HER will confirm to the Participating Railway
that order is received via fax or E-mail. HER will in parallel determine whether
the requested date is feasible, and will confirm this within 3 days.
HER will then confirm this by sending the complete and verified HER Service
Order with above details and a "Committed Service Delivery Date". This must then
be signed by the contracting party, and returned to HER single point of contact
above.
3.4 Installation
If the Participating Railway requires the service, at the Participating
Railway's cost, HER will provide a service design and coordinate with the
Participating Railway's specified contact persons all installation activities.
Depending on the contracted service, this may include:
o local access provider equipment installation in the Participating
Railway's Points of Presence
o the Participating Railway or local access provider equipment installation
in HER Points of Presence.
3.5 Acceptance Testing and Commissioning
HER will coordinate with the Participating Railway-specified contact persons all
acceptance testing activities. Depending on the contracted service, this may
include:
o local access network BIS testing
o HER end-to-end service BIS testing
3.6 Handover
Upon successful results from HER end-to-end BIS testing, a certificate will be
provided to the Participating Railway. the Participating Railway shall then have
72 hours, measured from time of receipt of HER BIS results, to perform its
internal testing. At end of this period, billing shall commence unless the
Participating Railway notifies HER that its tests have failed, and agreement is
reached with HER to extend BIS testing.
3.7 Escalation
if the stated delivery standards are not met, the following escalation sequence
should be used to find a satisfactory solution.
- --------------------------------------------------------------------------------
Contact Level Name Tel. No. Fax number
- --------------------------------------------------------------------------------
1st Level CS Manager 658-5260 658-5107
- --------------------------------------------------------------------------------
2nd Level John Shearing 658-5260 658-5107
Operations Director
- --------------------------------------------------------------------------------
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<PAGE> 71
Confidential
Fault Management
24Hrs/7 Days Fault Reporting Contact
All faults be reported to the HER Customer Service Centre. When the local access
network is provided by HER, note that local access providers must not be
contacted directly. This to ensure HER CSC controls all activities.
Phone : 32-2-658-5252
Fax : 32-2-658-5105
E-mail : [email protected]
All faults detected by HER shall be reported to a single the Participating
Railway point of contact.
Fault Reporting Procedure/Information
HER to the Participating Railway
HER will phone the Participating Railway within 15 minutes of problem detection
and provide
o ID's of affected paths
o start time of problem
o nature of problem (degraded/down)
o HER trouble-ticket reference number
o estimated time repair (if problem is still not solved)
Fault repair will be done using non-service degrading tests to diagnose and
correct the problem; service degrading tests will be done after consent from the
Participating Railway. These may include:
o service interruption
o intrusive tests to the Participating Railway equipment
HER will update the Participating Railway every 30 mins. until problem is
repaired.
the Participating Railway to HER
the Participating Railway will contact HER CSC; for expediency purposes, phone
contact is preferable. the Participating Railway should provide the following
details:
o customer ID
o contact name
o the Participating Railway trouble-ticket reference
o nature of problem (degraded/down)
o ID's of affected paths
o start time of problem
o can service be taken down for testing?
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<PAGE> 72
Confidential
HER will immediately log the report in a trouble-ticket, provide the
trouble-ticket reference number, and begin fault localisation. HER will contact
the Participating Railway within 15 minutes with a problem description, and an
estimated time to repair (if problem is still not solved).
HER will update the Participating Railway every 30 mins. until problem is
repaired.
Fault Clearance Procedure
After service is repaired, HER will monitor for 10 mins. If service is stable,
HER will report fault clearance to the Participating Railway within 5 minutes.
Upon the Participating Railway agreement, the trouble-ticket will be cleared,
and HER will provide the Participating Railway.
o fault ticket number
o time of fault clearance
o cause of the fault
o corrective action taken
Fault clearance details are included in the monthly performance report
(see section 9.4).
the Participating Railway Site Access
the Participating Railway must provide 24-hour access to its premises to HER
and/or local access provider personnel to perform tests as required. HER will
provide to the Participating Railway identification details of the person(s)
arriving, and tests description.
Escalation
Customer Escalation
if the problem is not being addressed in a satisfactory manner, the following
escalation sequence is available for the Participating Railway.
- --------------------------------------------------------------------------------
Contact Contact function & Tel number Fax number
level name(s)
- --------------------------------------------------------------------------------
1st Level Shift Leader 658-5252 658-5107
- --------------------------------------------------------------------------------
2nd Level John Shearing 658-5260 658-5107
CSC Manager
- --------------------------------------------------------------------------------
3rd Level John Shearing 658-5260 658-5107
Operations Director
- --------------------------------------------------------------------------------
HER internal
The following escalation/awareness sequence will be used by HER as governed by
duration of the Participating Railway service interruption.
- --------------------------------------------------------------------------------
Contact Contact function Time since fault
level logged
- --------------------------------------------------------------------------------
1st Level Shift Leader Immediate
- --------------------------------------------------------------------------------
2nd Level NOC/CSC Manager 2 hrs.
- --------------------------------------------------------------------------------
3rd Level Operations Director 4 hrs.
- --------------------------------------------------------------------------------
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<PAGE> 73
CONFIDENTIAL TREATMENT
Confidential
Planned Works Notification Procedure
HER and local access providers will from time to time undertake scheduled
service-affecting works. HER will inform the Participating Railway by fax
containing the proposed time and date, duration, and description of any such
works. HER has a target of 30 days advance notice. If the proposed time and date
are not acceptable, the Participating Railway must reply immediately with a
preferred alternative. If agreement cannot be reached, HER will decide the time
and date at its discretion, but with the target to minimize the participating
Railway inconvenience.
Planned works are not included in service availability calculations, but are
included in the monthly performance report.
the Participating Railway contacts for planned works notification are to be
formally specified.
Performance Management
Performance management will be reported using the measurable items described in
sections 5 and 6. The individual items and their definitions are listed below.
Availability
Guaranteed Service Availability (mo.) XX.X% (service-dependent)
(An outage is defined as ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT ## or more consecutive Severely Errored
Seconds as per ITU-T M.2100. The availability formula used is: ## MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ##. Note
that planned works and outages prolonged by inability to access the
Participating Railway POP are excluded. Credits may be available where
guaranteed service availability levels are not met. Please see main Agreement.)
Time To Repair (per event) ## MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ##
(Time to Repair is defined as the time from actual service unavailability
until fault clearance is agreed between HER and the Participating Railway. Mean
time to repair is the monthly average.)
Error Performance (mo.) G.826 complaint
(Error performance will report ES and SES measured on a monthly average
basis)
Service Provisioning
Service order acknowledgment 3 days (under investigation)
(HER will provide a service delivery date within 3 days of acknowledgment
of receipt of purchase order)
Guaranteed Committed Connect Date By committed date
(Committed connect date is defined as after successful service acceptance
test by HER and initial 'handover' to the customer. Credits are available where
committed connect dates are not observed. Please see "Service Quality" section
of main Agreement.)
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CONFIDENTIAL TREATMENT
Confidential
Provisioning lead time
Existing infrastructure ## MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ##
New access facilities required ## MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ## (under investigation)
(HER will endeavour to 'handover' with BIS test results all services that
do not require additional physical facilities (only software configuration)
within 3 days of Service Order acknowledgment. Where new access facilities are
required, 8 weeks is the target. The timer is triggered by the Participating
Railway acceptance of the provisioning date provided in the service order
acknowledgment)
Fault Management
Fault detection ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT ##
(HER will log all faults in its Problem Management System within ##
MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT
## of the fault being detected by HER Network Operations Centre or reported by
the Participating Railway.)
Customer notification ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT ##
(HER will notify the Participating Railway if affected by the fault within
## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ## of the fault having been detected.)
Fault progress reporting every ## MATERIAL OMITTED AND SEPARATELY FILED UNDER
A REQUEST FOR CONFIDENTIAL TREATMENT ##
(HER will keep the Participating Railway informed of the fault status with
expected clearance times every 30 minutes during which the fault remains
service-affecting)
Fault clearance
notification ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT ##
(HER will notify the Participating Railway of fault clearance, and seek
approval from the Participating Railway to clear the fault within ## MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ## of
the fault having been repaired.)
Planned works notification
Notice provided 30 days
Duration within expectation (y/n)
(HER will report the notice provided per instance of planned works, and
whether the expected duration was exceeded.)
Performance Reporting Procedure
Performance report containing all measures in this section, including detailed
description of any faults, will be provided on a monthly basis to the
Participating Railway contacts specified by the Participating Railway.
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<PAGE> 75
Confidential
Contacts
The following contacts must be documented for each new Service Order through the
Service Delivery process and kept current.
Service delivery - (planning, arrange site access)
- --------------------------------------------------------------------------------
Organisation Name Telephone Fax E-mail
- --------------------------------------------------------------------------------
the Participating
Railway
HER -
planning
HER -
site access
- --------------------------------------------------------------------------------
Escalation within HER:
- --------------------------------------------------------------------------------
Contact Level Name Tel. No. Fax number
- --------------------------------------------------------------------------------
1st Level CS Account Mngr TBA TBA
2nd Level CS Manager TBA TBA
3rd Level OPS Director TBA TBA
Out of Hours NOC TBA TBA
- --------------------------------------------------------------------------------
Service handover with BIS results
- --------------------------------------------------------------------------------
Organisation Name Telephone Fax E-mail
- --------------------------------------------------------------------------------
the
Participating
railway
HER
- --------------------------------------------------------------------------------
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Confidential
24-hour fault reporting
- --------------------------------------------------------------------------------
Organisation Name Telephone Fax E-mail
- --------------------------------------------------------------------------------
the
Participating
railway
HER
- --------------------------------------------------------------------------------
Escalation within HER:
- --------------------------------------------------------------------------------
Contact Level Contact function & name(s) Tel. Number. Fax number
- --------------------------------------------------------------------------------
1st Level Shift Leader TBA TBA
2nd Level NOC Manager TBA TBA
3rd Level OPS Director TBA TBA
- --------------------------------------------------------------------------------
24/7 the Participating Railway POP access for fault management
- --------------------------------------------------------------------------------
Organisation Name Telephone Fax E-mail
- --------------------------------------------------------------------------------
the
Participating
railway
HER
- --------------------------------------------------------------------------------
Planned works notification
- --------------------------------------------------------------------------------
Organisation Name Telephone Fax E-mail
- --------------------------------------------------------------------------------
the
Participating
railway
HER
- --------------------------------------------------------------------------------
the Participating Railway performance report distribution list
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10 of 11
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Confidential
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11 of 11
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CONFIDENTIAL TREATMENT
Exhibit 10.13
Note: Portions of the Exhibit have been omitted pursuant to a request for
confidential treatment filed with the SEC under Rule 406. The omitted
confidential material has been filed separately with the SEC. The location of
the omitted confidential information is indicated herein by a legend stating,
"MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT."
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Convention concerning availability of optical fibres
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Between the undersigned:
1 - La Societe des Autoroutes du Nord et de l'Est de la France (Company for
Motorways in Northern and Eastern France), whose registered office is located at
41 bis avenue Bosquet, 75007 PARIS, a corporation registered in the PARIS Trade
and Companies Register under No. B 632 050 019, represented by Mr. Michel
AMILHAT, its managing director,
hereinafter designated as "the SANEF",
party of the first part,
and;
2 - The Company HERMES EUROPE RAILTEL B.V., whose registered office is at
Drentestraat 20, 1083 HK Amsterdam, Netherlands, registered in the Almere Trade
Register under No. 55004, represented by Mr. Jan LOEBER, its managing director,
hereinafter designated as "the OPERATOR",
party of the second part,
The SANEF and the OPERATOR being designated collectively as "the Parties".
<PAGE> 2
2
CONTENTS
1. PREAMBLE
2. DEFINITIONS
3. PURPOSE
4. LEGAL NATURE AND SCOPE OF THE CONVENTION
4.1 AUTHORISATION TO OCCUPY THE PUBLIC DOMAIN
4.2 INTUITU PERSONAE
4.3 EXCLUSIVITY
4.4 CONTRACTUAL RELATIONSHIPS - VALIDITY
4.5 EQUAL TREATMENT
4.6 MISCELLANEOUS
5. PARTIES' CONTACTS
6. INTELLECTUAL PROPERTY - CONFIDENTIALITY
6.1 INTELLECTUAL PROPERTY
6.2 CONFIDENTIALITY
7. EFFECTIVE DATE - DUARATION - RENEWAL
7.1 EFFECTIVE DATE
7.2 DURATION
7.3 RENEWAL
8. COOPERATION BETWEEN PARTIES
8.1 GENERAL PRINCIPLES
8.2 MONITORING COMMITTEE
8.3 CONNECTION
9. AVAILABILITY OF F.O.N. AND OF SITES
9.1 FIRM SERVICES
9.1.1 Content
9.1.2 deadlines
9.1.3 special conventions regarding Site availability
9.2 ADDITIONAL SERVICES
9.2.1 Informing the OPERATOR
9.2.2 Request for additional F.o.n.
9.2.3 Request for optional F.o.n.
9.2.4 Making additional F.o.n available
10. TECHNICAL PROVISIONS RELATIVE TO THE WORK
10.1 INSTALLATION OF THE F.O.N.
10.2 SITES
10.2.1 Evaluation of OPERATOR's needs
10.2.2 Improvement of the SANEF sites
10.2.3 Construction of Sites by the OPERATOR
10.2.4 OPERATOR's equipment installation
10.2.5 Use and maintenance of the Sites
11. TECHNICAL PROVISIONS RELATIVE TO OPERATIONS
11.1 ACCEPTANCE
11.1.1 Acceptance of the F.o.n. by the SANEF
11.1.2 Acceptance of the F.o.n. by the OPERATOR
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CONFIDENTIAL TREATMENT
11.1.3 Acceptance of the SANEF Sites
11.1.4 Acceptance of an Equipped Motorway Section
11.1.5 Compliance of the OPERATOR Sites
11.1.6 compliance of the OPERATOR's technical equipment
11.2 MAINTENANCE
11.2.1 Preventive maintenance
11.2.2 Remedial maintenance
11.2.3 Maintenance of the OPERATOR's Installation and Sites
11.2.4 Maintenance of the SANEF Sites
11.3 WITHDRAWAL OF THE OPERATOR's EQUIPMENT AND SITES
11.3.1 Withdrawal of the equipment of the SANEF Sites
11.3.2 Withdrawal of the OPERATOR Sites
11.3.3 Penalties
12. GENERAL CONDITIONS REGARDING INSTALLATION AND OPERATION
12.1 ACCESS TO THE EQUIPMENT
12.2 WORK ON THE MOTORWAY NETWORK
12.3 WORK ON THE TELECOMMUNICATIONS NETWORK
13. LIABILITY
13.1 GENERAL PRINCIPLE
13.2 EQUIPMENT COMPATIBILITY AND MAINTENANCE
13.3 INSURANCE
14. FINANCIAL PROVISIONS
14.1 FEES
14.2 REVISION
14.3 PAYMENT AND INVOICING PROCEDURES
14.3.1 Downpayment
14.3.2 Prefinancing option
14.3.3 Payment of prefinancing of the F.o.n.
14.3.4 Payment procedures regarding the fees for availability of the
F.o.n. and of the Sites
15. DECLARATIONS AND GUARANTEES
16 CANCELLATION
16.1 CANCELLATION BEFORE THE AVAILABILITY DATE OF THE LAST OF THE EQUIPPED
MOTORWAY SECTIONS TO BE DELIVERED IN 1997
16.1.1 Cancellation in case the OPERATOR prefinances
16.1.2 Cancellation in case the OPERATOR does not prefinance
16.2 CANCELLATION AFTER THE AVAILABILITY DATE OF THE LAST OF THE EQUIPPED
MOTORWAY SECTIONS TO BE DELIVERED IN 1997
16.2.1 Cancellation within ## MATERIAL OMITTED AND SEPARATELY FILED UNDER
A REQUEST FOR CONFIDENTIAL TREATMENT ## years
16.2.2 Cancellation after ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT ## years
17. FORCE MAJEURE
18. CONDITION SUBSEQUENT
19. DISPUTES
20. ELECTION OF DOMICILE
21. APPENDICES
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CONFIDENTIAL TREATMENT
1. Preamble
1. By virtue of a convention concerning concession of construction,
maintenance and operation of motorways concluded with the State on
June 27, 1990, and approved by a Council of State decree on October
29, 1990, the SANEF is the concessionaire of a motorway network
located in Northern and Eastern France (autoroutes ## MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ##).
2. On certain sections of its network described in Appendix 1 to the
present Convention, the SANEF intends to deploy black optical fibres
in order to improve the conditions of operating the motorway public
service for which it is responsible. The SANEF also wishes to
reserve the part of the optical fibres it does not use for third
party operators working in the telecommunications field.
3. The OPERATOR intends to install and exploit a telecommunications
network within the framework of article I. 33-1 of the
Telecommunications Code, and it filed an authorisation application
for this purpose on November 15, 1996.
4. The Parties have consulted each other on a project under which the
SANEF would make a certain number of black optical fibres along its
motorway network available to the OPERATOR.
