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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER:
HERMES EUROPE RAILTEL B.V.
(Exact name of registrant as specified in its charter)
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NETHERLANDS NONE
(State or other jurisdiction of (I.R.S. Employer Identification Nos.)
incorporation or organization)
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TERHULPSESTEENWEG 6A
1560 HOEILAART
BELGIUM
(Address of principal executive offices)
(322) 658-5200
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) have been subject to such
filing requirements for the past 90 days. Yes [ ] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained in this Form 10-K, and will not be
contained, to the best of the registrants' knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K [X]. Not Applicable.
On March 31, 1998, there were outstanding 190,468 shares of Common Stock of
Hermes Europe Railtel B.V., of which 20,161 shares were held by non-affiliates.
There is no established market for the registrant's voting stock. Accordingly,
the registrant is unable to estimate the value of shares held by non-affiliates.
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ITEM OF FORM 10-K DOCUMENT INCORPORATED BY REFERENCE
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Part IV, Item 14(c) Exhibits
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HERMES EUROPE RAILTEL B.V.
FORM 10-K
YEAR ENDED DECEMBER 31, 1997
TABLE OF CONTENTS
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PART I
ITEM 1. Business.................................................... 1
Introduction................................................ 1
Business and Marketing Strategy............................. 3
Services.................................................... 5
Pricing..................................................... 6
Customers................................................... 7
Network Design.............................................. 8
Competition................................................. 10
HER Recapitalization........................................ 11
Licenses and Regulatory Issues.............................. 12
Managing Rapid Growth....................................... 16
Employees................................................... 17
Glossary of Telecommunications Industry Terms............... 17
ITEM 2. Properties.................................................. 20
ITEM 3. Legal Proceedings........................................... 20
ITEM 4. Submission of Matters to a Vote of Security Holders......... 20
PART II
Market for the Company's Common Equity and Related
ITEM 5. Stockholder Matters....................................... 20
ITEM 6. Selected Consolidated Financial Data........................ 20
Management's Discussion and Analysis of Financial Condition
ITEM 7. and Results of Operations................................. 21
ITEM 8. Consolidated Financial Statements........................... 25
Changes In and Disagreements with Accountants on Accounting
ITEM 9. and Financial Disclosure.................................. 41
PART III
ITEM 10. Directors and Executive Officers of the Company............. 41
ITEM 11. Executive Compensation...................................... 44
Security Ownership of Certain Beneficial Owners and
ITEM 12. Management................................................ 48
ITEM 13. Certain Relationships and Related Transactions.............. 48
PART IV
Exhibits, Financial Statement Schedules and Reports on Form
ITEM 14. 8-K....................................................... 50
SIGNATURES............................................................ 53
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PART I
ITEM 1. BUSINESS
To aid the reader, a "Glossary of Telecommunications Industry Terms," which
defines certain terms used in this "Business" section and elsewhere in this
Report, follows commencing on page 17.
INTRODUCTION
Hermes Europe Railtel B.V. ("HER" or the "Company") is developing, and
operating the initial segments of, a pan-European high capacity fiber optic
network that is designed to interconnect a majority of the largest Western and
Central European cities and to transport international voice, data and
multimedia/image traffic for other carriers throughout Western and Central
Europe. HER is an 89%-held indirect subsidiary of Global TeleSystems Group,
Inc., a Delaware corporation ("GTS"), that is a provider of a broad range of
telecommunications services to businesses, other telecommunications service
providers and consumers in Russia, the Commonwealth of Independent States, and
Western and Central Europe. See "-- HER Recapitalization" for information
concerning the other shareholders of HER.
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") on 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. As of April 1, 1998, HER's
network linked Brussels, Antwerp, Rotterdam, Amsterdam, London, Paris, and
Frankfurt. HER expects the initial five country network and Switzerland to be
placed in operation in the second quarter of 1998. This segment of the network
is expected to deliver managed transport services over approximately 3,800
kilometers of fiber optic cable linking, in addition to the above cities, the
cities of Dusseldorf, Munich, Stuttgart, Zurich and Geneva. The full 18,000
kilometer network is expected to become fully operational during the year 2000.
HER also plans to lease capacity on a transatlantic cable linking the European
network to North America and is exploring various interconnectivity options to
Russia and Asia. Such intercontinental interconnectivity will help HER to
satisfy the needs of its European customers with respect to outgoing traffic and
to attract additional non-European customers with traffic terminating in Europe.
HER commenced commercial service over the Brussels-Amsterdam portion of the
network in late 1996, and the London-Paris portion in November 1997. HER'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.
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 adopted a directive (the "Full Competition Directive") requiring the
full liberalization of all telecommunications services in most 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. HER 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. HER 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 Hermes 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
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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 single PTO
therefore owns or controls end-to-end circuits for cross-border calls. The
alternative for carriers of this traffic will be 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
result in HER being well-positioned to become the leading independent carriers'
carrier in Western and Central Europe. In particular, 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, particularly in obtaining
the rights of way across national borders. 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.
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 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 continuing ability to obtain the necessary financing,
rights-of-way, licenses and other regulatory approvals in a timely and
cost-effective manner.
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. 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. Historically, HER 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 HER of
substantial amounts of additional capital and financing, (ii) timely performance
by various third parties of their contractual obligations to engineer, design
and construct portions of the network and (iii) HER's ability to obtain and
maintain applicable governmental approvals. In addition, although HER 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
HER network could have a material adverse effect on HER.
HER expects to continue to roll-out full telecommunications transport
service on the initial network in the first five countries linking the
additional cities of Dusseldorf, Suttgart, Munich, Zurich and Geneva by June 30,
1998. This initial network in the first five countries and Switzerland is
expected to consist of approximately 3,800 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
full network. Network coverage is planned to be expanded to include the cities
of Berlin, Stockholm, Copenhagen, and Milan in the third quarter of 1998. By the
year 2000, the 18,000 kilometer HER network is expected to have points of
presence in at least 33 cities in 15 European countries, including Southern and
Central Europe. HER also plans to lease capacity on a transatlantic cable
linking the European network with North America and is exploring various
interconnectivity options to Russia and Asia.
HER has entered into agreements for the construction and/or lease of fiber
optic routes for the initial network in the first five countries. Contracts have
been concluded with respect to the portion of the network connecting Germany
with each of France, the Netherlands and Switzerland. Additional contracts have
been
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concluded in Switzerland, Denmark, Sweden, Spain and Italy. HER continues to
negotiate rights-of-way and other infrastructure arrangements in order to extend
its network in Western Europe. HER 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.
Development of the HER network is capital intensive. Management expects
that approximately $290 million in capital expenditures will be incurred in
connection with the buildout of the HER network, with approximately $35 million
required for the roll out of the initial five country network that is expected
to be completed in the second quarter of 1998. While HER raised approximately
$265 million in a private placement of its senior notes in August 1997 (of which
$56.6 million has been placed in escrow for the first two years' interest
payments on the notes), additional financing may need to be obtained to
construct the HER network and there can be no assurance that such additional
financing will be completed. Failure to obtain necessary financing may require
HER to delay or abandon its plans for deploying the remainder of the network and
would adversely affect the viability of HER, which could have a material adverse
effect on the operations of the Company. HER's revenues and the cost of
deploying its network and operating its business will depend upon a variety of
factors including, among other things, HER'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 network, (iv) access markets and attract sufficient numbers of customers and
(v) provide and develop services for which customers will subscribe. HER's
revenues and costs are also dependent upon factors that are not within HER'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. 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 HER's future capital
requirements. HER 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 HER 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 to enter on HER's business. In
addition, HER depends on third parties for leases of dark fiber for substantial
portions of its network. There can be no assurance that HER 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 HER's business.
HER was formed on July 6, 1993 by HIT Rail B.V. ("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, Inc., a Delaware corporation
("GTS-Hermes") purchased a 34.4% interest in HER in 1994 and has increased its
interest to 50% in 1995 and to 79% in 1997. In March 1998, GTS-Hermes increased
its ownership of HER to 89% by purchasing a portion of HIT Rail's ownership
interest in HER. GTS-Hermes is a wholly owned subsidiary of GTS. HER's principal
business office is located at Terhulpsesteenweg 6A, 1560 Hoeilaart, Belgium, and
its telephone number is (322) 658-5200. In an effort to expand its presence in
Europe, HER has formed wholly owned subsidiaries in the Netherlands, Ireland,
the United Kingdom, Germany, France, Italy and Spain to conduct marketing and
other activities. In Belgium, the activities of the Network Operations Center
have been transferred to Hermes Network Services B.V.B.A. (formerly Hermes
Europe Railtel N.V.), a wholly owned subsidiary of HER. Following the
development of its corporate structure, HER will be a holding company with
limited assets and will operate its business through subsidiaries.
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 markets where it
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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 offers 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. With STM-64 technology and Wavelength Division
Multiplexing ("WDM") upgrades, HER's fiber deployment plan provides for the
equivalent of 128 fiber pairs of capacity across Europe.
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, HER 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 HER believes is
unavailable in Europe today. This ability to rapidly provide service is largely
due to HER's development of capacity substantially in excess of HER's forecasted
requirements.
- 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. Additionally, the SDH technology deployed
by HER may be upgraded.
- Innovative Pricing. Currently the price of high-bandwidth E1 equivalent
circuits on transborder European routes is artificially high and not
necessarily related to the cost of such circuits. HER offers competitive
pricing. HER also offers 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 or other access
providers 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 limit overlap of target markets with its carrier
customers in end user markets. HER believes that this independence will make it
an attractive service provider for 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.
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GTS is considering the expansion of its local exchange business to Western
Europe from Central Europe through the acquisition of existing local carriers,
the construction of its own local networks, or some combination thereof. If GTS
implements this strategy, these local networks could be integrated with hubs and
gateways operated by GTS and could enter into contractual or other arrangements
with HER. It is unknown whether this strategy, if consummated, could have an
adverse effect on HER's plans to attract PTO's, New Entrants and other customers
as an independent carrier's carrier.
SERVICES
HER's primary service is large capacity cross-border European circuits
provided to carriers and service providers over an integrated, managed
pan-European network structure thus providing a service for wholesale customers
such as PTOs and New Entrants. 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 and Central 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 or otherwise authorized 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. 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
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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 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 would be 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 configuration.
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. Because
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, HER expects
that certain of its infrastructure providers 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 HER
to attractively and competitively price services in the face of declining
overall tariffs for telecommunication services. HER'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 currently ranges from 1 to 3
years. The customer agrees to purchase, and HER agrees to provide, cross-border
transmission services. In general the customer agrees to pay certain
non-recurring charges upfront 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 generally required to pay HER a
cancellation charge equal to three months service for each of the twelve months
remaining in the contract term. HER guarantees transmission services to a
certain service level. If such levels are not met or HER 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. As of January 1998, twenty customers were under
contract for service on the HER network, including PTOs, a global consortium of
PTOs, Internet service providers, an international carrier, value added network
("VANs") and resellers. HER provided capacity of approximately 446 E1 equivalent
circuits as of January 1998. 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. In total, HER is
targeting seven major market segments or customer groups which can be
characterized as follows:
- Existing PTOs. This customer segment consists of the traditional
European PTOs that generally participate in the standard bilateral
agreements for cross-border connectivity. Hermes provides a vehicle for
PTOs to compete in non-domestic markets both before and after January 1,
1998. 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 non-European
carriers with traffic between European and other international gateways.
Such carriers include Teleglobe, GTS-Monaco Access and eventually the
U.S. Regional Bell Operating Companies. HER can provide these customers a
pan-European distribution network to gather and deliver traffic to and
from their own and other hubs.
- 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 favorably to an
alternative such as HER. HER believes that this segment will sustain the
largest growth as competition emerges in Europe. HER 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.
- 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.
- 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
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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 these needs cost-effectively, and to extend their
services to new markets or customers without substantial capital
investment.
HER 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.
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 enabling 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 enabling efficient
transmission of traffic. Each node will be connected to at least two other nodes
enabling rerouting of traffic in the event of a network failure. HER 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 primarily
uses Alcatel 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. HER 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 HER because they reduce the capital expense burden
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.
Considerations Pertaining to Technology of the Network. 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 Company obtains telecommunications
equipment from a number of vendors, upon whom it is dependent for the adaptation
of such equipment to meet varying local telecommunications standards. 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.
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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, HER's ability to
upgrade technology from this platform may be important in establishing and/or
maintaining a cost advantage over competitive carriers. There can be no
assurance that the HER network will achieve the technical specifications for
which it was designed or that HER will be able to upgrade the network as
technological improvements in telecommunications 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.
Network Capacity. The network will consist of Synchronous Digital Hierarchy
("SDH") STM-16 links managed by equipment and operating centers owned by HER and
running on dark fiber leased from infrastructure providers or built by HER on
leased rights of way. 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 this network are Add- Drop Multiplexors ("ADMs") and regenerators and a
variety of optical amplifiers for boosting optical signals. The STM-16 links are
expected, where needed, to be upgraded to STM-64. Furthermore, fibers will be
multiplexed using WDM, also as required. Additional capacity can be achieved by
adding new fiber accesses to a given city over alternative routes, thereby
achieving more meshing and the resulting improved network availability.
Network Agreements. HER 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. HER'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 HER 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 a HER point of presence 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 with local access providers 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. Various 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 between HER and local access network suppliers
can benefit both parties.
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Network Routes. HER's planning dates for operation in certain cities and
kilometers covered by the initial network in the first five countries and
Switzerland are set forth below.
Expected to be operational as of:
April 30, 1998 -- Brussels, Antwerp, Rotterdam, Amsterdam, London, Paris,
Strasbourg, Frankfurt, Zurich and Geneva -- covering approximately 3,000
kilometers.
June 30, 1998 -- Above cities and Dusseldorf, Stuttgart and Munich -- covering
approximately 3,800 kilometers.
HER expects to have an aggregate of approximately 10,000 kilometers
completed at the end of 1998 and the entire 18,000 kilometer network completed
by the year 2000. Hermes also plans to lease capacity on a transatlantic cable
linking the European network with North America in 1999.
The routes planned to be operational in the second quarter of 1998 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, and (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.
HER is deploying the network along the rights-of-way of a variety of
alternative sources, including railways, motorways, waterways, pipelines and
utilities. The rights-of-way of HER-built portions of the network will be
provided pursuant to long-term leases or other arrangements entered into with
railways, highway commissions, pipeline owners, utilities or others. 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, HER has gained access to infrastructure for its network routes which, in
certain cases, HER 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. HER 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 business plan anticipates substantial head-to-head
competition as well as indirect competition.
WorldCom, Inc. ("WorldCom") recently announced plans to construct a
pan-European fiber network, the first phase of which is expected to connect
London, Amsterdam, Frankfurt, 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.
Viatel, Inc. ("Viatel") also recently announced its intention to build a
pan-European fiber optic network connecting select cities in Belgium, France,
the Netherlands and the United Kingdom. Excess capacity would be available for
other carriers. Viatel has stated that, assuming that it obtains necessary
financing, construction would begin in spring 1998 and the network would become
operational in 1999.
In addition, Esprit Telecom Group plc also recently announced plans to
construct an SDH fiber optic ring network that will connect the United Kingdom,
France, the Netherlands and Belgium.
HER also competes with respect to its "point-to-point" transborder service
offering against circuits currently provided by PTOs through International
Private Leased Circuits. In addition, the liberalization of
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the European telecommunications market is likely to attract additional entrants
to both the "point-to-point" and other telecommunications markets.
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.
HER RECAPITALIZATION
During 1997, HER 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 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 (iv) 4,365 shares to AB Swed Carrier (a wholly owned subsidiary of SJ, the
Swedish national railway). As a result, GTS-Hermes owns 79.1%, HIT Rail owns
approximately 12.6%, SNCB/NMBS owns 6.0% and AB Swed Carrier owns 2.3% 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. In March 1998, HIT Rail sold
all its shares in HER to GTS-Hermes, SNCB/NMBS and AB Swed Carrier. As a result
of such sale, GTS-Hermes, SNCB/NMBS and Swed Carrier currently own 170,307,
13,610, and 6,551 shares of HER, respectively, or 89.42%, 7.15%, and 3.44%,
respectively, of HER.
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 at 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
all 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 capital restructuring 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 capital
restructuring 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. As a result of the March 1998, sale by HIT Rail
of all its shares, HIT Rail no longer has any rights or obligations, except as
set forth below, under the Shareholders Agreement and GTS-Hermes, acting alone,
can approve all the matters described above which require an 85% HER shareholder
vote.
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Articles of Association and Shareholders Agreement
Under the Articles of Association and the Shareholders Agreement, HER's
shareholders 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. Preemptive rights can be exercised for
four weeks after the date the notice of the offer is received by the
shareholders.
The Shareholders Agreement provides that HER or its designated vendor will
provide fiber capacity in its network for use by the shareholders of HER 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 HER, to obtain rights of way from individual HIT Rail
shareholders and to cooperate in obtaining such licenses as may advance the
business of HER, (ii) use its best efforts to ensure that the HIT Rail
shareholders cooperate in obtaining such license in accordance with the business
plan of HER and as may be necessary or advisable in furtherance of HER's
business, (iii) will not, so long as both HIT Rail and GTS-Hermes are
shareholders of HER and for one year after HIT Rail ceases to be a shareholder,
agree with any entity other than GTS-Hermes or HER to assist or cooperate in the
development of any pan-European telecommunications operator and (iv) use its
best efforts to obtain on HER'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, which is an Exhibit to this Report.
LICENSES AND REGULATORY ISSUES
A summary discussion of the regulatory framework in the countries of the
network in the first five countries and the next five countries into which HER
expects to develop the 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. HER 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 network in the first five countries.
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, France and Germany and a trial concession has been granted in
Switzerland. HER 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 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.
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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.
HER 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 HER'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 HER operates.
There can be no assurance that future regulatory, judicial and legislative
changes will not have a material adverse effect on HER, that domestic or
international regulators or third parties will not raise material issues with
regard to HER's compliance or noncompliance with applicable regulations or that
regulatory activities will not have a material adverse effect on HER. The
Company has had favorable experience obtaining, maintaining and renewing
licenses in the past. However, there can be no assurance that HER 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 by
future ventures can be obtained by the Company or its partners. The loss of or a
substantial limitation upon the terms of these telecommunications licenses could
have a material adverse effect on the Company.
A substantial portion of HER's strategy is based upon the timely
implementation of regulatory liberalization of EU telecommunications market on
January 1, 1998 under existing European Community ("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, HER faces
the risk that it will establish the HER 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 HER's ability to provide
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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,
HER'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 HER's
operations by preventing HER from establishing its network as currently
intended, as well as a material adverse effect on the Company.
The regulatory framework in certain jurisdictions in which HER 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 telecommunications 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. HER
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 HER.
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. The decision-making process regarding the
adoption of the full package of liberalization legislation (including licensing
regimes for voice telephony and public network infrastructure) is in the final
stages and is anticipated to be completed by mid - 1998.] Given the fact that
the implementation of the EC Directives is late, the Belgian authorities have
made public that they will work during the first months of 1998 with a system of
provisional licenses. HER has obtained, through a wholly-owned subsidiary, a
license from the
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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. The
liberalization legislation is expected to require all previously licensed
operators to apply for new licenses or authorizations. HER expects that, in such
event, its existing licenses and authorizations would be renewed in due course,
although there can be no assurance that this will be the case.
Germany
Germany has approved legislation to implement the Full Competition
Directive and remove all remaining restrictions on competition from January
1998. HER was granted a license by the German regulatory authorities on July 18,
1997. The license permits HER 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. HER 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 applied for an
authorization to operate its network in specific regions of France, which was
approved on October 22, 1997. In October 1997, HER obtained authorization to
operate its network in specific regions of France. Such authorization requires
prior notification to and approval of the ART of any substantial changes in the
capital of HER or its controlling shareholder. HER intends has notified ART of
the initial public offering of GTS's common stock and intends to notify the ART
of the March 1998 increase to approximately 89% of GTS-Hermes' ownership in HER.
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 obtained a trial concession on October 30, 1997, in order
to roll out its network and to provide its services in advance of the full
liberalization coming into effect on January 1, 1998. This concession expired on
December 31, 1997. HER has filed an application for a concession for the
operation of a telecommunications infrastructure and was granted a provisional
concession on March 16, 1998. The provisional concession takes retroactive
effect as of January 1, 1998 and HER expects that the Swiss regulatory authority
will grant HER a final concession by the end of the third quarter 1998. However,
no assurance can be given that such new concession will be granted or granted on
terms acceptable to HER.
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 has been implemented. HER intends to apply for a
license to provide its services in due course.
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<PAGE> 18
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.
In addition, to the discussion above, HER 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 HER's licenses,
authorizations or registrations may limit or otherwise affect HER's scope of
operations. There can be no assurance that HER will be able to obtain, maintain
or renew licenses, authorizations or registrations to provide the services it
currently provides and plans to provide, that such licenses, authorizations or
registrations will be issued or renewed on terms or with fees that are
commercially viable, or that the licenses, authorizations or registrations
required in the future can be obtained by HER. The loss of, or failure to
obtain, these licenses, authorizations or registrations or a substantial
limitation upon the terms of these licenses, authorizations or registrations
could have a material adverse effect on HER and the Company.
MANAGING RAPID GROWTH
As a result of the Company's past and expected continued growth and
expansion, significant demands have been 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 implement and
improve 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 certain of its operations. There can be no
assurance that the Company will be able to construct and operate the entire HER
network as currently planned, expand with the markets in which its ventures are
currently operating or expand into additional markets at the rate presently
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 additional 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 and its ventures will be
adequate to maintain and effectively manage future growth. The failure to
continue to upgrade the administrative,
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<PAGE> 19
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.
EMPLOYEES
On December 31, 1997, HER employed a total of 130 persons. The Company
believes its future success will depend on its continued ability to attract and
retain highly skilled and qualified employees. The Company believes that its
relations with its employees are good.
Although HER's employees are not unionized, unions represent employees of
the Company's railroad partners in HER. Under the agreements contemplated
between HER and its railroad partners, some of these employees will be required
to construct and maintain certain portions of the HER network. There can be no
assurances that unionized employees of HER's partners will not experience labor
unrest.
GLOSSARY OF TELECOMMUNICATIONS INDUSTRY TERMS
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 E-1 line.
Asynchronous Transfer Mode (ATM) -- A switching and transmission technology
that is one of general class of packet technologies that relay traffic by way of
an address contained within the first five bits of a 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 information-carrying capability of a transmission medium
is measured by its bandwidth, which is the relative range of frequencies that
can be passed without distortion by such medium. Bandwidth is measured in Hertz,
but may also be expressed as the number of bits that can be transmitted per
second.
Capacity -- Refers to transmission.
Carrier -- A provider of communications transmission services by fiber,
wire, or radio.
CCIT -- 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).
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<PAGE> 20
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.
Gbps -- Gigabits per second, which is a measurement of speed for digital
signal transmission expressed in billions of bits per second.
GSM -- Global System for Mobile Communications, formerly known as Groupe
Speciale Mobile. GSM began as a pan-European standard for digital cellular
systems. The name was changed to reflect the fact that the standard has been
adopted by several countries in Asia.
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 of service to the
PSTN.
Interconnection -- Connection of a piece of telephone equipment to the
telephone network, or a data terminal to a data communications network. Also
refers to the connection of one communications network to another so that users
of one network can communicate with users of another network.
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 United Nations treaty
organization whose purpose is to accredit international telecommunications
standards. ITU signatories can turn ITU-approved standards into law through
international treaties such as the treaties governing use of the radio spectrum
for international satellite telecommunications and broadcasting.
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.
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<PAGE> 21
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 Telecommunication 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.
STM-4 -- Data transmission rate of approximately 622 Mbps.
STM-16 -- Data transmission of approximately 2,488 Mbps.
STM-64 -- Data transmission rate of approximately 9,952 Mbps.
Switch -- A mechanical or electronic device that opens or closes circuits
or selects the paths or circuits to be used for the transmission of information.
Switching is a process of linking different circuits to create a temporary
transmission path between users.
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 Divisions 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. A trunk may
connect two central office switches, or two PBXs, or a PBX and a central office
switch.
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.
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ITEM 2. PROPERTIES
The Company leases, under long-term leases, office space to serve as sales
office and/or administrative facilities, including its 14,760 square-foot
headquarters just outside of Brussels, Belgium.
HER leases, under long-term leases, portions of railroad, utility and other
rights-of-way for its fiber-optic routes. HER is creating a fiber optic network
consisting of optical fiber pairs, which are leased under long-term leases, and
technical sites leased under long-term leases.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings that it believes will
have a material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
During the fourth quarter, there were not any matters that were submitted
to a vote of the Company's security holders.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As discussed under "Business -- HER Recapitalization," HER's common equity
is privately held and not traded on any United States or foreign exchange or
market.
As of March 31, 1998, the Company's common equity was held by three holders
of record.
The Company has not paid any dividend on its common stock and does not
intend to pay dividends in the foreseeable future. In addition, the indenture
governing the Company's 11 1/2% Senior Notes due 2007 contains restrictions on
the making of restricted payments (in the form of the declaration of certain
dividends or distributions, the purchase, redemption or other acquisition of any
capital stock of the Company, the payments of principal on any Subordinated
Indebtedness, as defined in such indenture, prior to any scheduled payment or
maturity, unless (A) no Default or Event of Default, as defined in the
indenture, shall have occurred and be continuing, (B) the Company is able
immediately after giving effect to such a restricted payment to satisfy an
incurrence of indebtedness test and (C) the aggregate of any restricted payments
do not exceed the Basket, as defined in the indenture. In addition, the Company
and certain operating subsidiaries of the Company may enter into future
financings, the terms of which may include dividend restrictions.