5. The present Convention falls within the framewotk of the principles
of the law of July 26, 1996, regulating telecommunications, and
hence will observe strict equality of treatment among the various
operators in connections with making F.o.n. available on the
equipped motorway sections (cf. the following definitions).
HAVING SET FORTH THESES PREMISES, NOW THEREFORE THE PARTIES HEREBY ENTER INTO
THE FOLLOWING AGREEMENT:
2. Definitions
In the present Convention, the Parties agree to give the following
meanings to the words and expressions designated below:
1. Optical Cable: a cable consisting of Black Optical Fibres.
2. Connector: this point consists physically of the extremity of an
F.o.n. connected with a terminal system. This connector, located at
a Site, is installed and maintained by the SANEF and makes it
possible to provide a connection between the F.o.n. made available
to the OPERATOR by the SANEF and the OPERATOR's equipment.
3 Convention: the present convention and its appendices.
4. Availability Date: the date on which the acceptance operations have
given rise to the OPRATORS's acceptance of an Equipped Motorway
section.
5. F.o.n District: a continuous segment of F.o.n. averaging around ##
MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ## kilometres located on an Equipped Motorway
Section, at the ends of which connectors are generally installed.
6. Dysfunction: an anomaly of the F.o.n. not respecting the technical
specifications laid down in Appendix 4, but not giving rise to an
interruption.
7. Extremity Equipment: the OPERATOR's technical equipment making it
possible to use an F.o.n.
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8. Black Optical Fibre: an optical fibre installed in accordance with
the SANEF's innovative method or otherwise, lacking any
telecommunications equipment and designated by the abbreviation
F.o.n. (Fibre optique noir).
9. Interruption: an anomaly preventing any use of one or several F.o.n.
10. Equipped Itinerary: a set of Equipped Motorway Sections making it
possible to connect two extremities of the Motorway Network.
11. Day: calendar day
12. Operator: a natural or legal person operating a telecommunication
network open to the public or the supplier of an optical
connectivity service.
13. Pair of F.o.n.: two F.o.n. located in the same Optical cable.
14. Secure Pair of F.o.n.: two pairs of F.o.n. located on both sides of
the motorway and one of which benefits from the "securisation"
discount in accordance with the price list appearing in Appendix
No.6.
15. R1: the fee to be paid by the OPERATOR to the SANEF in connection
with availability of the F.o.n.
16. R2: the fee to be paid by the OPERATOR to the SANEF in connection
with availability of the Sites.
17. Connection: the link between the Motorway Network Equipped with
F.o.n. and a third party telecommunications network.
18. Motorway Network: the motorways ("autoroutes") for which SANEF is
the concessionaire.
19. Equipped Motorway Network: the motorways in operation for which the
SANEF holds a concession, equipped with F.o.n. on each side.
20. Equipped Motorway Section: the part of the Motorway Network
consisting of a continuous series of F.o.n. Districts.
21. Site: the place where the OPERATOR's equipment is installed and
generally located in the SANEF's maintenance centres.
22. OPERATOR Site: a Site installed by the OPERATOR on the Motorway
Network.
23. SANEF Site: a Site made available to the OPERATOR by the SANEF.
3. Purpose
The purpose of the Convention is to lay down, together, the terms and
conditions under which the SANEF undertakes to make F.o.n. and associated
Sites constituting Equipped Motorway Sections available to the OPERATOR in
accordance with Appendix 3 and as defined in Appendix No. 1, with a view
to make their exploitation by the OPERATOR possible.
<PAGE> 6
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4. Legal nature and scope of the Convention
4.1 Authorisation to occupy the public domain
Since the Motorway Network is part of the State's motorway public domain,
the Convention in particular is tantamount to authorisation to occupy the
motorway public domain, but does not grant the OPERATOR any real property
rights to the said public domain (article L.34-1 of the State Domain
Code).
4.2 Intuitu personae
The Convention is concluded intuitu personae.
The Parties may not transfer their rights and obligations under the terms
of the Convention except with the other Party's written consent in
advance. The said consent is hereby granted, subject to advance
notification, in case of transfer to any subsidiary of one of the Parties,
or to a company belonging to the group of one of the Parties, or to its
direct or indirect parent company under the same conditions, as long as
the assignee company is legally authorised to carry on the activities
making the present Convention possible.
4.3 Exclusivity
For its entire duration, the Convention does not grant any exclusive right
to the OPERATOR for using the F.o.n. installed by the SANEF, with the
exception of the ones made available to it under the conditions laid down
in the said Convention.
4.4 Contractual relationships - Validity
The present Convention constitutes the totality of the agreements between
the Parties.
The illegality or nullity of any provision whatsoever of the Convention
that is not of an essential nature shall not cast doubt on the validity of
the other provisions. The Parties agree to replace the invalid provisions
by provisions coming as close as possible to their joint intention
expressed within the framework of the Convention. Any modification of the
present Convention shall be the object of a rider signed by the authorised
representative of each of the Parties.
4.5 Equal treatment
The OPERATOR shall benefit by right from the most favourable treatment
granted by the SANEF to an Operator placed in a comparable situation and
for comparable service.
4.6 Miscellaneous
The SANEF agrees not to make F.o.n. available to third parties for
purposes of supplying optical connectivity.
In case of a modification of the legal or economic environment in which
the Parties have contracted that has a significant effect on the
provisions included in the present Convention, the Parties shall confer to
agree on the related adaptations.
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CONFIDENTIAL TREATMENT
5. Parties' Contacts
Each Party designates the following for application of the Convention:
1. For the SANEF: Mr. Helideo COSTA-ELIAS, Manager for Development and
Modernisation, domiciled at the following address: SANEF 100 avenue
de SUFFREN, 75015 PARIS.
2. For the OPERATOR: Mr John SHEARING, Manager of the Operations and
Engineering, domiciled at the following address: Hermes Europe
Railtel - Terhulpsesteenweg 6A, 1560 Joellaart, Belgium,
each having the option of appointing a substitute or of delegating,
subject to informing the other Party thereof.
Notice of a change of address or of the contact of one or the other of the
Parties shall have to be given by registered mail with receipt.
Upon signature of the present Convention, the Parties' contacts shall
send, by registered mail with receipt, the addresses and the telephone and
fax numbers required for operational management of the present Convention.
6. Intellectual property - Confidentiality
6.1 Intellectual property
The SANEF warrants the OPERATOR that it holds the intellectual property
rights relative to the innovative technique for installation of the F.o.n.
and the motorway know-how required by this technique.
6.2 Confidentiality
The Parties acknowledge that they are bound by the confidentiality
agreement effective on May 13, 1996, attached in Appendix No. 7.
7. Effective date - Duration - renewal
7.1 Effective date
The Convention goes into effect on the date of signature by the Parties.
7.2 Duration
It is concluded for a duration of ten years starting with the date of
availability of the last of the Equipped Motorway Sections delivered in
1997 (Appendix 3).
7.3 Renewal
The present Convention shall be renewed by tacit extension for a duration
of ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ## in the absence of termination notice served by
registered mail with receipt on the other Party at least ## MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ##
before the expiration date of the current period.
<PAGE> 8
8
The SANEF will reject renewal only in the following cases:
1. The ageing of the Optical Cable does not allow continued
exploitation;
2. The renewal duration would exceed the duration of the concession
concluded by the SANEF with the State.
8. Cooperation between the Parties
8.1 General principles
For the entire duration of the present Convention, the Parties shall
inform each other about events that could have consequences on proper
execution of the project that is the object of the present Convention.
They shall cooperate in a spirit of close collaboration and transparence,
particularly in connection with the detailed study of the project and of
its execution. The OPERATOR shall be entitled to indicate the provisions
it wishes to have included in the project and which, to the greatest
possible extent, shall be taken into account by the SANEF.
They shall cooperate in so far as need be in their relationships with the
competent administration, particularly with a view to proper performance
of the work and of the acceptances by the OPERATOR.
The OPERATOR and the SANEF shall assist each other in seeking partners and
the required technical resources, particularly with respect to
relationships with the managers of the public domains neighbouring the
SANEF's Motorway Network.
8.2 Monitoring Committee
To see to monitoring application of the present Convention, examining the
conditions of operations of the service and the exact definition of the
operating procedures, a fully representative committee is instituted to
meet every quarter-year or, if necessary, at the initiative of one of the
Parties.
That committee's meetings shall give rise to the establishment of minutes
drawn up alternately by each of the Parties providing secretarial services
for the committee. The approval of the minutes shall be considered as
given in the absence of remarks made during a period of two weeks
following transmission thereof.
The committee's decisions are made with due observance of the provisions
of the present Convention.
8.3 Connection
The monitoring committee shall meet upon signature of the present
Convention to consider whether it is appropriate to contact the managers
of neighbouring networks for installation of the connection or
connections.
<PAGE> 9
CONFIDENTIAL TREATMENT
9
9. Availability of F.o.n. and of Sites
9.1 Firm services
9.1.1 Content
The SANEF shall make the Equipped Motorway Sections available to the
OPERATOR in accordance with the technical characteristics spelled out in
Appendix No. 4 and in accordance with the OPERATOR's needs spelled out in
Appendix No. 3, namely:
1. ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ##
2. ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ##
3. ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ##
The OPERATOR shall have to implement, at its own expense, the
telecommunications equipment it needs to use the F.o.n., and particularly
the hardware and software making it possible, in case of an interruption,
to shift operations from one F.o.n. to another and vice versa.
9.1.2 Deadlines
The F.o.n. and the Sites shall be made available to the OPERATOR at the
latest on the dates indicated in the schedule attached in Appendix No. 2.
In case of a delay in availability on an Equipped Itinerary, the SANEF
shall compensate the OPERATOR by allocating an hourly credit free to it
relating to availability of the F.o.n. equal to ## MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ## of the
anticipated annual fee for the Equipped Itinerary in question until ##
MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ## increased to ## MATERIAL OMITTED AND SEPARATELY FILED UNDER
A REQUEST FOR CONFIDENTIAL TREATMENT ## beyond that date, for each week's
lateness. However, the penalties as a whole are limited to ## MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT
## of the amount of the prefinancing mentioned in article 14.3.
The credit constituted in this way shall be calculated and be deducted
from the amount of the fee to become due starting with the third year
following the availability date of the last of the delivered Equipped
Motorway Sections.
In case the availability date of the last Equipped Motorway Section comes
after ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ##, the OPERATOR shall be entitled to cancel the
present Convention under the conditions mentioned in article 16.1.
9.1.3 Special conventions regarding Site availability
At the end of a detailed study, one or several special conventions will
spell out the technical conditions regarding availability of the Sites and
will make it possible, if appropriate, to update Appendix No. 3.
9.2 Additional services
9.2.1 Informing the OPERATOR
Depending on the extension of the Equipped Itineraries and on the surplus,
if any, of existing F.o.n., the SANEF may make some F.o.n. available to
the OPERATOR in addition to the ones provided for in article 9.1.1 above.
To this end, the SANEF shall inform the OPERATOR by October 30 of each
year and on the occasion of each change of the number of F.o.n. available
and of F.o.n. reserved on the Equipped Itineraries as well as, if the case
arises, about the programme for extension of the Equipped Itineraries.
<PAGE> 10
CONFIDENTIAL TREATMENT
10
This information will also have to be communicated by the SANEF whenever
the OPERATOR so requests.
9.2.2 Request for additional F.o.n.
The OPERATOR may request the SANEF at any time, by registered mail with
receipt, to have additional F.o.n. made available without reservation in
the light of the increase in its needs during the present Convention.
The SANEF undertakes to consider the technical feasibility of making
additional F.o.n. available in order to meet the OPERATOR's request. The
SANEF will provide its response within 30 days following the OPERATOR's
request.
9.2.3 Request for optional F.o.n.
The OPERATOR shall also be entitled to reserve optional F.o.n. to be made
available by the SANEF under the following conditions:
1) The OPERATOR shall inform the SANEF by registered mail with receipt of
the number of F.o.n. it wants to have reserved (hereinafter: "the
Request").
The Request may not bear on more F.o.n. than exploited by the OPERATOR.
2) The SANEF has two weeks to acknowledge the Request, which may be
rejected only in case of circumstances beyond its control. After that
time, the Request is considered to have been accepted by the SANEF subject
to payment by the OPERATOR of an amount equal to ## MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ## of the
amount of the annual fee relating to the request calculated on the price
terms provided for in the present Convention. Payment shall have to be
made within 30 days starting with the SANEF's explicit or tacit response,
failing which the Request will no longer be considered as having been
accepted.
3) The Request is valid for ## MATERIAL OMITTED AND SEPARATELY FILED UNDER
A REQUEST FOR CONFIDENTIAL TREATMENT ## starting with the date of
acceptance of the Request, during which the OPERATOR may request at any
time, by registered mail with receipt addressed to the SANEF, to have the
F.o.n. that are the object of the Request made available. The SANEF will
make the F.o.n. in question available within 2 weeks following the date of
receipt of the above-mentioned letter and will deduct the amount of the ##
MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ## paid in connection with the reservation from the fee for the
F.o.n. that are the object of the Request.
4) During the period of Request validity, and in case the SANEF's
available F.o.n. are in the limit of capacity, the SANEF may request the
OPERATOR at any time, by registered mail with receipt, to make a decision
as to the final nature of the availability of the F.o.n. that are the
object of the Request.
The OPERATOR shall then have a period of 2 weeks starting with the date of
receipt of the above-mentioned letter to make its response by registered
mail with receipt addressed to the SANEF.
<PAGE> 11
CONFIDENTIAL TREATMENT
11
In the absence of a response within that period or in case of a negative
response, the SANEF:
- shall be entitled to exploit the F.o.n. in question itself or make them
available to another Operator;
- to return the sum paid to the OPERATOR pursuant to section 2 of the
present article.
5) One month before the end of the reservation, the SANEF will ask the
OPERATOR by registered mail with receipt whether it wants to renew its
option. If so, the latter shall have to again pay an amount equal to ##
MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ## of the annual fee relative to the Request. In this case, the
amount of ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ## paid by the OPERATOR for the past year shall
definitively remain the SANEF's property.
9.2.4 Making additional F.o.n. available
The technical conditions relating to making additional F.o.n. available
will be defined by a rider modifying Appendix No. 3 and, if the case
arises, Appendix No. 6 section 3.2 "motorway sections". The additional
F.o.n. will be subject to the same financial conditions as the ones laid
down in the present Convention. The base price of the work unit is defined
in Appendix 6. However, in case of prefinancing, the base price of the
work unit shall be the one for the year 1996/1997 or ## MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ## per
linear meter per year. The payment schedule appearing to Appendix No. 8
will also be updated.
10. Technical provisions relative to the work
10.1 Installation of the F.o.n.
The SANEF shall perform the work of installing the Optical Cables on each
side of the motorway in accordance with the technical specifications
described in Appendix 4.
The SANEF warrants that the OPERATOR shall enjoy access to all technical
information it needs to evaluate the progress and the quality of the work
of installing the Optical Cable.
The means used to reach this objective concern access to the technical
documents relative to the project as well as the response to the
OPERATOR's written questions.
Some job site inspections will be arranged by SANEF for the OPERATOR's
benefit, at the latter's inquest.
10.2 Sites
10.2.1 Evaluation of OPERATOR's needs
With a view to establishing the special convention(s) spelling out the
conditions of making the Sites available, upon signature of the Convention
the Parties shall inspect the Sites. The OPERATOR shall then indicate by
registered mail with receipt addressed to the SANEF the list of the SANEF
Sites at which it wishes to install its telecommunications equipment or
any other equipment, required for exploitation of the F.o.n., or failing
this, the Sites that can be installed by the OPERATOR. For each Site the
OPERATOR shall supply specifications including, in particular, a detailed
layout plan of the equipment items as well as the specifications of the
required environment.
<PAGE> 12
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The OPERATOR's specifications will be considered by the SANEF before any
work within a period of one month starting with the date of receipt
thereof. They shall give rise to a technical and financial evaluation.
In the interest of proper management of the motorway public domain, the
preferred solution is the one calling for installation of the OPERATOR's
equipment in the SANEF Sites in which private spaces are to be arranged
for the OPERATOR's benefit.
Furthermore, except in its private spaces in the SANEF Sites, the OPERATOR
shall not be entitled to oppose the presence of equipment belonging to the
SANEF or to other OPERATORS.
The OPERATOR may not oppose installation of a technical shelter near its
Site.
10.2.2 Improvement of the SANEF Sites
If the SANEF Sites made available in accordance with the special
conventions mentioned in article 10.2.1 are to be the object of other
improvements at the OPERATOR's request, such as, for instance, security of
the energy supply, air conditioning or access control, etc., the work will
be performed by the SANEF and will be paid for by the OPERATOR in
accordance with the financial evaluation that will have been made in
advance and which will have been approved by the two Parties.
In case the improvements financed by the OPERATOR are also used by other
Operators, the incoming Operator will be asked by the SANEF to make an
improvement contribution and this will be rebated to the OPERATOR in
proportion to the surface area occupied.
10.2.3 Construction of Sites by the OPERATOR
In case the SANEF cannot make the Sites desired by the OPERATOR available,
the latter is authorised to construct pursuant to the technical conditions
spelled out in a special convention in accordance with article 10.2.1 and
under the following conditions:
1. The Sites will be built by the OPERATOR, at its own expense, the
latter also paying the expenses induced by the work (fencing
modification, etc.),
2. The Sites shall be of a model approved by the SANEF,
3. The Sites may not occupy a surface area of more than 15 square
meters,
4. A plan of the Site's territorial area will be drawn up by the SANEF
for each place in question and will be signed by the two Parties'
contacts designated in article 5,
5. The OPERATOR shall see to installation and consumption of the
electricity, and shall be entitled to make the best possible use of
the existing electrical installations,
6. The Sites shall always be maintained in a good condition of
maintenance,
7. The OPERATOR shall see to the required administrative formalities.
<PAGE> 13
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10.2.4 OPERATOR's equipment installations
The OPERATOR or its representative shall enjoy continuous access to the
Sites or to the territories in accordance with the safety rules spelled
out by SANEF in Appendix No. 5
10.2.5 Use and maintenance of the Sites
The OPERATOR undertakes to keep the private space of the SANEF Sites
reserved for it in good maintenance condition. However, it shall reimburse
the SANEF for its share of the electricity consumed. It shall remain fully
responsible under all circumstances for its use of its private spaces. In
this connection, it will have to take out insurance making it possible, at
the appropriate time, to cover the various risks connected with its use of
the Sites.
11. Technical provisions relative to operations
11.1 Acceptance
11.1.1 Acceptance of the F.o.n. by the SANEF
As soon as SANEF pronounces acceptance of the F.o.n. vis-a-vis its
manufacturer in an F.o.n. district, the SANEF shall inform the OPERATOR by
registered mail with receipt that the F.o.n. in question may become the
object of acceptance by the OPERATOR and it shall inform it of the result
of the measurements made.
11.1.2 Acceptance of the F.o.n. by the OPERATOR
In the interest of making sure that the technical characteristics of the
F.o.n. made available to it meet the technical specifications laid down in
Appendix No. 4, the OPERATOR must make its own acceptance tests, F.o.n.
District by F.o.n. District, pursuant to Appendix No 4, within a maximum
of 2 weeks following the date of receiving the registered letter with
receipt mentioned in article 11.1.1.
The following constraints shall be observed:
1. After having informed the SANEF of the place and date of acceptance
with 48 hours' notice, the OPERATOR shall carry out the test
operations relating to acceptance of the F.o.n. The said operations
shall be carried out as the SANEF makes F.o.n. available in each
F.o.n. District.
2. The results of the acceptance tests shall be recorded in minutes
concerning the operations prior to acceptance, to be drawn up and
signed by the Parties present at the time of the operations. If the
SANEF is absent, the minutes shall be applicable to it.
3. If the acceptance tests are positive, the OPERATOR shall send an
acceptance report signed by it within one week following the date of
the tests, by registered mail with receipt, to the SANEF.
4. In case of difficulties, the acceptance test operations shall have
to be renewed within 30 days at the latest starting with the date of
the first test operation.
5. If the OPERATOR does not pronounce acceptance of the F.o.n. at the
end of the latter period on the ground that the F.o.n. made
available do not meet the technical
<PAGE> 14
14
specifications laid down in Appendix No. 4, the OPERATOR shall be
entitled to cancel the Convention under the conditions of article
16.1. The same applies when the lack of acceptance results from
SANEF's absence.
6. If the OPERATOR does not pronounce acceptance of the F.o.n. within
the periods indicated for any reason other then the ones described
above, acceptance is considered to have occurred.
11.1.3 Acceptance of the SANEF Sites
The SANEF Sites shall be accepted by the OPERATOR at the same time as the
F.o.n. Districts concerned and in accordance with the specifications
appearing in the special convention mentioned in article 10.2.1 of the
present Convention.
11.1.4 Acceptance of an Equipped Motorway Section
When the OPERATOR has pronounced acceptance of all of the F.o.n. Districts
and of the SANEF Sites made available to the OPERATOR by SANEF in one and
the same Equipped Motorway Section, the latter is considered to have been
accepted by right.
11.1.5 Compliance of the OPERATOR Sites
On the basis of the documents provided for in article 10.2.3, the
compliance of the OPERATOR Sites will be checked by the SANEF on a date
set by the OPERATOR, the said inspection giving rise to signature of a
report.
11.1.6 Compliance of the OPERATOR's technical equipment
The compliance with specifications of the OPERATOR's technical equipment
will be checked by the SANEF at the same time and on the basis of the same
procedure as described in article 11.1.5, and within the limits of what is
necessary to verify the absence of disturbances.
11.2 Maintenance
The SANEF warrants the OPERATOR with respect to the compliance of the
F.o.n. made available to it with the technical specifications spelled out
in Appendix No. 4, and their proper operation for the entire duration of
the present Convention.
If the F.o.n. made available to the OPERATOR do not satisfy the technical
specifications appearing in Appendix 4 to the present Convention, the
SANEF shall supply the OPERATOR, as soon as possible and without any
additional expense to the latter, with new F.o.n. in the same Optical
Cable or in another cable.
The SANEF shall see to monitoring and maintenance of the F.o.n. installed
on its Motorway Network, outside of the Sites and as far as the Connectors
and distribution boxes inclusive.
<PAGE> 15
15
11.2.1 Preventive maintenance
The list of the work on motorways planned by the SANEF that could
interfere with proper operation of the F.o.n. will be transmitted to the
OPERATOR on the occasion of each updating, and if possible 45 days before
the start of work. The SANEF will inform the OPERATOR of the provision to
be adopted to minimise possible disturbances.
If the case arises, for unplanned motorway work, SANEF will inform the
OPERATOR in accordance with the procedure to be defined as soon as it
becomes aware thereof and it will indicate the provisions adopted to
minimise possible disturbances.
Preventive maintenance consists in carrying out the following:
1. semi-annually:
- a check on the mechanical and optical condition, including the
verification of the Connectors,
- a verification of the quality of the F.o.n. by checking on its
performance level in accordance with the technical
specifications described in Appendix No. 4.
2. every two months:
- a routine inspection making it possible to detect possible
deterioration including civil engineering, or departures from
desired performance.
In particular preventive maintenance includes the labour and the
replacement of defective equipment as well as keeping maintenance
documentation and a work ledger up to date.
All of the work carried out by the SANEF on the F.o.n. and Connectors,
including on behalf of third parties, as well as the events having given
rise thereto must be entered in a ledger called "journal de bord" kept on
the SANEF premises and which can be consulted by the OPERATOR.
The "journal de bord" must include the following information as a minimum
for each SANEF intervention: date, starting and ending time, nature of the
anomalies noted, work carried out and subassemblies replaced, indication
of the checks and measurements made, and an account of the incidents or
difficulties encountered.
Preventive maintenance is carried out In accordance with a schedule drawn
up by agreement with the OPERATOR.
The definition of the test, measurements and performance levels is given
in Appendix No. 4.
It must be possible to carry out the preventive maintenance work without
interruption. To this end, the SANEF shall keep at least one pair of
F.o.n. known as "manoeuvring fibres" on each side of the motorway that can
be used by the various Operators. This "manoeuvring" connection will have
to be as close as possible to the connection made available and comparable
in every respect. It will be accepted and maintained in identical fashion.
<PAGE> 16
CONFIDENTIAL TREATMENT
16
11.2.2 Remedial maintenance
11.2.2.1 General principles
The SANEF, at its own expense, shall see to repair of the F.o.n. made
available to the OPERATOR in case of interruption or of dysfunction.
The OPERATOR will be reimbursed for any interruption for the amount of the
fee on the Equipped Itinerary in question for the duration of the
interruption upon submission of an invoice payable at thirty (30) days or
in the form of an hourly credit, at its choice.
The remedial maintenance conditions will be assured by the SANEF under the
conditions described below.
11.2.2.2 Alert procedure
The SANEF shall have to install means making it possible to receive
telephone calls and faxes 7 days a week, 24 hours a day.
As soon as the failure of an F.o.n. is noted, the OPERATOR shall inform
the SANEF of this fact by telephone and fax.
The OPERATOR shall make sure that the failure does not result from
equipment it has connected to the F.o.n. made available or from the part
of the optical connection between the Connector and its equipment, for
which the SANEF is not responsible.
If appropriate, the OPERATOR shall confirm its request to the SANEF for
intervention by telephone and fax.
At the time of such interventions, the SANEF shall have to have qualified
staff and the required tooling to carry out all checks and to make the
analyses and the repair.
When there has been a request for intervention, the SANEF shall designate
a contact who will be able to supply the OPERATOR with full information
concerning the progress made in putting the optical connection back into
proper condition.
The work periods begin starting at the time of receipt of the work request
and are specified below.
11.2.2.3 Interruption of the F.o.n. on a single side of the motorway
on an Equipped Itinerary
In case the OPERATOR notes an interruption of a F.o.n. on an Equipped
Itinerary, the SANEF undertakes to begin repair within ## MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ## during
business hours (8 a.m. to 6 p.m.) and within ## MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ## during
non-business hours (6 p.m. - 8 a.m.) after the interruption has been
reported by the OPERATOR in accordance with the procedures defined above.
In case of non-observance of the above-mentioned undertakings, the SANEF
shall be required, in addition to the reimbursement provided for in
article 11.2.2.1, to indemnify the OPERATOR to the exclusion of any other
repair by allocating it, free, an hourly credit for F.o.n. availability
equal to the amount of the fee calculated pro rata temporis for the
duration of the interruption reduced by the periods of ## MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ## or of
## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ## indicated above, on the Equipped Itinerary or Itineraries in
question. The said credit is subject to an annual ceiling of ## MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ##
of the amount of the annual fee for the Equipped Itinerary in question.
The hourly credit due for year N shall be deducted from the amount of the
fee paid at the start of year ## MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ##.
<PAGE> 17
CONFIDENTIAL TREATMENT
17
The SANEF shall make its best efforts to repair within a period of less
than ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ## after the start of the work. In any event, the
SANEF undertakes, if it has unused F.o.n., to make them available to the
OPERATOR before the end of the above-mentioned ## MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ## period and
until the end of the repair.
11.2.2.4 Simultaneous interruption of the F.o.n. constituting a
Secured Area on an Equipped Itinerary
The following provisions apply solely to Pairs of Secure F.o.n. and
concern the simultaneous interruption of the F.o.n. located on each side
of the motorway.
In case of interruptions that might simultaneously affect F.o.n. located
on each side of the motorway belonging to one and the some Equipped
Itinerary, the SANEF shall remedy the interruption on a single side of the
motorway within a maximum of eight hours alter the interruption has been
reported by the OPERATOR in accordance with the procedures defined in
article 11.2.2. Beyond a cumulative period of ## MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ## per year of
unavailability of service on the Equipped Itinerary in question, the SANEF
shall be required to indemnify the OPERATOR, to the exclusion of any other
repair, by allocating it free an hourly credit of F.o.n. availability in
an amount equivalent to ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT ## per hour of the annual fee for the
Equipped Itinerary in question, calculated for each minute beyond the ##
MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ##. The said credit is subject to annual ceiling of ## MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ##
of the amount of the annual fee for the Equipped Itinerary in question.
The hourly credit due for year N shall be deducted from the amount of the
fee paid at the start of year ## MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ##.
Beyond the above-mentioned ceiling, the OPERATOR shall be entitled to
cancel the Convention because of SANEF's doing under the conditions of
article 16.
The SANEF shall make its best efforts to repair within a period of less
than 6 hours after the start of the work. In any event, the SANEF
undertakes, if it has unused F.o.n., to make them available to the
OPERATOR before the end of the above-mentioned 6 hour period and until the
end of the repair.
For the F.o.n. located on the other side of the motorway, the repair will
be carried out under the conditions of article 11.2.2.3.
11.2.2.5 F.o.n. dysfunction
In case the OPERATOR notes a dysfunction of the F.o.n., the Parties shall
consult each other to remedy the situation with the required speed.
11.2.3 Maintenance of the OPERATOR's Installations and Sites
The SANEF shall cooperate with the OPERATOR or its representatives to
facilitate maintenance of the OPERATOR's technical installations as well
as of the part of the F.o.n. directly attached thereto.
<PAGE> 18
CONFIDENTIAL TREATMENT
18
11.2.4 Maintenance of the SANEF Sites
The list of the work planned by the SANEF on the SANEF Sites made
available will be sent to the OPERATOR on the occasion of each updating,
and if possible at least 45 days before the start of the work, spelling
out the provisions to be adopted to minimise possible disturbances.
In appropriate cases, for unplanned work, the SANEF shall inform the
OPERATOR by fax as soon as it becomes aware thereof, and shall indicate
the provisions adopted to minimise possible disturbances.
11.3 Withdrawal of the OPERATOR's equipment and Sites
11.3.1 Withdrawal of the equipment at the SANEF Sites
At the time of the normal or early end of the present Convention:
1. The OPERATOR shall proceed within a maximum of 90 days, on its own
and at in own expense except in case of cancellation due to the
SANEF's doing, with the withdrawal of its extremity equipment items.
2. The SANEF shall provide the OPERATOR with free access to the SANEF
Sites to make the said withdrawal.
3. The equipment items and the improvements, if any, made by the
OPERATOR in the SANEF Sites shall be acquired by the SANEF at their
residual value after depreciation, the depreciation rate adopted
being the usual rate in the OPERATOR's business.
4. A report concerning the delivery of the SANEF Sites made available
shall be signed by SANEF and the OPERATOR.
11.3.2 Withdrawal of the OPERATOR's Sites
At SANEF's request the OPERATOR's Sites may:
o either be destroyed or be removed by the OPERATOR within a maximum
of 90 days and at its expense, except in case of cancellation
because of the SANEF's doing,
o or be purchased by the SANEF at the residual value after
depreciation, the depreciation rate adopted being the rate usually
used in the OPERATOR's business.
11.3.3 Penalties
In case of delay in withdrawal of its equipment at the SANEF Sites or from
the OPERATOR's Sites, the SANEF shall be entitled to claim an indemnity
from the OPERATOR equal to ## MATERIAL OMITTED AND SEPARATELY FILED UNDER
A REQUEST FOR CONFIDENTIAL TREATMENT ## per day of lateness, the said
amount being revised under the conditions of the present Convention.
Notwithstanding the foregoing, the SANEF shall also be entitled to have
the said withdrawal made at the OPERATOR's expense and risk.
<PAGE> 19
19
12. General conditions regarding installation and operations
12.1 Access to the equipment
In the interest of proper management of access to the motorway public
domain, before any intervention at a Site, the OPERATOR shall have to
inform by fax the representative of the SANEF designated for that purpose.
A list of the OPERATOR's agents and of its representatives authorised to
intervene in connection with its equipment shall be supplied to the SANEF
by the OPERATOR. The OPERATOR also undertakes to observe the safety rules
communicated by the SANEF in Appendix No. 5 and to see to their observance
by the companies intervening in its behalf, by including a clause to that
effect in the conventions concluded with them.
12.2 Work on the Motorway Network
The SANEF shall supply the OPERATOR with a forecast of its work on the
Motorway Network.
It is recalled that the OPERATOR may not in any case protest against the
work carried out by the SANEF on the Motorway Network.
However, the SANEF undertakes to see to it that the required means are
applied to avoid disturbing the operation of the F.o.n. made available to
the OPERATOR.
In case the work should necessarily affect proper operation of the F.o.n.,
the SANEF shall consider with the OPERATOR, as soon as possible and in any
event before the startup of the work, except in case of force majeure, the
steps to be taken to maintain the same service quality.
12.3 Work on the telecommunications network
The SANEF shall supply the OPERATOR with continuous information concerning
the state of the work relating to the F.o.n. In case the work should
necessarily affect proper operation of the F.o.n., the SANEF shall
consider with the OPERATOR, as soon as possible and in any event before
the startup of the work, except in case of force majeure, the steps to be
taken to maintain the same service quality.
13. Liability
13.1 General principle
The Parties are liable between themselves for any direct damage resulting
from the existence and the operation of their installations on the
Motorway Network.
The OPERATOR undertakes to strictly respect the conditions regarding
operation of its equipment and of the F.o.n. made available to it laid
down in the regulations applicable to the telecommunications sector, and
to obtain all advance authorisations required. The SANEF may not be held
liable in any way in this connection.
<PAGE> 20
CONFIDENTIAL TREATMENT
20
13.2 Equipment compatibility and maintenance
Each Party assures itself and warrants the other with respect to the
compliance of the installation of its equipment with the standards and
practices in the business, particularly with the recommendations relative
to electromagnetic compatibility, and that operation thereof is compatible
with the other Party's equipment.
Each Party remains responsible for proper performance of the present
article.
The OPERATOR shall have to monitor and maintain its equipment in a good
maintenance condition, at its own expense and risk, so as not to cause any
disturbance and not to create any danger to the motorway public domain
under concession and operation thereof. In case of a failure or of
insufficiency of the measures adopted for such maintenance, the SANEF
shall be entitled to have the required work done at its own initiative,
after having served formal notice, except in case of urgency, on the
OPERATOR by registered mail with receipt calling on it to record, in the
Parties' presence, the work required and to carry it out within 2 weeks.