During the year ended December 31, 1997 the Company issued securities which
were not registered under the Securities Act of 1933, as amended (the
"Securities Act") as described under "Business -- HER Recapitalization." In
addition, in August 1997, HER sold $265 million aggregate principal amount of
its 11 1/2% Senior Notes due 2007 (the "Notes") at a purchase price of 100%,
pursuant to a purchase agreement. Donaldson, Lufkin and Jenrette Securities
Corporation, UBS Securities LLC and Lehman Brothers acted as initial purchasers
under such purchase agreement and resold the Notes to a limited number of
qualified institutional buyers as defined in Rule 144A under the Securities Act
and to non-U.S. persons outside the United States. Exemption from registration
was claimed under Rule 144A and Regulation S under the Securities Act.
ITEM 6. 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,
1994, 1995, 1996 and 1997 and Balance Sheet Data as of December 31, 1995, 1996
and 1997 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 have been
derived from unaudited financial statements which, in the
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<PAGE> 23
opinion of management, include all adjustments, consisting of only normal
recurring accruals, necessary for a fair presentation of such information for
the unaudited periods. 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 Report.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1994(1) 1995 1996 1997
------- ------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................................... $ -- $ -- 48 $ 5,373
Operating costs and expenses:
Cost of revenues.............................. -- -- 4,694 9,972
Selling, general and administrative........... 183 6,637 10,552 18,493
Loss from operations............................. (183) (6,637) (15,198) (23,092)
Other income/(expense):
Interest income............................... 18 125 508 6,596
Interest expense.............................. -- (9) (153) (12,826)
Foreign currency (losses) gains............... (55) 19 (1,126) (367)
Net loss......................................... $ (220) $(6,502) $(15,969) $(29,689)
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------
1994 1995 1996 1997
------ ------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total current assets............................ $ 908 $ 6,430 $ 7,528 249,325
Property and equipment, net..................... 47 4,671 20,303 204,944
Total assets.................................... 955 11,101 27,831 495,850
Total current liabilities....................... 90 6,785 11,915 61,980
Long-term debt, less current portion............ -- 10 499 265,383
Long-term portion of capital lease
obligations.................................. -- -- -- 117,645
Total liabilities............................... 90 6,795 12,414 445,008
Shareholders' loans............................. -- 8,353 34,863 --
Shareholders' equity............................ 866 (4,047) (19,446) 50,842
OTHER DATA (IN THOUSANDS):
EBITDA(2)....................................... (233) (6,607) (15,666) (19,704)
Net cash used in operating activities........... (167) (2,655) (11,540) (4,417)
Net cash used in investing activities........... (52) (4,405) (20,781) (107,466)
Net cash provided by financing activities....... 1,028 11,644 28,924 317,500
</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.
ITEM 7. 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 December 31, 1997, 1996 and 1995 and for the
years ended December 31, 1997, 1996, and 1995. The following discussion should
be read in conjunction with the Company's Consolidated Financial Statements and
the notes related thereto.
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SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
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 revenues 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.
In addition, 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 Report. 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 Company's
business plan; the political, economic and legal aspects of the markets in which
the Company operates; competition and the Company's need for additional
substantial financing. These and other factors are discussed herein under
"Business," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and elsewhere in this Report.
The factors described in this Report 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 may 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.
OVERVIEW
The Company is developing and operating the initial segments of a
pan-European high capacity fiber optic network and has been delivering services
to customers since November 1996 when the Brussels-Amsterdam route came into
operation. During the last quarter of 1997, the cities of London and Paris were
added to the network and came into commercial operation.
RESULTS OF OPERATIONS
Revenue. The Company's consolidated revenues for the year ended December
31, 1997 were $5.4 million. The revenues for the year ended December 31, 1996
were minimal and there were no revenues for the year ended December 31, 1995.
The Company's first route, Brussels-Amsterdam, began to generate revenues in the
fourth quarter of 1996 and in the fourth quarter of 1997, the
Amsterdam-London-Paris routes came into operation and began to generate
revenues.
Cost of Revenue. The Company's cost of revenues for the years ended
December 31, 1997 and 1996 were $10.0 million and $4.7 million, respectively. In
1995, the Company had no cost of revenue. The increase in cost of revenues in
1997 as compared with 1996 was associated with the costs related to operating
and maintaining the network routes, local access costs, and the depreciation of
the in-service network.
Gross Margin. The Company had a negative gross margin of $(4.6) million for
both of the years ended December 31, 1997 and 1996. There were no gross margins
for the year ended December 31, 1995. The
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<PAGE> 25
growth in the Company's revenues in 1997 as compared to 1996 was fully offset by
its increase in cost of revenues during the same period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the years ended December 31, 1997, 1996, and 1995
were $18.5 million, $10.6 million and $6.6 million, respectively. The increase
since 1995 in selling, general and administrative expenses is reflective of the
growth of the Company's business operations and support personnel. The Company
had 130 employees as of December 31, 1997 as compared to 101 employees as of
December 31, 1996 and 29 employees as of December 31, 1995.
Interest. Interest expense for the years ended December 31, 1997 and 1996
was $12.8 million and $0.2 million, respectively. Interest expense was minimal
for the year ended December 31, 1995. The increase in interest expense in 1997
is attributable to the interest and related costs associated with the issuance
in August 1997 of $265 million aggregate principal amount of 11.5% Senior Notes
due 2007 (the "Senior Notes").
Interest income for the years ended December 31, 1997, 1996 and 1995 was
$6.6 million, $0.5 million and $0.1 million, respectively. The increase in 1997
was the result of investing the excess cash generated from the issuance of the
Senior Notes in various highly liquid investments.
LIQUIDITY AND CAPITAL RESOURCES
The primary sources of funding for HER through December 31, 1997 have been
cash equity contributions of $103.2 million and net proceeds of $251.3 million
from the private placement of the Senior Notes.
Development of the HER fiber optic network is capital intensive. The
build-out of the network is expected to require approximately $290.0 million of
capital expenditures, with approximately $35 million required for the initial
five country network that is expected to be completed in the second quarter of
1998. See "Business -- Introduction." As of December 31, 1997, approximately
$52.2 million has been spent on network capital expenditure. An additional
$150.8 million has been capitalized in connection with long-term fiber lease
arrangements. In August 1997, HER completed the issuance of $265.0 million
aggregate principal amount of the Senior Notes. The Senior Notes are general
unsecured obligations of HER. HER currently estimates that 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.
Sources of capital to fund network development after 1998 may include internally
generated funds, bank debt and vendor financing. Any failure to obtain necessary
financing may require HER to delay or abandon its plans for deploying the
remainder of the network and would jeopardize the viability of HER.
The Company had a positive working capital balance of $187.3 million as of
December 31, 1997 as compared to a negative working capital of $4.4 million at
December 31, 1996. The Company had an accumulated deficit of $52.4 million as of
December 31, 1997, including net losses of $29.7 million, $16.0 million and $6.5
million for the years ended December 31, 1997, 1996 and 1995, respectively.
The Company had cash and cash equivalents of $204.3 million and $2.0
million at December 31, 1997 and 1996, respectively. The Company had $57.8
million and $3.8 million of restricted cash at December 31, 1997 and 1996,
respectively, primarily representing the Company's obligation to place into
escrow the first four scheduled semi-annual interest payments on the Senior
Notes.
During the years ended December 31, 1997 and 1996, the Company used $4.4
million and $11.5 million, respectively, of cash for operating activities. Cash
used for investing activities was $107.5 million and $20.8 million for the years
ended December 31, 1997 and 1996, respectively. The use of cash in operating and
investing activities reflects the developmental state of the Company's
commercial activities and the engineering and equipment costs associated with
the initial build-out of the fiber optic network.
The Company has developed risk management policies that establish
guidelines for managing foreign exchange risk. The Company is currently
evaluating the materiality of foreign exchange exposures in different countries
and the financial instruments available to mitigate this exposure. The Company
is designing reporting processes to monitor the potential exposure on an ongoing
basis and expects to implement this
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<PAGE> 26
process before the end of 1998. The Company will use the output of this process
to execute financial hedges to cover foreign exchange exposure when practical
and economically justified.
In April 1998, the Company consummated a transaction to hedge the foreign
exchange exposure resulting from the issuance of the Senior Notes.
YEAR 2000 COMPLIANCE
The Company is currently in the process of assessing its year 2000
compliance costs and of converting its computer systems to year 2000 compliant
software. This process includes obtaining confirmations from the Company's
primary vendors that plans are being developed or are already in place to
address processing of transactions in the year 2000. The Company does not expect
that the cost of converting such systems will be material to its financial
condition or results of operations. The Company currently believes it will be
able to achieve year 2000 compliance by the end of 1999, and currently does not
anticipate any material disruption in its operations as the result of any
failure by the Company to be in compliance or that year 2000 compliance costs
will have a material effect on the Company's earnings.
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<PAGE> 27
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
HERMES EUROPE RAILTEL B.V.
YEAR END FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Ernst & Young Reviseurs d'Entreprises S.C.C.,
Independent Auditors...................................... 26
Consolidated Balance Sheets as of December 31, 1996 and
1997...................................................... 27
Consolidated Statements of Operations for the years ended
December 31, 1995, 1996, and 1997......................... 28
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1996, and 1997......................... 29
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1995, 1996, and 1997............. 30
Notes to Consolidated Financial Statements.................. 31
</TABLE>
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<PAGE> 28
REPORT OF ERNST & YOUNG REVISEURS D'ENTREPRISES S.C.C.
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. as of December 31, 1996 and 1997, and the related
consolidated statements of operations, cash flows, and shareholders' equity for
each of the three years in the period ended December 31, 1997. 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. 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, 1996 and 1997, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles
in the United States.
Ernst & Young Reviseurs d'Entreprises
S.C.C.
Represented by
L. Swolfs
Partner
Brussels, Belgium
February 26, 1998
26
<PAGE> 29
HERMES EUROPE RAILTEL B.V.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
-------- --------
(IN THOUSANDS,
EXCEPT SHARE DATA)
--------------------
<S> <C> <C>
Current assets
Cash and cash equivalents................................. $ 2,013 $204,327
Restricted cash........................................... 3,840 29,539
Accounts receivable....................................... 84 2,129
Due from affiliated companies............................. 491 49
Other assets.............................................. 1,100 13,281
-------- --------
Total current assets.............................. 7,528 249,325
Property and equipment, net................................. 20,303 204,944
Deferred financing costs, net............................... -- 13,310
Restricted cash............................................. -- 28,271
-------- --------
TOTAL ASSETS...................................... $ 27,831 $495,850
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses..................... $ 8,476 $ 37,457
Due to affiliated companies............................... 3,344 1,311
Deferred income........................................... 24 1,436
Other current liabilities................................. 8 236
Debt maturing within one year............................. 63 50
Current portion of capital lease obligations.............. -- 21,490
-------- --------
Total current liabilities......................... 11,915 61,980
Long-term debt, less current portion........................ 499 265,383
Long-term portion of capital lease obligations.............. -- 117,645
-------- --------
TOTAL LIABILITIES................................. 12,414 445,008
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 December 31, 1997.......................... 45 96,757
Additional paid-in capital.................................. 2,884 10,130
Cumulative translation adjustment........................... 316 (3,665)
Accumulated deficit......................................... (22,691) (52,380)
-------- --------
TOTAL SHAREHOLDERS' EQUITY........................ (19,446) 50,842
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........ $ 27,831 $495,850
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
27
<PAGE> 30
HERMES EUROPE RAILTEL B.V.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1995 1996 1997
--------- ---------- ----------
(IN THOUSANDS, EXCEPT WEIGHTED
AVERAGE SHARES AND PER SHARE DATA)
<S> <C> <C> <C>
Revenues.................................................... $ -- $ 48 $ 5,373
------- -------- --------
Operating costs and expenses:
Cost of revenues.......................................... -- 4,694 9,972
Selling, general and administrative....................... 6,637 10,552 18,493
------- -------- --------
6,637 15,246 28,465
------- -------- --------
Loss from operations........................................ (6,637) (15,198) (23,092)
Other income/(expense):
Interest income........................................... 125 508 6,596
Interest expense.......................................... (9) (153) (12,826)
Foreign currency (losses) gains........................... 19 (1,126) (367)
------- -------- --------
135 (771) (6,597)
------- -------- --------
Net loss before income taxes................................ (6,502) (15,969) (29,689)
Income taxes................................................ -- -- --
------- -------- --------
Net loss.................................................... $(6,502) $(15,969) $(29,689)
======= ======== ========
Net loss per share.......................................... $(90.31) $(199.61) $ (0.33)
======= ======== ========
Weighted average common shares outstanding.................. 72 80 89,957
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
28
<PAGE> 31
HERMES EUROPE RAILTEL B.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................................................... $(6,502) $(15,969) $ (29,689)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................ 11 683 4,257
Deferred interest........................................ -- 130 --
Non-cash compensation.................................... -- -- 2,651
Changes in assets and liabilities:
Accounts receivable................................... -- (87) (2,116)
Deposits.............................................. (16) (627) (9,807)
Accounts payable and accrued expenses................. 4,364 4,336 30,991
Other changes in assets and liabilities............... (512) (6) (704)
------- -------- ---------
Net cash used in operating activities...................... (2,655) (11,540) (4,417)
INVESTING ACTIVITIES
Purchases of property and equipment...................... (4,405) (16,807) (51,830)
Restricted cash.......................................... -- (3,974) (55,636)
------- -------- ---------
Net cash used in investing activities...................... (4,405) (20,781) (107,466)
FINANCING ACTIVITIES
Proceeds from debt....................................... 19 564 268,678
Payment of debt issue costs.............................. -- -- (14,139)
Net proceeds from issuance of common stock............... 1,732 -- 50,993
Proceeds from shareholders' loans........................ 7,942 27,358 13,205
Due to affiliated companies, net......................... 1,951 1,002 (1,237)
------- -------- ---------
Net cash provided by financing activities.................. 11,644 28,924 317,500
Effect of exchange rate changes on cash and cash
equivalents.............................................. 333 (374) (3,303)
------- -------- ---------
Net increase (decrease) in cash and cash equivalents....... 4,917 (3,771) 202,314
Cash and cash equivalents at beginning of year............. 867 5,784 2,013
------- -------- ---------
Cash and cash equivalents at end of year................... $ 5,784 $ 2,013 $ 204,327
======= ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE> 32
HERMES EUROPE RAILTEL B.V.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE TOTAL
----------------- PAID-IN TRANSLATION ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT CAPITAL ADJUSTMENT DEFICIT EQUITY
------- ------- ---------- ----------- ----------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
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)
Recapitalization, net of tax...... 190,388 96,712 4,633 -- -- 101,345
Compensatory stock options........ -- -- 2,613 -- -- 2,613
Translation adjustment............ -- -- -- (3,981) -- (3,981)
Net loss.......................... -- -- -- -- (29,689) (29,689)
------- ------- ------- ------- -------- --------
BALANCE AT DECEMBER 31, 1997...... 190,468 $96,757 $10,130 $(3,665) $(52,380) $ 50,842
======= ======= ======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
30
<PAGE> 33
HERMES EUROPE RAILTEL B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: NATURE OF BUSINESS OPERATIONS
Hermes Europe Railtel B.V. ("the Company") is developing and operating the
initial segments of a pan-European high capacity fiber optic network that is
designed to interconnect a majority of the largest Western and Central European
cities, and to transport international voice, data and multimedia/image traffic
for other carriers throughout Western and Central Europe.
The Company's objective is to become the leading pan-European carriers'
carrier by providing centrally managed crossborder 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").
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 has also restricted the growth of
high quality and competitive 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 adopted a directive (the "Full Competition Directive") requiring the
full liberalization of all telecommunications services in most EU member states
by January 1, 1998. The company expects that full liberalization in these
European countries will lead to the emerge of New Entrants with new and
competitive service offerings. The Company expects this increase in competition
will result in lower prices and a substantial increase in the volume of traffic
and range of telecommunications 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.
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., 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 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 transferred into equity.
Additionally, GTS-Hermes contributed ECU 46.0 million (approximately $51.8
million) and NMBS contributed a ten-year fiber optic cable lease with a fair
value of ECU 1.8 million (approximately $2.0 million).
31
<PAGE> 34
HERMES EUROPE RAILTEL B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (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 4, "Debt
Obligations").
The Company was a development stage enterprise through December 31, 1996.
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, HER Network Services B.V.B.A. (formerly Hermes Europe
Railtel N.V.), Hermes Europe Railtel (UK) Limited, Hermes Europe Railtel
(Holdings) B.V. and Beheer- en Beleggingsmaatschappij Vesto B.V. All significant
intercompany accounts and transactions are eliminated upon consolidation.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 and 1996 consolidated
financial statements in order to conform to the 1997 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 and $57.8 million of restricted cash at December 31, 1996 and
1997, respectively. The restricted cash is primarily related to cash held in
escrow for interest payments (see Note 4, "Debt Obligations").
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation, which includes the
amortization of assets recorded under capital leases, is calculated on a
straight-line basis over the lesser of the estimated lives ranging from five to
ten years for telecommunications equipment and five to ten years for furniture,
fixtures and equipment and other property, or their contractual term. A
substantial part of the costs includes construction in process, which is
currently related to the configuration and buildout 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 in service. Depreciation is recorded commencing with the
first full month that assets are placed into service. Maintenance and repairs
are charged to expense as incurred.
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
34, "Capitalization of Interest Costs," the Company intends to capitalize
material interest costs associated with the construction of capital assets for
business operations and amortize the costs over the assets' useful lives. The
Company has not capitalized any interest costs through 1997.
32
<PAGE> 35
HERMES EUROPE RAILTEL B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DEFERRED FINANCING COSTS
Deferred financing costs are amortized on a straight-line basis over the
lesser of their estimated useful lives or their contractual term, generally ten
years. In accordance with APB 17, "Intangible Assets," the Company continues to
evaluate the amortization period to determine whether events or circumstances
warrant revised amortization periods. Additionally, the Company considers
whether the carrying value of such assets should be reduced based on the future
benefits of its deferred financing costs.
LONG-LIVED ASSETS
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. Based on its analysis for
the years ended December 31, 1996 and 1997, the Company determined 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 Hermes Europe Railtel B.V., Hermes Europe Railtel
(Holdings) B.V. and Beheer-en Beleggingsmaatschappij Vesto B.V. are maintained
in Dutch guilders. The accounting records of the Belgian branch and HER Network
Services B.V.B.A. (formerly Hermes Europe Railtel N.V.) company are maintained
in Belgian francs. The accounting records of Hermes Europe Railtel (UK) Limited
are maintained in British pounds. The functional currency for the Company has
been determined to be the Belgian franc. Therefore, the Dutch guilder statements
and the British pound statements have been remeasured into Belgian franc
equivalents, consolidated with the Belgian branch and Belgian B.V.B.A.
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.
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.
33
<PAGE> 36
HERMES EUROPE RAILTEL B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. Billings received in advance of service being performed are
deferred and recognized as revenue as the service is performed.
NET LOSS PER SHARE
During 1997, the Company adopted SFAS No. 128, "Earnings Per Share," which
requires the Company to present basic and fully diluted earnings per share for
all years presented. The Company's net loss per share calculation (basic and
fully diluted) is based upon the weighted average common shares issued. There
are no reconciling items in the numerator or denominator of the Company's net
loss per share calculation. Employee stock options (see Note 5, "Employee
Benefits") have been excluded from the net loss per share calculation because
their effect would be anti-dilutive.
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. At December 31, 1996, the Company maintained most of its cash and
cash equivalents in high quality European financial institutions. At December
31, 1997, the Company maintained most of its cash and cash equivalents in high
quality U.S. financial institutions. The Company extends credit to various
customers and establishes an allowance for doubtful accounts for specific
customers that it determines to have significant credit risk.
The Company does not now hedge against foreign currency fluctuations,
although the Company is currently considering alternatives to hedge the foreign
exchange exposure resulting from the issuance of $265.0 million senior notes
(see Note 4, "Debt Obligations"). Under current practices, the Company's results
from operations could be adversely affected by fluctuations in foreign currency
exchange rates.
STOCK BASED COMPENSATION
SFAS No. 123, "Accounting for Stock-Based Compensation," establishes a fair
value method of accounting for employee stock options and similar equity
instruments. The fair value method requires compensation cost to be measured at
the grant date based on the value of the award and is recognized over the
service period. SFAS No. 123 allows companies to either account for stock-based
compensation under the new provisions of SFAS No. 123 or under the provisions of
APB No. 25, "Accounting for Stock Issued to Employees." The Company has elected
to account for its stock-based compensation in accordance with the provisions of
APB No. 25 and presents pro forma disclosures of net loss as if the fair value
method had been adopted.
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.
34
<PAGE> 37
HERMES EUROPE RAILTEL B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued two new standards which
become effective for reporting periods beginning after December 15, 1997. SFAS
No. 130, "Reporting Comprehensive Income," requires additional disclosures with
respect to certain changes in assets and liabilities that previously were not
required to be reported as results of operations for the period. The Company
will begin making the additional disclosures required by SFAS No. 130 in the
first quarter of 1998. SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," requires financial and descriptive
information with respect to "operating segments" of an entity based on the way
management disaggregates the entity for making internal operating decisions. The
Company will begin making the disclosures required by SFAS No. 131 with
financial statements for the period ending December 31, 1998.
NOTE 3: SUPPLEMENTAL BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
------- --------
(IN THOUSANDS)
<S> <C> <C>
Other assets consists of:
Deposits.................................................. $ 606 $ 9,577
VAT receivable............................................ 402 1,184
Interest receivable....................................... -- 918
Other assets.............................................. 92 1,602
------- --------
Total other assets.......................................... $ 1,100 $ 13,281
======= ========
Property and equipment, net consists of:
Telecommunications equipment in service................... $ 4,947 $198,723
Furniture, fixtures and equipment......................... 2,507 3,409
Leasehold improvements.................................... 543 840
Construction in process................................... 12,981 6,255
------- --------
20,978 209,227
Less: accumulated depreciation......................... 675 4,283
------- --------
Total property and equipment, net........................... $20,303 $204,944
======= ========
Accounts payable and accrued expenses consists of:
Trade accounts payable.................................... $ 5,445 $ 19,678
Accrued interest.......................................... 10 11,621
Accrued salaries and bonuses.............................. 1,150 2,058
Accrued consulting expense................................ 152 968
Accrued vacation expense.................................. 774 1,094
Other..................................................... 945 2,038
------- --------
Total accounts payable and accrued expenses................. $ 8,476 $ 37,457
======= ========
</TABLE>
35
<PAGE> 38
HERMES EUROPE RAILTEL B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4: DEBT OBLIGATIONS
Company debt consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
---- --------
(IN THOUSANDS)
<S> <C> <C>
Senior notes, due August 15, 2007 at 11.5% interest payable
semiannually.............................................. $ -- $265,000
Other financing agreements.................................. 562 433
---- --------
Total debt outstanding...................................... 562 265,433
Less: debt maturing within one year....................... 63 50
---- --------
Total long-term debt........................................ $499 $265,383
==== ========
</TABLE>
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 was placed 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 remain outstanding after each such
redemption. Pursuant to the covenants in the offering, the Company has filed an
S-4 registration statement with the Securities and Exchange Commission to
exchange registered senior notes, with the same terms and conditions as the
Senior Notes, for the Senior Notes.
On a pro forma basis, assuming the Senior Notes had been outstanding as of
January 1, 1997, the Company's net loss would have been $50.1 million for 1997,
as a result of interest expense of $30.5 million and amortization expense of
$1.4 million related to amortizing $13.7 million of deferred financing fees over
the term of the Senior Notes.
Aggregate maturities of long-term debt, as of December 31, 1997, are as
follows: 1998 -- $0.05 million, 1999 -- $0.05 million, 2000 -- $0.06 million,
2001 -- $0.06 million, 2002 -- $0.07 million, and $265.2 million thereafter.
NOTE 5: EMPLOYEE BENEFITS
The Company established a 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, an annuity contract,
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 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 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 pension costs for 1995, 1996 and 1997 were $0.05 million,
$0.4 million and $0.7 million, respectively.
In the fourth quarter of 1997, the Company implemented a stock option plan
for its key officers and employees (the "Stock Option Plan"). The ownership
dilution caused by the Stock Option Plan is not
36
<PAGE> 39
HERMES EUROPE RAILTEL B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
expected to be significant. As a result of issuing options under the Stock
Option Plan, the Company will incur a non-cash charge of approximately $3.7
million, of which $2.6 million was recorded during the fourth quarter and the
remaining $1.1 million will be recognized in 1998.
The Company applies the provisions of APB No. 25 in accounting for its
stock option incentive plans. The effect of applying SFAS No. 123 on the net
loss as reported is not representative of the effects on reported net loss for
future years due to the vesting period of the stock options and the fair value
of additional stock options in future years. Had compensation expense been
determined in accordance with the methodology of SFAS No. 123, the Company's net
loss for the year ended December 31, 1997 would have been approximately $29.9
million. The fair value of options granted was estimated between $51.80 and
$456.63 per share using the Black-Scholes option pricing with the following
assumptions: expected volatility of .50, dividend yield 0%, risk free interest
rate of 5.79% and an expected life of five years.
The Company maintains the Stock Option Plan, with the maximum number of
shares of common stock available for grant under the Stock Option Plan of
24,760. All options granted under the Stock Option Plan were at exercise prices
that were at least equal to the fair market value of common stock at the date of
grant. Generally, all options granted under the Stock Option Plan vest over a
three-year period from the date of grant and expire ten years from the date of
grant. There were a few exceptions in which the granting of options had
instantaneous vesting rights.
Additional information with respect to stock option activity is summarized
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
------- -----------------
<S> <C> <C>
Outstanding at beginning of year............................ -- $ --
Options granted............................................. 10,166 379.92
Options exercised........................................... -- --
Options canceled or expired................................. -- --
------ -------
Outstanding at end of year.................................. 10,166 379.92
====== =======
Options exercisable at year end............................. 6,244 $107.20
</TABLE>
The following table summarizes information about stock options outstanding:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE PRICE AT NUMBER CONTRACTUAL LIFE EXERCISE NUMBER EXERCISE
DECEMBER 31, 1997: OUTSTANDING (IN YEARS) PRICE EXERCISABLE PRICE
------------------ ----------- ---------------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
$83.12.............................. 5,500 8 $ 83.12 3,895 $ 83.12
$100.00 to $191.31.................. 2,762 8 113.92 2,032 112.59
$378.43 to $2,887.62................ 1,904 9 1,623.15 317 368.46
------ -----
10,166 8 $ 379.92 6,244 $107.20
====== =====
</TABLE>
37
<PAGE> 40
HERMES EUROPE RAILTEL B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6: INCOME TAXES
The components of loss before income taxes were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Pretax loss:
Domestic (the Netherlands)......................... $ (422) $ (608) $ (7,154)
Foreign............................................ (6,080) (15,361) (22,535)
------- -------- --------
$(6,502) $(15,969) $(29,689)
======= ======== ========
</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.
A deferred tax asset is recorded 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
assets:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1995 1996 1997
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................... $ 3,919 $ 11,729 $ 16,918
------- -------- --------
Total deferred tax asset............................. 3,919 11,729 16,918
Less: valuation allowance.......................... (3,919) (11,729) (16,918)
------- -------- --------
Total................................................ $ -- $ -- $ --
======= ======== ========
</TABLE>
As of December 31, 1997, the Company had net operating loss carryforwards
for Belgian and Dutch income tax purposes of approximately $43.1 million, which
are recoverable from profits for an unlimited period of time.
NOTE 7: SUPPLEMENTAL CASH FLOW INFORMATION
The following table summarizes non-cash investing and financing activities
for the year ended December 31, 1997:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
(IN THOUSANDS)
<S> <C>
Transfer of shareholders' loans to equity................... $ 48,491
Contribution of fiber optic cable lease..................... 1,989
Non cash compensation (stock options)....................... 2,613
Capitalization of leases.................................... 139,135
</TABLE>
There were no significant non-cash activities in 1996.
The Company paid interest of $0.02 million, $0.01 million and $1.2 million
in 1995, 1996 and 1997, respectively.
38
<PAGE> 41
HERMES EUROPE RAILTEL B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8: COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
Operating lease commitments are primarily for office space and car rental.
The office lease of the first office building has a term of nine years, expiring
on June 30, 2005, with an option to cancel January 1, 2002 upon the payment of
certain penalties. 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.
On April 29, 1997, the Company entered into a lease for a second office
building, with annual payments of $0.4 million beginning in October 1997 and
expiring on June 30, 2005.
Rental expense aggregated approximately $0.5 million, $0.7 million and $1.0
million for the years ended December 31, 1995, 1996 and 1997, respectively.
CAPITAL LEASES
Assets and liabilities under capital leases are included in the
consolidated balance sheets as follows :
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
---- --------
(IN THOUSANDS)
<S> <C> <C>
Telecommunications equipment in service..................... $ -- $150,787
Less: accumulated amortization............................ -- $ 482
---- --------
$ -- $150,305
==== ========
</TABLE>
Future minimum payments, by year and in the aggregate, under the capital
leases and other non-cancelable operating leases with initial or remaining terms
in excess of one year as of December 31, 1997 were as follows :
<TABLE>
<CAPTION>
CAPITAL LEASES OPERATING LEASES
-------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
December 31, 1998........................................ $ 26,679 $1,599
1999..................................... 14,217 1,448
2000..................................... 15,300 1,251
2001..................................... 16,465 1,041
2002..................................... 16,630 924
Thereafter............................................... 152,016 1,155
-------- ------
Total minimum lease payments............................. 241,307 $7,418
======
Less amount representing interest........................ 102,172
--------
Present value of net minimum lease payments.............. 139,135
Less current portion of capital lease obligations........ 21,490
--------
Long-term portion of capital lease obligations........... $117,645
========
</TABLE>
MAJOR CUSTOMERS
In 1997, the Company had two major customers, representing $1.8 million and
$1.2 million or 34.2% and 21.7% of revenue, respectively. There were no major
customers in 1995 and 1996.
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
39
<PAGE> 42
HERMES EUROPE RAILTEL B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
operates 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.
NOTE 9: RELATED PARTY TRANSACTIONS
The Company received financing through shareholders' loan transactions
provided by HIT Rail, GTS-Hermes, NMBS, and Swed Carrier. The Company had
outstanding shareholders' loans from HIT Rail and GTS-Hermes of $14.0 million
and $20.9 million, respectively, at December 31, 1996. All shareholder loans
outstanding were converted into equity during 1997 as part of the
Recapitalization (see Note 1, "Nature of Business Operations").
NOTE 10: SUBSEQUENT EVENTS
Subsequent to December 31, 1997, the Company further entered into
contractual commitments to lease fibre pairs, including facilities and
maintenance and utilizing the partial routes for laying fibre optic cable. Based
on the contract provisions, these commitments are currently estimated to
aggregate approximately $12.9 million. The commitments have expected lease terms
of ten to twenty-one years with options for renewal rights of one and one-half
to five additional years.
In an effort to expand its presence in Europe, the Company incorporated
subsidiary companies in The Netherlands, Ireland, The United Kingdom, Germany,
France, Italy and Spain. In Belgium, the activities of the Network Operations
Centre have been transferred to HER Network Services B.V.B.A (formerly Hermes
Europe Railtel N.V.).
NOTE 11: EVENTS OCCURRING SUBSEQUENT TO DATE OF AUDIT REPORT
In March 1998, HIT Rail sold all of its shares in the Company to
GTS-Hermes, NMBS and Swed Carrier. As a result of the sale, GTS-Hermes, NMBS and
Swed Carrier will own 89.4%, 7.2% and 3.4% of the Company, respectively.
40
<PAGE> 43
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
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 December 31, 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
Bo C. O. Hamnell......... 58 Senior Vice President and Director of Finance of the
Swedish State Railway and Chief Executive Officer of
ABSwedcarrier.
</TABLE>
BOARD OF MANAGING DIRECTORS
GTS-Hermes, Inc.
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............. 36 Corporate Director of Strategy and Planning
Bruce C. Rudy............ 42 Corporate Director of Business Development and Regulatory
John Allan Shearing...... 48 Corporate Operations and Engineering Director
Jan De Wispelaere........ 38 Corporate Legal Director
Steven Andrews........... 51 Corporate Administration Director
Francois Note............ 39 Corporate Financial Director -- Chief Financial Officer
(Principal Financial and Accounting Officer) (as of April
1, 1998)
</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
41
<PAGE> 44
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
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,
42
<PAGE> 45
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 includes a four and
one-half year assignment as President and Chief Operating Officer of Alcatel
Trade International, S.A.
Bo C. O. Hamnell, Member of Supervisory Board. Mr. Hamnell is Senior Vice
President and Director of Finance of SJ, the Swedish State Railway, a position
he has held since June 1993. Mr. Hamnell also serves as Chief Executive Officer
of AB Swedcarrier, a holding company for the SJ investments. Previously, Mr.
Hamnell has served as Chief Financial Officer starting in the early 1970's for
Bull General Electric and later Honeywell Bull and Compagnie Des Machines Bull
in both Scandinavia and in France. In the mid-1980's, Mr. Hamnell served as Vice
President and President for the Swedish Finance Group, Finax, with operations in
Sweden and Western Europe. Mr. Hamnell also served as part owner and vice
president of a group of companies in the electronics and finance business. Mr.
Hamnell has University degrees in Economics and business administration. Mr.
Hamnell is Chairman of the finance company SJ Invest AB and of the captive
insurance company SweRe AB and a board member of Scandlines AB, Svelast AB,
Swedcarrier AB, TGOJ AB, Combitrans Sweden AB, Rail-Combi AB and Eurofima S/A in
Basel, Switzerland.
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 Director of Strategy and Planning. Mr. Magnus
joined HER in January 1995 as Financial Director -- Chief Financial Officer,
responsible for treasury, financing, accounting and budgets, and served in that
capacity until October 1997, when he was appointed to his current position.
Prior to joining HER, from January 1992 to December 1994, he was Controller of
the Belgian operations of Cargill N.V.
Bruce C. Rudy, Corporate Director of Business Development and
Regulatory. 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
43
<PAGE> 46
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 -- Feldm(&)uhle 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.
Francois Note, Corporate Financial Director -- Chief Financial Officer (as
of April 1, 1998). In his position at HER, Mr. Note is responsible for treasury,
financing, accounting and budgets. Prior to joining HER, Mr. Note was employed
by Sandoz AG where he held different positions in the financial area. Since 1995
he was Head of Group Controlling at Sandoz and held this position after the
merger of Ciba Geigy and Sandoz, which resulted in the survivor company Novartis
International.
ITEM 11. EXECUTIVE COMPENSATION
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 $100,000 per
annum. One of his duties under the consulting agreement is to serve as a member
of the Board of Supervisory Directors of HER.
EXECUTIVE COMPENSATION
The following table sets forth each component of compensation paid or
awarded to, or earned by, the chief executive officer (who is the Managing
Director of HER) and the four most highly compensated executive officers other
than the chief executive officer (collectively, the "Named Executive Officers")
during the fiscal year ended December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------- -------------------------------------
OTHER ANNUAL RESTRICTED STOCK SECURITIES ALL OTHER
SALARY BONUS COMPENSATION AWARD(S) UNDERLYING OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($)
- --------------------------- ---- -------- ------- ------------ ---------------- ------------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Jan Loeber(1) 1997 $235,000 $78,608 $46,598(2) -0- 4,812(4) $179,450(10)
Managing Director 1996 235,000 78,608 42,806(2) (3) 3.5(4) 12,986(10)
Gerald J. Caccappolo(1) 1997 173,750 80,000 32,043(6) -0- 1,714(4) 4,000(5)
Corporate Director of 1996 160,000 40,000 42,108(6) -0- 1.5(4) 3,750(5)
Marketing and Sales
Peter Magnus 1997 136,391(7) 63,980(7) (8) -0- 687(4) -0-
Corporate Director of 1996 129,889(7) 32,472(7) (8) -0- 0.5(4) -0-
Strategy and Planning
Bruce Rudy(1) 1997 140,500 13,500 15,096(9) -0- 476(4) 3,850(5)
Corporate Director of 1996 135,000 13,509 18,416(9) -0- 0.5(4) 2,532(5)
Business Development and
Regulatory
John Shearing 1997 186,678 31,491(7) (8) -0- 476(4) -0-
Corporate Operations 1996 173,594(7) 35,163(7) (8) -0- -- -0-
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.
44
<PAGE> 47
(2) For 1997, the amount listed represents the sum of a cost of living
allowance of $16,450, a tax equalization payment of $13,953 that
compensates Mr. Loeber for the higher taxes he pays because he resides in
Belgium instead of the United States, use of a Company car and a gross-up
payment for certain tax liabilities in the amount of $11,648. For 1996, the
amount listed represents the sum of a cost of living allowance of $16,450,
paid home leave of 9,031, use of a Company car and a gross-up payment of
$12,778 for certain tax liabilities.
(3) Mr. Loeber has been granted a restricted stock award of 30,000 shares of
GTS common stock which vests in equal thirds, beginning in January 2, 1997.
(4) For 1997, represents stock options awarded under The Key Employee Stock
Option Plan of Hermes Europe Railtel B.V. (the "HER Stock Option Plan") For
1996, represents stock options granted under the GTS-Hermes, Inc. 1994
Stock Option Plan (the "GTS-Hermes Plan"). The stock options granted in
1997 are in substitution for the stock options granted in 1996, which have
been cancelled.
(5) These Named Executive Officers participate in the GTS 401(k) plan to which
GTS contributed the amounts indicated for 1997 and 1996.
(6) Mr. Caccappolo received a cost of living allowance of $12,163 and $11,200
in 1997 and 1996, respectively, and resides in a Company apartment which
the Company paid the equivalent of $16,109 and $17,928 per year in rent in
1997 and 1996, respectively. In addition, the Company provided Mr.
Caccappolo with the use of a Company car in 1997 and 1996.
(7) Converted from Belgian Francs to U.S. Dollars at an exchange rate of
BF35.77=$1.00 and BF32.04=$1.00 in 1997 and 1996, respectively.
(8) Perquisites and other personal benefits paid to Mr. Magnus and Mr. Shearing
during 1997 and 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 $15,096 and $16,855 during 1997
and 1996, respectively. In addition, the Company provided Mr. Rudy with the
use of a Company car in 1997 and 1996.
(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. For 1997, the amount also includes $156,700 which
represents the value at December 31, 1997 of 10,000 shares of GTS
restricted common stock which vested in 1997.
OPTION GRANTS IN THE LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE OR GRANT DATE
OPTIONS EMPLOYEES IN BASE EXPIRATION PRESENT
NAME GRANTED(#) FISCAL YEAR PRICE($/SH) DATE VALUE($)(2)
---- ---------- ------------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Jan Loeber............................... 4,812 47.33% 83.12 2006 2,234,019
Gerard J. Caccappolo..................... 1,714 16.86% 100.00 2006 776,185
Peter Magnus............................. 687 6.76% 83.12 2006 318,947
Bruce Rudy............................... 476 4.68% 191.31 2006 189,305
John Shearing............................ 476 4.68% 378.43 2007 148,998
</TABLE>
- ---------------
(1) Each stock option vests one-third on each of the first three anniversaries
of the date of grant, with one exception in which 100% vested immediately.
The Company established the HER Stock Option Plan to replace the GTS-Hermes
Plan during the fourth quarter of 1997. The options outstanding under the
GTS-Hermes Plan were cancelled and replaced by options under the HER Stock
Option Plan.
(2) The present value of each grant is estimated on the date of the grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions: dividend yield 0%, expected volatility of 0.50, risk-free
interest rate of 5.79 and expected life of five years.
45
<PAGE> 48
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND
FISCAL YEAR-ENDED OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FY-END(#) AT FY-END($)(2)
NAME EXERCISABLE/UNEXERCISABLE(1) EXERCISABLE/UNEXERCISABLE
---- ---------------------------- -------------------------
<S> <C> <C>
Jan Loeber..................................... 3,208/1,604 1,417,551/708,775
Gerard J. Caccappolo........................... 1,143/571 485,775/242,675
Peter Magnus................................... 687/0 303,572/0
Bruce Rudy..................................... 317/159 105,780/53,057
John Shearing.................................. 159/317 23,305/46,463
</TABLE>
- ---------------
(1) No options were exercised during the year ended December 31, 1997.
(2) Based on $525.00 per share value of common stock as of December 31, 1997
less the exercise price.
KEY EMPLOYEE STOCK OPTION PLAN OF HERMES EUROPE RAILTEL B.V.
HER has adopted the Key Employee Stock Option Plan of Hermes Europe Railtel
B.V. (the "New Plan"). Under the New Plan certain employees of HER will be
granted stock options to purchase HER common stock. Subject to adjustment in the
event of certain changes in capitalization, a maximum of 24,760 shares of HER
common stock will be authorized for grant under the New Plan which shall be
granted in the form of depository receipts (each a "Receipt"). Each Receipt will
represent a beneficial interest in one share of HER common stock that is subject
to stock options under the New Plan.
The New Plan is administered by a committee composed of three members of
the Board of Supervising Directors which will have broad discretion to determine
who shall receive awards under the New Plan, the terms of such awards and
interpret the New Plan. The New Plan shall become effective upon its adoption by
the Board of Supervising Directors and shall continue in effect until 2004,
unless terminated earlier by the Board of Supervising Directors.
Each stock option granted under the New Plan shall have a term of ten
years, except those granted in 1997 reflected in the table above. The exercise
price of each such stock option will be determined at the time of grant. In
addition the stock options granted under the New Plan will become exercisable at
such times and under such conditions as determined by the committee.
The Board of Supervising Directors may amend or terminate the New Plan at
any time, provided that the rights of participants are not impaired.
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 retirement equal to 450% of final annual
salary up to a specified ceiling which changes every year (in 1997 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
46
<PAGE> 49
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
<TABLE>
<S> <C> <C>
S = annual salary
S1 = S up to the "ceiling"
S2 = S above the "ceiling"
N = years of service up to a maximum of 35
</TABLE>
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.
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 BF6,677,487.
He may also receive a yearly performance-based bonus of up to 20% of his base
salary at the discretion of the Company. 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.
47
<PAGE> 50
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Ordinary Shares of the Company, as of December 31, 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, as adjusted for the March 1998
sale by HIT Rail of its ownership interest in the Company. See Item 13 -- "HER
Recapitalization."
<TABLE>
<CAPTION>
AS ADJUSTED FOR MARCH 1998
AS OF DECEMBER 31, 1997 SALE BY HIT RAIL
--------------------------- ---------------------------
NUMBER OF SHARES PERCENT NUMBER OF SHARES PERCENT
---------------- ------- ---------------- -------
<S> <C> <C> <C> <C>
GTS-Hermes, Inc................... 150,632 79.09% 170,307 89.42%
HIT Rail B.V.(1).................. 24,047 12.63 -0- -0-
SNCB/NMBS......................... 11,424 6.00 13,610 7.15
AB Swed Carrier................... 4,365 2.29 6,551 3.44
Jan Loeber........................ 3,208 1.68 3,208 1.68
Gerard J. Caccappolo.............. 1,143 * 1,143 *
Peter Magnus...................... 687 * 687 *
Bruce Rudy........................ 317 * 317 *
John Shearing..................... 159 * 159 *
Other officers.................... 730 * 730 *
All directors and executive
officers as a group(2)............ 6,244 3.28 6,244 3.28
Total................... 196,712 196,712
------- -------
</TABLE>
- ---------------
* Less than 1%
(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) Represents stock options in shares of the Company exercisable within 60 days
of December 31, 1997.
ITEM. 13. 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,
approximately 79% in 1997, and approximately 89% in March 1998.
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 December 31, 1997, GTS had approximately
37.6 million shares of common stock outstanding and shareholders' equity of
$113.7 million.
48
<PAGE> 51
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. In March 1998, HIT Rail sold all its shares in HER to GTS-Hermes,
SNCB/NMBS and AB Swed Carrier. As a result of such sale, GTS-Hermes, SNCB/NMBS
and Swed Carrier currently own 170,307, 13,610, and 6,551 shares of HER,
respectively, or 89.42%, 7.15% and 3.44%, respectively, of HER.
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. As a result of the March 1998 sale by HIT Rail of all its
shares, HIT Rail no longer has any rights or obligations, except as set forth
below, under the Shareholders Agreement and GTS- Hermes, acting alone, can
approve all the matters described above which require an 85% HER shareholder
vote.
ARTICLES OF ASSOCIATION AND SHAREHOLDERS AGREEMENT
Under the Articles of Association and the Shareholders Agreement, HER's
shareholders 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.
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
49
<PAGE> 52
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 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 direct shareholder of HER. As such, it is entitled to
propose a nominee for appointment to the Board of Supervisory Directors 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 30,000 shares of GTS common stock.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
a) The following documents are filed as part of this report:
1 Consolidated Financial Statements
The following consolidated financial statements of the Company are included
in Part II, Item 8 of this report:
- Consolidated Statements of Operations for each of the Three Years Ended
December 31, 1997, 1996 and 1995
- Consolidated Balance Sheets as of December 31, 1997 and 1996
- Consolidated Statements of Cash Flows for each of the Three Years Ended
December 31, 1997, 1996 and 1995
- Consolidated Statements of Changes in Stockholders' Equity (Deficit) for
each of the Three Years Ended December 31, 1997, 1996 and 1995
- Notes to Consolidated Financial Statements
50
<PAGE> 53
2 Consolidated Financial Statement Schedules
All other schedules are omitted because they are not applicable or not
required, or because the required information is either incorporated herein by
reference or included in the financial statements or notes thereto included in
this report.
b) Reports on Form 8-K
<TABLE>
<CAPTION>
DATE OF REPORT SUBJECT OF REPORT
- -------------- ------------------
<S> <C>
None
</TABLE>
c) Exhibits
<TABLE>
<CAPTION>
DESIGNATION DESCRIPTION
----------- -----------
<C> <S>
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
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
10.14** -- License, dated October 22, 1997 granted by the Secretary
of State of Industry relating to France
10.15** -- Authorization Letter, dated March 16, 1998, granted by
the Deputy Director of Federal Communication Office
relating to Switzerland.
</TABLE>
51
<PAGE> 54
<TABLE>
<CAPTION>
DESIGNATION DESCRIPTION
----------- -----------
<C> <S>
10.16**+ -- Fiber Agreement, dated September 24, 1997
10.17**+ -- Fiber Agreement, dated October 8, 1997
10.18**+ -- Fiber Agreement, dated December 15, 1997
21.1** -- List of Subsidiaries
27.1** -- Financial Data Schedule for the Year Ended December 31,
1997
</TABLE>
- ---------------
* Incorporated by reference to the correspondingly numbered Exhibit to
Amendment No. 4 to the Company's Registration Statement on Form S-4
(Commission File No. 333-37719).
** Filed herewith.
+ Confidential material has been redacted and filed separately with the
Securities and Exchange Commission.
52
<PAGE> 55
SIGNATURES
Pursuant to the requirements of the Section 13 or 15 (d) of the Securities
Exchange Act 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in Hoeilaart, Belgium,
on this 15th day of April, 1998.
HERMES EUROPE RAILTEL B.V.
By: /s/ JAN LOEBER
----------------------------------
Name: Jan Loeber
Title: Managing Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 15th day of April, 1998.
<TABLE>
<C> <S>
/s/ JAN LOEBER Managing Director (Principal Executive
- ----------------------------------------------------- Officer)
(Jan Loeber)
/s/ FRANCOIS NOTE Corporate Financial Director -- Chief
- ----------------------------------------------------- Financial Officer (Principal Financial and
(Francois Note) Accounting Officer)
/s/ GERALD W. THAMES Member of Board of Supervisory Directors
- -----------------------------------------------------
(Gerald W. Thames)
/s/ BERNARD J. MCFADDEN Member of Board of Supervisory Directors
- -----------------------------------------------------
(Bernard J. McFadden)
/s/ BO C.O. HAMNELL Member of Board of Supervisory Directors
- -----------------------------------------------------
(Bo C.O. Hamnell)
/s/ JAN LOEBER Member of Board of Managing Directors
- -----------------------------------------------------
GTS-Hermes, Inc.
By Jan Loeber,
Senior Vice President
and Representative
</TABLE>
53
<PAGE> 56
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
DESIGNATION DESCRIPTION
----------- -----------
<C> <S>
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
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
10.14** -- License, dated October 22, 1997 granted by the Secretary
of State of Industry relating to France
10.15** -- Authorization Letter, dated March 16, 1998, granted by
the Deputy Director of Federal Communication Office
relating to Switzerland.
10.16**+ -- Fiber Agreement, dated September 24, 1997
10.17**+ -- Fiber Agreement, dated October 8, 1997
10.18**+ -- Fiber Agreement, dated December 15, 1997
</TABLE>
<PAGE> 57
<TABLE>
<CAPTION>
DESIGNATION DESCRIPTION
----------- -----------
<C> <S>
21.1** -- List of Subsidiaries
27.1** -- Financial Data Schedule for the Year Ended December 31,
1997
</TABLE>
- ---------------
* Incorporated by reference to the correspondingly numbered Exhibit to
Amendment No. 4 to the Company's Registration Statement on Form S-4
(Commission File No. 333-37719).
** Filed herewith.
+ Confidential material has been redacted and filed separately with the
Securities and Exchange Commission.
<PAGE> 1
EXHIBIT 10.14
DECREE OF OCTOBER 22, 1997 AUTHORISING THE ESTABLISHMENT AND OPERATING OF
TELECOMMUNICATIONS NETWORKS OPEN TO THE PUBLIC : ALT 7
The Secretary of State for Industry,
Having regard to the Code of Post and Telecommunications and notably article
L.33-1;
Having regard to the law number 78-17 of January 6, 1978 on computers, files
and civil liberties;
Having regard to the law 78-23 of January 10, 1978 as modified on the
protection and information of consumers on products and services;
Having regard to the law of finance number 86-1317 of December 30, 1986 for
1987 as modified;
Having regard to the law number 90-1170 of December 29, 1990 as modified on
the regulation of telecommunications and notably its article 28;
Having regard to the law number 91-646 of July 10, 1991 on the secret of
correspondence using telecommunications;
Having regard to the law number 96-659 of July 26, 1996 on the regulations
of telecommunications, and notably its article 22;
Having regard to the ordinance number 58-1371 of December 29, 1958 on the
protection of installations of vital importance;
Having regard to ordinance number 59-147 of January 7, 1959 on the general
organisation of defence;
Having regard to ordinance number 86-1243 of December 1, 1986 as modified
relating to the liberty of prices and competition;
Having regard to decree number 65-28 of January 13, 1965 relating to the
organisation of civil defence;
Having regard to decree number 81-514 of May 12, 1981 which covers the
protection of secrets and information relating to national defence and state
security;
Having regard to decree number 83-321 of April 20, 1983 relating to the
powers of the state officers in non-military defence matters;
Having regard to decree number 93-119 of January 28, 1993 relating to the
appointment of qualified agents for the realisation of the material operations
necessary for the setting up of interception of correspondence issued by means
of telecommunications authorised under law number 91-646 of July 10, 1991;
Having regard to decree of February 3, 1993 as modified relating to the fees
for the use of radioelectric frequencies and management due by holders of
authorisations delivered in implementation of articles L.33-1 and L.33-2 of the
Code of Post and Telecommunications;
Having regard to decree number 93-1036 of September 2, 1993 relating to the
organisation of telecommunications in defence matters;
<PAGE> 2
Having regard to decree number 95-523 of May 3, 1995 relating to the tasks
of delegates and correspondents in defence zones;
Having regard to decree number 96-1224 of December 27, 1996 relating to the
fees due for the costs of management of the national numbering plan and control
of its use;
Having regard to decree number 97-188 of March 3, 1997 on interconnection as
provided for by article L.34-8 of the Code of Post and Telecommunications;
Having regard to decree number 97-475 of May 13, 1997 relating to the
financing of universal services taken in application of article L.35-3 of the
Code of Post and Telecommunications;
Having regard to decree of December 27, 1996 setting the value of the
coefficient for the tax base for fees for the cost of management of numbering;
Having regard to the request made by Hermes Europe Railtel on November 15, 1996
and completed by its letters of January 16, March 11 and April 23, 1997;
Having regard to decision number 97-167 of July 9, 1997 of the
Telecommunications Regulatory Authority approving the report relating to the
request of Hermes Europe Railtel BV in application of the law number 96-659
of July 26, 1996 and the draft decree and the attached schedule of conditions;
Whereas the requesting party has the technical and financial capacity to meet
the obligations required for the activity of operator of alternative
infrastructure,
Decides:
ARTICLE 1 - The company Hermes Europe Railtel BV is authorised to establish and
operate, in the geographic area described in chapter 1 of the schedule of
conditions attached to this decision, a telecommunications network open to the
public, with a view to supplying all forms of telecommunications services other
than telephone services to the public between fixed points, in accordance with
the technical and regulatory conditions set out in the attached schedule of
conditions.