13.3 Insurance
Each Party has taken an insurance policy out with an insurance company
represented in France concerning the Sites and covering the risks of fire,
explosion, water damage, public liability generally, and all risks
connected with its activity in particular linked with the Convention.
A Party may not be held liable in any way for the insufficiency of the
coverage taken out by another Party.
14. Financial provisions
14.1 Fees
In exchange for the authorisation to occupy the motorway public domain and
for the availability of the F.o.n. and of the Sites provided for under the
present Convention, the OPERATOR shall be required to pay two fees to the
SANEF:
1. an annual fee (R1) for the availability of the F.o.n. (cf. article
9.1.1) in an amount laid down in Appendix 6 for all of the Equipped
Motorway Sections delivered.
If the OPERATOR sees to prefinancing in accordance with articles
14.3.2 and 14.3.3 below, the duration discount (3.4.2 of the price
list in Appendix No. 6) shall apply as of the first year and for the
entire duration of the present Convention, to all F.o.n.
availabilities at the rate of ## MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ##. In addition,
the base price of the work unit shall, for the duration of the
Convention, be the one in effect in the year of signature of the
present Convention.
2. an annual fee (R2) for making the Sites available, which shall be
calculated excluding taxes in accordance with the fee schedule laid
down in Appendix 6 (point 6).
The two fees (R1 and R2) shall follow the following rules:
- the beginning date of their payability for an Equipped Itinerary
shall be the Availability Date of the last Equipped Motorway Section
of the said Itinerary.
<PAGE> 21
CONFIDENTIAL TREATMENT
21
- invoices shall be issued for them in accordance with the procedures
of article 14.3.2 below.
14.2 Revision
The amount of the fees provided for in article 14.1 shall be revised
annually as follows:
## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ## in which:
R = Revised fee: R1 or R2
Ro= Fee corresponding to the latest known indices at the time of signature
of the Convention
So = The weighted general index of salaries in the electronic and
engineering industries as published by the INSEE
FCI o = The base index for insulated wires and cables established and
published by the INSEE under the reference NAF No. 2818/36
S and FCI = The revision indices, the latest indices known on the
invoicing date
The variation shall be taken into account and applied every year on
January 1.
The Parties agree to renegotiate the choice or structure of the revision
index adopted if ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT ## is less than or equal to ## MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ## or
greater then or equal to ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT ##.
In case an index disappears, the calculation shall be made by using the
substitute index and the required correlation coefficient.
14.3 Payment and invoicing procedures
14.3.1 Downpayment
The OPERATOR shall pay the amount of ## MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ## excluding taxes to the
SANEF as a downpayment on the first fee instalment (R1).
On the day of signature of the present Convention, the SANEF shall supply
the OPERATOR with the corresponding invoice, which the OPERATOR shall pay
within two weeks.
14.3.2 Prefinancing option
The procedures for payment of the R1 fee shall vary depending on whether
the OPERATOR has been able to use its option to prefinance the work of
installing the F.o.n. under the terms of article 14.3.3 below. In this
connection, the OPERATOR shall inform the SANEF of its decision to provide
or not provide the said prefinancing by registered mail with receipt sent
as soon as possible, and at the latest on May 15, 1997.
14.3.3 Payment of prefinancing of the F.o.n.
The OPERATOR shall have the option of providing, to SANEF's benefit,
prefinancing (P) equal to ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT ## excluding taxes, payable in three
instalments by April 20, 1997, and releasing the OPERATOR from payment of
the R1 fees for ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT ##.
<PAGE> 22
CONFIDENTIAL TREATMENT
22
## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ## starting with the date of availability of the last Equipped
Motorway Section of each Equipped Itinerary, within the framework of the
payment schedule in Appendix 8.
The SANEF shall issue three invoices by registered mail with receipt sent
to the OPERATOR upon receiving the registered letter mentioned in section
14.3.2, informing it of its decision to provide prefinancing. The
downpayment made in application of section 14.3.1. shall be applied to the
amount of the invoice for the first prefinancing instalment (P1).
Payment of the first prefinancing instalment (P1) shall be made upon
submission of the corresponding invoice by bank transfer to a SANEF
account within a maximum of 30 days starting with the date of dispatch of
the letter mentioned in section 14.3.2 and at the latest on May 20, 1997.
The OPERATOR shall attempt to make the payments of the second instalment
(P2) and of the third instalment (P3) of the prefinancing in such a way
that the corresponding amounts reach the SANEF account in accordance with
the following schedule:
-------------------------------------------------
Millions of Francs Transfer date
- --------------------------------------------------------------------------------
P1 ## MATERIAL OMITTED AND ## MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT ## FOR CONFIDENTIAL TREATMENT ##
- --------------------------------------------------------------------------------
P2 ## MATERIAL OMITTED AND ## MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT ## FOR CONFIDENTIAL TREATMENT ##
- --------------------------------------------------------------------------------
P3 ## MATERIAL OMITTED AND ## MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT ## FOR CONFIDENTIAL TREATMENT ##
- --------------------------------------------------------------------------------
To [ILLEGIBLE] Date of dispatch of the registered letter with receipt
mentioned in article 14.3.2.
If payment P1 is made before ## MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ## the OPERATOR shall pay P2
to the SANEF on ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT ##. If the P1 transfer occurs after ## MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ##
but before ## MATERIAL OMITTED AND SEPARATELY FILED UNDER
A REQUEST FOR CONFIDENTIAL TREATMENT ## the OPERATOR shall pay P2 to the
SANEF on the same day as P1.
If the P1 transfer occurs on ## MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ## the OPERATOR shall pay P2
and P3 at the same time as P1.
In case of early payment, a payment discount shall be granted on the basis
of the overnight rate on the money market less ## MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ##.
If payment of P1 has not been made by ## MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ## at the latest, the
Parties shall consider that the OPERATOR is not providing prefinancing,
and if the OPERATOR fails to call upon the termination clause stipulated
in article 18, the F.o.n. shall be made available under the conditions of
the present Convention without any prefinancing discount, R1 being payable
as of the first year the F.o.n. are made available.
In case of late payment of the prefinancing instalments (P2) and (P3), the
OPERATOR shall have to pay penalties by right equal to ## MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ## the
legal interest rate on the amount due beyond of that date.
<PAGE> 23
CONFIDENTIAL TREATMENT
23
After the deadline for payment of the prefinancing instalments (P2) and
(P3), the SANEF shall be entitled to serve formal notice to pay on the
OPERATOR by registered mail with receipt.
After a delay in payment of the prefinancing instalments (P2) and (P3) of
more than 30 days starting with the date of receiving the above-mentioned
formal notice, the SANEF shall be entitled to cancel the present
Convention under the conditions described in article 16.1.1.2.
In exchange for the prefinancing and subject to full payment thereof by ##
MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ## the OPERATOR shall benefit for the duration of the present
Convention from an exceptional discount on the R1 fee, which shall vary
depending on the P1 transfer date in the following proportions:
- if P1 is paid between ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT ## and ## MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ## the amount
of the exceptional discount on R1 shall be equal to:
## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ## per day's lateness starting on ## MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ##.
In the absence of payment of the entire prefinancing (P) on ## MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ##
and in the absence of cancellation of the present Convention by the SANEF
or the application of the termination clause stipulated in article 18, the
F.o.n. shall be made available under the conditions of the present
Convention, but without any prefinancing discount, the first invoice in
connection with R1 being payable as of the date of availability of the
last Equipped Motorway Section of each Equipped Itinerary. In this case,
the amounts paid to the SANEF as prefinancing shall be returned to the
OPERATOR within three (3) days, with the exception of the downpayment
mentioned in article 14.3.1 of the present Convention, which shall be
applied to the amount of the said invoice.
14.3.4 Payment procedures regarding the fees for availability of the
F.o.n. and of the Sites
14.3.4.1 Invoicing procedure
The invoices are sent to the OPERATOR by registered mail with receipt.
i) In case of prefinancing (articles 14.3.2 end 14.3.3), at the end of a
period of three years starting with the date of availability of the last
Equipped Motorway Section of an Equipped Itinerary, an invoice shall be
issued less than 60 days before the due date in an amount equal to a
fraction of the annual fee calculated in proportion to the time remaining
until the end of the year.
ii) In the absence of prefinancing, an invoice will be issued less than 60
days before the availability date of each Equipped Itinerary in an amount
equal to the annual amount of the corresponding R1 fee, reduced by the
downpayment made pursuant to article 14.3.1.
In November 1997, a third invoice will be issued in an amount equal to the
fraction of the R1 fee in proportion to the time that has elapsed since
the availability date of the last Equipped Motorway Section of each of the
Equipped Itineraries.
<PAGE> 24
CONFIDENTIAL TREATMENT
24
iii) For the following years, whether there is prefinancing or not, the
annual fees mentioned in article 14.1 shall be covered by invoices issued
in November of each year for the period from January 1 to December 31 of
the following year.
14.3.4.2 Payment procedures
The fees provided for in article 14.1 shall be paid by bank transfer at 30
days end of the month starting with the date of receiving the invoice.
In case of early payment, a payment discount is granted on the basis of
the money market overnight rate less ## MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ##.
In case of late payment, penalties by right equal to ## MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ## the
legal interest rate on the amounts due beyond the deadline of 30 days end
of the month mentioned above will be demanded.
15. Declarations and guarantees
The SANEF declares and warrants the OPERATOR:
1. that it is and remains the holder of the Convention for the
concession of construction and operation of motorways concluded with
the State on June 27, 1990, and approved by a Council of State
Decree on October 29, 1990, pursuant to the terms of the convention
published in the JORF on October 31, 1990;
2. that it is unaware of any fact or event of such nature as to entail
total or partial invalidation of the said concession;
3. that it has seen to the steps preliminary to installation of the
F.o.n.;
4. that it is authorised to install F.o.n. along the motorway public
domain for which it is the concessionaire;
5. that it is authorised to make the above-mentioned F.o.n. available
to the OPERATOR under the present Convention.
16. Cancellation
In case one of the Parties does not perform an essential obligation of the
present Convention, particularly in case the required provisions are not
adopted by the SANEF to ensure the availability of the F.o.n., the other
Party shall serve formal notice on it by registered mail with receipt
calling on it to perform within a minimum period of 30 days starting with
the date of receipt of the said letter, in the absence of a stipulation to
the contrary laid down in the present Convention under the following
conditions:
If the formal notice produces no effect, the Party sending it shall be
entitled to cancel the present Convention under the following conditions.
The statement of cancellation for any reason whatsoever by one or the
other of the Parties shall be made in a registered letter with receipt
addressed to the other Party explaining the reasons for the cancellation.
<PAGE> 25
CONFIDENTIAL TREATMENT 25
Similarly, if the OPERATOR decides to put an early end to the Convention,
notice of the said decision shall be sent by registered mail with receipt
addressed to the SANEF and the decision shall take effect 90 days after
receipt of the above-mentioned notification.
The condition regarding refund of the amounts due and the possible penalty
clauses are defined for the various cases described below.
The following terminology is used:
R'1 is equal to R1 with prefinancing discount and with a duration discount
corresponding to the duration of actual availability of the F.o.n.
D is equal to the exact duration of use of the F.o.n. between the date of
availability of the last Equipped Motorway Section and the date of
cancellation, expressed in fractions of a year.
The amounts paid in advance to the SANEF by the OPERATOR for which the
OPERATOR may be reimbursed by the SANEF under the stipulations of the
present article shall be increased on the basis of the T4M money market
rate.
The cancellation penalties provided for in the present article shall be
reduced by the lateness interest or penalties already paid, if the case
arises, under a particular provision of the present Convention for the
reason having led to cancellation thereof.
16.1 Cancellation before the availability date of the last of the Equipped
Motorway Sections to be delivered in 1997
In case one of the Parties should apply for cancellation of the present
Convention before the availability date of the last of the Equipped
Motorway Sections to be delivered in 1997, the consequences shall be as
follows:
16.1.1 Cancellation in case the OPERATOR prefinances
16.1.1.1 By the OPERATOR because of the SANEF's doing
The amounts paid to the SANEF shall be returned to the OPERATOR.
Furthermore, the SANEF shall pay the OPERATOR a fixed and definitive
indemnity equal to ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT ## of the P prefinancing mentioned in
article 14.3.1.
16.1.1.2 By the SANEF because of the OPERATOR's doing
The OPERATOR shall pay the SANEF a fixed and definitive indemnity equal to
## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ## of the P prefinancing mentioned in article 14.3.1, reduced by
the amounts already paid to the SANEF.
In case the amounts already paid to the SANEF by the OPERATOR are greater
than the amount of the indemnity due, the SANEF shall refund the balance
to the OPERATOR.
<PAGE> 26
CONFIDENTIAL TREATMENT
26
16.1.2 Cancellation In case the OPERATOR does not prefinance
16.1.2.1 By the OPERATOR because of the SANEF's doing
The downpayment made to the SANEF (article 14.3.1) shall be returned to
the OPERATOR. Furthermore, the SANEF shall pay the OPERATOR a fixed and
definitive indemnity in an amount equal to the said downpayment.
16.1.2.2 By the SANEF because of the OPERATOR's doing
The SANEF shall retain the downpayment made by the OPERATOR as a fixed and
definitive indemnity.
16.2 Cancellation after the availability date of the last of the Equipped
Motorway Sections to be delivered in 1997
The cancellation shall be effective after 3 months' notice served by
registered mail with receipt.
16.2.1 Cancellation within ## MATERIAL OMITTED AND SEPARATELY FILED UNDER
A REQUEST FOR CONFIDENTIAL TREATMENT ## years
16.2.1.1 By the OPERATOR because of the SANEF's doing
The SANEF shall pay the OPERATOR the balance of the sums paid as
prefinancing mentioned in article 14.3.1 remaining to the OPERATOR's
credit in the SANEF accounts, or in the absence of prefinancing, the
balance of the fees paid by the OPERATOR and for which it remains the
creditor.
Furthermore, the SANEF shall pay the OPERATOR a fixed and definitive
indemnity equal to ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT ## R1.
16.2.1.2 By the SANEF because of the OPERATOR's doing
The SANEF shall pay the OPERATOR the balance of the sums paid as
prefinancing mentioned in article 14.3.1 still to the OPERATOR's credit in
the SANEF accounts, or in the absence of prefinancing, the balance of the
fees paid by the OPERATOR and for which it remains the creditor.
The amount of the said sums shall be reduced by a fixed and definitive
indemnity equal to ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT ## R1, increased by an amount equal to
## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ##.
16.2.2 Cancellation after ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT ## years
16.2.2.1 By the OPERATOR because of the SANEF's doing
The SANEF shall return to the OPERATOR the balance of the sums to the
OPERATOR's credit in the SANEF accounts. Furthermore, the SANEF shall pay
the OPERATOR a fixed and definitive indemnity equal to ## MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ## R1.
<PAGE> 27
CONFIDENTIAL TREATMENT
27
16.2.2.2 By the SANEF because of the OPERATOR's doing
The OPERATOR shall pay a fixed and definitive indemnity to the SANEF equal
to ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ## R1, increased by an amount equal to ## MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT
##. The SANEF shall return to the OPERATOR the balance of the sums to the
OPERATOR's credit in the SANEF accounts.
17. Force Majeure
Under the terms of the present Convention, a case of force majeure shall
be any circumstance beyond the Parties' control that is irresistible and
unpredictable in the meaning of the Council of State precedents.
The Parties agree that one will treat as a case of force majeure a traffic
accident or a demonstration on the motorway simultaneously affecting both
traffic directions, cases of external strikes, and sabotage.
No Party shall be considered as in default or as failing to meet its
contractual obligations in case performance of its obligations is
prevented by a case of force majeure.
The Parties shall consult each other to limit the effects of the case of
force majeure as far as possible.
18. Condition subsequent
The OPERATOR has applied to the European Investment Fund for guarantees in
an amount of ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ## in order to be able to obtain a bank loan with a
view to assuring the financing of its pan-European telecommunications
network.
Within 3 days following notification of the OPERATOR by the European
Investment Fund of its decision to grant the said guarantees, the OPERATOR
shall inform the SANEF of the said decision by registered mail with
receipt.
If the OPERATOR has not obtained the above-mentioned guarantees from the
European Investment Fund before May 20, 1997, the present Convention shall
be terminated by right if the OPERATOR so decides.
In case the OPERATOR intends to call upon the present termination clause,
it shall notify the SANEF by registered mail with receipt by May 23, 1997,
of the European Investment Fund's decision refusing to grant the said
guarantee and of its decision to call upon the present clause.
In case of application of the termination clause by the OPERATOR, the
SANEF shall retain the downpayment provided for in article 14.3.1 of the
present Convention as fixed and definitive compensation.
<PAGE> 28
28
19. Disputes
The present Convention is governed by French law. Any dispute relative to
the formation, construction, performance or cancellation of the present
Convention that cannot be resolved by the Parties in a friendly fashion
shall be submitted to the competent courts of Paris.
20. Election of domicile
The Parties elect domicile at the respective addresses indicated in
article 5 for management of the present Convention. Notifications by
registered mail with receipt by telephone and/or by fax shall be sent to
the said addresses.