ARTICLE 2 - The area covered by this authorisation could be extended on request
by the operator, under the conditions set out in chapter 1 of the schedule of
operating conditions.
ARTICLE 3 - This authorisation is delivered for a duration of 15 years as from
the date of publication of this decree. The conditions for its renewal are
defined in article L.33-1 of the Code of Post and Telecommunications.
ARTICLE 4 - This authorisation is individual to its holder and may not be
transferred without prior authorisation.
<PAGE> 3
ARTICLE 5 - The modifications of the share capital of the holder of the
authorisation and the company which controls it shall be notified before their
implementation to the Telecommunications Regulatory Authority for their prior
approval by the telecommunications Minister of substantial modifications.
ARTICLE 6 - The terms and conditions of the authorisation may be modified, if
this should be necessary, before January 1, 1998 in order to bring them into
conformity with the texts implementing the law on the regulation of
telecommunications of July 26, 1996 and the holder may not invoke acquired
rights in order to maintain them.
ARTICLE 7 - This authorisation does not give rise to any exclusive rights for
its holder.
ARTICLE 8 - The holder of the authorisation is bound to comply with the
decisions and the measures taken by the Telecommunications Regulatory Authority
in application of articles L.36-6 and L.36-8 of the Code of Post and
Telecommunications.
ARTICLE 9 - In case of failure to observe the conditions of the authorisation,
the Telecommunications Regulatory Authority may apply the sanctions provided
for in the Code of Post and telecommunications. This authorisation may, in
particular, be withdrawn by the Telecommunications Regulatory Authority without
prior notice, in case of substantial changes in the share capital which have
not been given prior approval. No sanctions legally incurred in application of
this paragraph shall give rise to a right to indemnity for the operator.
ARTICLE 10 - This decree shall be published in the Official Journal of the
French Republic.
Done in Paris, on October 22, 1997
For the Secretary of State and by delegation:
The Director of Post and Telecommunications,
P. de Guerre
<PAGE> 1
EXHIBIT 10.15
Federal Communications Office
Hermes Europe Railtel
Mr. Hartmut Seibel
Terhulpsesteenweg 6A
B-1560 Hoeilaart
Bienne, 16 March 1998-03-24
Contact: Phone: Our ref.: Your ref.
Peter Kindlmann +41 (0)32 327 5541 349.1/FG/23-1998
APPLICATION FOR LICENCE / AUTHORISATION
Dear Sir
We refer to your application for a licence dated 27 February 1998 and enclose
the authorisation which will allow you to carry out your activities as a
licensee until you receive the final licence.
You will receive an invoice for the administrative costs by separate letter.
We remain at your entire disposal for any further information you may require.
Yours faithfully
Federal Communication Office
Telecommunications Services
Peter Fischer
Deputy Director
Enclosure: as mentioned
Authorisation 349.1/0023
<PAGE> 2
FEDERAL COMMUNICATION OFFICE (OFCOM)
WITH REFERENCE TO THE APPLICATION FOR A LICENCE
HERMES EUROPE RAILTEL
NL-1077 AMSTERDAM
NETHERLANDS
OF 27 FEBRUARY 1998
* * * * *
considers:
1. APPLICATION
The applicant submitted an announcement form for providers of
telecommunications services on 15 December 1997, in which it describes the
services that it intended to offer, and according to which technical
specifications, and the area it is planned to serve.
By the application of 27 February 1998, the applicant requests to be able to
install and operate cabled networks intended to offer transmission services.
2. CONDITIONS TO BE MET FOR GRANTING OF AN AUTHORISATION AS DEFINED BY
ARTICLE 69 OST
In accordance with Article 69 of the Telecommunications Services Order (OST),
the licensing authority may authorise in full or in part any applicant who has
submitted an application for a licence before 30 June 1998 to carry on its
activities provisionally and subject to the granting of the licence. In so
doing, it may exclude certain parts of the application from the authorisation,
especially if this concerns applications for illegal frequencies or information
indicated in the application.
Article 60 OST governs the transitional period between 1 January 1998, date
when the new arrangements for telecommunications came into effect, and the
granting of definitive licences under the new law. In order to carry out the
liberalisation envisaged by the new telecommunications arrangements as soon as
possible, this provision gives suppliers of telecommunications services the
possibility of starting up or continuing their activities when the new law
comes into effect.
Authorisation 349.1/0023
<PAGE> 3
The licensing authority grants an authorisation to carry out activities in the
context of an application for a licence where the application shows that its
activities are subject to licensing and that it fulfils the conditions for
granting a licence. The scrutiny of applications is carried out using a
simplified procedure.
3. PROVISION OF TELECOMMUNICATIONS SERVICE BY CABLED TRANSMISSION MEANS
3.1 LICENSING SCHEME
The licensing scheme derives primarily from Article 4 of the Telecommunications
Act (LTC), and Articles 2 and 3 of the OST. Under these articles, a person who
provides a telecommunication service operating a large proportion of the
systems used in an independent manner must hold a licence.
The applicant indicated in the announcement form mentioned earlier that to
provide its communications services, it intends to operate itself and
independently the cabled means of transmission (section B1 of the announcement
form dated 15 December 1997).
The applicant thereby proved that it is subject to the licensing scheme.
3.2 CONDITIONS FOR GRANTING OF THE LICENCE
The conditions governing the granting of a licence are described in Article 6
LTC. This provision specifies that the licensee must have the necessary
technical capacities and that it must guarantee compliance with the applicable
law, particularly the provisions of labour law and usual working conditions in
the sector in question.
In addition, the applicant provided the indications requested in the guide for
the granting of a licence and, in particular, it submitted an outline of the
technical planning and named a technical manager responsible.
It also made it plausible that it was in a position to comply with the
Telecommunications Act and its implementing orders (Art. 6, para. b and c LTC).
In addition, it drew up a description of the appropriate measures that it
intends to take to guarantee the protection of the data and the privacy of
telecommunications.
With these indication in mind, the licensing authority has come to the
conclusion that the applicant has proved that it meets the conditions required
for licensing and that a provisional authorisation to carry out the activities
can be granted under Article 68 OST, until the definitive decision can be taken
on the request for a concession.
4. PROVISION OF TELECOMMUNICATIONS SERVICES BY MEANS OF A WIRELESS
COMMUNICATIONS SYSTEM
The applicant did not apply for a wireless communications licence.
Frequencies are a rare commodity, and their allocation must be coordinated in
the long term at national and international level, and it requires major
administrative work. For the moment, the right to obtain a wireless
communication licence only exists to the extent that sufficient frequencies are
available. For this reason, the granting of such a licence is subject to other
award procedures.
Authorisation 349.1/0023
<PAGE> 4
The decision about granting a wireless communication licence can only be taken
when a definitive licence is granted, a reason for which no authorisation as
defined by Article 69 OST is granted for the use of the frequency spectrum.
5. FEES
Under Article 40 LTC and Article 13 of the order on the costs and charges for
administrative procedures, a fee of 700 CHF is charged.
For these reasons, OFCOM
DECIDES:
The applicant hereby obtains, under number 349.1/0023, the authorisation to
carry out by means of cabled telecommunication systems, the activities subject
to licensing as shown in the application of 27 February 1998, until the
definitive decision is taken concerning the licensing application.
This provision comes into force with retroactive effect from 1 January 1998.
The fee to be paid by the application is set at 700 CHF.
Bienne, 16 March 1998-03-25
FEDERAL COMMUNICATION OFFICE
Telecommunications Services
Peter Fischer
Deputy Director
REMEDY AT LAW
This decision may be appealed within 30 days from the date of notification.
This must be done in writing (in duplicate) and must be signed with indication
of the wishes, reasons and the evidence, and must be submitted to the
Telecommunications Appeals Commission (Mr. Paul Ruest, President,
Zentralbahnstrasse 7, 4051 Basle).
ENCLOSURES: List of services announced
Authorisation 349.1/0023
<PAGE> 1
EXHIBIT 10.16
CONFIDENTIAL TREATMENT
Agreement
on the Realization and Utilisation of Fibre Optic Cables
("LWL(1)-Agreement")
between
Hermes Europe Railtel B.V.
Drentestraat 20
NL-1083 HK Amsterdam, the Netherlands
- subsequently referred to as "HER" -
and
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##
- subsequently referred to as ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT##-
- -------------------
(1) LWL=German abbr. Lichtwellenleiter=fiber optic cables
<PAGE> 2
CONFIDENTIAL TREATMENT
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<TABLE>
<S> <C>
Contents:
I. PREAMBLE......................................................................................1
II. DEFINITIONS..................................................................................2
III. PROVISIONS..................................................................................3
1. SUBJECT MATTER OF THE AGREEMENT...........................................................3
1.1 Performances on the side of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT##: ....................................................3
1.2 Assignment of rights of use...........................................................4
1.3 Installation of customer-specific connections.........................................5
1.4 Exchange of information: documentation................................................5
2. MODALITIES FOR FULFILMENT OF PERFORMANCES.................................................6
2.1 Phase concept.........................................................................6
2.2 Phase 1: Planning and preparation.....................................................7
2.3 Transition from phase 1 to phase 2: constructional release............................7
2.4 Phase 2: establishment of the partial route...........................................10
2.5 Transition from phase 2 to phase 3: provision.........................................10
2.6 Phase 3: attendance / maintenance.....................................................12
2.7 Reporting, consent by HER.............................................................15
2.8 Conditions for lease or purchase of single routes.....................................15
2.9 Special arrangements with regard to rights of way,
public-law approvals and cooperation with gas supply companies............................16
2.9.1 Rights of way on private properties.............................................16
2.9.2 Rights of way on railway properties, traffic routes and public areas;
failure to obtain public-law approvals................................................18
</TABLE>
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CONFIDENTIAL TREATMENT
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<TABLE>
<S> <C>
2.9.3 Cooperation with gas supply companies...........................................19
3. HER PERFORMANCES..............................................................................20
3.1 Principles of payment determination, definitions......................................20
3.1.1 Principles of payment determination.............................................20
3.1.2 Definitions.....................................................................20
3.2 The modified cost plus procedure......................................................22
3.2.1 Fundamentals of user fee determination according to the
cost plus procedure............................................................22
3.2.2 Contractual mean value..........................................................22
3.2.3 Calculation value for technical costs...........................................22
3.2.4 Compensatory rights of way and field costs......................................23
3.2.5 Calculation value for the overall costs.........................................23
3.2.6 Compensatory user fee pre-payment...............................................23
3.2.7 Increase in the user fee pre-payment............................................24
3.2.8 Annual user fee.................................................................25
3.3 Incremental costs upon HER's request..................................................26
3.4 Auditing right........................................................................26
3.5 Special adjustment of user fee........................................................26
3.5.1 Principle.......................................................................26
3.5.2 Exceptions: existing LWL cables and cable duct routes...........................29
3.5.3 Exceptions: co-laying for gas supply companies..................................29
3.5.4 Operating fibres................................................................29
3.6 Operating and administration costs....................................................30
3.7 Adjustment of payments................................................................30
3.7.1 Adjustment of the payment for operation and administration......................30
3.7.2 Adjustment of the annual user fee...............................................32
4. SPECIAL PROVISIONS FOR THE PARTIAL ROUTE ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##............................................34
4.1 Cable specifications..................................................................34
4.2 User fee..............................................................................34
</TABLE>
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CONFIDENTIAL TREATMENT
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<TABLE>
<S> <C>
4.3 Liability and warranty, date of provision.............................................35
4.4 Attendance/maintenance................................................................36
4.5 Termination by the primary user.......................................................36
4.6 Payment terms.........................................................................37
5. SUPPORT FOR DETERMINATION AND REALIZATION OF SYSTEM
ENGINEERING LOCATIONS.........................................................................37
5.1 Use of station/system engineering locations...........................................37
5.2 Planning and handling engineering - for system engineering locations..................39
5.3 Payment...............................................................................39
6. WARRANTY, LIABILITY, TERMINATION RIGHTS.......................................................40
6.1 Warranty and liability................................................................40
6.1.1 Stipulations for warranties and liability in phase 1............................40
6.1.2 Stipulations for warranties and liability in phase 2............................41
6.1.3 Stipulations for warranties and liability in phase 3............................43
6.1.4 Liability regulations for support during determination of
system engineering locations....................................................44
6.1.5 Force Majeure...................................................................45
6.1.6 Final regulations for warranties and liability..................................46
6.2 Termination rights....................................................................46
6.2.1 Independence of the partial routes..............................................46
6.2.2 Termination rights in phase 1...................................................46
6.2.3 General termination rights......................................................47
6.2.4 Termination due to special specific facts.......................................47
6.2.5 Consequences of termination.....................................................48
7. GENERAL STIPULATIONS..........................................................................49
7.1 Payments..............................................................................49
7.1.1 Turnover tax, charges...........................................................49
7.1.2 Maturity........................................................................50
7.1.3 Delay in payment................................................................51
7.1.4 Invoicing.......................................................................51
</TABLE>
<PAGE> 5
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<TABLE>
<S> <C> <C>
7.1.5 Bank accounts...................................................................52
7.1.6 Set-off, retention..............................................................53
7.2 Term / renewal option.................................................................53
7.3 Warranty of appropriate capitalization................................................53
7.4 TK(2) approvals ......................................................................54
7.5 Confidentiality.......................................................................55
7.6 Applicable law........................................................................57
7.7 Profitability clause..................................................................57
7.8 Severability..........................................................................57
7.9 Amendments/modifications..............................................................58
7.10 Assignment to other corporations.....................................................58
7.11 Technical expert.....................................................................59
7.12 Arbitration clause...................................................................59
7.13 Attribution of previous acts and representations.....................................60
7.14 Consent of the supervisory boards....................................................60
7.15 Agreement Schedules..................................................................61
</TABLE>
- -------------------
(2) TK = German abbr. Telekommunikation=telecommunication
<PAGE> 6
CONFIDENTIAL TREATMENT
-1-
I. PREAMBLE
HER operates in the telecommunications market and plans to establish a
Europe-wide telecommunications network. For this purpose, HER wishes to use
fibre optic routes (subsequently referred to as "partial routes") along the
regional and supra-regional natural gas lines of gas supply companies for their
telecommunications network on a long term basis.
Along the pipelines operated by the gas supply companies, cables have been laid
serving the gas supply company, i.e. the exchange of information and the
telephony in connection with gas supply and remote monitoring and control of the
line network. By change-over to fibre optic technology cable capacities can be
extended and utilized for general telecommunications.
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##, whose partners are gas supply companies, is interested in realizing
partial routes along the gas lines of its partners, if applicable even by use of
the lines of other gas supply companies, and in granting to HER a long-term
right to use realized partial routes for offering telecommunications services.
If necessary, partial routes will also be leased. ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##, not intending any
exclusive provision of lines to merely one user, also realizes similar projects
and appropriate negotiations with other telecommunications companies.
The routes desired by HER should be provided by ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##, if possible. The
parties are aware of the fact that this means an extreme time pressure for the
projects and that thus, special proceedings will be necessary. For that reason
the parties concluded still prior to conclusion of the LWL agreement on April
24, 1997 an "agreement about route line planning" (subsequently referred to as
"planning agreement") on the basis of which ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## has already started
preparatory works.
The parties consent that the contract is to be executed in three phases, which
are described in more detail under No. 2 of the following agreement. For each of
these phases special regulations according to the actualities of the phase will
apply, namely with regard to warranty, liability and termination rights. In
particular, it is intended to eliminate for a considerable part any
imponderability in the course of the planning works in phase 1 connected with
the establishment of partial routes which, among others,
<PAGE> 7
CONFIDENTIAL TREATMENT
-2-
result from necessary third party approvals, authority consents, natural
influences, etc..
HER and ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## plan a long-term cooperation which is meant to exceed the routes
referred to in this contract.
Therefore, HER and ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## conclude the following agreement, explicitly including
the statements contained in the above preamble into the contents of this
agreement:
II. DEFINITIONS
In this agreement and the schedules hereto words and expressions shall have the
meanings ascribed to them below:
1. "FIBRE OPTIC ROUTE" (subsequently referred to as "LWL ROUTE") is the
route in a geographical sense on which a fibre optic cable is or shall
be laid.
2. "FIBRE OPTIC CABLE" (subsequently referred to as "LWL CABLE") is a cable
of optical waveguide fibres ("LWL FIBRES"); "OPTICAL WAVEGUIDE CABLE
INSTALLATIONS" (subsequently referred to as "LWL CABLE INSTALLATIONS")
are those jointly laid cable ducts, LWL cables including assembly
accessories (e.g. coupling sleeves), and construction installations up to
the patch field.
3. "SYSTEM ENGINEERING LOCATIONS" are locations for installations with
transmission installations (e.g. regenerators) along the LWL route
including all pertinent facilities and infrastructural installations.
4. "PARTIAL ROUTES" are determined in the LWL agreement with their starting
and end points as well as the route course, and contain the LWL fibre
connections including the necessary components of the LWL cable
installations. The partial routes are listed in SCHEDULE 2 and are thus
subject matter of the agreement.
<PAGE> 8
CONFIDENTIAL TREATMENT
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5. A "SECTION" is a part of a partial route.
6. The "TOTAL NETWORK" is the entity of all partial routes.
III. PROVISIONS
1. SUBJECT MATTER OF THE AGREEMENT
1.1 PERFORMANCES ON THE SIDE OF ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##:
1. The contractual performance on the side of ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## is the
granting of a possibility to use the partial routes listed in Schedules 1
and 2 for the purpose of telecommunications which ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## plans and
establishes for the purpose of marketing to telecommunications service
providers as well as for the purpose of operating gas supply companies,
as described in the agreement. For the term of the partial routes' use
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## has to take care of the maintenance, especially maintenance
within the scope determined in Schedule 3.
2. The LWL cables to be laid by ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## on the routes desired by HER
will in general be laid in the shelter belts, parallel to the natural gas
lines of the gas supply companies. Partially, these are partners of
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##.
3. The special routes and the partitioning into partial routes are shown in
SCHEDULE 1 (general map) and SCHEDULE 2 (listing of partial routes). In
case of inconsistencies between the map (Schedule 1) and the listing of
partial routes (Schedule 2), the listing of partial routes (Schedule 2)
will prevail. The technical specifications and the performance data of
the partial routes result from SCHEDULE 3 (technical conditions).
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## LWL cable installations will end at the appropriate
transition points or the passive branching points ("TRANSITION POINTS")
according to Schedule 3.
<PAGE> 9
CONFIDENTIAL TREATMENT
-4-
4. When establishing new LWL cables, a separate cable will be laid for HER
in which besides HER only those gas supply companies will have a right of
use for altogether ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## LWL fibres, whose lines are to be
used. Due to this right, the gas supply companies will only be entitled
to use the fibres for gas business operating purposes and not for
telecommunications services (transmission of speech and data in the sense
of the telecommunications law ("TKG"(3)) beyond gas business operations;
in this regard, ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT## will grant fractional ownership in the LWL
cable installations to the gas supply companies. With regard to this
exclusive use of those LWL fibres allocated to the gas supply companies
for the purposes of the gas business, the regulations on the
supplementary marketing of new routes under No. 3.5.1 do not apply.
5. Should it turn out, in case of intended use of existing installations by
lease or purchase, that the installation in question does not comply with
the specifications shown in Schedule 3, the following will apply: HER
will decide whether they want to use the cable in question; should HER
decide not to use it, ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## will not be obliged to provide the
section in question. In this case, the parties will agree upon a
procedure for completion of the partial route. Should no agreement be
achieved, each party will be entitled to give a 30 days notice of
termination with regard to the appropriate partial route. HER, however,
will be free to maintain this contract with regard to those sections of
the partial route, where the impediments in this clause referred to. The
legal consequences of the termination are determined under No. 6.2.5.,
clauses 1 - 4.
1.2 ASSIGNMENT OF RIGHTS OF USE
1. ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## grants to HER a right for free and unlimited use for
telecommunications purposes of the LWL fibres provided to HER within the
scope of this agreement. Not included in this right is the granting of
blank LWL fibres ("DARK FIBRE") by HER to third parties; such use
requires ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## consent. The consent will in any case be granted
if in total a maximum of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## fibres will be left to third
parties. As for the rest, Section 549 clause 1 sentence 2 BGB(4) will be
contracted out.
- ---------------
(3) TKG = German abbr. Telekommunikationsgesetz=telecommunications law
(4) BGB = German abbr. Burgerliches Gesetzbuch = German Civil Code
<PAGE> 10
CONFIDENTIAL TREATMENT
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2. Any property of and ownership in partial routes, completed or partially
completed, will remain with ##MATERIAL OMITTED AND SEPARATELY FILED UNDER
A REQUEST FOR CONFIDENTIAL TREATMENT##, including the planning results;
or, in case of the partial routes being leased, with the appropriate gas
supply company. This will equally apply in case of a possible termination
for partial routes.
3. The functional sovereignty in the sense of the TKG is with HER.
1.3 INSTALLATION OF CUSTOMER-SPECIFIC CONNECTIONS
1. ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## will establish the branching points (branch sleeves) and
cable constructions to be considered for installation according to HER
specifications.
2. In case of a later addition of exit points through HER, ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##
will perform the connecting work in return for reimbursement of all
incurring costs by HER.
1.4 EXCHANGE OF INFORMATION: DOCUMENTATION
1. Exclusively for the purpose of project performance, the parties will
mutually provide information and documents necessary for further project
planning and realization.
2. For every partial route provided, ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## will hand over to HER a line
documentation on the scale 1:25,000. For interconnection points and
passive branches the maps will be handed over on the scale 1:1,000 or
1:2,000. These documentations will be handed over to HER latest 16 weeks
after having provided a partial route. In addition, ##MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## will
provide HER with the documents on the scale 1:25,000, mentioned in this
clause also in electronic form, in a common format on a disc. If
applicable, HER will in addition also receive detailed documents in
return for reimbursement of costs, to be exclusively used in connection
with the project.
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CONFIDENTIAL TREATMENT
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2. MODALITIES FOR FULFILMENT OF PERFORMANCES
2.1 PHASE CONCEPT
1. The project is divided into three phases.
a) Part of the first phase are planning engineering, purchase and
enforcement of the rights of way, obtaining of public-law approvals,
negotiations about the support and, if necessary, about the purchase
or the lease of existing installations with the gas supply companies
as well as all other planning and preparatory actions to be performed
in an expert manner by ##MATERIAL OMITTED AND SEPARATELY FILED UNDER
A REQUEST FOR CONFIDENTIAL TREATMENT## ("PHASE 1"). The chronological
order of planning and preparatory actions is described in the
milestone schedule, Schedule 4, No. 1. to 34.
b) Part of the second phase are the provision of materials for the cable
installation, giving of building orders, their execution and
monitoring as well as provision of the partial routes by ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## ("PHASE 2"). The chronological order of the executional
actions is described in the milestone schedule, Schedule 4, No. 36 to
49 and No. 67 to 74.
c) Part of the third phase is that ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## leaves the LWL
fibres to HER for use, furthermore, the attendance of the partial
routes provided as well as, in particular, their maintenance by
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## ("PHASE 2").
Further details of the phase concept, including a more detailed
description of the actions according to the individual phases by
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##, are determined in the following clauses No. 2.2 to 2.6.
2. The contractual partial routes and / or the individual sections of
partial routes may differingly be in either phase 1 or phase 2. Phase 3
only refers to whole partial routes.
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CONFIDENTIAL TREATMENT
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2.2 PHASE 1: PLANNING AND PREPARATION
1. In this phase, the imponderabilities resulting from the influence of
third parties in connection with purchase and / or enforcement of rights
of way or obtaining of public-law approvals as well as the impacts of
time pressure with regard to contract implementation - certain activities
such as investigations with regard to nature conservation laws or wood
felling can only be performed in certain seasons - will have a special
impact. As far as ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT## will execute these works in phase 1, the
parties use HER's position in self-executing projects as a basis with
regard to the take-over of the risks connected with the works in this
phase - especially with regard to time schedules and terminations. This
is taken into account by the regulations of this agreement regarding
warranty, liability and termination rights, in particular the regulations
under No. 2.9 and the regulations under No. 6 referring to phase 1.
2. For the execution of phases 1 and 2 regarding all contractual partial
routes, the parties proceed from the milestone schedule enclosed as
SCHEDULE 4 ("MILESTONE SCHEDULE"). In this schedule, significant basic
points / fractions of the contract execution in the phases 1 and 2 are
defined ("MILESTONES") and provided with the projected dates ("TARGET
DATES"). The milestone schedule first of all only serves for joint
schedule follow-up with regard to those partial routes or sections where
still phase 1 works are to be performed. If and in so far as in partial
routes or sections phase 2 works will be started after completion of
phase 1 works, the milestone schedule - adjusted according to No 2.3 if
applicable - will be binding.
2.3 TRANSITION FROM PHASE 1 TO PHASE 2: CONSTRUCTIONAL RELEASE
1. In case that all phase 1 planning and preparatory activities with regard
to a partial route are completed on the target date projected in the
milestone schedule, phase 2 will start for that appropriate partial
route. ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## will forthwith start with the technical and
constructional route establishment. With beginning of phase 2, the target
dates determined in the milestone schedule for provision - defined as
establishment weeks or days beginning with completion of phase 1 - will
be binding subject to the regulation stated under the following No.
2.3.4.
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2. In case that all phase 1 planning and preparatory activities of a partial
route will be completed on a date later than the target date projected in
the milestone schedule, phase 2 works will be started on this partial
route. The milestone schedule, however, will be adjusted, if applicable,
according to clause 4. The adjusted milestone schedule will thereafter be
binding for phase 2 works. ##MATERIAL OMITTED AND SEPARATELY FILED UNDER
A REQUEST FOR CONFIDENTIAL TREATMENT## will forthwith start all technical
and constructional route establishments.
3. If and as soon as it can be foreseen that, for a partial route, phase 1
cannot be fully completed on the date determined in the milestone
schedule, ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## will inform HER about this fact.
If immediate start of phase 2 works in individual sections of this
partial route with regard to meeting the provision date is deemed to be
sensible, ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## will suggest to HER to start phase 2 works in
these sections of the partial route.
Between ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## and HER there is unanimity that, upon completion
of phase 1 works for one section of at least 50 km, phase 2 will
automatically be started for this section. Thus, the target dates
determined in the milestone schedule - defined as establishment weeks or
days - beginning with completion of phase 1 for provision of this section
will be binding subject to the regulation under the following No. 2.3.4.
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## will inform HER accordingly. As far as phase 1 will be
completed in adjacent sections, phase 2 will also be automatically
started for these sections implying the legal consequences described
above; ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## will inform HER accordingly.
Something else will only apply if ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##, for particular reasons,
finds this inappropriate, if ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## informs HER about that by
mentioning the reasons and if HER agrees to waiting within the scope
suggested by ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##. Should HER refuse to agree, phase 2 will be
started for the appropriate section upon receipt of an appropriate notice
from HER at ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##.
As soon as the phase 2 works on individual sections of a partial route
have been started, ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## will, within the scope of the
projected technical capacities, extend the building works
<PAGE> 14
CONFIDENTIAL TREATMENT
-9-
to other sections of this partial route on which phase 1 has not yet been
finished, if this is advantageous in particular with regard to meeting
the provision date. With regard to the liability for the works in these
other sections, No. 6.1.1 as well as in addition 6.1.2 d) will apply.
4. Prior to the start of phase 2 works in a partial route or a section,
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## will check whether the original target dates determined in
Schedule 4 can be met. The establishment period determined, beginning
with end of phase 1 in the milestone schedule in weeks or days, will on
principle remain unaffected hereof.. Should it turn out, however, upon
completion of phase 1 that due to external influences beyond the control
of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## or their vicarious agents, which even in case of
expert-wise technical proceeding could not have been foreseen, such as
route displacement due to unobtained authority approvals, authority
orders or conditions, unforeseeable technical difficulties etc., special
measures become necessary, the schedule will be adjusted to the thus
resulting extent. This is, however, only applicable if due to the
described external influences, the necessary additional time exceeds one
week.
Should the parties not achieve any agreement about the adjustment of the
milestone schedule according to No. 7.11 as described in the clause
above, an independent expert will take the decision. The same is
applicable for dissents about the question of the duration of an
appropriate adjustment of the schedule. ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## will continue the
works, regardless of any possible dissents about the adjustment of the
milestone schedule.
5. In case that only individual sections of a partial route have proceeded
to phase 2, ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## will still be obliged to provide the remaining
sections of this partial route as soon as possible. ##MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## is
entitled to execute phase 2 works in these sections at any time.
6. The parties will immediately perform or grant in writing all notices or
consents mentioned in this No. 2.3, latest within 3 working days.
<PAGE> 15
CONFIDENTIAL TREATMENT
-10-
The same is applicable for any information about the fact that any
consent will not be granted.
2.4 PHASE 2: ESTABLISHMENT OF THE PARTIAL ROUTE
1. The establishment of partial routes will be effected by new establishment
and / or lease of partial routes and / or acquisition of ownership of
existing installations.
2. As far as ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## has to newly establish partial routes or
sections, ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## will perform or have performed all
constructional and technical measures in phase 2 that are necessary to
provide a partial route to HER on the provision date, complying with the
specifications determined in Schedule 3 of this agreement.
As far as the provision of the partial routes has to be effected by
purchase or lease of existing partial routes or sections, ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##
will conduct the appropriate negotiations. For these cases, the
specifications according to Schedule 3 will not be binding.
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## will strive for meeting the specifications, if possible.
According to No. 1.1.5., HER will decide about the conclusion of
appropriate lease or purchase contracts.
3. With regard to warranty, liability and termination, No. 6.1.2 and 6.2.4
will be applicable for phase 2 works.
2.5 TRANSITION FROM PHASE 2 TO PHASE 3: PROVISION
1. Upon completion of the partial route, ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## will perform a
provision measuring and leave the partial route to HER for use
(provision).
2. ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## will notice HER at least on week in advance about when the
provision measuring will be performed. HER is entitled to participate in
this provision measuring. The technical scope and the technical
procedures are determined in the technical conditions (Schedule 3). Upon
completion of the provision measurings, ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## will hand over to HER
copies of the measuring protocols, on a disc, too.
<PAGE> 16
CONFIDENTIAL TREATMENT
-11-
The partial route is provided according to the agreement if the
specifications according to the technical conditions (Schedule 3) are met
and ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## proves this to HER by handing over appropriate
verifications. Thereupon, HER is entitled to perform own measurings at
the LWL cables.
Should HER note that the partial route does not meet the specification,
HER will inform ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT## about this fact within 10 days after the
above mentioned verifications having been handed over. Should the partial
route not meet the specification and provided that HER has given notice
to ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## on time, the partial route is deemed not to have
been provided.
In any other case, the legal consequences of provisions will occur on the
11th day after having handed over the verifications.
As provision date according to No. 3.2.7.3 and No. 6.1.2 shall be deemed
the day of the provision measuring.
3. The above mentioned regulations will apply accordingly for a technically
faulty partial route at the time of provision as long as the technical
defaults are so insignificant that all LWL fibres stand at disposal and
the transmission characteristics only differ so insignificantly from the
specification that the operational use of the partial route is still
possible.
4. Should the partial route not comply with the specifications, ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##
is forthwith obliged to create operational readiness of the partial route
according to the specifications. ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## will give notice to HER
about the completion of the default elimination; then, the procedure for
provision, as described above, shall be repeated.
Should the elimination of the default not be achieved within an
appropriate delay and should the elimination of the default fail, in
spite of a period of grace of at least 4 weeks having been granted, HER
will be entitled to terminate this partial route. The termination
consequences result from No. 6.2.5.. Any compensation and warranty claims
for HER with ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## do not exist, except for the contractual
penalties provided for in No. 6.1.2.
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## already now assigns possible claims with subcontractors to
HER. HER accepts this assignment.
<PAGE> 17
CONFIDENTIAL TREATMENT
-12-
5. Should it not be possible to perform the procedure according to the
technical conditions (Schedule 3) because the appropriate system
engineering locations do not stand at disposal, and provided that no case
in the sense of No. 6.2.4 is present, HER will pay for the thus incurring
additional routing costs. In this case, ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## can request a payment
on account for the route costs incurred up to that date. Should, after
expiry of another 90 days, the appropriate system engineering locations
still not stand at disposal, No. 6.2.4. will apply.
2.6 PHASE 3: ATTENDANCE / MAINTENANCE
1. The contractual period of use for each partial route is always ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##and starts with provision of the partial route in the sense of
No. 2.5. Any delayed provision, compared to the target date determined in
the milestone schedule, does not change the appropriate period of use of
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##after provision.
2. ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## attendance and maintenance performances result from Schedule
3. ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## will render these performances beginning with
provision of the first partial route.
3. Within the scope of maintenance and repair due to gas activities and / or
due to displacements becoming necessary (road construction, etc.) the
necessary planned times of closing down or turning off the LWL fibres are
admissible within the scope of the contractual use. The planning and
adjustment procedure for planned works is determined in Schedule 3
(technical conditions).
4. In case of interruptions of partial routes, the following will apply:
a) Is the admissible outage time of ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## h/100 km/a -
commercially rounded to full hours - exceeded due to malfunctions,
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## will pay a contractual penalty to HER, regardless of who is
responsible for the malfunction (lumb sum warranty of the network
availability). For the determination of the amount, all outage times due
to malfunctions (i.e. unplanned outage times) in the whole network as
well as the route length of the whole network will be taken into
consideration.
The contractual penalty will be determined as follows:
<PAGE> 18
CONFIDENTIAL TREATMENT
-13-
The user fee pre-payment for the whole network resulting from No.
3.2.6., i.e. the sum of the user fee payments for all partial routes,
will be multiplied with a factor of ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## % and divided by
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## h; the result is the fictitious user fee per
hour.
Per hour of exceeded time, the contractual penalty is ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##-fold the fictitious user fee per hour. The exceeded time
is calculated to minutes in this regard. The contractual penalty is
limited to ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT## hours of exceeding time per 100 km route
length of the whole network, with regard to the amount.
For the determination of the outage hours, the different numbers of
LWL fibres of the cables affected by the outages are taken into
account, converted to cables with ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## LWL fibres used by
HER; should the cable have more than ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## LWL
fibres used by HER, the real outage time per outage is reduced to
calculatory ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT## minutes per LWL fibre with over
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## LWL fibres used by HER. In case that the
connection has got a length of more than 60 km between the system
engineering locations, ##MATERIAL OMITTED AND SEPARATELY FILED UNDER
A REQUEST FOR CONFIDENTIAL TREATMENT## additional hour per outage
will be deducted. For the determination of outage hours, major
damages or a possible loss of partial routes or the network will not
be taken into consideration; for these cases, the regulation of No.
2.6.4 e) will apply.
The determination and payment of the contractual penalty will be
performed every two years, the outage times due to malfunctions of
the two recent years being added and the route length of the network
being twice considered. For the calculation of the fictitious user
fee, ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## the value of the user fee pre-payment is
taken as a basis. In case of an extension of the whole network by
means of later contracts, the new partial routes and their outage
times due to malfunctions will be calculated on a pro rata basis. If
the whole network finally has got a length of more than ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## km upon completion of the appropriate two-year rotation,
there will be a switch-over to annual calculation of the contractual
penalty. Schedule 5 contains a calculation example.
<PAGE> 19
CONFIDENTIAL TREATMENT
-14-
b) If the admissible inteference times (definition compare Schedule 3)
are exceeded, ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT## pays a contractual penalty according to
the following table - unless ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## proves that it is not
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## or their vicarious agents' fault; already a
slight negligence is deemed to be a fault. The contractual penalty is
payable in addition to a possibly payable contractual penalty
according to No. 2.6.4 a).
<TABLE>
- -----------------------------------------------------------------------------------------------------------------
<S> <C>
Exceeding of the admissible interference time of Contractual penalty in DM per hour:
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT##
- -----------------------------------------------------------------------------------------------------------------
for the first ##MATERIAL OMITTED AND SEPARATELY FILED ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## REQUEST FOR CONFIDENTIAL TREATMENT##
- -----------------------------------------------------------------------------------------------------------------
for the ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT##: REQUEST FOR CONFIDENTIAL TREATMENT##
- -----------------------------------------------------------------------------------------------------------------
for the ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT##: REQUEST FOR CONFIDENTIAL TREATMENT##
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
In case that the cable in question has got more than ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## LWL fibres used by HER, the admissible interference time
per interruption is increased by
<PAGE> 20
CONFIDENTIAL TREATMENT
-15-
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## minutes per LWL fibre with more than
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## LWL fibres used by HER. In case that the
connection in question between the system engineering locations has
got a length of more than ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## km, the admissible
interference time is increased by ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##.
Schedule 5 shows a calculation example.
The regulation of this No. 2.6.4. b) is not applicable for major
damages or loss. For these cases, No. 2.6.4. d) and e) will apply.
c) In case that an operational interruption has been caused by
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## or their vicarious agents by intent or by
negligence (regardless of the degree of negligence), ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## will pay, in addition to the contractual penalties
according to No. 2.6.4 b), a contractual penalty amount of DM
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##.
d) In case that an operational interruption has been caused by
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## or their vicarious agents by gross
negligence, ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## will pay an additional
contractual penalty amount of DM ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## to HER. A
verification of any actual damage by HER is not necessary.
<PAGE> 21
CONFIDENTIAL TREATMENT
-16-
e) A major damage or loss is existing in the sense of this agreement
if the operational interruption cannot be remedied within 48 hours
by use of all reasonable technical possibilities. In this case,
HER is exempted from the obligation to pay the user fee for the
period of the interruption caused by the major damage. ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## will immediately restore the partial route in
question, also in case of a major damage.
5. The regulations agreed upon in the above clause No. 2.6.4 are final for
the cases regulated there. No further claims, particularly no claims for
damages, user fee reductions or termination rights may be claimed in
addition to the legal consequences.
2.7. REPORTING, CONSENT BY HER
1. ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## and HER will nominate for phase 1, phase 2 and phase 3 one
responsible contact partner each.
2. ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## will report to HER on a regular basis about the project
processes according to date and cost threshold data (time schedules and
costs). HER shall be informed about which costs have been approved by
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## .
3. ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## will inform HER if it is necessary to deviate from the
procedures described in this agreement, e.g. with regard to giving orders
to subcontractors or to regulation of questions concerning rights of way.
The parties of this agreement will agree how to proceed in these cases.
2.8 CONDITIONS FOR LEASE OR PURCHASE OF SINGLE ROUTES
Should a lease or purchase be necessary or sensible, ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## will achieve
special agreements with HER about specification and legal-economic conditions of
lease or purchase. The sections for which this is applicable are marked in
Schedule 2.
<PAGE> 22
CONFIDENTIAL TREATMENT
-17-
2.9 SPECIAL ARRANGEMENTS WITH REGARD TO RIGHTS OF WAY, PUBLIC-LAW APPROVALS
AND COOPERATION WITH GAS SUPPLY COMPANIES
2.9.1 RIGHTS OF WAY ON PRIVATE PROPERTIES
1. HER acknowledges that neither ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## nor the gas supply companies
currently have contractually negotiated agreements with the property
owners about the use of the properties required for realization of
partial routes for general telecommunications.
2. For their existing natural gas lines, the gas supply companies have
limited personal servitudes and / or mandatory permission contracts
according to which they are entitled to lay and operate long range gas
lines with cables and accessories. It cannot be excluded that, with
regard to individual sections, this authorization does not exist or does
not fully exist or cannot be verified or obtained. This is equally
applicable with regard to the gas supply companies having a holding in
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##.
3. Should, due to existing and provable rights, the application of Section
57 clause 1 Nr. 1 TKG be qualified ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## will strive for a
rapid equalization with the property owners, for compensation of all
claims according to Section 57 clause 2 TKG. As far as Section 57 TKG may
not be applied, the rights of way for telecommunications should primarily
be obtained by means of security interests. Alternatively, if no security
interests can be obtained from the property owners, ##MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## shall
use its best efforts to negotiate mandatory permission contracts with the
property owners, for use of the properties for general
telecommunications. Holders of rights may be those gas supply companies
whose routes are used and who assign their legal position to ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##
for execution.
4. For equalization payments in connection with the toleration of laying the
lines, the framework agreements concluded between the appropriate
authorized farmer associations and the other property owner associations
and the gas supply companies will prevail. Schedule 7 contains a
description of the procedure as well as, in form of an example, such a
framework agreement the threshold data of which are followed by the other
framework agreements, too.
<PAGE> 23
CONFIDENTIAL TREATMENT
-18-
With regard to crossing routes of the Deutsche Bahn AG, the gas supply
companies, being partners of ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##, have come to a special
agreement with the Deutsche Bahn AG. A copy of this agreement is enclosed
to Schedule 7.
These agreements are binding for realization of the partial routes.
5. ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## will inform HER about the legal and commercial arrangement
with regard to the basic questions of obtaining rights of way within and
outside the TKG.
The proceeding and the engineering performances in connection with
obtaining the rights of way and the execution of compensation payments,
are described in Schedule 7 together with orientating values for the
costs. In so far, only a service is owed; should further activities
become necessary for obtaining and enforcement of rights of way in
addition to those described in Schedule 7, these will be induced by
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##. Costs caused by these activities will be added to the costs
for rights of way and the field compensations. Should it be foreseeable
that the fixed orientating values will be exceeded due to this, such
measures require HER's consent.
6. Should it be foreseeable in the course of execution, that a proceeding
according to Section 57 TKG is not possible due to lacking preconditions
or lacking practical enforceability as expected, in the predominant
number of cases any further proceedings have to be adjusted accordingly.
The same is applicable if difficulties occur with obtaining rights of
ways outside the TKG. In any case, where difficulties occur with the
execution according to Section 57 TKG or with obtaining the rights of way
outside the TKG which can result in exceeding the provision date or in
the impossibility with regard to the provision of the appropriate partial
route, the contract partner will discuss how to execute the contract as
quickly as possible.
7. ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## is not obliged to exceed the payments for obtaining rights of
way projected in the framework agreements with the farmer associations.
HER may thus not require such additional payments from ##MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##.
<PAGE> 24
CONFIDENTIAL TREATMENT
-19-
8. The risk of non-obtainability or non-enforceability of rights of way and
punctuality is exclusively with HER for the reasons described in the
negotiations as well as in No. 2.2. Any liability for ##MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## and
their vicarious agents in connection with rights of way will be excluded
subject to the subsequent regulations, unless any intent on the side of
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## is present. ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## will, however, take its best
endeavours to agree liability regulations with the vicarious agents in
charge of providing local rights of way, as are usual in the line of
business - except for the gas supply companies and any companies
affiliated to them. ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## will assign any thus resulting
claims for damages to HER.
9. HER's right to terminate partial routes at any time until constructional
release according to No. 6.2.2. remains unaffected. For ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##, the regulation determined under No. 6.2.4 will apply.
2.9.2 RIGHTS OF WAY ON RAILWAY PROPERTIES, TRAFFIC ROUTES AND PUBLIC AREAS:
FAILURE TO OBTAIN PUBLIC-LAW APPROVALS
1. With regard to possibly required public-law approvals and arrangements,
No. 2.9.1 will apply accordingly.
2. Public-law approvals in this sense are in particular those approvals or
arrangements or contracts for use (e.g. contracts with the building
charges promoters for the use of roads that become necessary)
- in connection with crossing of traffic paths and layings along or in
traffic paths
- in connection with crossing of waterways or the establishment of
installations in or at waters
- for works in flooding-prone areas
- for works which could have an impact on water economy
- in connection with crossing of railway tracks
<PAGE> 25
CONFIDENTIAL TREATMENT
-20-
- in connection with the Federal Law for Nature Conservation and the laws
for nature and landscape conservation of the Lander, the building laws
or -if applicable- the laws concerning regional planning.
3. If it is expedient or necessary for time schedule or other reasons with
regard to the use of public (dedicated or so-called fiscal ) areas free
of any user fee, that the appropriate approval for use on behalf of HER
is obtained, HER will give the appropriate authority to ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##
or their authorized agent. Internally, HER and ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## will treat
each other as if the approval had been granted to ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##. The
granting of approvals to HER does not affect in any way ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##
property rights.
2.9.3 COOPERATION WITH GAS SUPPLY COMPANIES
1. For provision of the network inquired by HER, ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## needs the
cooperation of additional gas supply companies. These have to consent in
the use of their lines for laying of cable ducts and LWL cable
installations; furthermore, their active cooperation is required in the
form that they, for example, shall transfer rights of way for execution,
provide documentations for network realization, etc.
2. The gas supply companies needed for the inquired network are partially
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## partners; furthermore, ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## aims at securing the
required support by means of contractual agreements with the appropriate
gas supply companies. These obligations can only be achieved after this
LWL contract being present.
3. ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## will endeavour to achieve the contractual agreements with
regard to cooperation of the gas supply companies to the required extent.
However, ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## will not be answerable to the success of these
efforts. This is different with regard to the contractual agreements
concerning cooperation of those gas supply companies being ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##
partners. ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## ensures that these agreements with the
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## partners have already been bindingly concluded and that they
have assured their consent for the use of the lines as well as their
supporting performances to ##MATERIAL OMITTED AND SEPARATELY FILED UNDER
A REQUEST FOR CONFIDENTIAL TREATMENT## by means of contracts.
<PAGE> 26
CONFIDENTIAL TREATMENT
-21-
3. HER PERFORMANCES
3.1 PRINCIPLES OF PAYMENT DETERMINATION, DEFINITIONS
3.1.1 PRINCIPLES OF PAYMENT DETERMINATION
The payment to be paid by HER for use of the LWL cables comprises a user fee
pre-payment as well as an annual user fee and is calculated according to the
regulations subsequently described. The allocation to user fee pre-payments and
annual user fee payments will be subsequently described. Cost elements and
calculation examples are shown in SCHEDULE 5.
For determination of the user fee for partial routes and sections for which HER
is the initial user (see Schedule 2), the modified cost plus procedure
subsequently described, applies. According to that, the user fee is on principal
calculated by ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## on the basis of the costs incurring for route planning
and realization as long as these costs are not exempted from the calculation of
the user fee (user fee pre-payment and annual user fee) as payments to be
directly borne by HER due to this contract. Within the limits of the modified
cost plus procedure the user fee pre-payments and the annual user fee result
from the basis of a multiplication of certain factors with the amount of the
subsequently described costs. "Modified" is the cost plus procedure because, for
some items which are subsequently described in detail ("TECHNICAL COSTS" compare
No. 3.1.2), actually occurring deviations from the costs projected on the date
of the contract in project execution, will be shared between the parties
according to certain rules; this too, is described in detail under the
subsequent sub-clauses.
For partial routes and sections for which HER is second user, special conditions
apply (compare No. 4). In Schedule 2 it is determined for which partial routes
and sections HER is initial or second user. Special regulations also apply for
those partial routes and sections which are to be leased (compare No. 2.8).
<PAGE> 27
CONFIDENTIAL TREATMENT
-22-
3.1.2 DEFINITIONS
1. For determination of the costs relevant for the user fee, technical
costs, costs for rights of way and field compensation as well as fixed
costs will be taken into account.
Among those are,
a) "TECHNICAL COSTS", the costs (Schedule 5, Part I) for
- Cables, 30 + 6 fibres, including assembly, assembly materials and
sealing ends,
- Cable ducts and (pertaining) materials,
- Civil and underground engineering, including special buildings,
drainage repairs and reserves for drainage repairs,
- Crossing approvals (charges for technical and administrative tests),
- Engineering for technical planning, supervision monitoring of
works except for the engineering for provision of rights of way and
the Central Project Management of the General Engineering
Contractor.
b) "FIXED COSTS" are the costs for the pre-planning, project management,
documentation taken over by ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## as well as the costs for
the Central Project Management of the General Engineering Contractor.
c) "COSTS FOR RIGHTS OF WAY AND FIELD COMPENSATION COSTS", the
equalization payments to property owners, servitude compensations and
similar payments, charges for use and administration, special
compensations, charges, expenses, engineering performances for the
projected obtaining and enforcement of rights of way and other costs
for provision of rights of way and rights of way (Schedule 5, Part
II) as well as costs for field compensations and nature conservation
measures as well as the procedures required in this regard.
<PAGE> 28
CONFIDENTIAL TREATMENT
-23-
2. In general, only those costs will be taken into account for the
determination of the user fee that have actually incurred. The obligation
to produce proves is with ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## (compare No. 3.4), except for the
agreed fixed costs. The "ACTUAL TOTAL COSTS" are the sum of the actual
technical costs, the costs for rights of way and field compensation as
well as the fixed costs.
3.2 THE MODIFIED COST PLUS PROCEDURE
3.2.1 FUNDAMENTALS OF USER FEE DETERMINATION ACCORDING TO THE COST PLUS
PROCEDURE.
The user fee consists of a user fee pre-payment and an annual user fee.
These are determined on the basis of the technical costs, the costs for
rights of way and field compensation as well as the fixed costs according
to the procedure subsequently described.
3.2.2 CONTRACTUAL MEAN VALUE
In Schedule 6 a "CONTRACTUAL MEAN VALUE" is determined for every partial
route per meter partial route length for the technical costs. This value
corresponds with the technical costs expected by the contract partners,
referring to the partial route lengths expected by the contract partners.
Should, due to difficulties with obtaining and enforcement of rights of
way and public-law approvals, diverted routes, route length, increases or
decreases become necessary, the contractual mean values will be adjusted
by adding or deducting the projected additional or reduced costs to or
from the projected technical costs and by dividing the result by the new
expected partial route length.
3.2.2 CALCULATION VALUE FOR TECHNICAL COSTS
The "CALCULATION VALUE FOR TECHNICAL COSTS" to be taken into account for
determination of the user fee, is determined as follows:
<PAGE> 29
CONFIDENTIAL TREATMENT
-24-
1. After provision, the actual technical costs for every partial route will
be determined by ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT##.