21. Appendices
Appendix No. 1 - SANEF motorway network
Appendix No. 2 - Schedule of availabilities of the F.o.n. and of the SANEF
Sites
Appendix No. 3 - OPERATOR's general needs
Appendix No. 4 - Technical specifications and acceptances of the F.o.n.
Appendix No. 5 - SANEF safety rules
Appendix No. 6 - Rates - General conditions
Appendix No. 7 - Confidentiality agreement
Appendix No. 8 - Payment schedule
Signed in Paris in two copies on February 3, 1997
SANEF HERMES EUROPE RAILTEL B.V.
(Signature) (Signature)
Michel AMILHAT Jan LOEBER
Managing Director Managing Director
<PAGE> 29
APPENDIX 1
SANEF MOTORWAY NETWORK
<PAGE> 30
CONFIDENTIAL TREATMENT
[Map]
## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT ##
<PAGE> 31
APPENDIX 2
PLANNING ON AVAILABILITY OF F.O.N. AND SANEF SITES
<PAGE> 32
CONFIDENTIAL TREATMENT
================================================================================
APPENDIX 2
Planning on availability of "F.o.n." [fiber optic cables] and SANEF sites
================================================================================
================================================================================
Highway Section Date
- --------------------------------------------------------------------------------
## MATERIAL OMITTED AND SEPARATELY FILE UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ##
- --------------------------------------------------------------------------------
## MATERIAL OMITTED AND SEPARATELY FILE UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ##
- --------------------------------------------------------------------------------
## MATERIAL OMITTED AND SEPARATELY FILE UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ##
- --------------------------------------------------------------------------------
## MATERIAL OMITTED AND SEPARATELY FILE UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ##
- --------------------------------------------------------------------------------
## MATERIAL OMITTED AND SEPARATELY FILE UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ##
================================================================================
The above-referenced ## MATERIAL OMITTED AND SEPARATELY FILE UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ## and ## MATERIAL OMITTED AND SEPARATELY FILE UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT ## sections are included as a guide and are
not part of the services requested by the OPERATOR on the date the Agreement was
signed.
Outfitted Routes
================================================================================
Routes Date
- --------------------------------------------------------------------------------
## MATERIAL OMITTED AND SEPARATELY FILE UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ##
- --------------------------------------------------------------------------------
## MATERIAL OMITTED AND SEPARATELY FILE UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ##
================================================================================
<PAGE> 33
APPENDIX 3
OPERATOR'S GENERAL NEEDS
<PAGE> 34
CONFIDENTIAL TREATMENT
29
================================================================================
APPENDIX 3
OPERATOR'S general needs
================================================================================
The OPERATOR's general needs are indicated below. The number of pairs of F.o.n.
indicated corresponds to the number of pairs actually available to the OPERATOR
on the indicated date.
- --------------------------------------------------------------------------------
Section 1997
- --------------------------------------------------------------------------------
## MATERIAL OMITTED AND SEPARATELY FILE UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ##
- --------------------------------------------------------------------------------
## MATERIAL OMITTED AND SEPARATELY FILE UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ##
- --------------------------------------------------------------------------------
## MATERIAL OMITTED AND SEPARATELY FILE UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ##
- --------------------------------------------------------------------------------
<PAGE> 35
APPENDIX 4
TECHNICAL SPECIFICATIONS AND ACCEPTANCE OF THE F.O.N.
<PAGE> 36
CONFIDENTIAL TREATMENT
30
================================================================================
APPENDIX 4
Technical Specifications of the F.o.n.
Specifications of the acceptance tests for the F.o.n.
================================================================================
1. Technical specifications of the F.o.n.
The F.o.n. shall comply with the UIT-T-G.652 standard and with the associated
recommendations.
The F.o.n. are of the ## MATERIAL OMITTED AND SEPARATELY FILE UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT ## type and must be used in the ## MATERIAL OMITTED
AND SEPARATELY FILE UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ## wavelength
2. Specification of the acceptance tests in the F.o.n. Districts
The acceptance tests shall be carried out by measuring the attenuation of a
light signal in the various F.o.n. Districts delivered by the SANEF.
In each F.o.n. District, the attenuation measured in dB at ## MATERIAL OMITTED
AND SEPARATELY FILE UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ## shall have to
be less than:
## MATERIAL OMITTED AND SEPARATELY FILE UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ## in which
L: designates the length of the F.o.n. District in question, expressed in
kilometres,
Ns: designates the number of weldings made on the F.o.n. on the F.o.n.
District in question.
Nc: designates the number of Connectors equipping the F.o.n. on the F.o.n.
District in question.
Furthermore, the following values shall be respected:
o Minimum adaptation weakening of a connector: ## MATERIAL OMITTED AND
SEPARATELY FILE UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ##
o Maximum chromatic dispersion: ## MATERIAL OMITTED AND SEPARATELY FILE UNDER
A REQUEST FOR CONFIDENTIAL TREATMENT ##
o Polarisation dispersion in maximum mode: ## MATERIAL OMITTED AND SEPARATELY
FILE UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ##
o ## MATERIAL OMITTED AND SEPARATELY FILE UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ## welds at the most per F.o.n. District on one and the same
optical fibre
3. Factory acceptances
The SANEF shall inform the OPERATOR of the characteristics of the F.o.n. to be
installed, and particularly the chromatic dispersion values and the mode
polarisation dispersion values.
<PAGE> 37
APPENDIX 5
SAFETY REGULATIONS OF SANEF
<PAGE> 38
SECTION ON GENERAL SAFETY REGULATIONS
TABLE OF CONTENTS
CHAPTER () INTRODUCTION
CHAPTER I GENERAL PROVISIONS
I.1 Notification Prior to Opening of Work Site
I.2 Suspension of Work
I.3 Transportation and Movement of Workers
I.4 Personal Safety
I.5 Sanctions and Penalties
CHAPTER II TRAFFIC CONTROL
II.1 Operation of Vehicles
II.2 Changing Traffic Direction
II.3 Traffic Rules Regarding Both Slow-Moving Vehicles and Machinery
II.4 Marking and Outfitting of Vehicles
CHAPTER III TRAFFIC SIGNS AT WORK SITE
III.1 Opening of Work Site
III.2 Source of and Setting Up of Traffic Signs
III.3 Protection and Repositioning of Traffic Signs
CHAPTER IV SPECIFIC INSTRUCTIONS
IV.1 Traffic Signs at Work Site
IV.2 Schedules and Work Periods
IV.3 Traffic Conditions at Work Site Entrance and Exit
IV.4 Work Site Security
IV.5 Use of Service Access Gates
IV.6 Length of Work Site
IV.7 Supplementary Temporary Traffic Signs
IV.8 Toll Exemptions
IV.9 Health and Safety
<PAGE> 39
CHAPTER () -- INTRODUCTION
[Summary: Informs contractors of basic safety regulations and procedures
pertaining to traffic conditions when work is taking place on an active
highway.]
<PAGE> 40
CHAPTER I - GENERAL PROVISIONS
ARTICLE I.1 NOTIFICATION PRIOR TO THE OPENING OF WORK SITE
[Summary: Sets forth procedures for communications with the district
supervisor prior to the opening of the work site.]
ARTICLE I.2 SUSPENSION OF WORK
[Summary: States that work may be stopped if safety conditions are deemed
inadequate.]
ARTICLE I.3 TRANSPORTATION AND MOVEMENT OF WORKERS
[Summary: Describes in great detail the proper way of walking, driving,
parking and dealing with highway traffic in general around a work site in all
types of weather conditions. Safety is heavily emphasized.]
ARTICLE I.4 PERSONAL SAFETY OF THE CONTRACTOR'S REPRESENTATIVES
[Summary: States that wearing safety jackets and reflectors is mandatory for
everyone.]
ARTICLE I.5 SANCTIONS AND PENALTIES
[Summary: States that a failure to observe safety rules will result in the
closing of the work site and/or the dismissal of either or both the company
and the work site supervisor.]
<PAGE> 41
CHAPTER II -- TRAFFIC CONTROL
ARTICLE II.1 OPERATION OF WORK SITE VEHICLES AND MACHINERY
[Summary: Details the restrictions on the movements of vehicles and
machinery.]
ARTICLE II.2 CHANGE OF DIRECTION OF TRAFFIC
[Summary: Indicates where it is possible to change the direction of traffic.]
ARTICLE II.3 TRAFFIC RULES REGARDING SLOW OR UNREGISTERED
VEHICLES OR MACHINERY
[Summary: States that, due to the elevated speeds of highway traffic,
slow-moving vehicles must either be transported or their movement must be
protected with the use of special traffic signs for which SANEF is
responsible.]
ARTICLE II.4 MARKING AND OUTFITTING OF VEHICLES
[Summary: States that all work vehicles registered with the District
Supervisor must be equipped with reflecting devices and lights, such as
emergency flashing beacons.]
<PAGE> 42
CHAPTER III -- TRAFFIC SIGNS AT WORK SITE
ARTICLE III.1 OPENING OF WORK SITE
[Summary: States that prescribed traffic signs must be set up before the work
site can be opened.]
ARTICLE III.2 SOURCE OF AND SETTING UP OF TRAFFIC SIGNS
[Summary: States that, with some exceptions, all traffic equipment will be
supplied and set up by SANEF.]
ARTICLE III.3 PROTECTION AND REPOSITIONING OF TRAFFIC SIGNS
[Summary: Pertains to the monitoring and upkeep of temporary traffic signs
and also provides instructions on whom to alert in case of a traffic
accident.]
<PAGE> 43
CHAPTER IV -- SPECIFIC INSTRUCTIONS
[Summary: The specific instructions mentioned in this section concern traffic
signs, work schedules, traffic interruption, night work, size of work site etc.
The instructions may be modified during the course of the work.]
ARTICLE IV.1 TRAFFIC SIGNS AT WORK SITE
[Summary: Details the four classes of work sites insofar as they relate to
specific traffic signs.]
ARTICLE IV.2 SCHEDULES AND WORK PERIODS
[Summary: Details the conditions (time, traffic density, weather, etc.) under
which the work site may be operational.]
ARTICLE IV.3 TRAFFIC CONDITIONS AT ENTRANCE, EXIT OR WITHIN
WORK SITE ZONES
[Summary: States that traffic conditions at entrances, exits or within work site
zones will be established during preliminary meetings with the District
Supervisor.]
ARTICLE IV.4 SECURITY
[Summary: Warns the contractor of the risk of theft and vandalism, and holds
the contractor responsible for security measures.]
ARTICLE IV.5 USE OF SERVICE ACCESS GATES
[Summary: States that the contractor must make sure that these gates are to be
used by proper personnel (contractor's employees, police vehicles and SANEF
vehicles) in a safe manner, and that they are to be closed after use. The
contractor must include in its price the expenses incurred by the opening and
closing of the gates or the hiring of a guard. All matters pertaining to the
opening and closing of the gates will be presented to the District Supervisor.]
<PAGE> 44
ARTICLE IV.6 LENGTH OF WORK SITE AREA -- DISTANCES BETWEEN
WORK SITES
[Summary: Defines the maximum length of a work site and the distances separating
consecutive work sites.]
ARTICLE IV.7 SUPPLEMENTARY TEMPORARY TRAFFIC SIGNS
[Summary: States that, in addition to the traffic signs set up by SANEF, the
contractor will set up its own signs when working away from the roadway area.]
ARTICLE IV.8 EXEMPTION FROM TOLLS
[Summary: States that vehicles belonging to the contractor are exempted from
tolls.]
ARTICLE IV.9 HEALTH AND SAFETY
[Summary: Indicates what actions should be taken in case of a traffic accident.]
<PAGE> 45
APPENDIX 6
RATES -- GENERAL CONDITIONS
<PAGE> 46
CONFIDENTIAL TREATMENT
31
================================================================================
Appendix 6
RATES
General Conditions
================================================================================
1. FEE CALCULATION (R1)
The R1 fee due in exchange for the availability of F.o.n. is calculated by
multiplying the base price of the work unit by the number of work units defined
below (ss. 3.1), reduced by the general discounts defined in ss. 3.4 if any.
The obtained result is then revised in accordance with a revision formula
defined in the Convention.
2. BASE PRICE OF THE WORK UNIT
The base price excluding taxes of the work unit expressed in KF (000 F) per km
is defined in the light of the year of contract signature regarding availability
of the pair of F.o.n. in accordance with the table given below.
- --------------------------------------------------------------------------------
1996-1997 1998 1999 2000 2001 2002
- --------------------------------------------------------------------------------
## MATERIAL OMITTED AND SEPARATELY FILE UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ##
- --------------------------------------------------------------------------------
Remark: The values given in the above table are values as of December 1996,
and are revised in accordance with the revision formula given in the
Convention.
3. CALCULATION OF THE NUMBER OF WORK UNITS
3.1 Definition
The number of work units (U.O) made available for a year is equal to the length
of an Equipped Motorway Section in kilometres multiplied by the number of pairs
made available.
For instance, on a 100-kilometre Motorway Section, a pair of F.o.n. made
available represents ## MATERIAL OMITTED AND SEPARATELY FILE UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ## for the year in question.
<PAGE> 47
CONFIDENTIAL TREATMENT
32
3.2 Motorway sections
The work units may be requested by the Operators on the following Motorway
Sections:
- --------------------------------------------------------------------------------
Motorway Section Length
- --------------------------------------------------------------------------------
## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ##
- --------------------------------------------------------------------------------
## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ##
- --------------------------------------------------------------------------------
## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ##
- --------------------------------------------------------------------------------
## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ##
- --------------------------------------------------------------------------------
## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ##
- --------------------------------------------------------------------------------
## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ##
- --------------------------------------------------------------------------------
(*) this section cannot be taken separately. It must necessarily be associated
with at least one of the other two sections of which ## MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ## constitutes the
extremity.
3.3 Discounts by section
Each motorway section defines a certain quantity to U.O corresponding to the
length of the said section.
3.3.1 Quantitative discounts
## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ## discount is granted for the first pair of F.o.n.
## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ## discount is calculated on the length of the section in
question for the second pair of F.o.n., which defines a new quantity of
U.O.
## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ## discount is calculated on the length of the section in
question starting with the third pair of F.o.n., which defines a new
quantity of U.O.
3.3.2 "Securisation"
If an operator wishes to make a pair of F.o.n. secured, the said security is
obtained by using another pair of F.o.n. located on the other side of the
motorway.
The number of U.O associated with a pair used on a standby basis is equal to ##
MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT
## of the number of U.O of the pair made secured in this way, starting with the
first F.o.n. requested by the operator.
3.3.3 Calculation of the number of U.O per section
The number of U.O for each section is the sum of the different U.O
associated with the F.o.n. requested for the said section.
3.4 Additional discounts by pairs
Additional discounts are applied to each pair of F.o.n. The said discounts may
be cumulated in succession in the following order:
<PAGE> 48
CONFIDENTIAL TREATMENT
33
3.4.1 Length discount
If a pair of F.o.n. is requested for all sections offered by the SANEF, then
the said F.o.n. benefits from a "length discount" of ## MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ##
3.42 Duration discount
if a pair of F.o.n. is requested for a duration of more than ## MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ## years, an
additional discount is applied to the U.O reduced by the length discount if
any, pursuant to the following scale:
- --------------------------------------------------------------------------------
Duration Discount
- --------------------------------------------------------------------------------
Up to ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ## years inclusive
- --------------------------------------------------------------------------------
## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ## years
- --------------------------------------------------------------------------------
## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ## years
- --------------------------------------------------------------------------------
## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ## years
- --------------------------------------------------------------------------------
## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ## years
- --------------------------------------------------------------------------------
## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ## years
- --------------------------------------------------------------------------------
3.4.3 Special discounts
For a fee corresponding to ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT ## pairs of secured F.o.n. in the rate list,
the SANEF shall make ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT ## pairs of secured F.o.n. available.
4. Other conditions
The rates given above are valid under the conditions laid down in the
Convention.
5. Contract changes
In case of modification of the number of F.o.n. on the Equipped Motorway
Section, or in case new Equipped Motorway Sections go into use, the new fee
value is calculated and the amount of the guarantee regarding payment of the
fees is modified if appropriate (cf. art. 14.4 of the Convention).
6. Fee for making premises or land parcels available (R2)
If the SANEF makes premises or bare land parcels available, this shall give rise
to payment of an R2 fee calculated on the basis of the following rate
conditions:
* Premises: ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ## and per year
* Lands: ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ## and per year.
<PAGE> 49
34
7. General conditions regarding invoicing for the fees
The fees are payable in advance. They are paid for the totality of a fee at the
time of contact signature. At the end of the first calendar year or of the first
calendar quarter-year, depending on the periodicity adopted in the Convention
for the fee, SANEF will invoice the OPERATOR for an amount to be calculated so
as to reconstitute a balance corresponding to the totality of a fee.
Those general invoicing conditions are modified by the special provisions, if
any, agreed in the Convention.
<PAGE> 50
APPENDIX 7
CONFIDENTIALITY AGREEMENT
<PAGE> 51
CONFIDENTIALITY AGREEMENT
PARTIES:
HERMES EUROPE RAILTEL B.V., "HER", a Dutch Company, whose registered office is
at Radioweg 2, 1305 KW Almere, The Netherlands, and whose principal place of
business is at Avenue Louise 106, 1050 Brussels, Belgium; and
SOCIETE DES AUTOROUTES DU NORD ET DE L'EST DE LA FRANCE S.A.