The drainage repairs are to be considered for the determination of the
actual technical costs with the amount of the reserves described in
Schedule 6. Latest 2 years after provision of a partial route, a
re-determination shall be performed by means of the actual costs for
drainage repairs in the appropriate partial route and - if applicable - a
retroactive correction shall take place. Later incurring drainage repair
costs will no longer be included into the actual technical costs.
2. After provision, the contractual mean value is multiplied with the actual
length of the partial route for every partial route. The result forms the
"CONTRACTUAL VALUE". The actual length results from the actual length of
the cable ducts.
3. The calculation value of the technical costs corresponds with the actual
technical costs, however, it may not be higher than the contractual
value.
3.2.4 COMPENSATORY RIGHTS OF WAY AND FIELD COSTS
For every partial route, the actual rights of way and field compensation
costs will be determined by ##MATERIAL OMITTED AND SEPARATELY FILED UNDER
A REQUEST FOR CONFIDENTIAL TREATMENT##.
3.2.5 CALCULATION VALUE OF THE OVERALL COSTS
The "CALCULATION VALUE OF THE OVERALL COSTS" for every partial route is
the sum of the calculation value for the technical costs, the fixed costs
according to Schedule 6 and the actual costs for rights of way and field
compensation.
3.2.6 COMPENSATORY USER FEE PRE-PAYMENT
1. ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##% of the calculation value for the overall costs will be paid
by HER as a user fee pre-payment.
2. In case that more than ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## overall length of all partial routes
are provided within the limit of the modified cost plus procedure,
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##% of the calculation value for the overall costs will be paid
by HER as a user fee pre-payment.
<PAGE> 30
CONFIDENTIAL TREATMENT
-25-
3. In case that the preconditions for the reduction of the user fee
pre-payment according to the above clause with regard to the overall
length of the partial routes to be provided within the limits of the
modified cost plus procedure, will only be fulfilled at a later point in
time, the user fee pre-payment at the time of provision of the
additionally provided partial routes will be reduced also for the
previously provided partial routes, provided that the additionally
provided partial routes have been made subject matter of the contract
latest by ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##. The reimbursement of possibly overpaid amounts
will be effected by means of offset against the user fee payments.
3.2.7. INCREASE IN THE USER FEE PRE-PAYMENT
1. Should the actual technical costs exceed the contractual value, the user
fee pre-payment will be increased according to No. 3.2.6 by ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##% of the differential amount.
2. Should the actual technical costs be of less value than the contractual
value, the user fee pre-payment will be increased according to No. 3.2.6
by ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##% of the differential amount. This increase in
the user fee pre-payment due to this lower deviation to the contractual
value will not be applicable, however, if the partial route in question
is not fully and duly provided latest by ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##.
3. In case that a partial route is handed over before ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## the user
fee pre-payment will be increased according to No. 3.2.6 by the
percentages of the budgeted value of the overall costs for the partial
route affected by the lower deviation to the time schedule, as is shown
in the following table. The "BUDGETED VALUE OF THE OVERALL COSTS" is the
budgeted value determined in Schedule 6, corresponding with the planning
status on the date of contract for the overall costs necessary for the
establishment of the partial route.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
PREMATURE PROVISION BY PERCENTAGE
- -----------------------------------------------------------------------------------------------------------------
<S> <C>
< or = 1 week ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT##
- -----------------------------------------------------------------------------------------------------------------
> 1 week, < or = 2 weeks ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT##
- -----------------------------------------------------------------------------------------------------------------
> 2 weeks, < or = 3 weeks ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT##
- -----------------------------------------------------------------------------------------------------------------
> 3 weeks ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT##
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 31
CONFIDENTIAL TREATMENT
-26-
Thus, the increase amounts to max. ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##%.
4. The increase amounts with regard to the user fee pre-payment will be
determined by ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## upon the final invoice being issued and they are
due 30 days after the final invoice having been issued.
5. The increase amounts of the user fee pre-payment according to No. 3.2.6,
described in this No. 3.2.7, will not be considered for the calculations
according to No. 2.6.4.
3.2.8 ANNUAL USER FEE
1. The remaining user fee shall be paid as an annual user fee payment and
results from the multiplication of the calculation value of the overall
costs with the capital cost factor.
2. The capital cost factor is:
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##.
3. Should more than ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT## km overall length of all partial routes
within the limits of the modified cost plus procedure be provided, the
capital cost factor is:
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##
4. In case that the preconditions for the reduction of the capital cost
factor according to No. 3.2.8.3 with regard to the overall length of the
partial routes to be provided within the scope of the modified cost plus
procedure are only fulfilled at a later point in time, the capital cost
factor of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##% p.a. applies from the date of provision of the
additionally provided partial routes also for the previously provided
partial routes.
<PAGE> 32
CONFIDENTIAL TREATMENT
-27-
3.3 INCREMENTAL COSTS UPON HER'S REQUEST
Incremental costs, incurring due to the fact that the line is left for use upon
HER's request and the cable is lead in a detour line, will be treated as
follows:
1. ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## shall determine the incurred incremental costs as well as the
costs lost due to the change. For determination of the actual costs
according to No. 3.2, the incremental and the lost cost will not be taken
into account.
2. The incremental costs as well as the lost costs will be paid by HER to
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##.
3.4 AUDITING RIGHT
HER has got the right for inspection and auditing of the documents on which
invoicing of items settled in the modified cost plus procedure as well as the
incremental costs upon HER's request are based and may even use an auditor for
this purpose.
3.5 SPECIAL ADJUSTMENT OF USER FEE
3.5.1 PRINCIPLE
1. Should ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## succeed in a cost-saving additional marketing to
other interested parties, the user fee to be paid by HER, will be
adjusted down.
A cost-saving additional marketing in this sense is present if the
investment to be borne by HER can be co-used by ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## in a way
that
o futher cables are laid by ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## and marketed to third
parties in the cable duct in which the cable for HER is laid, or
o in case that simultaneously with the laying of the above mentioned
cable duct, further ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## cable ducts are also laid and
these are marketed to third parties by laying of further cables.
<PAGE> 33
CONFIDENTIAL TREATMENT
-28-
2. The adjustment of the user fee is effected by a reduction of the annual
user fee for the section in question. The annual user fee for the
appropriate partial route will be reduced for every year of additional
marketing - and, if applicable, also on a pro rata basis with regard to
time - by the "REDUCTION AMOUNT" to be determined according to the rules
described below. Possibly exceeding amounts will be paid by ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##to HER in semi-annual intervals on the appropriate due dates
projected by HER for the annual user fee payments owed, and , if
applicable, on a pro rata basis with regard to time.
The reduction will be granted for the appropriate period of the actual
additional use. The reduction will end latest with the expiry of the
basic use period (No. 7.2.1) of the present LWL agreement.
3. For the determination of the reduction amount, first of all the actual
additionally marketed meter length in meters has to be determined. Then,
the proportional establishment costs for the additionally marketed
section are determined. For this, the costs for the cable and the cable
duct provided to HER will be deducted according to their appropriate
lengths from the costs for the establishment of the section to be
determined according to No. 3.1. The resulting amount will be multiplied
with a factor of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT##%. The reduction amount results from the
application of the reduction percentages stated in the table below to the
result.
For this purpose, column (1) has to be referred to, if at the time the
additional marketing is started altogether, and including the sections to
be additionally marketed, up to ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##of the partial route length
are subject to an additional marketing. Column (2) is to be referred to
if at the time the additional marketing is started altogether and
including the sections to be additionally marketed, more than ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##of the partial route length are subject to an additional
marketing. Column (3) is to be referred to if, at the time the additional
marketing is started altogether, and including the sections to be
additionally marketed, more than ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##of the partial route length
are subject to an additional marketing.
Line (1) is to be referred to if the additional marketing is effected in
a way that the LWL cable for the additional marketing is laid and used in
the course of the building measures. Line (2) is to be referred to if the
additional marketing starts within ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## months after provision
to HER. Line (3) is to be referred to in all remaining cases.
<PAGE> 34
CONFIDENTIAL TREATMENT
-29-
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Adjustment of the user fee in case of additional marketing
- -----------------------------------------------------------------------------------------------------------------
column (1) column (2) column (3)
for the sections for the sections for the sections
up to L = ##MATERIAL ##MATERIAL OMITTED AND ##MATERIAL OMITTED AND
OMITTED AND SEPARATELY SEPARATELY FILED UNDER A SEPARATELY FILED UNDER A
FILED UNDER A REQUEST FOR REQUEST FOR CONFIDENTIAL REQUEST FOR CONFIDENTIAL
CONFIDENTIAL TREATMENT## TREATMENT## TREATMENT##
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
line (1): ##MATERIAL OMITTED AND ##MATERIAL OMITTED AND ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A SEPARATELY FILED UNDER A SEPARATELY FILED UNDER A
reduction percentage ("F") REQUEST FOR CONFIDENTIAL REQUEST FOR CONFIDENTIAL REQUEST FOR CONFIDENTIAL
TREATMENT## TREATMENT## TREATMENT##
- -----------------------------------------------------------------------------------------------------------------
line (2): ##MATERIAL OMITTED AND ##MATERIAL OMITTED AND ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A SEPARATELY FILED UNDER A SEPARATELY FILED UNDER A
reduction percentage ("F") REQUEST FOR CONFIDENTIAL REQUEST FOR CONFIDENTIAL REQUEST FOR CONFIDENTIAL
TREATMENT## TREATMENT## TREATMENT##
- -----------------------------------------------------------------------------------------------------------------
line (3): ##MATERIAL OMITTED AND ##MATERIAL OMITTED AND ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A SEPARATELY FILED UNDER A SEPARATELY FILED UNDER A
reduction percentage ("F") REQUEST FOR CONFIDENTIAL REQUEST FOR CONFIDENTIAL REQUEST FOR CONFIDENTIAL
TREATMENT## TREATMENT## TREATMENT##
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 35
CONFIDENTIAL TREATMENT
-30-
The reduction percentages for the sections, subject to an additional
marketing at the time of the appropriate user fee adjustments, will be
re-calculated according to the rules for the subsequent time above, in
case of new additionally marketed sections.
This table applies as long as more than ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## km overall length are
provided within the scope of the modified cost plus procedure. Should
this condition not apply, the reduction percentages will be reduced by
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## percentage points each.
Calculation examples are shown in Schedule 5. In case that this
additional cost-saving marketing contained in No. 3.5 exceeds one
additional user, the appropriate reduction percentages of the above table
will be increased by ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## percentage points for the sections
in question.
4. ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## will inform HER immediately about any additional marketing of
partial routes or sections.
<PAGE> 36
CONFIDENTIAL TREATMENT
-31-
3.5.2 EXCEPTIONS: EXISTING LWL CABLES AND CABLE DUCT ROUTES
The rules for additional marketing do not apply to the partial routes and
sections that are not subject to the payment determination according to
the modified cost plus procedure.
3.5.3 EXCEPTIONS: CO-LAYING FOR GAS SUPPLY COMPANIES
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##. As long as the section in question is established within the
scope of the cost plus procedure, ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## will only include ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##% of the actual costs into the actual overall costs; the costs
for LWL cables and cable ducts will, however, in case of a joint use of a
cable duct, be proportionally allocated to the appropriate user (HER or
gas supply companies, respectively).
In this case, No. 3.5.1 does not apply.
3.5.4 OPERATING FIBRES
The gas supply companies to participate in the project, are currently
changing over their communication technology for the gas supply to LWL
cables in order to meet the technical requirements and to substitute the
copper cables that will be taken off operation within the next few years.
Beyond the projected ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## LWL fibres in addition to the cables
for operational purposes of gas supply designated to HER within the scope
of the project, the gas supply companies are entitled to have up to
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## more LWL fibres laid exclusively for purposes of the gas
business; all thus incurring costs will be borne by the gas supply
companies. The gas supply companies will be granted fractional ownership
in the cable according to this fibre share.
Any incremental costs thus incurring for operational purposes (e.g.
sleeves) will be borne by ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## or the appropriate gas supply
company, respectively.
<PAGE> 37
CONFIDENTIAL TREATMENT
-32-
3.6 OPERATING AND ADMINISTRATION COSTS
For the operating and administration costs, including service and
maintenance of the fibre optic cables, HER will pay to ##MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## a fixed
annual payment ("maintenance payment") of:
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##
3.7. ADJUSTMENT OF PAYMENTS
3.7.1 ADJUSTMENT OF THE PAYMENT FOR OPERATION AND ADMINISTRATION
1. The maintenance payment according to No. 3.6 is subject to the following
adjustment:
a) The remuneration has to be adjusted to the development of the
collectively agreed remunerations and the factory prices for
industrial goods according to the following formula:
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##
P = the appropriate new annual payment for operation and
administration
P(0) = the annual payment for operation and administration on the
date of contract conclusion
L = the appropriate applicable table remuneration for the employee
listed under L0 according to the collectively agreed remuneration
contract under L0
L(0) = the table remuneration for an employee according to the
collectively agreed remuneration contract dd. 25.06.1996 for
employees paid according to the collectively agreed contract for
companies affiliated to the Arbeitgeberverband von Gas-, Wasser- und
Elektrizitatsunternehmen e.V., Essen (employers' association for gas,
water and electricity companies e.V., Essen) based on the outline
collective agreement dd. 17.07.1989/23.06.1993/04.09.1997,
remuneration group 7, grade 8: DM 4,458.00 /month.
<PAGE> 38
-33-
I = The appropriate published annual average value of the index of
the factory prices mentioned under I(0)
I(0) = Annual average value for 1998 of the index of the factory
prices for industrial goods (domestic sales), Germany. "Investment
goods" published by the Federal Statistical Office in Wiesbaden in
special series 17 - sequence 2 "Prices and price indexes for
industrial products (factory prices)". Basis 1991 = 100. Annual
average for 1995 = 106.1.
b) In case that the table remuneration L is changed, the remuneration P
is newly formed. In case that this change is effected until the 15th
of a month (including the 15th) the adjustment will take effect with
the beginning of that month. Otherwise, it will take effect with the
first day of the following month.
c) Future changes of the payments an/ or other performances, (including)
changes of working and holiday periods, which are performed on the
basis of legal or collectively agreed regulations against the
existing working hours of 165 hours/month and the holiday period of
30 working days per calendar year existing on 01.04.1996 at eight
free days according to the work schedule within four calendar weeks
as well as the existing legal and collectively agreed social benefits
of and / or for all employees of the remuneration group mentioned
under L(0), will be considered and - in general for the the next due
salary adjustment date - added to the appropriate applicable table
remuneration.
d) Should this collectively agreed contracts mentioned under L(0) be
substituted or changed the collectively agreed contracts to
substitute or change them will take their places.
e) The annual average value of the index of the factory prices I will be
taken as the basis for the determination of the payment in the
following calendar year. In case that the Federal Statistical Office
in Wiesbaden determines a different base for the investment products'
index after contract conclusion or later adjustments, this change of
the base has to be considered by application of the official
concatenation factor.
<PAGE> 39
CONFIDENTIAL TREATMENT
-34-
f) In case that the index mentioned under a) should no longer be
published by the Federal Statistical Office in a comparable way, the
contract partners will make an agreement which will as far as
possible correspond with the basic economic idea of the regulation
described under a) to e).
g) Adjustments according to b) between two payment dates will be taken
into account by subsequent settlement on the next payment date on a
pro rata basis.
2. Should this adjustment agreement according to clause 2 require an
approval from the authorities in charge of foreign exchange approvals
according to Section 3 of the Currency Law ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## will obtain
it. Both contract parties undertake to assist in the application of
approvals if necessary and to make all required statements. Should the
approval be refused, the parties will agree a different approval-free
regulation, economically corresponding as much as possible with the joint
intentions of the adjustment regulation.
3. In case of re-layings of LWL cable installations (e.g. due to road
building measures) the thus incurring costs will be borne by HER for
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## In case that the LWL cable installations are used by several
telecommunications companies, these costs will be borne by HER in
accordance to their share of use.
4. With regard to the market prices of comparable services, the development
of the maintenance technology and the operational experiences, the
contract partners will verify the adequacy of the maintenance payment
every ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## years. In case of significant changes of the
calculation fundamentals, the contract partners will agree measures to be
taken and, if applicable a reasonable adjustment of the maintenance
payment.
3.7.2 ADJUSTMENT OF THE ANNUAL USER FEE
1. The annual user fee according to No. 3.2.8 and No. 3.5.1 will be linked
and adjusted at the beginning of a year with the annual average value of
the preceding year according to the formula below for securing of the
actual capital maintenance of the invested owned capital to the
development of the annual average value of the index of the factory
prices of industrial products (domestic sales), Germany,
<PAGE> 40
CONFIDENTIAL TREATMENT
-35-
"investment goods" published by the Federal Statistical Office in
Wiesbaden in special series 17 - sequence 2 "Prices and price indexes for
industrial products (factory prices)" (basis 1991 = 100. Annual average
for 1995 = 106,1).
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##
P = the appropriate new annual user fee
P(0) = the annual user fee at the date of contract conclusion
I = the appropriate published annual average value of the index
of the factory prices mentioned under I(0)
I(0) = annual average value for 1998 of the index of the factory
prices of industrial products (domestic sales), Germany,
"investment goods" published by the Federal Statistical
Office in Wiesbaden in special series 17 - series 2 "prices
and price indexes for industrial goods (factory prices)",
basis 1991 = 100. Annual average for 1995 = 106,1.
2. Should this adjustment agreement according to 3.7.2.1 require the
approval of the authority in charge for foreign exchange approvals
according to Section 3 Currency Law, ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## will obtain it. Both
contract parties undertake to assist in the application for the approval,
if necessary, and to give the required statements. Should the approval be
refused the parties will agree a different approval-free regulation which
will economically correspond as much as possible with the joint intent of
the adjustment regulation.
3. In the case that the Federal Statistical Office in Wiesbaden changes the
basis for the investment goods index after contract conclusion or later
adjustments this change of the basis has to be taken into account by
application of the official concatenation factor.
Should the investment goods index be cancelled or significantly changed
in its meaning, e.g. by a currency conversion, the contract partners
<PAGE> 41
CONFIDENTIAL TREATMENT
-36-
will agree a new index which will economically correspond as much as
possible with the regulation under No. 3.7.2.1. The contract parties,
however, do not intend to adjust the annual user fee to the turnover,
price or revenue development in the telecommunication service sector.
4. SPECIAL PROVISIONS FOR THE PARTIAL ROUTE ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##
For the partial route ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT##the provisions of this agreement
apply, unless otherwise determined.
4.1 CABLE SPECIFICATIONS
In the section ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT## LWL fibres will be provided to HER in an
already existing cable. With regard to the quality of the cable, the
specifications according to Schedule 3a will apply.
4.2 USER FEE
The user fee for the partial route ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##will be firmly agreed and
consists of:
- a user fee pre-payment of: DM ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##
- an annual user fee of: DM ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## p.a.
The modified cost plus procedure (No. 3.2, No. 351) does not apply. There
will be no increases in the user fee pre-payments according to No. 3.2.7.
The annual user fee is subject to the adjustment according to No. 3.7.2.
When determining the firmly agreed user fee the parties assume that for
the establishment of the route in the section ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##, the costs
for the rights of way do not exceed the amount of DM ##MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##/m and
that no costs for rights of way will incur in the section ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##.
<PAGE> 42
CONFIDENTIAL TREATMENT
-37-
All additional costs for rights of way incurring in excess to the above
will be borne by HER to ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT##as an additional user fee pre-payment.
4.3 LIABILITY AND WARRANTY, DATE OF PROVISION
As far as for the partial route ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##phase 1 performances are
still to be effected according to No. 2.2, the provisions under No.
6.1.1.1 and No. 6.1.1.2 will apply accordingly with regard to the
liability and the warranty.
The binding provision date for the partial route ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##is the
01.04.1998. ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## will, however, take all efforts to have the
partial route established by an earlier date already. Upon HER's request
provision will not be effected before the 01.04.1998 when HER does not
yet have the system engineering locations available on this route.
Between ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## and the proprietors of the LWL cable
installation ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##, the ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##and the ##MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##,
negotiations take place about the provision of this section for the
purposes of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## and the purchase of fractional property.
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## cannot grant the successful completion of these negotiations,
however, in case that the contractual negotiations fail, HER and
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## will be free from any obligations with regard to the whole
partial route ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##. In this case, the pre-payment effected
according to No. 4.6, will be immediately reimbursed by ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##
to HER.
In case of the provision date being exceeded due to an intent or
negligence on the side of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## or their vicarious agents
(regardless of the degree of negligence), ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## shall pay
to HER a contractual penalty according to the following table:
<PAGE> 43
CONFIDENTIAL TREATMENT
-38-
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Provision delayed by Contractual penalty
- -----------------------------------------------------------------------------------------------------------------
<S> <C>
< or = 1 week ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT##
- -----------------------------------------------------------------------------------------------------------------
> 1 week, < or = 2 weeks ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT##
- -----------------------------------------------------------------------------------------------------------------
> 2 weeks, < or = 3 weeks ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT##
- -----------------------------------------------------------------------------------------------------------------
> 3 weeks ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT##
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The contractual penalty thus amounts to max. ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##%.
The percentages relate to the user fee pre-payment according to No. 4.2.
An assignment of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT## claims with subcontractors for contractual
penalties, compensations for damages and warranty to HER shall not take
place for this partial route. Any further liability for the contractual
and other obligations on the side of ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##, in particular
compensations for damages and / or liability for subsequent damages,
shall be excluded, except for cases of intent on the side of the legal
representatives.
<PAGE> 44
CONFIDENTIAL TREATMENT
-39-
4.4 ATTENDANCE / MAINTENANCE
For the determination of the outage hours according to No. 2.6.4 a) in
the section ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## in addition to the reductions provided for in
No. 2.6.4 a), a calculatory reduction of ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## hours will
be taken for every outage, in the section ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##a reduction
of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## hours.
The admissible interference times according to No. 2.6.3 b) are
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##hours for the section ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##and ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## hours for
the section ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##.
4.5 TERMINATION BY THE INITIAL USER
For this partial route ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## already concluded a contract with a
different telecommunications company. In this partial route, Her is
secondary user. If and in so far as the contract between ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##
and the other telecommunications company is terminated, ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##
will make an offer to HER about the possible change
<PAGE> 45
CONFIDENTIAL TREATMENT
-40-
of this contract with regard to the sections in questions, at the
conditions projected in this contract between HER and ##MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## for use
as initial user.
4.6 PAYMENT TERMS
The user fee pre-payment according to No. 4.2 shall be due in two equal
instalments 14 days after conclusion and coming into effect of this
contract according to No. 7.14 as well as 14 days after provision of the
partial route.
5. SUPPORT FOR DETERMINATION AND REALIZAITON OF SYSTEM ENGINEERING LOCATIONS
5.1 USE OF STATION / SYSTEM ENGINEERING LOCATIONS
1. ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## will take its best endeavours to procure to HER within the
target areas, to be determined by HER two technically qualified and
public-law approvable locations or areas per 75 km each, which are
useable under consideration of the local conditions at economically
appropriate conditions, for the accomodation of HER system engineering.
In this sense, useable means the possibility to purchase, lease, rent or
use in any other way by HER.
2. HER shall determine in writing within two weeks after information about
the locations under consideration by ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##, for which of these
two locations negotiations about purchase, lease, rent or use in any
other way shall be continued for HER. In accordance with this
determination, ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT## will take its best endeavours to present a
contract with the appropriate authorized person that is signed by this
person and that only will have to be countersigned by HER as contract
partner of the third party.
3. The precondition for the start of negotiations by ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## is that HER
and ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## have unanimously agreed the relevant basic
points of the contract to be concluded with the authorized person; the
parties will take their best endeavours
<PAGE> 46
CONFIDENTIAL TREATMENT
-41-
to achieve agreement until the milestone date "determination of location
and container specification" (Schedule 4, No. 54).
4. For the search for accomodation possibilities for the HER system
engineering, the following model course of actions shall be the basis:
a) HER has named to ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## desired locations in form of
geographic target coordinates. ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## will first of all
search for accomodation possibilities in the target coordinate.
b) Should the search for location be without success in or near the
target coordinate, ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## will take its best endeavours
to verify accomodation possibilities within a radius of 5 kilometers
around the target coordinate.
5. The technical basic specification for the system engineering locations is
shown in Schedule 3. The detailed specifications required for the
verification shall be handed over to ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## on the milestone dates
named in the milestone schedule (Schedule 4).
6. As regards commercial matters, the following principles shall apply for
the use of system engineering locations:
a) In general, the basis for determination of the payment of a co-use of
buildings of gas supply company stations is the proportional
calculatory lease. In case of co-use of an area leased by the gas
supply companies, an agreement with regard to the proportional lease
for HER has to be aimed at.; in case of areas being co-used that are
property of the gas supply companies, an appropriate reasonable lease
for HER has to be aimed at.
b) Should ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## not succeed in procuring locations for
system engineering, HER will check whether an adjustment of the HER
route planning is possible. The additional or reduced costs incurring
due to such a change shall be borne by HER or shall be in favour of
HER, respectively. The additional costs for LWL cables and other
planning performances procured by ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## that are to be
determined by ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT## and to be invoiced to HER
<PAGE> 47
CONFIDENTIAL TREATMENT
-42-
will be reimbursed to ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## by HER. Possibly incurring
additional costs for their system engineering shall be borne by HER.
c) Should no adjustment of the route planning be possible or desired
by HER, HER shall have a termination right according to No. 6.2.4.
5.2 PLANNING AND HANDLING ENGINEERING - FOR SYSTEM ENGINEERING LOCATIONS
1. Besides the performances determined under No. 5.1, ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## shall
perform the planning and processing engineering for container locations
according to Schedule 3, sections 7.3 and 7.4 for HER.
2. Engineering performances for the planning and realization in case of
accomodation in existing rooms shall be agreed in the individual case,
including the payment.