"SANEF", of 4l Bis Avenue Bosquet 75007 Paris France.
In connection with a potential transaction by and between HER and SANEF relating
to the supply by SANEF of dark fibre and ancillary accommodation and services to
HER (the Transaction), the Parties have requested certain information concerning
each other and their respective affiliates. As a condition to providing
confidential or proprietary information the Parties agree to treat the
Evaluation Information (as defined below) as confidential in accordance with the
provisions of this Agreement.
Evaluation Information is defined as any technical or commercial information
concerning a Party (the Disclosing Party) which has been or may be provided by
the Disclosing Party or any of its affiliates or their respective directors,
officers, employees or agents, in oral, written, visual, magnetic, electronic or
other form to the other Party (the Recipient) or to any Recipient's directors,
officers, employees, lawyers, accountants, financial advisors or other agents
(collectively, Representatives), regardless of whether specifically identified
as confidential, together with analyses, compilations, studies or other
documents prepared by Recipient or Recipient's Representatives, which contain or
otherwise reflect such information, or Recipient's review of, or interest in the
Disclosing Party.
The term 'Evaluation Information' shall not include any information which:
i. was or becomes generally available to the public other than as a
result of a disclosure by Recipient;
ii. was available to Recipient on a non confidential basis prior to its
disclosure to the Recipient by the Disclosing Party; or
iii. was or becomes available to Recipient on a non-confidential basis from
a source other than the Disclosing Party or its affiliates, provided
that such source is not bound by a confidentiality agreement with the
Disclosing Party.
Recipient hereby agrees that the Evaluation Information will be used solely for
the purpose of evaluating the Transaction and that such information will be kept
confidential by Recipient and its Representatives and will not be disclosed or
divulged by Recipient or any of its Representatives without the express prior
written consent of the Disclosing Party. However, Recipient is permitted to
disclose the Evaluation Information to those of its Representatives (other than
any such person or a director, officer, employee or a substantial investor in a
direct competitor of the Disclosing Party) who need to know such information for
the purpose of evaluating the Transaction. Recipient agrees that such
Representatives shall be informed of the confidential nature of such
information, shall be directed by Recipient to treat such information as
confidential and shall agree to be bound by the provisions of this
Confidentiality Agreement.
<PAGE> 52
Recipient will be responsible for any breach of this Confidentiality Agreement
by its Representatives (including employees who, after the first date of
disclosure of Evaluation Information hereunder, become former employees).
Recipient agrees, at its sole expense, to take all reasonable measures,
including but not limited to court proceedings, to restrain its Representatives
from unauthorised disclosure or use of Evaluation Information.
In addition, without the prior written consent of the Disclosing Party,
Recipient will not disclose and will direct its Representatives not to disclose
to any person the fact that discussions or negotiations are taking place
concerning a possible Transaction, or any of the terms, conditions or other
facts with respect to any such Transaction, including the status thereof. The
term 'person' as used in this letter shall be broadly interpreted to include
without limitation any individual, governmental body, partnership, corporation
or other entity.
Upon the request of the Disclosing Party, Recipient will promptly deliver to the
Disclosing Party all documents provided by the Disclosing Party or any of its
affiliates or their respective directors, officers, employees, or agents, to
Recipient or its Representatives constituting Evaluation Information, without
retaining any copies, extracts or other reproductions of all or part thereof. In
the event of such request, all documents, memoranda, notes and other materials
prepared by Recipient or its Representatives based on the Evaluation Information
will be promptly destroyed. Notwithstanding the return or destruction of any
Evaluation Information and materials based on the Evaluation Information,
Recipient will continue to be bound by its obligations of confidentiality and
other obligations hereunder.
Although the Disclosing Party and its affiliates have endeavoured to include in
the Evaluation Information known to them which they believe to be relevant for
the purpose of Recipient's investigation, Recipient understands, acknowledges
and agrees that neither the Disclosing Party nor any of its affiliates, nor any
of their respective directors, officers, employees or agents, makes any
representation or warranty, expressed or implied, as to the accuracy or
completeness of the Evaluation Information. Recipient understands, acknowledges
and agrees that neither the Disclosing Party nor any of its affiliates, nor any
of their respective directors, officers, employees or agents shall have any
liability to Recipient or any of Recipient's Representatives resulting from the
use of any of the Evaluation Information by Recipient or Recipient's
Representatives.
The Confidentiality Agreement shall be governed by and construed in accordance
with the laws of France.
Approved and agreed:
By: SANEF HER
Signature: /s/ Jean Claude A [ILLEGIBLE] /s/ Jan Loeber
----------------------------- -------------------------------
Name: Jean Claude A[ILLEGIBLE] Jan Loeber
Position: Chairman MD
Date: 13th May '96 Date: 10 May '96
2
<PAGE> 53
APPENDIX 8
BILLS-RECEIVABLE BOOK
<PAGE> 54
CONFIDENTIAL TREATMENT
================================================================================
APPENDIX 8
Bills-Receivable Book
================================================================================
1. If the OPERATOR pre-finances.
[Table] ## MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ##
2. If the OPERATOR does not pre-finance.
[Table] ## MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ##
<PAGE> 55
CONFIDENTIAL TREATMENT
[Table]
## MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ##
<PAGE> 56
CONFIDENTIAL TREATMENT
Calculation of R1 Fee
[Table]
## MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT ##
<PAGE> 57
CONFIDENTIAL TREATMENT
36
================================================================================
Rider No. 1 to the Convention of February 3, 1997
SANEF/ HERMES EUROPE RAILTEL
================================================================================
Article 1
The second sentence of article 14.3.2 of the Convention is modified as follows:
"In this connection, the OPERATOR shall inform the SANEF of its decision to
provide or not provide the said prefinancing by registered mail with receipt
sent as early as possible, and by May 22, 1997, at the latest."
Article 2
Article 14.3.3 is cancelled and is replaced by the following wording:
"The OPERATOR shall have the option of providing, to the SANEF's benefit,
prefinancing (P) equal to ## MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT ## excluding taxes payable by June 20, 1997,
and releasing the OPERATOR from payment of the R1 fee for ## MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ## years
starting with the date of availability of the last Equipped Motorway Section of
each Equipped Itinerary, within the framework of the payment schedule in
Appendix 8.
The SANEF shall issue an invoice addressed by registered mail with receipt to
the OPERATOR upon receiving the registered letter mentioned in section 14.3.2
informing it of its decision to provide the prefinancing. The downpayment made
pursuant to section 14.3.1 shall be applied to the amount of the prefinancing
invoice (P).
Payment of the prefinancing shall occur upon submission of the corresponding
invoice by bank transfer to a SANEF account within a maximum of 30 days starting
with the day of dispatch of the letter mentioned in section 14.3.2, and at the
latest on June 20, 1997.
In case of early payment, a payment discount will be granted on the basis of the
money market overnight rate less ## MATERIAL OMITTED AND SEPARATELY FILED UNDER
A REQUEST FOR CONFIDENTIAL TREATMENT ##.
If payment of P has not been made by June 20, 1997, the Parties shall consider
that the OPERATOR is not providing prefinancing, and unless the latter calls
upon the termination clause stipulated in article 18 the F.o.n. shall be made
available under the conditions of the present Convention without any
prefinancing discount, R1 being payable as of the first year of the availability
of the F.o.n. In this case, the downpayment made to the SANEF as prefinancing
under article 14.3.1 of the Convention shall be applied to the amount of the
said invoice.
<PAGE> 58
CONFIDENTIAL TREATMENT
37
In exchange for the prefinancing, and subject to full payment thereof by June
20, 1997, the OPERATOR shall benefit for the duration of the present Convention
from an exceptional discount on the R1 fee that will vary in the following
proportions depending on the date of payment of P:
## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ##, in which J represents the number of calendar days between the
payment date and January 30, 1997."
Article 3
The second sentence of the second paragraph of article 9.1.2 is modified as
follows:
"However, the penalties as a whole are subject to a ceiling of ## MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT ## of
the amount of the prefinancing mentioned in article 14.3, and the penalties
shall be suspended for the first seven days."
Paris, on
For SANEF For HERMES EUROPE RAILTEL BV
(Signature)
Michel AMILHAT Jan LOEBER
Managing Director Managing Director
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG REVISEURS D'ENTREPRISES S.C.C.
INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated June 11, 1997 except for Note 9, which is as of July
15, 1997 in Amendment No. 2 to the Registration Statement (Form S-4 No.
333-37719) and related Prospectus of Hermes Europe Railtel B.V. dated on or
about December 11, 1997.
/s/ Ernst & Young Reviseurs d'Entreprises S.C.C.
Brussels, Belgium
December 8, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH S-4 FILING.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 237,541
<SECURITIES> 0
<RECEIVABLES> 29,155
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 276,107
<PP&E> 30,494
<DEPRECIATION> 2,224
<TOTAL-ASSETS> 347,002
<CURRENT-LIABILITIES> 18,571
<BONDS> 265,453
0
0
<COMMON> 96,757
<OTHER-SE> (33,773)
<TOTAL-LIABILITY-AND-EQUITY> 347,002
<SALES> 0
<TOTAL-REVENUES> 2,262
<CGS> 0
<TOTAL-COSTS> 5,989
<OTHER-EXPENSES> 11,520
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,593
<INCOME-PRETAX> 17,111
<INCOME-TAX> 0
<INCOME-CONTINUING> 17,111
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,111
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
EXHIBIT 99.1
LETTER OF TRANSMITTAL
11 1/2% SENIOR NOTES DUE 2007
OF
HERMES EUROPE RAILTEL B.V.
PURSUANT TO THE EXCHANGE OFFER IN RESPECT OF
ALL OF ITS OUTSTANDING 11 1/2% SENIOR NOTES DUE 2007
FOR
11 1/2% SENIOR NOTES DUE 2007
-----------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON , 1998 (THE "EXPIRATION DATE") UNLESS THE
EXCHANGE OFFER IS EXTENDED TO A DATE NOT LATER THAN
, 1998. TENDERS OF OUTSTANDING NOTES MAY BE WITHDRAWN
AT ANY TIME PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE
EXPIRATION DATE.
-----------------------------------------------------------------
TO: THE BANK OF NEW YORK, EXCHANGE AGENT
BY MAIL, HAND OR
OVERNIGHT COURIER:
THE BANK OF NEW YORK
CORPORATE TRUST TRUSTEE
ADMINISTRATION
101 BARCLAY STREET - 21ST FLOOR
NEW YORK, NEW YORK 10286
BY FACSIMILE TRANSMISSION:
(212) 815-5915
CONFIRM BY TELEPHONE:
(212) 815-5381
<PAGE> 2
2
Delivery of this Letter of Transmittal to an address, or transmission
via telegram, telex or facsimile, other than as set forth above will not
constitute a valid delivery. The instructions contained herein should be read
carefully before this Letter of Transmittal is completed.
HOLDERS WHO WISH TO BE ELIGIBLE TO RECEIVE EXCHANGE NOTES FOR THEIR
OUTSTANDING NOTES PURSUANT TO THE EXCHANGE OFFER MUST VALIDLY TENDER (AND NOT
WITHDRAW) THEIR OUTSTANDING NOTES TO THE EXCHANGE AGENT PRIOR TO THE EXPIRATION
DATE.
By execution hereof, the undersigned acknowledges receipt of the
Prospectus (the "Prospectus"), dated December , 1997, of Hermes Europe
Railtel B.V. (the "Company"), which, together with this Letter of Transmittal
and the instructions hereto (the "Letter of Transmittal"), constitutes the
Company's offer (the "Exchange Offer") to exchange U.S.$265,000,000 aggregate
principal amount of its 11 1/2% Senior Notes due 2007 (the "Exchange Notes")
that have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a registration statement of which the Prospectus
constitutes a part, for U.S.$265,000,000 aggregate principal amount of its 11
1/2% Senior Notes due 2007 (the "Outstanding Notes"), upon the terms and
subject to the conditions set forth in the Prospectus.
This Letter of Transmittal is to be used by Holders (as defined below)
if: (i) certificates representing Outstanding Notes are to be physically
delivered to the Exchange Agent herewith by Holders; (ii) tender of Outstanding
Notes is to be made by book-entry transfer to the Exchange Agent's account at
The Depository Trust Company ("DTC") pursuant to the procedures set forth in
the Prospectus under "Terms of the Exchange Offer--Procedures for Tendering" by
any financial institution that is a participant in DTC and whose name appears
on a security position listing as the owner of Outstanding Notes (such
participants, acting on behalf of Holders, are referred to herein, together
with such Holders, as "Acting Holders"); or (iii) tender of Outstanding Notes
is to be made according to the guaranteed delivery procedures set forth in the
Prospectus under "Terms of the Exchange Offer--Guaranteed Delivery Procedures."
DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT.
If delivery of the Outstanding Notes is to be made by book-entry
transfer to the account maintained by the Exchange Agent at DTC as set forth in
(ii) in the immediately preceding paragraph, this Letter of Transmittal need
not be manually executed; provided, however, that tenders of Outstanding Notes
must be effected in accordance with the procedures mandated by DTC's Automated
Tender Offer Program ("ATOP"). To tender Outstanding Notes through ATOP, the
electronic instructions sent to DTC and transmitted by DTC to the Exchange
Agent must contain the character by which the participant acknowledges its
receipt of and agrees to be bound by this Letter of Transmittal.
<PAGE> 3
3
Unless the context requires otherwise, the term "Holder" for purposes
of this Letter of Transmittal means: (i) any person in whose name Outstanding
Notes are registered on the books of the Company or any other person who has
obtained a properly completed bond power from the registered Holder or (ii) any
participant in DTC whose Outstanding Notes are held of record by DTC who
desires to deliver such Outstanding Notes by book-entry transfer at DTC.
The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned desires to take with respect
to the Exchange Offer. Holders who wish to tender their Outstanding Notes must
complete this letter in its entirety.
All capitalized terms used herein and not defined herein shall have
the meaning ascribed to them in the Prospectus.
The instructions included with this Letter of Transmittal must be
followed. Questions and requests for assistance or for additional copies of
the Prospectus, this Letter of Transmittal and the Notice of Guaranteed
Delivery may be directed to the Exchange Agent. See Instruction 8 herein.
HOLDERS WHO WISH TO ACCEPT THE EXCHANGE OFFER AND TENDER THEIR
OUTSTANDING NOTES MUST COMPLETE THIS LETTER OF TRANSMITTAL IN ITS ENTIRETY.
List below the Outstanding Notes to which this Letter of Transmittal
relates. If the space provided below is inadequate, list the certificate
numbers and principal amounts on a separately executed schedule and affix the
schedule to this Letter of Transmittal. Tenders of Outstanding Notes will be
accepted only in authorized denominations of $1,000.
<PAGE> 4
4
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
DESCRIPTION OF OUTSTANDING NOTES
- ----------------------------------------------------------------------------------------------------------
CERTIFICATE AGGREGATE
NUMBER(S)* PRINCIPAL
(ATTACH SIGNED AMOUNT
NAME(S) AND ADDRESS(ES) OF HOLDER(S) LIST IF TENDERED (IF LESS
(PLEASE FILL IN, IF BLANK) NECESSARY) THAN ALL)**
- ----------------------------------------------------------------------------------------------------------
<S> <C>
------------------ -------------------
------------------ -------------------
------------------ -------------------
------------------ -------------------
------------------ -------------------
------------------ -------------------
------------------ -------------------
------------------ -------------------
------------------ -------------------
------------------ -------------------
------------------ -------------------
------------------ -------------------
- ----------------------------------------------------------------------------------------------------------
TOTAL PRINCIPAL AMOUNT OF OUTSTANDING NOTES TENDERED
- ----------------------------------------------------------------------------------------------------------
* Need not be completed by Holders tendering by book-entry transfer.
** Need not be completed by Holders who wish to tender with respect to all
Outstanding Notes listed. See Instruction 2.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
[ ] CHECK HERE IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED BY DTC TO THE
EXCHANGE AGENT'S ACCOUNT AT DTC AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:
----------------------------------------------
DTC Book-Entry Account:
-----------------------------------------------------
Transaction Code No.:
-------------------------------------------------------
<PAGE> 5
5
Holders who wish to tender their Outstanding Notes and (i) whose
Outstanding Notes are not immediately available, or (ii) who cannot deliver
their Outstanding Notes, the Letter of Transmittal or any other required
documents to the Exchange Agent prior to the Expiration Date, or cannot
complete the procedure for book-entry transfer on a timely basis, may effect a
tender according to the guaranteed delivery procedures set forth in the
Prospectus under the caption "Terms of the Exchange Offer--Guaranteed Delivery
Procedures."
[ ] CHECK HERE IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY DELIVERED TO THE EXCHANGE AGENT
AND COMPLETE THE FOLLOWING:
Name(s) of Holder(s) of Outstanding Notes:
----------------------------------
Window Ticket No. (if any):
-------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
-------------------------
Name of Eligible Institution that Guaranteed Delivery:
----------------------------------------------------------------------------
DTC Book-Entry Account No.:
-------------------------------------------------
If Delivered by Book-Entry Transfer:
Name of Tendering Institution:
----------------------------------------------
Transaction Code No.:
-------------------------------------------------------
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
-----------------------------------------------------------------------
Address:
--------------------------------------------------------------------
--------------------------------------------------------------------
<PAGE> 6
6
LADIES AND GENTLEMEN:
Subject to the terms of the Exchange Offer, the undersigned hereby
tenders to the Company the principal amount of Outstanding Notes indicated
above. Subject to and effective upon the acceptance for exchange of the
principal amount of Outstanding Notes tendered in accordance with this Letter
of Transmittal, the undersigned sells, assigns and transfers to, or upon the
order of, the Company all right, title and interest in and to the Outstanding
Notes tendered hereby. The undersigned hereby irrevocably constitutes and
appoints the Exchange Agent its agent and attorney-in-fact (with full knowledge
that the Exchange Agent also acts as the agent of the Company and as Trustee
under the Indenture for the Outstanding Notes and the Exchange Notes) with
respect to the tendered Outstanding Notes with full power of substitution to
(i) deliver certificates for such Outstanding Notes to the Company, or transfer
ownership of such Outstanding Notes on the account books maintained by DTC,
together, in either such case, with all accompanying evidences of transfer and
authenticity to, or upon the order of, the Company and (ii) present such
Outstanding Notes for transfer on the books of the Company and receive all
benefits and otherwise exercise all rights of beneficial ownership of such
Outstanding Notes, all in accordance with the terms of the Exchange Offer. The
power of attorney granted in this paragraph shall be deemed irrevocable and
coupled with an interest.
The undersigned hereby represents and warrants that he or she has full
power and authority to tender, sell, assign and transfer the Outstanding Notes
tendered hereby and that the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances
and not subject to any adverse claim, when the same are acquired by the
Company. The undersigned also acknowledges that this Exchange Offer is being
made in reliance upon an interpretation by the staff of the Securities and
Exchange Commission that the Exchange Notes issued in exchange for the
Outstanding Notes pursuant to the Exchange Offer may be offered for sale,
resold and otherwise transferred by holders thereof (other than any such holder
that is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such Exchange Notes
are acquired in the ordinary course of such holder's business and such holders
have no arrangement with any person to participate in the distribution of such
Exchange Notes. If the undersigned is not a broker-dealer, the undersigned
represents that it is not engaged in, and does not intend to engage in, a
distribution of the Exchange Notes. If the undersigned is a broker-dealer that
will receive Exchange Notes from its own account in exchange for Outstanding
Notes, the undersigned represents that such Outstanding Notes were acquired as
a result of market-making activities or other trading activities and
acknowledges that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such Exchange Notes; however,
by so acknowledging and by delivering a prospectus, the undersigned will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
<PAGE> 7
7
The undersigned Holder represents that (i) the Exchange Notes acquired
pursuant to the Exchange Offer are being obtained in the ordinary course of
business of the person receiving such Exchange Notes, whether or not such
person is such Holder, (ii) neither the Holder of Outstanding Notes nor any
other person has an arrangement or understanding with any person to participate
in the distribution of such Exchange Notes, (iii) if the Holder is not a
broker-dealer, or is a broker-dealer but will not receive Exchange Notes for
its own account in exchange for Outstanding Notes, neither the Holder nor any
such other person is engaged in or intends to participate in the distribution
of such Exchange Notes and (iv) neither the Holder nor any such other person is
an "affiliate" of the Company within the meaning of Rule 405 of the Securities
Act or, if such Holder is an affiliate, that such Holder will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or the Company to be necessary or
desirable to complete the assignment and transfer of the Outstanding Notes
tendered hereby.
For purposes of the Exchange Offer, the Company shall be deemed to
have accepted validly tendered Outstanding Notes when, as and if the Company
has given oral or written notice thereof to the Exchange Agent and complied
with the applicable provisions of the Registration Rights Agreement. If any
tendered Outstanding Notes are not accepted for exchange pursuant to the
Exchange Offer for any reason or if Outstanding Notes are submitted for a
greater principal amount than the holder desires to exchange, such unaccepted
or non-exchanged Outstanding Notes will be returned without expense to the
tendering Holder thereof (or, in the case of Outstanding Notes tendered by
book-entry transfer into the Exchange Agent's account at the Book-Entry
Transfer Facility pursuant to the book-entry transfer procedures described in
the Prospectus under "Terms of the Exchange Offer--Book-Entry Transfer," such
non-exchanged Notes will be credited to an account maintained with such
Book-Entry Transfer Facility) as promptly as practicable after the expiration
or termination of the Exchange Offer.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned and every obligation under this Letter of Transmittal shall be
binding upon the undersigned's heirs, personal representatives, successors and
assigns.
The undersigned understands that tenders of Outstanding Notes pursuant
to the procedures described under the caption "Terms of the Exchange
Offer--Procedures for Tendering" in the Prospectus and in the instructions
hereto will constitute a binding agreement between the undersigned and the
Company upon the terms and subject to the conditions of the Exchange Offer.
Unless otherwise indicated under "Special Issuance Instructions,"
please issue the certificates representing the Exchange Notes issued in
exchange for the Outstanding Notes
<PAGE> 8
8
accepted for exchange and return any Outstanding Notes not tendered or not
exchanged, in the name(s) of the undersigned (or in either such event in the
case of Outstanding Notes tendered by DTC, by credit to the account at DTC).
Similarly, unless otherwise indicated under "Special Delivery Instructions,"
please send the certificates representing the Exchange Notes issued in exchange
for the Outstanding Notes accepted for exchange and any certificates for
Outstanding Notes not tendered or not exchanged (and accompanying documents, as
appropriate) to the undersigned at the address shown below the undersigned's
signatures, unless, in either event, tender is being made through DTC. In the
event that both "Special Issuance Instructions" and "Special Delivery
Instructions" are completed, please issue the certificates representing the
Exchange Notes issued in exchange for the Outstanding Notes accepted for
exchange and return any Outstanding Notes not tendered or not exchanged in the
name(s) of, and send said certificates to, the person(s) so indicated. The
undersigned recognizes that the Company has no obligation pursuant to the
"Special Issuance Instructions" and "Special Delivery Instructions" to transfer
any Outstanding Notes from the name of the registered holder(s) thereof if the
Company does not accept for exchange any of the Outstanding Notes so tendered.
<PAGE> 9
9
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
(To Be Completed by All Tendering Holders of Outstanding Notes Regardless
of Whether Outstanding Notes Are Being Physically Delivered Herewith)
This Letter of Transmittal must be signed by the Holder(s) of Outstanding
Notes exactly as their name(s) appear(s) on certificate(s) for Outstanding
Notes or, if tendered by a participant in DTC, exactly as such participant's
name appears on a security position listing as the owner of Outstanding
Notes, or by person(s) authorized to become registered Holder(s) by
endorsements and documents transmitted with this Letter of Transmittal. If
signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must set forth his or her full title
below under "Capacity" and submit evidence satisfactory to the Company of
such person's authority to so act. See Instruction 3 herein.
If the signature appearing below is not of the registered Holder(s) of
the Outstanding Notes, then the registered Holder(s) must sign a valid proxy.
x Date:
------------------------ ---------------------------
x Date:
------------------------ ---------------------------
SIGNATURE(S) OF HOLDER(S) OR
AUTHORIZED SIGNATORY
Name(s): Address:
------------------------ -------------------------
------------------------ -------------------------
(PLEASE PRINT) (INCLUDING ZIP CODE)
Capacity(ies): Area Code and Telephone No.:
------------------ -------
Social Security No(s).:
---------
PLEASE COMPLETE SUBSTITUTE FORM W-9 HEREIN
SIGNATURE GUARANTEE (SEE INSTRUCTION 3 HEREIN)
Certain Signatures Must Be Guaranteed by an Eligible Institution
-----------------------------------------------------------------------------
(Name of Eligible Institution Guaranteeing Signatures)
-----------------------------------------------------------------------------
(Address (including zip code) and Telephone Number
(including area code) of Firm)
-----------------------------------------------------------------------------
(Authorized Signature)
-----------------------------------------------------------------------------
(Printed Name)
-----------------------------------------------------------------------------
(Title)
Date:
------------------
- --------------------------------------------------------------------------------
<PAGE> 10
10
TO BE COMPLETED BY ALL TENDERING HOLDERS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
PAYOR'S NAME: HERMES EUROPE RAILTEL B.V.
- ------------------------------------------------------------------------------------------------------------
Part 1--PLEASE PROVIDE YOUR TIN
IN THE BOX AT RIGHT AND CERTIFY -------------------------
BY SIGNING AND DATING BELOW SOCIAL SECURITY NUMBER OR
EMPLOYER IDENTIFICATION NUMBER
- ------------------------------------------------------------------------------------------------------------
<S> <C>
SUBSTITUTE
FORM W-9
DEPARTMENT OF THE TREASURY Part 2--Check the box if you are NOT subject to back-up withholding
INTERNAL REVENUE SERVICE under the provisions of Section 3406(a)(1)(C) of the Internal Revenue
Code because (1) you have not been notified that you are subject to
back-up withholding as a result of failure to report all interest or
dividends, (2) the Internal Revenue Service has notified you that you
are no longer subject to back-up withholding or (3) you are exempt.
PAYOR'S REQUEST FOR TAXPAYER [ ]
IDENTIFICATION NUMBER (TIN)
----------------------------------------------------------------------
CERTIFICATE--UNDER THE PENALTIES OF PERJURY, I PART 3
CERTIFY THAT THE INFORMATION PROVIDED ON THIS FORM CHECK IF
IS TRUE, CORRECT AND COMPLETE. AWAITING TIN
SIGNATURE _________________ DATE ________
[ ]
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 11
11
<TABLE>
- ----------------------------------------------------- ----------------------------------------------------
<S> <C>
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instruction 4 herein) (See Instruction 4 herein)
To be completed ONLY if certificates for To be completed ONLY if certificates for
Outstanding Notes in a principal amount not Outstanding Notes in a principal amount not
tendered are to be issued in the name of, or the tendered or not accepted for purchase or the
Exchange Notes issued pursuant to the Exchange Exchange Notes issued pursuant to the Exchange
Offer are to be issued to the order of, someone Offer are to be sent to someone other than the
other than the person or persons whose person or persons whose signature(s) appear(s)
signature(s) appear(s) within this Letter of within this Letter of Transmittal or to an
Transmittal or issued to an address different from address different from that shown in the box
that shown in the box entitled "Description of entitled "Description of Outstanding Notes"
Outstanding Notes" within this Letter of within this Letter of Transmittal or to be
Transmittal, or if Outstanding Notes tendered by credited to an account maintained at DTC other
book-entry transfer that are not accepted for than the account at DTC indicated above.
purchase are to be credited to an account
maintained at DTC other than the account at DTC
indicated above.
Name: . . . . . . . . . . . . . . . . . . . . . . Name: . . . . . . . . . . . . . . . . . . . . . .
(Please Print) (Please Print)
Address: . . . . . . . . . . . . . . . . . . . . Address: . . . . . . . . . . . . . . . . . . . .
(Please Print) (Please Print)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Zip Code Zip Code
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxpayer Identification or Social Security Number Taxpayer Identification or Social Security Number
(See Substitute Form W-9 herein) (See Substitute Form W-9 herein)
- ----------------------------------------------------- ----------------------------------------------------
</TABLE>
<PAGE> 12
12
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER.--Social Security numbers have nine digits separated by two hyphens:
i.e. 000-00-0000. Employer identification numbers have nine digits separated
by only one hyphen: i.e. 00-0000000. The table below will help determine the
number to give the payer.
<TABLE>
<CAPTION>
- ------------------------------------------------------ -------------------------------------------------------
Give the Give the
For this type of SOCIAL SECURITY For this type of SOCIAL SECURITY
account: number of-- account: number of--
- ------------------------------------------------------ -------------------------------------------------------
<S> <C> <C> <C>
1. An individual's account The individual 8. Sole proprietorship account The owner(4)
2. Two or more individuals The actual owner of 9. A valid trust, estate, or The legal entity (Do
(joint account) the account or, pension trust not furnish the
if combined identifying
funds, any one number of the
of the personal
individuals(1) representative
or trustee
unless the legal
3. Husband and wife The actual owner of entity itself is
(joint account) the account or, if not designated
joint funds, either in the account
person(1) title.)(5)
10. Corporate account The corporation
4. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act) 11. Religious, charitable, or The organization
educational organization
account
5. Adult and minor The adult or, if the
(joint account) minor is the only 12. Partnership account held in The partnership
contributor, the the name of the business
minor(1)
13. Association, club, or The organization
6. Account in the name of The ward, minor, or other tax exempt
guardian or committee for incompetent organization
a designated ward, minor, person(3)
or incompetent person 14. A broker or registered The broker or nominee
nominee
7. a. The usual revocable The grantor- 15. Account with the Department The public entity
savings trust account trustee(1) of Agriculture in the name
(grantor is also of a public entity (such as
trustee) a State or local government,
school district, or prison)
b. So-called trust account The actual owner(1) that receives agricultural
that is not a legal or program payments
valid trust under
State law
- ------------------------------------------------------ -------------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's Social Security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's Social Security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension
trust.
NOTE: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
<PAGE> 13
13
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
<TABLE>
<S> <C>
OBTAINING A NUMBER which have at least one nonresident partner.
If you don't have a taxpayer Identification number - Payments of patronage dividends where the
or you don't know your number, obtain Form SS-5, amount received is not paid in money.
Application for a Social Security Number Card, or - Payments made by certain foreign
Form SS-4, Application for Employer Identification organizations.
Number, at the local office of the Social Security - Payments made to a nominee.
Administration or the Internal Revenue Service and Payments of interest not generally subject to
apply for a number. backup withholding include the following:
- Payments of interest on obligations issued
PAYEES EXEMPT FROM BACKUP WITHHOLDING by individuals. Note: You may be subject
Payees specifically exempted from backup to backup withholding if this interest is
withholding on ALL payments include the following: $600 or more and is paid in the course of
- A corporation. the payer's trade or business and you have
- A financial institution. not provided your correct taxpayer
- An organization exempt from tax under identification number to the payer.
section 501(a), or an individual retirement - Payments of tax-exempt interest (including
plan. exempt-interest dividends under section
- The United States or any agency or 852.).
instrumentality thereof. - Payments described in section 6049(b)(5) to
- A State, the District of Columbia, a nonresident aliens.
possession of the United States, or any - Payments on tax-free covenant bonds under
subdivision or instrumentality thereof. section 1451.
- A foreign government, a political - Payments made by certain foreign
subdivision of a foreign government, or any organizations.
agency or instrumentality thereof. - Payments made to a nominee.
- An international organization or any agency Exempt payees described above should file Form W-9
or instrumentality thereof. to avoid possible erroneous backup withholding.
- A registered dealer in securities or FILE THIS FORM WITH THE PAYER, FURNISH YOUR
commodities registered in the U.S. or a TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON
possession of the U.S. THE FACE OF THE FORM, AND RETURN IT TO THE PAYER.
- A real estate investment trust. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR
- A common trust fund operated by a bank under PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM.
section 584(a).
- An exempt charitable remainder trust, or a Certain payments other than interest, dividends,
non-exempt trust described in section and patronage dividends, that are not subject to
4947(a)(1). information reporting are also not subject to
- An entity registered at all times under the backup withholding. For details, see the
Investment Company Act of 1940. regulations under sections 6041, 6041A(a), 6045
- A foreign central bank of issue. and 6050A.
Payments of dividends and patronage dividends not
generally subject to backup withholding include PRIVACY ACT NOTICE.--Section 6109 requires most
the following: recipients of dividend, interest, or other
- Payments to nonresident aliens subject to payments to
withholding under section 1441.
- Payments to partnerships not engaged in a
trade or business in the U.S. and
</TABLE>
<PAGE> 14
14
give taxpayer identification numbers
to payers who must report the payments to the IRS.
IRS uses the numbers for identification purposes.
Payers must be given the numbers whether or not
recipients are required to file tax returns.
Payers must generally withhold 31% of taxable
interest, dividend, and certain other payments to
a payee who does not furnish a taxpayer
identification number to a payee. Certain
penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER
IDENTIFICATION NUMBER.--If you fail to furnish
your taxpayer identification number to a payer,
you are subject to a penalty of $50 for each such
failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH
RESPECT TO WITHHOLDING.--If you make a false
statement with no reasonable basis which results
in no imposition of backup withholding, you are
subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING
INFORMATION.--Falsifying certifications or
affirmations may subject you to criminal penalties
including fines and/or imprisonment. FOR
ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT
OR THE INTERNAL REVENUE SERVICE.
<PAGE> 15
15
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER AND THE SOLICITATION
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND OUTSTANDING NOTES. The
certificates for the tendered Outstanding Notes (or a confirmation of a
book-entry into the Exchange Agent's account at DTC of all Outstanding Notes
delivered electronically), as well as a properly completed and duly executed
copy of this Letter of Transmittal or facsimile hereof and any other documents
required by this Letter of Transmittal must be received by the Exchange Agent
at its address set forth herein prior to 5:00 P.M., New York City time, on the
Expiration Date. The method of delivery of the tendered Outstanding Notes,
this Letter of Transmittal and all other required documents to the Exchange
Agent are at the election and risk of the Holder and, except as otherwise
provided below, the delivery will be deemed made only when actually received by
the Exchange Agent. Instead of delivery by mail, it is recommended that the
Holder use an overnight or hand delivery service. In all cases, sufficient
time should be allowed to assure timely delivery. No Letter of Transmittal or
Outstanding Notes should be sent to the Company.