3. In the milestone schedule (Schedule 4) the milestone dates and
proceedings for the decisions and standards to be determined by HER (No.
52 to 54, No. 57 and No. 58) and supplies to be provided (No. 62) as well
as the milestone dates and proceedings for the planning and processing
engineering to be provided by ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## (No. 55 and 56, No. 59 to 61
and No. 63 to 65) are bindingly listed.
5.3 PAYMENT
1. For the engineering performances listed above, ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## shall
receive the following payments by HER:
a) Locations outside of facilities or fenced areas of existing gas supply
stations:
<TABLE>
<S> <C>
location selection, per target coordinate ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT##
acquisition of right, per location ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
(Schedule 3, clause 7.2) REQUEST FOR CONFIDENTIAL TREATMENT##
</TABLE>
<PAGE> 48
CONFIDENTIAL TREATMENT
-43-
<TABLE>
<S> <C>
planning and processing engineering, per location ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
(Schedule 3, clauses 7.3 and 7.4) REQUEST FOR CONFIDENTIAL TREATMENT##
LWL connecting line supply
increase price for engineering
per m solo line starting from pipeline line ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT##
</TABLE>
b) Locations within facilities or fenced areas of existing gas supply
stations:
<TABLE>
<S> <C>
location selection, acquisiton of right, planning
and processing engineering
(Schedule 3, clauses 7.1 - 7.4) per location ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT##
LWL connecting line supply,
increase price for engineering
per m solo line starting from pipeline line ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT##
</TABLE>
2. The payments for each location shall be due upon execution of the
appropriate working step listed in Schedule 3, 30 days after invoice date
by ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##.
6. WARRANTY, LIABILITY, TERMINATION RIGHTS
6.1 WARRANTY AND LIABILITY.
Unless otherwise provided for in this agreement the following stipulations for
warranty and liability shall apply:
6.1.1 STIPULATIONS FOR WARRANTIES AND LIABILITY IN PHASE 1.
1. ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## shall take its best endeavours to perform all phase 1 works
up to the target dates for partial routes listed in the time schedule;
due to the risks and imponderabilities stated in the preamble and No. 2.2
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## shall, however, not be liable for the success. In case of a
failure to meet the target dates, however, ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## shall
<PAGE> 49
CONFIDENTIAL TREATMENT
-44-
pay interests of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT## above the appropriate 3-monthly Fibor rate
p.a. for the effected instalment payments, the accrued costs to be
set-off; ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## shall pay these interests until the phase 1
performances for the partial routes in question will be completed,
however, for a max. period of 3 months.
2. The liability for contractual and other obligations on the side of
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## is limited to intent on the side of their legal
representatives for all phase 1 performances. Any liability of ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##
for actions or omissions on the side of vicarious agents is excluded for
this phase 1 performance. The liability of ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## for their
vicarious agents is limited to their own intent with regard to the
selection of the vicarious agents. These liability regulations shall
apply, regardless at what point in time a risk to be allocated to phase 1
occurs.
3. Should ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## have any claims with third persons which are
based on impairment of the performance of an obligation or otherwise
insufficient fulfilment of the contract, ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## is prepared
to enforce these claims and thus, to assign already paid contractual
penalties and compensations for damages to HER or to take them into
account with the modified cost plus procedure.
6.1.2 STIPULATIONS FOR WARRANTIES AND LIABILITY IN PHASE 2
1. A warranty and / or liability on the side of ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## for phase 2
performances shall only be given in accordance with the following
regulations:
a) In case of exceeding the provision dates resulting from No. 2.3 by
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## or their personnel or by any personnel to
be allocated to ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## on the basis of special
contractual regulations due to intent or negligence (regardless of
the degree of negligence), ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## shall exclusively pay
a contractual penalty according to the following table, without
HER being obliged to prove a special damage. The percentages are
to be related to the planned value of the overall costs (compare
No. 3.2.7) for the appropriate partial route affected by exceeding
the date.
<PAGE> 50
CONFIDENTIAL TREATMENT
-45-
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Exceeding the provision date Contractual penalty
- -----------------------------------------------------------------------------------------------------------------
<S> <C>
< or = 1 week ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT##
- -----------------------------------------------------------------------------------------------------------------
> 1 week, < or = 2 weeks ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT##
- -----------------------------------------------------------------------------------------------------------------
> 2 weeks, < or = 3 weeks ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT##
- -----------------------------------------------------------------------------------------------------------------
> 3 weeks ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT##
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Thus, the contractual penalty amounts to max. ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##
In case of a delayed provision of sections, these penalties shall be paid
in proportion of their actual length to the actual length of the overall
partial route.
The obligation to pay the contractual penalty is not created if and in so
far as the provision of sections was exclusively impossible because phase
2 in other sections had not yet been completed without ##MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## being
responsible for this in the sense of this agreement.
<PAGE> 51
CONFIDENTIAL TREATMENT
-46-
b) Any further liability for the contractual and other obligations on
the side of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT##, in particular compensation for damage
and / or a liability for subsequent damages, is excluded in phase 2
except in cases of intent on the side of the legal representatives.
c) The burden of proof for the fact that ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## has not
caused the exceeding of the provision date by intent or negligence
shall be on the side of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER
A REQUEST FOR CONFIDENTIAL TREATMENT##. The proof is deemed to be
provided if ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT## proves that a ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##
subcontractor is responsible for the delay occurred. In this case,
any personal liability is excluded.
d) Possibly existing claims of ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## with subcontractors for
payment of a contractual penalty due to the delay shall hereby be
assigned to HER. HER accepts the assignment.
Compensations to which ##MATERIAL OMITTED AND SEPARATELY FILED UNDER
A REQUEST FOR CONFIDENTIAL TREATMENT## is entitled to with
subcontractors due to a delay, will be enforced by ##MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##.
The damage occurred shall be taken into account
<PAGE> 52
CONFIDENTIAL TREATMENT
-47-
for appropriate payments in the modified cost plus procedure. Any
further compensations for damages, in particular for lost profit on
the side of HER, will be assigned to HER by ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##. HER
accepts the assignment.
e) ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## intends to conclude future subcontractor
agreements with reasonable contractual penalty and liability
regulations. The contractual basic points aimed at in this regard,
are described in Schedule 10. In case that these contractual basic
points should not be realizable in the individual case, or only at
extremely increased costs, the contract parties will discuss any
further proceeding. In case that the contractual basic points are
achieved at additional costs which do amount to not more than
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## compared to the technically and economically
most favourable offer of a subcontractor, HER can request conclusion
of the appropriate subcontractor agreement at the conditions of the
contractual basic points.
6.1.3 STIPULATIONS FOR WARRANTIES AND LIABILITY IN PHASE 3
1. After provision the liability on the side of ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## and their
vicarious agents - except in cases of intent on the side of the legal
representatives - is limited to gross negligence and the direct damage.
The liability for indirect or subsequent damages is excluded, regardless
of the legal basis on which the claims are based. In particular, no
compensation for pure financial loss, i.e. for damages that are no
personal injuries or material damages, will be effected.
The liability for direct damages is limited to max. ##MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##. The
exemption according to the following clause 2 (property owners, etc.)
will, however, remain in force.
The facts regulated under No. 2.6 of this agreement are finally regulated
there with regard to warranty and liability. Reference is made to the
appropriate regulations.
2. Possibly occurring compensation claims of HER with the above mentioned
persons are limited to intentionally caused damages in favour of property
owners as well as property users and other authorized persons whose lines
or properties are used for fulfilment of this agreement.
<PAGE> 53
CONFIDENTIAL TREATMENT
-48-
Claims from damages caused by gas supply activities with gas supply
companies whose lines or properties are used for fulfilment of this
agreement are excluded, except in case of intent.
3. Should the dampening reserves stated in Schedule 3 which are used as a
basis for phase 3 be exceeded because actually more interruptions take
place than are projected in Schedule 3 due to external influences,
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##shall not be liable for that.
6.1.4 LIABILITY REGULATIONS FOR SUPPORT DURING DETERMINATION OF SYSTEM
ENGINEERING LOCATIONS
1. ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## will use its best efforts to execute the works for
determination of locations and procurement of contracts on the target
dates with regard to partial routes stated in the time schedule; however,
due to the risks and imponderabilities stated in the preamble and No.
2.2, particularly with regard to the decisive role of HER in connection
with the determination of requirements, and at the time of contract
conclusion, ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## shall not be responsible for the success of
location determination and contract procurement.
2. The liability for the contractual and other obligations on the side of
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## is limited to an intent on the side of their legal
representatives with regard to support during determination of system
engineering locations. A liability on the side of ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## for actions
or omissions on the side of vicarious agents is excluded in this regard.
The liability on the side of ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## for vicarious agents is
limited to their own intent with regard to the selection of the vicarious
agents. ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## obligation to assign contractual penalty
payments and compensations for damages of vicarious agents to HER,
remains unaffected.
3. Should the completion of the planning and processing engineering for a
system engineering location be delayed by more than 4 weeks compared to
the period mentioned in the milestone time schedule in weeks or days
(Schedule 4, No. 60, 61 and 63, decisive is completion of No. 63) and
should this exceeding of the date be exclusively ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## fault, the
payment of the remuneration mentioned in No. 5.3 for the planning and
processing engineering of this system engineering location does not
apply. In particular, ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## shall not be held responsible for
exceeding the date if HER
<PAGE> 54
CONFIDENTIAL TREATMENT
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does not fulfil its assistance or supply obligations or does not fulfil
them in time, if authority approvals have not been obtained or not been
obtained in time as well as if a delay occurs due to influences of winter
or special authority conditions.
4. The facts regulated in this No. 6.1.4 are hereby finally regulated. Any
further warranty and / or liability for the contractual and other
obligations on the side of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER
A REQUEST FOR CONFIDENTIAL TREATMENT##, in particular compensation for
damage and / or all liabilities for subsequent damages, are excluded for
the support during determination of system engineering locations as well
as for the planning and processing engineering, except for those cases
where an intent on the side of ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##legal representatives is
present.
6.1.5 FORCE MAJEURE
In cases of force majeure the following clauses will apply, unless otherwise
determined in this agreement.
1. Should it become impossible for a contract partner, due to an incident of
force majeure, to fulfil the obligations undertaken within the scope of
this agreement, the contract partner shall be exempted from fulfilment of
his obligations in this regard for the period of such incidents.
Accordingly, the obligations on the side of the other contract partner
resulting from these obligations, shall not apply either. This shall not
apply for the cases comprised in No. 2.6.4.a), b), c) and d).
2. The contract partner affected by the incidents according to clause 1.
shall immediately inform the other contract partner about the limitation
of his contractual obligation and take his best efforts to eliminate as
soon as possible the impediments which prevent fulfilment of the
contractual obligations.
3. Force majeure shall be deemed any incident, in particular, but not
limited to these, war, civil unrest, sabotage, acts on the part of
legislators, strike - in so far as the courts regard a strike as a case
of force majeure, natural catastrophes and exceptionally bad weather
conditions.
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6.1.6 FINAL REGULATIONS FOR WARRANTIES AND LIABILITY
In this present agreement the parties have agreed warranty and liability
regulations for individually defined facts. These regulations are
considered as special regulations.
Unless explicit warranty and / or liability regulations have been agreed
for facts under this contract, a liability on the side of ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##
shall be excluded, except for cases of their own intent.
A liability on the side of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER
A REQUEST FOR CONFIDENTIAL TREATMENT## for actions or omissions by
vicarious agents shall be excluded for any form of negligence. ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##
shall only be held liable for cases of intent by their vicarious agents
in so far as ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## has received compensation from the vicarious
agents due to their claims, after ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## has endeavoured everything
within the reasonable scope, to enforce their existing claims. The
liability on the side of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## for vicarious agents is limited to
intent with regard to the selection of the vicarious agents.
The liability is limited to direct damages and the liability for
subsequent damages shall thus be excluded.
6.2 TERMINATION RIGHTS
6.2.1 INDEPENDENCE OF THE PARTIAL ROUTES
All partial routes according to this agreement are legally independent
from each other. The termination of individual partial routes does not affect
the rights and obligations with regard to the remaining partial routes.
6.2.2 TERMINATION RIGHTS IN PHASE 1
In case of considerably exceeding the cost and time limit or in case that
such a considerable exceeding is objectively threatening, HER has got the right
to terminate the agreement with regard to the appropriate partial routes, which
have not yet been provided, in writing until full completion of phase, 1. The
termination will be effective within one week after receipt of the termination
notice at ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##.
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##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## shall forthwith have all current works stopped and inform HER
about the status in order for measures for cost minimization to be taken.
6.2.3 GENERAL TERMINATION RIGHTS
1. Regular termination rights relating to phases 2 and 3 do not exist.
2. In case that the partial routes according to this agreement are not
provided to HER free of faults and in case that ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## does not
remedy the claimed fault according to the regulation under No. 2.5, HER
shall have the right for termination of the partial route in question.
3. The termination right for significant reasons remains unaffected.
6.2.4 TERMINATION DUE TO SPECIAL SPECIFIC FACTS
1. In case that, in the course of project, realization of the partial route
appears to be seriously unrealistic, due to specific facts caused by
- lacking rights of way (compare No. 2.9.1.).
- lacking public-law approvals (compare No. 2.9.2.).
- lacking lease or purchase possibilities or lacking agreement between
the contract partners (compare No. 2.8).
- lacking assistance by gas supply companies (compare No. 2.9.3.).
- lacking system engineering locations (compare No. 5).
- lacking cooperation actions required for route realization by HER or
- force majeure (compare No. 6.1.5),
the contract partners will take all efforts to find a commonly consented
solution for further proceeding with regard to the partial route in
question.
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Should no commonly consented solution be achieveable within 4 weeks and
should HER not make use of a possibly existing termination right
according to No. 6.2.2, ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## shall be entitled to temporarily
stop the further works for realization of the partial route and to
request payment of the costs incurred or spent up to this date for this
partial route by HER on the basis of an intermediate invoice (due 30 days
after invoice date). Should the parties not achieve any agreement in the
subsequent time about the further proceeding with regard to the partial
route in question, ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## may terminate with regard to HER the
appropriate partial route beginning with the 6th month of an exceeding of
the projected provision date. In this case, all legal consequences as
described in the following No. 6.2.5 will result.
2. Should HER make use of its termination right for more than half of the
overall length of the partial routes listed in Schedule 2 according to
No. 6.2.2, ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## for its part shall be entitled to terminate
within 60 days after receipt of the notice of termination leading to
exceeding the limit and after every further termination notice also the
remaining partial routes. In this case all legal consequences as
described in the following No. 6.2.5 will result.
6.2.5 CONSEQUENCES OF TERMINATION
For all cases of termination by HER according to this agreement the following
clauses shall apply:
1. Upon the termination taking effect HER and ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## shall be
exempted from their obligations under this agreement with regard to the
terminated partial route, with the exception of the subsequently
regulated consequences.
2. All expenses incurred until the time of the termination taking effect
with regard to the appropriate partial route according to this contract
(regardless whether the related costs have already incurred or still will
incur) will be determined by ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## and reimbursed by HER to
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## within 30 days after invoice date. All planning results that
have been worked out for the partial route affected by the termination,
all processed things and the partial route itself remain ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##
property - as long as they are no third party property.
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Under no circumstances shall HER have any claim for assignment of these
planning results, things or partial routes.
3. Should ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## use results or partial results from the
execution of this agreement (planning results, things, etc.) after
termination for a project with a third telecommunications company,
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## shall reimburse HER for the reimbursed costs in so far, by
reduction of the additional costs spent by ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## for repair
and required change or maintenance measures. Calculatory write-offs shall
not be effected. Interests shall not be invoiced.
4. The legal consequences of the termination have hereby been finally
regulated. A warranty and / or liability on the side of ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##
beyond the cases regulated in this contract, shall not apply. The
warranty and liability regulations of No. 6.1 in phases 1, 2 and 3 remain
unaffected hereby.
7. GENERAL STIPULATIONS
7.1 PAYMENTS
7.1.1 TURNOVER TAX, CHARGES
With regard to the resolution of the European Commission dd. 17.03.1997
(official collection L68/9) and the circular of the German Federal
Minister of Finance dd. 29.04.1997 for Section 3a clause 4 No. 12 UStG(5)
(DStR 18/1997, page 700) the parties assume that the contractual
performances of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT## for HER are not subject to the German
turnover taxation. Should this assumption prove to be wrong, HER shall
effect all payments plus the appropriate applicable turnover tax, if
applicable.
Should in future additional charges for the telecommunications sector be
introduced with regard to the provision of LWL fibres or other activities
under this agreement in form of taxes or charges, ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## shall be
entitled to increase the payments accordingly.
- -------------------
(5) UStG-German abbr. Umsatzsteuergesetz=Turnover Tax Law
<PAGE> 59
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7.1.2 MATURITY
1. Payments according to this agreement will be effected by HER to
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## according to the following mode:
a) Upon the LWL contract (No. 7.14) coming into effect, HER shall
pay an instalment of ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##% of the planned
values of the overall costs for the appropriate partial route,
setting off the payments already effected according to the
planning agreement.
b) Upon the start of the civil and undergroung engineering
performances (Schedule 4, No. 46), HER shall effect another
instalment of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT##% of the planned values of
the overall costs for the appropriate partial route.
c) Upon supply of the LWL cable (Schedule 4, No. 41), HER shall
effect another instalment of ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##% of the
planned values of the overall costs.
d) One week after duly effected provision (No. 2.5) HER shall
effect the user fee pre-payment and the direct payments owed
according to this agreement, setting off the instalments
described under lit.a.), b.) and c.).
2. The annual user fee shall be due on 01.04. and 01.10. for the respective
current 6-months period (01.01. to 30.06.; 01.07. to 31.12.), in return
for invoicing, with payment terms being 30 days. The first annual user
fee payment shall be effected time-proportionately on the first due date
following the creation of the payment obligation. Except for the
instalments projected under No. 7.1.2.1 lit. a), b) and c), there is an
obligation for payment of the user fee (user fee pre-payment and annual
user fee) for a partial route only with beginning of the appropriate
partial route being provided.
3. The payment for operation and administration (No. 3.6) is due on 01.04.
and 01.10. for the respective current 6-months period in return for
invoicing with payment terms being 30 days. The first payment shall be
effected time-proportionately on the first due date following the
provision of the first partial route.
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4. All other payments to be effected shall be due 30 days after invoice
date, unless otherwise provided for.
5. For partial routes which have been terminated prior to provision, payment
of the costs according to No. 6.2.5 shall be due with termination, 30
days after invoice date.
7.1.3 DELAY IN PAYMENT
1. Should HER or ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## fail to pay on time, the appropriate party in
default shall be invoiced annual interests of ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## percentage
points above the appropriate 3-months FIBOR rate.
2. Should HER be in default with payment of the annual user fee according to
No. 7.1.2.1 or the payment for operation and administration according to
No. 7.1.2.3 by more than 30 days and should HER then not pay, in spite of
two reminders (the second one with termination warning), each giving a 10
days payment period, then ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## shall be entitled to an
extraordinary termination of the agreement with regard to the affected
partial routes; further legal claims shall remain unaffected.
3. Should HER be in default with a payment according to No. 7.1.2.1 by more
than 10 days and should HER then not pay, in spite of two reminders, each
giving a 10 days payment period, then ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## shall be entitled to
stopping all works with regard to the affected partial routes; The time
schedule shall then lose its binding force.
7.1.4 INVOICING
1. ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## shall serve invoices to HER for the annual user fee payments
on the 28.02. and 31.08. (i.e. one months prior to due date).
2. As the final invoice for most of the payments to be effected by HER
according to this agreement (in particular under consideration of the
actual overall costs) can only be established after the project being
finally completed, the following shall apply:
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a) ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## shall be entitled, with regard to all
payments to be effected by HER according to this contract after
provision of the appropriate affected partial route on the due dates
projected for these, to perform a preliminary invoice on the basis of
preliminary costs, according to planned values or accrued actual
costs; this shall apply in particular for the annual user fee
(No.3.2.8) for the individual partial routes for the period prior to
final invoicing according to No. 3.2 being effected. This regulation
shall furthermore apply also for release of reserves to be formed for
drainage repairs according to No. 3.2.3.1.
b) The preliminary invoicing shall be finally corrected upon
presentation of the final invoice by ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##.
7.1.5 BANK ACCOUNTS
1. Payments shall be deemed remitted on the date on which the bank account
entry becomes effective in ##MATERIAL OMITTED AND SEPARATELY FILED UNDER
A REQUEST FOR CONFIDENTIAL TREATMENT## account (on the value date):
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##
or in HER's account:
Account number. 42.84.19.682
at ABN AMRO
Kneuterdijk
Postbus 165
NL-2501AP Den Haag
2. No. 7.9 of this agreement shall not apply as regards a change of bank
account; therefore, a written notice to the other contracting party shall
be sufficient.
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7.1.6 SET-OFF, RETENTION
1. The contract partners shall only be allowed to perform a set-off for
undisputed or legally effective claims.
2. Also, it shall not be allowed to retain appropriate partial amounts of
due payments due to unclarified counterclaims.
7.2 TERM / RENEWAL OPTION
1. HER's right of use for each partial route shall have a term of ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##
years, starting with the appropriate provision of the partial route. Only
beginning with this date, HER's obligation for payment of the user
fee shall be created.
2. Upon expiry of the contractual term of use, the agreement may be
terminated by either party with a termination period of ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##
months. Should the termination right be executed for more than ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##
of the network length, the appropriate other party can require
termination of the agreement also for the remaining partial routes.
3. The term of use for each partial route shall end after ##MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## years,
without any termination being required.
7.3 WARRANTY OF APPROPRIATE CAPITALIZATION.
1. HER shall present to ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## on 01.01.1998 an irrevocable,
absolute guarantee, due upon first request of a first-class bank
institution with its registered seat within the European Union or
Switzerland according to Schedule 9 over DM ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## for the
pre-payments to be effected according to No. 7.1.2.1 d) and No. 4.6 and /
or the compensations for costs to be paid according to No. 6.2.5. The
guarantee may be limited in time until 01.09.1998. Should it turn out
until 01.08.1998 that, with regard to the secured amount, there still
will be a securing requirement after 01.08.1998, HER shall present a
second bank guarantee, if applicable. Should HER not present this second
bank guarantee until 15.08.1998, ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## shall be entitled to make
use of the existing bank guarantee.
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2. On 01.01.1998, HER shall also present to ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## an
irrevocable, absolute guarantee, due upon first request, of a first-class
bank institution with its registered seat within the European Union or
Switzerland according to Schedule 9 over the sum of the amounts of DM
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##for the annual user fee for 1998 as well as twice DM
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##for the annual user fee for 1999 and 2000. The partial amounts
of the guarantee shall be limited in time until 31.12. of the respective
year for which the annual user fee the appropriate partial amount is
guaranteed. The guarantee can be used for the appropriate partial amount
separately.
3. In case that these dates are not met by HER, the regulations of No.
7.1.3.2 and No. 7.1.3.3 shall apply accordingly.
4. The costs for the commission on bank guarantee shall be borne by
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## up to an amount of max. 1.0% p.a. and shall be due 30 days
after presentation of the bank guarantees.
5. ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## assures to have available a limited partner's capital
(liability amount) of DM ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT##furthermore assures that their
partners have made contractual agreements to increase this limited
partner's capital (liability amount) to min. DM ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##in case of
an increased investment requirement.
6. Upon HER's request, ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## shall grant necessary insight into
their documents to an independent auditor, who shall be bound to observe
confidentiality so that this auditor can confirm to HER the correctness
of the facts stated in the above clause No.
7.3.5.
7.4 TK APPROVALS
1. HER has acquired a telecommunications licence. A copy of the licence
confirmation is annexed to this agreement as Schedule 8. As far as a
statement by HER for authorities, public-law corporations or property
owners is necessary for execution of the project, that HER is licence
holder or will use the route to be established, HER shall provide this
statement.
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2. Should HER require more public-law approvals with regard to
telecommunications laws in connection with execution of this agreement or
use for marketing of LWL fibres provided to them, HER shall ensure that
these approvals are obtained. Should required approvals not or only
partially be granted to HER in this connection,this shall not exempt HER
from their obligations under this agreement. The same is applicable if
already obtained approvals of the above mentioned kind are given up or
the required approval is withdrawn.
3. Both contract partners assume that ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## does not require any
approvals according to the TKG for the contractual performances to be
effected by ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##. Should this nevertheless be the case,
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## shall immediately take its best efforts to obtain the
appropriate approvals. As far as special charges incur in this regard,
the user fee shall be re-calculated in accordance with the procedure
described in No. 3.2 by including these costs, if applicable.
7.5 CONFIDENTIALITY
1. The contract partners hereby undertake to treat as confidential any
information directly or indirectly obtained by the other party within the
scope of this agreement, its preparation and in connection with its
performance.
2. A confidential treatment means that the information obtained by the other
contract partner shall not be made available for third parties and that
this information shall not be utilized for own purposes - neither
directly nor indirectly - nor for third parties. The parties undertake to
exclusively utilize the information obtained for the purposes mentioned
in the preamble. Any utilization exceeding this, or passing on to third
parties, requires in every individual case the prior written consent of
the party giving the information, stating content, extent and addressees.
Any passing on to affected gas supply companies, financial credit
institutions and / or to individual tax or legal advisers as well as
passing on of technical details required for project realiziation to
subcontractors which is necessary due to the project, is, however,
admissible even without special written consent of the party giving the
information, provided that the passing on of information is limited to
the extent required for execution of the contract and the information
recipients commit themselves to confidential treatment in the sense of
this agreement for their part.
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The parties also commit their staff members to complying with this
confidentiality.
3. ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## right to disclose the individual, available partial routes in
their line course within the scope of the additional marketing to
possible users, remains unaffected.