Holders who wish to tender their Outstanding Notes and (i) whose
Outstanding Notes are not immediately available or (ii) who cannot deliver
their Outstanding Notes, this Letter of Transmittal or any other documents
required hereby to the Exchange Agent prior to the Expiration Date, or who
cannot complete the procedure for book-entry transfer on a timely basis must
tender their Outstanding Notes and follow the guaranteed delivery procedures
set forth in the Prospectus. Pursuant to such procedures: (i) such tender
must be made by or through an Eligible Institution (as defined below); (ii)
prior to the Expiration Date, the Exchange Agent must have received from the
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery) setting
forth the name and address of the Holder of the Outstanding Notes, the
certificate number or numbers of such Outstanding Notes and the principal
amount of Outstanding Notes tendered, stating that the tender is being made
thereby and guaranteeing that within three New York Stock Exchange trading days
after the Expiration Date, this Letter of Transmittal (or copy thereof)
together with the certificate(s) representing the Outstanding Notes (or a
confirmation of electronic mail delivery of book-entry delivery into the
Exchange Agent's account at DTC) and any of the required documents will be
deposited by the Eligible Institution with the Exchange Agent; and (iii) such
properly completed and executed Letter of Transmittal (or copy thereof), as
well as all other documents required by this Letter of Transmittal and the
certificate(s) representing all tendered Outstanding Notes in proper form for
transfer (or a confirmation of electronic mail delivery of book-entry delivery
into the Exchange Agent's account at DTC), must be received by the Exchange
Agent within three New York Stock Exchange trading days after the Expiration
Date, all as provided in the Prospectus under the caption "Terms of the
Exchange Offer--Guaranteed Delivery Procedures." Any Holder of Outstanding
Notes who wishes to tender his Outstanding Notes pursuant to the guaranteed
delivery procedures described above
<PAGE> 16
16
must ensure that the Exchange Agent receives the Notice of Guaranteed Delivery
prior to 5:00 P.M., New York City time, on the Expiration Date.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Outstanding Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and
all Outstanding Notes not properly tendered or any Outstanding Notes the
Company's acceptance of which would, in the opinion of counsel for the Company,
be unlawful. The Company also reserves the absolute right to waive any
defects, irregularities or conditions of tender as to particular Outstanding
Notes. The Company's interpretation of the terms and conditions of the
Exchange Offer (including the instructions in this Letter of Transmittal) will
be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Outstanding Notes must be cured
within such time as the Company shall determine. Although the Company intends
to notify Holders of defects or irregularities with respect to tenders of
Outstanding Notes, neither the Company, the Exchange Agent nor any other person
shall be under any duty to give notification of defects or irregularities with
respect to tenders of Outstanding Notes, nor shall any of them incur any
liability for failure to give such notification. Tenders of Outstanding Notes
will not be deemed to have been made until such defects or irregularities have
been cured or waived. Any Outstanding Notes received by the Exchange Agent
that are not properly tendered and as to which the defects or irregularities
have not been cured or waived will be returned without cost by the Exchange
Agent to the tendering Holders of Outstanding Notes, unless otherwise provided
in this Letter of Transmittal, as soon as practicable following the Expiration
Date.
2. PARTIAL TENDERS. Tenders of Outstanding Notes will be accepted
only in authorized denominations of $1,000. If less than the entire principal
amount of any Outstanding Notes is tendered, the tendering Holder should fill
in the principal amount tendered in the third column of the chart entitled
"Description of Outstanding Notes." The entire principal amount of Outstanding
Notes delivered to the Exchange Agent will be deemed to have been tendered
unless otherwise indicated. If the entire principal amount of all Outstanding
Notes is not tendered, Outstanding Notes for the principal amount of
Outstanding Notes delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise indicated. If the entire principal amount of all
Outstanding Notes is not tendered, Outstanding Notes for the principal amount
of Outstanding Notes not tendered and a certificate or certificates
representing Exchange Notes issued in exchange of any Outstanding Notes
accepted will be sent to the Holder at his or her registered address, unless a
different address is provided in the appropriate box on this Letter of
Transmittal or unless tender is made through DTC, promptly after the
Outstanding Notes are accepted for exchange.
3. SIGNATURES ON THE LETTER OF TRANSMITTAL; BOND POWERS AND
ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter of Transmittal (or copy
hereof) is signed by the registered Holder(s) of the Outstanding Notes tendered
hereby, the signature must correspond
<PAGE> 17
17
with the name(s) as written on the face of the Outstanding Notes without
alteration, enlargement or any change whatsoever.
If this Letter of Transmittal (or copy hereof) is signed by the
registered Holder(s) of Outstanding Notes tendered and the certificate(s) for
Exchange Notes issued in exchange therefor is to be issued (or any untendered
principal amount of Outstanding Notes is to be reissued) to the registered
Holder, such Holder need not and should not endorse any tendered Outstanding
Note, nor provide a separate bond power. In any other case, such holder must
either properly endorse the Outstanding Notes tendered or transmit a properly
completed separate bond power with this Letter of Transmittal, with the
signatures on the endorsement or bond power guaranteed by an Eligible
Institution.
If this Letter of Transmittal (or copy hereof) is signed by a person other
than the registered Holder(s) of Outstanding Notes listed therein, such
Outstanding Notes must be endorsed or accompanied by properly completed bond
powers which authorize such person to tender the Outstanding Notes on behalf of
the registered Holder, in either case signed as the name of the registered
Holder or Holders appears on the Outstanding Notes.
If this Letter of Transmittal (or copy hereof) or any Outstanding Notes
or bond powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, or officers of corporations or others acting in a fiduciary
or representative capacity, such persons should so indicate when signing, and
unless waived by the Company, evidence satisfactory to the Company of their
authority to so act must be submitted with this Letter of Transmittal.
Endorsements on Outstanding Notes or signatures on bond powers required
by this Instruction 3 must be guaranteed by an Eligible Institution.
Signatures on this Letter of Transmittal (or copy hereof) or a notice of
withdrawal, as the case may be, must be guaranteed by a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office
or correspondent in the United States or an "eligible guarantor institution"
within the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible
Institution") unless the Outstanding Notes tendered pursuant thereto are
tendered (i) by a registered Holder (including any participant in DTC whose
name appears on a security position listing as the owner of Outstanding Notes)
who has not completed the box set forth herein entitled "Special Issuance
Instructions" or "Special Delivery Instructions" of this Letter of Transmittal
or (ii) for the account of an Eligible Institution.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering Holders
should indicate, in the applicable spaces, the name and address to which
Exchange Notes or substitute Outstanding Notes for principal amounts not
tendered or not accepted for exchange are to be issued or sent, if different
from the name and address of the person signing this Letter of Transmittal (or
in the
<PAGE> 18
18
case of tender of the Outstanding Notes through DTC, if different from the
account maintained at DTC indicated above). In the case of issuance in a
different name, the taxpayer identification or social security number of the
person named must also be indicated.
5. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the exchange of Outstanding Notes pursuant to the Exchange Offer.
If, however, certificates representing Exchange Notes or Outstanding Notes for
principal amounts not tendered or accepted for exchange are to be delivered to,
or are to be registered or issued in the name of, any person other than the
registered Holder of the Outstanding Notes tendered hereby, or if tendered
Outstanding Notes are registered in the name of any person other than the
person signing this Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the exchange of Outstanding Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered Holder or any other person) will be payable by the tendering
Holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with this Letter of Transmittal, the amount of such
transfer taxes will be billed directly to such tendering Holder.
Except as provided in this Instruction 5, it will not be necessary for
transfer tax stamps to be affixed to the Outstanding Notes listed in this
Letter of Transmittal.
6. WAIVER OF CONDITIONS. The Company reserves the absolute right to
amend, waive or modify specified conditions in the Exchange Offer in the case
of any Outstanding Notes tendered.
7. MUTILATED, LOST, STOLEN OR DESTROYED OUTSTANDING NOTES. Any
tendering Holder whose Outstanding Notes have been mutilated, lost, stolen or
destroyed should contact the Exchange Agent at the address indicated herein for
further instruction.
8. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and
requests for assistance and requests for additional copies of the Prospectus or
this Letter of Transmittal may be directed to the Exchange Agent at the address
specified in the Prospectus. Holders may also contact their broker, dealer,
commercial bank, trust company or other nominee for assistance concerning the
Exchange Offer.
9. IRREGULARITIES. All questions as to the validity, form,
eligibility (including time of receipt), and acceptance of Letters of
Transmittal or Outstanding Notes will be resolved by the Company, whose
determination will be final and binding. The Company reserves the absolute
right to reject any or all Letters of Transmittal or tenders that are not in
proper form or the acceptance of which would, in the opinion of the Company's
counsel, be unlawful. The Company also reserves the absolute right to waive
any irregularities or conditions of tender as to the particular Outstanding
Notes covered by any Letter of Transmittal or tendered pursuant to such Letter
of Transmittal. None of the Company, the Exchange Agent or any other person
<PAGE> 19
19
will be under any duty to give notification of any defects or irregularities in
tenders or incur any liability for failure to give any such notification. The
Company's interpretation of the terms and conditions of the Exchange Offer
shall be final and binding.
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE THEREOF (TOGETHER
WITH CERTIFICATES FOR OUTSTANDING NOTES AND ALL OTHER REQUIRED DOCUMENTS) OR A
NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR
PRIOR TO 5:00 P.M., NEW YORK CITY TIME ON THE EXPIRATION DATE.
(DO NOT WRITE IN SPACE BELOW)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Certificate Surrendered Outstanding Notes Tendered Outstanding Notes Accepted
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- ----------------------------------- -------------------------------- ----------------------------------
- ----------------------------------- -------------------------------- ----------------------------------
- ----------------------------------- -------------------------------- ----------------------------------
- -------------------------------------------------------------------------------------------------------------
Delivery Prepared by Checked by Date
------------- --------------- --------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
THE BANK OF NEW YORK
By Mail, Hand or
Overnight Courier:
The Bank of New York
Corporate Trust Trustee
Administration
101 Barclay Street - 21st Floor
New York, New York 10286
By Facsimile Transmission:
(212) 815-5915
Confirm By Telephone:
(212) 815-5381
<PAGE> 1
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR
11 1/2% SENIOR NOTES DUE 2007
OF
HERMES EUROPE RAILTEL B.V.
As set forth in the Prospectus, dated __________, 1997 (the
"Prospectus"), of Hermes Europe Railtel B.V., a Netherlands company (the
"Company"), in the accompanying Letter of Transmittal and instructions thereto
(the "Letter of Transmittal"), this form or one substantially equivalent hereto
must be used to accept the Company's exchange offer (the "Exchange Offer") to
exchange all of its outstanding 11 1/2% Senior Notes due 2007 (the "Outstanding
Notes") if (i) certificates representing the Outstanding Notes to be tendered
for purchase and payment are not lost but are not immediately available, (ii)
time will not permit the Letter of Transmittal, certificates representing such
Outstanding Notes or other required documents to reach the Exchange Agent prior
to the Expiration Date or (iii) the procedures for book-entry transfer cannot
be completed prior to the Expiration Date. This form may be delivered by an
Eligible Institution by mail or hand delivery or transmitted, via telegram,
telex or facsimile, to the Exchange Agent as set forth below. All capitalized
terms used herein but not defined herein shall have the meanings ascribed to
them in the Prospectus.
-----------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1998 (THE "EXPIRATION DATE") UNLESS THE
OFFER IS EXTENDED TO A DATE NOT LATER THAN , 1998.
TENDERS OF OUTSTANDING NOTES MAY BE WITHDRAWN AT ANY TIME PRIOR TO
5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
-----------------------------------------------------------------------
TO: THE BANK OF NEW YORK, EXCHANGE AGENT
By Mail, Hand or
Overnight Courier:
The Bank of New York
Corporate Trust Trustee
Administration
101 Barclay Street - 21st Floor
New York, New York 10286
By Facsimile Transmission:
(212) 815-5915
Confirm By Telephone:
(212) 815-5381
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION VIA
TELEGRAM, TELEX OR FACSIMILE, OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE
A VALID DELIVERY.
<PAGE> 2
This form is not to be used to guarantee signatures. If a signature
on the Letter of Transmittal is required to be guaranteed by an "Eligible
Institution" under the instructions thereto, such signature guarantee must
appear in the applicable space provided in the signature box on the Letter of
Transmittal.
<PAGE> 3
3
LADIES AND GENTLEMEN:
The undersigned hereby tender(s) to the Company, upon the terms and
subject to the conditions set forth in the Exchange Offer and the Letter of
Transmittal, receipt of which is hereby acknowledged, the aggregate principal
amount of Outstanding Notes set forth below pursuant to the guaranteed delivery
procedures set forth in the Prospectus.
The undersigned understands that tenders of Outstanding Notes will be
accepted only in authorized denominations. The undersigned understands that
tenders of Outstanding Notes pursuant to the Exchange Offer may not be
withdrawn after 5:00 p.m., New York City time, on the Expiration Date. Tenders
of Outstanding Notes may also be withdrawn if the Exchange Offer is terminated
without any such Outstanding Notes being purchased thereunder or as otherwise
provided in the Prospectus.
All authority herein conferred or agreed to be conferred by this
Notice of Guaranteed Delivery shall survive the death or incapacity of the
undersigned and every obligation of the undersigned under this Notice of
Guaranteed Delivery shall be binding upon the heirs, personal representatives,
executors, administrators, successors, assigns, trustees in bankruptcy and
other legal representatives of the undersigned.
<PAGE> 4
4
PLEASE SIGN AND COMPLETE
<TABLE>
<S> <C>
Signature(s) of Registered Owner(s) or Authorized Name(s) of Registered Holder(s):
Signatory:
--------------------------------------- --------------------------------------------------------
- ------------------------------------------------- --------------------------------------------------------
- ------------------------------------------------- --------------------------------------------------------
Principal Amount of Outstanding Notes Tendered: Address:
------------------------------------------------
- ------------------------------------------------- --------------------------------------------------------
Certificate No(s). of Outstanding Notes (if Area Code and Telephone No.:
available): ----------------------------
-------------------------------------- If Outstanding Notes will be delivered by
book-entry transfer at The Depository Trust
- ------------------------------------------------- Company, insert Depository Account No.:
-----------------
- -------------------------------------------------
Date:
-------------------------------------------- --------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
This Notice of Guaranteed Delivery must be signed by the registered Holder(s)
of Outstanding Notes exactly as its (their) name(s) appear on certificates
for Outstanding Notes or on a security position listing as the owner of
Outstanding Notes, or by person(s) authorized to become registered Holder(s) by
endorsements and documents transmitted with this Notice of Guaranteed
Delivery. If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must provide the following information.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s):
---------------------------------------------------------------
---------------------------------------------------------------
Capacity:
---------------------------------------------------------------
Address(es):
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
DO NOT SEND OUTSTANDING NOTES WITH THIS FORM. OUTSTANDING NOTES SHOULD BE
SENT TO THE EXCHANGE AGENT TOGETHER WITH A PROPERLY COMPLETED AND DULY
EXECUTED LETTER OF TRANSMITTAL.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc. or a
commercial bank or trust company having an office or a correspondent in the
United States or an "eligible guarantor institution" as defined by Rule 17Ad-15
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
hereby (a) represents that each Holder of Outstanding Notes on whose behalf
this tender is being made "own(s)" the Outstanding Notes covered hereby
within the meaning of Rule 14e-4 under the Exchange Act, (b) represents that
such tender of Outstanding Notes complies with such Rule 14e-4, and (c)
guarantees that, within five business days from the date of this Notice of
Guaranteed Delivery, a properly completed and duly executed Letter of
Transmittal (or a facsimile thereof), together with certificates
representing the Outstanding Notes covered hereby in proper form for
transfer (or confirmation of the book-entry transfer of such Outstanding Notes
into the Exchange Agent's account at The Depository Trust Company, pursuant to
the procedure for book-entry transfer set forth in the Prospectus) and required
documents will be deposited by the undersigned with the Exchange Agent.
THE UNDERSIGNED ACKNOWLEDGES THAT IT MUST DELIVER THE LETTER OF
TRANSMITTAL AND OUTSTANDING NOTES TENDERED HEREBY TO THE EXCHANGE AGENT WITHIN
THE TIME PERIOD SET FORTH AND THAT FAILURE TO DO SO COULD RESULT IN FINANCIAL
LOSS TO THE UNDERSIGNED.
<TABLE>
<S> <C>
Name of Firm:
----------------------------- --------------------------------------------
Authorized Signature
Address: Name:
----------------------------------- ---------------------------------------
Title:
------------------------------------------- --------------------------------------
Area Code and Telephone No.: Date:
--------------- ---------------------------------------
</TABLE>
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