4. Each party shall protect the information received from the other party
with the same diligence with which it protects its own business or
operating secrets, at least, however, with the diligence of an ordinary
merchant.
5. The confidentiality obligation does not apply for informations,
- which have already been known to the information recipient at the
time of abandonment without any obligation for confidentiality
- which have already been made publicly available or - without the
information recipient's fault - will be made publicly available at a
later point in time or
- which are received by third parties on a regular basis without any
obligation for confidentiality.
In so far, the burden of proof is on the side of the party passing the
information on.
6. Notwithstanding the above stipulations, each party shall be entitled to
meet its legal and statutory duty to furnish information, also with
regard to the information abandoned to it.
7. The obligation for confidentiality remains in effect for a period of five
(5) years after termination of the user period utilized by HER.
<PAGE> 66
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8. Content, form, date, etc. for the information of the public about the
cooperation, about the agreement and about the joint position against
authorities, associations, property owners, regional authorities, other
companies, etc., shall be agreed between the parties.
7.6 APPLICABLE LAW
For all legal relationships resulting from this agreement, its preparation and
its execution, German law shall be applicable except for the stipulations of the
CISG. Place of jurisdiction is Aachen.
7.7 PROFITABILITY CLAUSE
If the technical, economical and legal preconditions according to which this
contract stipulations (payment and conditions) have been agreed, experience a
basic change and if, due to that, the maintenance of the contractual
stipulations is not reasonable for one party because the intentions of the
contract parties, aiming at the equalization of the mutual economical interests
agreed under this contract are no longer met, this party may require that the
contractual stipulations are adjusted to the changed circumstances, except if a
contractual stipulation is concerned which contains an explicit risk shift. In
so far, no adjustment may be required.
7.8 SEVERABILITY
Should a stipulation of this agreement be or become invalid, the legal effect of
the remaining stipulations shall remain unaffected thereof. Instead of the
invalid stipulation the contract partners will agree a valid stipulation so as
to economically comply with the joint intentions as far as possible. The same
shall be applicable for filling possibly existing stipulation gaps.
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7.9 AMENDMENTS / MODIFICATIONS
Modifications and / or amendmends as well as supplements to this agreement
require written form and have to be signed by both contract parties. The same is
applicable for a waiver of this written form itself.
7.10. ASSIGNMENT TO OTHER CORPORATIONS
The assignment of the rights and obligations under this contract to another
company always requires the other contract partners' consent. This consent may
not be refused arbitrarily. It can - even in the case of affiliated companies -
be denied in particular if the company to substitute the appropriate contract
partner has got its seat outside the European Union or Switzerland or if this
company does not grant fulfilment of its contractual obligations in the same way
as does the contract partner to be substituted.
HER intends to found a subsidary within the European Union or Switzerland, in
which HER will have a majority of shares. As far as applicable, this subsidary
will acquire a telecommunications licence according to TKG or have this
telecommunications licence abandoned for execution according to TKG by HER. HER
intends to assign the rights and obligations under this contract to this
subsidary. ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## will in any case consent to this, if
- - HER has already effected the user fee pre-payments according to No. 3.2.6
and No. 4.2 in connection with No. 4.6 or the cost compensations
according to No. 6.2.5 or continues to be liable for these payments or
provides sufficient securities in form of bank guarantees according
Schedule 9 at HER's expense, as well as
- - HER continues to be jointly and severally liable for the annual user fee
payments, or appropriate securities in form of bank guarantees according
to Schedule 9 are provided,or the subsidary grants for continuous
fulfilment of its contractual obligations in the same way as does HER.
All stipulations of this agreement shall apply to the same extent for possible
legal successors or assignees.
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7.11 TECHNICAL EXPERT
In cases where according to this agreement an independent expert is to be
consulted with regard to technical questions, the following shall apply:
1. Within two weeks after determination of the necessity to consult an
expert, the contract parties shall nominate an independent expert.
2. Should the contract parties not be able to find agreement about the
expert's person within this period, a qualified expert has to be
determined by the president of the Chamber of Industry and Commerce in
Dusseldorf upon the application of one of the parties. The expert thus
determined shall make the decision as arbitrator expert according to
Sections 315 ff. BGB and also decide who shall bear the costs incurred by
use of his performances.
7.12 ARBITRATION CLAUSE
1. All disputes in connection with this agreement and its execution,
including the validity of this contract and the arbitration clause, as
well as the scope of the arbitration clause, shall be finally decided by
an arbitral tribunal to be installed according to the following
regulation ousting the jurisdiction of a court.
2. The arbitral tribunal shall consist of three arbitrators, one of them
being the chairman as umpire. The umpire shall have the qualification for
the German judicial office. Place of the arbitral tribunal shall be
Dusseldorf.
3. The arbitral tribunal shall be formed by the pursuing party, stating the
subject of dispute and an arbitrator, from the other party to nominate a
different arbitrator and the nominated arbitrators elect the umpire.
Should the other party not meet the request to nominate the second
arbitrator within 4 weeks after receipt of this request, the requesting
party can ask the president of the Regional Court in Dusseldorf to
nominate an arbitrator. Should the arbitrators not have elected the
umpire within four weeks after the second arbitrator's nomination, the
president of the Higher Regional Court shall be asked to nominate the
umpire himself. With the nomination the nominated person has effectively
been determined to be the umpire of the arbitral tribunal.
<PAGE> 69
CONFIDENTIAL TREATMENT
-64-
4. In other respects, the legal provisions of the German ZPO for arbitration
proceedings shall apply, provided that the term of one week stated in
Section 1031 ZPO is substituted by a term of four weeks and the competent
court stated there is subsituted by the president of the Higher Regional
Court of Dusseldorf. Competent court in the sense of Sections 1045, 1046
ZPO is the Regional Court in Aachen. The language for all proceedings is
German.
5. In case of disputes in the sense of Section 91 clause 1 sentence 1 GWB,
the decision by an arbitral tribunal requires prior agreement.
7.13 ATTRIBUTION OF PREVIOUS ACTS AND REPRESENTATIONS
HER hereby bindingly confirms: all persons who have appeared in previous
negotiations and other contacts with ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## on the side of HER, have
exclusively acted for the Hermes Europe Railtel B.V. or have given or received
statements exclusively for the Hermes Europe Railtel B.V.. In favour of other
companies of the HER group, including the HER partners, neither the approach to
the business relationship nor the previous negotiations have caused any legal
relationships or claims.
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## hereby bindingly confirms: all persons who have appeared in previous
negotiations and other contacts with HER on the side of ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##, have exclusively
acted for the ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##or have given or received statements exclusively for the
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##.
The same is applicable for future negotiations and possible contractual
agreements, unless the parties agree something else. Should, nevertheless, other
companies of the HER group than the Hermes Europe Railtel B.V. try to enforce
any claims against ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##, HER undertakes to hold ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## free of such
claims and of,the costs incurred for prevention of such claims.
7.14 CONSENT OF THE SUPERVISORY BOARDS
The whole contract is subject to the meeting of shareholders of ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## as
well as the "board of directors" of the GTS Hermes Inc., Delaware, USA, taking
consenting resolutions until 1.10.1997. The contract partners shall inform each
other immediately about the result of the resolutions.
<PAGE> 70
CONFIDENTIAL TREATMENT
-65-
7.15 AGREEMENT SCHEDULES
The subsequently stated Schedules are, beyond any direct reference, part of the
contract with regard to their complete contents. In case of possible
contradictions between the contract and its Schedules, in the case of doubt the
regulation in the agreement shall prevail.
Schedule 1 : General map
Schedule 2 : Listing of the partial routes, indication of the sections
to be established and leased
Schedule 3 : Technical conditions for the use of fibre optic cables
Schedule 3a: Specifications for the section ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##
Schedule 4 : Milestone time schedule
Schedule 5 : Cost elements and calculation examples
Schedule 6 : Contractual mean prices
Schedule 7 : Rights of way and equalization payments, framework
agreements
Schedule 8 : Copy of the licence confirmation according to TKG granted
to HER
Schedule 9 : Bank guarantee
Schedule 10: Projected basic points for subcontractor agreements
Hoeilaart, September 24, 1997 Hoeilaart, September 24, 1997
(signature illegible) (signature illegible)
- ------------------------------- -----------------------------------
Jan Loeben
(Hermes Europe Railtel B.V. ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##
<PAGE> 71
CONFIDENTIAL TREATMENT
EXHIBIT 1: Map of routes
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##
<PAGE> 72
CONFIDENTIAL TREATMENT
EXHIBIT 2: LIST OF PORTIONS OF ROUTE WITH KM, NUMBER OF FIBRES, INDICATION OF
OWN BUILD OR LEASE
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##
<PAGE> 73
Schedule 3
appertaining to the
Agreement on the Implementation
and Utilisation of Fibre Optic Routes
Technical Conditions
for the Use of Fibre Optic Routes
and Procurement of Container Stations.
<PAGE> 74
CONFIDENTIAL TREATMENT
Table of Contents
1. Preamble
2. Technical Requirements for fibre optic cables and their terminal facilities
2.1 Connection of fibre optic routes in HER-System Engineering Stations
2.2 Connection of fibre optic routes at cable branches (passive branch)
2.3 Fibre optic route connectors
2.4 Technical specification for cables and cable installation
2.4.1 Requirements for cables
2.4.2 Requirements for cable installations
2.4.2.1 Layout basis
2.4.2.2 Identification of cables in ducts
2.4.2.3 Fittings
2.4.2.4 Attenuation reserves for partial fibre optic routes
2.5 Acceptance tests for type samples and deliveries, testing of individual
units
2.6 Provision of LWL-lines
2.7 Failure times, fault clearance times, major damages
2.7.1 Permissible failure time
2.7.2 Fault clearance times
2.7.3 Major damages / destruction
2.8 Maintenance
2.8.1 Obligations of HER
2.8.2 Obligations of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER
A REQUEST FOR CONFIDENTIAL TREATMENT##
2.8.3 Processes
2.8.3.1 Beginning of a fault situation
2.8.3.2 Rules for repairs
2.8.3.3 End of a fault situation
2.8.4 Planned close-downs and/or turn-off times as provided by the
agreement
3. Access to HER-Facilities
4. Control and implementation of contractually agreed services after provision
of fibre optic routes
5. Communication
6. Permanent modification of the network
7. Container stations
7.1 Tasks in connection with container stations 7.2 Acquisition of title 7.3
Layout work in case of containers 7.4 Implementation in case of container
stations
8. Basic technical specification for system engineering stations 8.1 Floor
areas of containers 8.2 Space requirement
9. Definitions
<PAGE> 75
CONFIDENTIAL TREATMENT
1. PREAMBLE
The "Technical Conditions for the Utilisation of Fibre Optic Routes and
Repair of HER-System Engineering Stations" are a schedule to the
contract between ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## and HER concerning implementation
and utilisation of fibre optic routes and procurement of container
stations.
2. TECHNICAL REQUIREMENTS FOR FIBRE OPTIC CABLES AND THEIR CONNECTION
FACILITIES
2.1 CONNECTION OF FIBRE OPTIC ROUTES IN HER-SYSTEM ENGINEERING STATIONS
The external fibre optic cable is introduced into HER-System
Engineering Stations by ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT##, placed on splice cassettes in
assembly racks and terminated by pigtail. The connectors at the end of
the long-distance cable represent the interface between ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## and HER. Cable end fittings (rack, coupling, connector
panel) are provided by HER. Hereafter, connectors will be defined as
interconnection points. From the connector panel, HER will install
their own indoor cables to their system engineering locations under
their own responsibility. In case of container stations outside
stations held by gas suppliers (GVU), the fibres destined to the gas
supplier will be spliced through into the splice box within the
container. Should HER-System engineering locations be accommodated in
the premises of a gas supplier, then the gas supplier concerned shall
ensure, that these premises cannot be entered by unauthorised persons.
2.2 CONNECTION OF FIBRE OPTIC ROUTES TO CABLES BRANCHES (PASSIVE BRANCH)
HER require cable branches from the cable line into other, additional
networks. In these instances, the fibres of ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## fibre
optic routes are spliced directly onto fibre optic routes, which are
not part of this contract. The cable branch can be implemented
underground or above ground. Available premises permitting, branchings
above ground are to be preferred. The
<PAGE> 76
CONFIDENTIAL TREATMENT
passive branch lies within the realm of responsibility of ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##. The conditions for taking over this responsibility are,
that the fibre optic branching cable has ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## The
quality of the branching splice is documented upon acceptance. It is
not subject to the requirements laid down in item 2.4.
2.3 FIBRE OPTIC ROUTE CONNECTORS
The ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##, is used as connector.
Model: ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT##
Description: ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT##
Face geometry: ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT##
The following values for insertion and reflection attenuation must not
be exceeded for the connector:
- insertion attenuation: ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##
- reflection attenuation: ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##
HER shall advise ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## about the required length of the
pigtails between the splice cassette on the long-distance end of the
cable and the connector (interconnection point) in good time before
placing the order.
<PAGE> 77
CONFIDENTIAL TREATMENT
2.4 TECHNICAL SPECIFICATION FOR CABLES AND CABLE INSTALLATION
The technical specification for cables and acceptance criteria for the
cable installations have been agreed as follows:
2.4.1 REQUIREMENTS FOR CABLES
A one-mode fibre in accordance with G.652, edition 3/1993 shall be used
as fibre. Those cable requirements, which are relevant due to their
transmission-technological characteristics, are defined in the table
below. The values for the attenuation coating as listed in the table,
refer to fibre without splices.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Characteristic Requirement Temperature Range
- -----------------------------------------------------------------------------------------------------------------
Attenuation coefficient (alpha) ##MATERIAL OMITTED AND 20 degrees C - 40 degrees C
relative to 1310 nm SEPARATELY FILED UNDER A
maximum db/km REQUEST FOR CONFIDENTIAL
TREATMENT## (see note below)
- -----------------------------------------------------------------------------------------------------------------
Attenuation coefficient (alpha) ##MATERIAL OMITTED AND 20 degrees C - 40 degrees C
relative to 1550 nm SEPARATELY FILED UNDER A
maximum db/km REQUEST FOR CONFIDENTIAL
TREATMENT##
(see note below)
- -----------------------------------------------------------------------------------------------------------------
Chrom. dispersion parameter ##MATERIAL OMITTED AND 20 degrees C - 40 degrees C
at 1550 nm SEPARATELY FILED UNDER A
maximum ps/[nm-km] REQUEST FOR CONFIDENTIAL
TREATMENT##
- -----------------------------------------------------------------------------------------------------------------
Polarisation mode dispersion ##MATERIAL OMITTED AND 20 degrees C - 40 degrees C
PMD SEPARATELY FILED UNDER A
at 1550 nm REQUEST FOR CONFIDENTIAL
maximum ps/km TREATMENT##
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 78
CONFIDENTIAL TREATMENT
Note:
The values refer to each individual fibre optic route within the cable.
Required is a homogenous progression of attenuation, however, some
attenuation jumps are permitted, provided that the total of such jumps
does not exceed the value of ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##length of fibre optic
route. The arithmetic mean value of measurements taken on both ends is
considered as value of an individual jump in attenuation.
2.4.2 REQUIREMENTS FOR CABLE INSTALLATIONS
The required acceptance value for the permissible attenuation A of a
certain cable section after set-up, modification and repair of a cable
installation is calculated as follows:
A = ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT##
L = length of the connected fibre optic cables (including
additional lengths required for mounting at fittings
and pigtails)
(alpha) = attenuation coefficient of fibre optic cable in
dB/km according to table
n(sp) = number of splices including splices of terminal
fittings
n(st) = number of connector couplings
2.4.2.1 LAYOUT BASIS
Calculation of the maximum number of splices required during set-up of a cable
installation is based upon an average pass distance of approx. ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## km
between two branching boxes.
Required number of splices (average pass distance = ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## km);
<PAGE> 79
CONFIDENTIAL TREATMENT
<TABLE>
<S> <C>
- additional attenuation: ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT## (for each end splice)
- max. attenuation value,
excluding connector ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT## (for each attenuation, including
end splice) splices at ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## nm
- max. attenuation value,
excluding connector ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT## (for each attenuation, including
end splice) splices at ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## nm
</TABLE>
Exception:
For short sections of less than ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## km, average pass distances
= ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##km are allowed.
<TABLE>
<S> <C>
additional attenuation: ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT## (for each end splice)
</TABLE>
<PAGE> 80
CONFIDENTIAL TREATMENT
<TABLE>
<S> <C>
- max. attenuation values excl. connector
attenuation, incl. splices at ##MATERIAL ##MATERIAL OMITTED AND SEPARATELY FILED
OMITTED AND SEPARATELY FILED UNDER A UNDER A REQUEST FOR CONFIDENTIAL
REQUEST FOR CONFIDENTIAL TREATMENT## nm: TREATMENT## (for each end splice)
- max. attenuation coating excl. connector ##MATERIAL OMITTED AND SEPARATELY FILED
attenuation, incl. splices at ##MATERIAL UNDER A REQUEST FOR CONFIDENTIAL
OMITTED AND SEPARATELY FILED UNDER A TREATMENT## (for each end splice)
REQUEST FOR CONFIDENTIAL TREATMENT## nm:
</TABLE>
2.4.2.2 IDENTIFICATION OF CABLES
Cables have to be marked with the name of the user/owner.
The cable will be marked with the following imprint: ##MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##/HER
2.4.2.3 FITTINGS
In the realm of building measures, industrial standard models provided by the
cable suppliers will be used as fittings.
The ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## as well as ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT## will be used as branching box. In the branch
conduits, the fibres to be spliced out are deposited in ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##. The fibres
spliced through uninterruptedly are deposited in ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##. The conduits are
situated in the ground and have thus to be protected from unauthorized access.
2.4.2.4 ATTENUATION RESERVES FOR PARTIAL LWL-ROUTES
Attenuation reserves include repairs and plannable work projects in the cable
system after commissioning as well as new branches for gas suppliers.
Repairs and plannable work projects:
<PAGE> 81
CONFIDENTIAL TREATMENT
For repairs and plannable work projects, an attenuation reserve of:
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## and year is herewith agreed.
The calculation of the attenuation reserve for repairs and plannable
work projects is performed on the following basic assumptions:
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##. With a contract duration of ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## years, this leads to an additional attenuation for repairs
and plannable work projects in the amount of:
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##
Branches for gas suppliers to be implemented after commissioning:
Approx. ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## additional branch for gas suppliers per
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## km (by means of ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## joint
boxes) has been taken into consideration for the period following
commissioning of the cable installation.
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##
Thus, total additional attenuation for a contract duration of
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## years, amounts to:
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##
2.5 ACCEPTANCE TESTS FOR TYPE SAMPLES AND DELIVERIES, TESTING OF
INDIVIDUAL UNITS
<PAGE> 82
CONFIDENTIAL TREATMENT
When procuring cables to be newly laid within the framework of this
agreement, ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## will execute type sample and delivery
acceptance tests at the cable manufacturers. HER is entitled to take
part in these tests. ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## shall inform HER to this effect
without delay. ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT## shall provide HER with those parts of the
test records, which contain information on values relevant for
transmission technology, as laid down in this section. ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## shall provide HER with copies of the test records for
individual cables (tests of individual units).
2.6 PROVISION OF LWL-LINES
For the provision of partial routes under this contract, the following
procedure shall apply:
In the joint presence of measuring staff of ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## and HER,
measurements will be performed on the complete laid and mounted
LWL-route. Measuring results shall be confirmed by signature of those
present. Measurements shall consist of Optical Time Domain Reflection
and level measurements for each individual LWL-fibre between two
neighbouring interconnections points. These are:
- Continuity test to check for confusion of optic fibres
- Measurement of optical attenuation (level measurement) to determine
route attenuation
- Optical Time Domain Reflection measurement in both directions
(A-B-, B-A) to determine the course of attenuation of the LWL as well
as the attenuation of splice locations, including evaluation of the
optical length between the transition points concerned.
<PAGE> 83
CONFIDENTIAL TREATMENT
Measurements will be performed for the wave lengths ##MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##nm.
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## has to evaluate measuring results and prepare
a table containing comparisons with the requirements laid down under
item 2.4.1. Proofs to be supplied by ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## shall comprise:
Two sets of all measuring records, evaluations, tables with comparisons
as described above, the route layout plan, indicating individual cable
lengths and joint boxes. The form of such documents shall be determined
in mutual agreement. Maps based on the latest available status are to
be used for the route documentation to be submitted.
2.7 FAILURE TIMES, FAULT CLEARANCE TIMES, MAJOR DAMAGES
2.7.1 PERMISSIBLE FAILURE TIME
For calculation of permissible failure times, all interruptions of
LWL-fibres are taken into account, with the exception of planned
close-downs and turn-off times as defined in item 2.8.4. This shall
also apply hereafter for necessary, planned close-downs in connection
with gas activities.
The scheduling and coordination process for planned work projects is
defined under item 2.8.4.
Parties agree to a failure time of ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## and year, with an
average fault clearance time of ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## h.
Failure times of the total network are considered over a period of
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## years.
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##.
<PAGE> 84
CONFIDENTIAL TREATMENT
The agreed failure time of ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##km refers to a fibre optic
cable with up to ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT##fibres. For each fibre in excess of
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##./fibre will be deducted for each case of
interruption.
Example: cable with 38 fibres, failure time 14 h
14 h - (##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT##./fibre x 8 fibres) = ##MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##h
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##h will be included in calculations.
For the calculation of failure times, an additional, calculatory
deduction of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT## h for each failure shall be observed for
the partial route.
2.7.2 FAULT CLEARANCE TIMES
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## will in any event restore availability of the
fibre optic cables as quickly as possible (by means of exchange or
repair, depending on circumstances). The fault clearance time for a
reported fault is ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## h, with the exception of major
damages and effects of act of God.
If the affected fibre optic cable comprises more than ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## LWL-fibres used by HER, the permissible fault clearance
time for each fault shall, by way of calculation, be increased by
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##for each LWL-fibre used by HER. If the affected
connection between system engineering locations has a length of more
<PAGE> 85
CONFIDENTIAL TREATMENT
than ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## km, the permissible fault clearance time is
increased by an addition period of ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##. The fibre optic
cable on the route between ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##is held in co-ownership.
The permissible fault clearance time is ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##. The
permissible fault clearance time for the section ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## The
quoted times do not include provisions for final measurements. Final
measurements shall be performed in coordination with HER within the
framework of plannable work projects (e.g. on the following day).
2.7.3 MAJOR DAMAGES / DESTRUCTION
Refer to LWL-Agreement.
2.8 MAINTENANCE
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## undertakes to maintain the cable system,
consisting of the fibre optic cable, joint boxes and cable end
facilities with splice cassettes and connectors plus coupling on the
long-distance end of the cable. For this purpose, ##MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## shall
provide an organisation with trained staff and suitable equipment,
enabling them to initiate and execute repair measures at any day and
any time after a fault has been reported. Contracting parties shall
agree on a reliable means of transmitting reports in case of faults, in
accordance with the state of the art (e.g. by telephone, FAX, e-mail,
coupling of network management systems or similar). German is the
permitted language.
2.8.1 OBLIGATIONS OF HER
The HER-NOC shall monitor transmissions through the LWL used by
<PAGE> 86
CONFIDENTIAL TREATMENT
them by means of their system engineering facilities and detect
interruptions. An interruption is defined as transmission failure due
to a deviation from rated values in one or several LWL-fibres. In case
of interruption, HER shall inform ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## by telephone or fax
(failure report). Following that, ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## shall perform
repairs.
Failure reports shall include the following data: a reference number,
the time of making the report, the affected connection between two
interconnection points, the ident-numbers of the LWL, which were
interrupted, and the priority sequence of LWLs for fault clearance.
This is, as a rule, performed in the same sequence as the numbering of
the LWL, unless the HER-NOC prescribes a different sequence in their
failure report.
If, in case of a branching LWL, the network transition ends within the
site of a third network operator, then HER shall ensure that ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## has access to this site for repairing the branching LWL. If
the HER-NOC fails to fulfil this obligation, times of delays resulting
from this shall not be counted towards fault clearance times and
failure times. The HER-NOC shall ensure that the lasers are switched
off during fault clearance times.
If the ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## LWL-fibres are directly connected to a HER-LWL
fibre by splicing, the procedure as described below shall be applied:
HER-NOC informs both partners at the same time about the problem and
request both of them to initiate fault clearance on both ends
simultaneously. Should problems arise in locating the precise place of
the fault, the HER-NOC expects both partners to work together in a
cooperative manner during fault locating procedures and to provide the
same technical support as they would do, if any of them was alone
responsible for a fault within his section. If ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##
ascertains that the fault is not located within their section, the
HER-NOC shall "demobilise " the
<PAGE> 87
CONFIDENTIAL TREATMENT
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##personnel.
2.8.2 OBLIGATIONS OF ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT##
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## shall keep a stock of the following
LWL-specific equipment at their service support points:
o LWL-repair cable of suitable length
o test instruments for attenuation measurements [e.g. Optical
Time Domain Reflectometer (OTDR) and attenuation measurement
station]
o fusion splicing equipment
o joint boxes
o pigtails
o connectors/couplings
Should this equipment prove to be insufficient, it has to be extended
as laid down in item 6.
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## shall perform repairs in case of interruptions
on any day at any time after receipt of the failure report.
Upon reasonable request by HER, ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## shall perform Optical Time
Domain Reflection and level measurements at the LWL, to check, whether
attenuation values have increased as compared to the currently
documented state.
Should HER ascertain an increase in attenuation in the LWL, the
following procedure shall be applied:
- The HER-NOC shall inform the ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##-NOC immediately, if data
losses are detected, which, according to HER's assessment, are due to
an increase in attenuation of the LWL.
- Upon receipt of this notification, ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## shall, in
coordination with the HER-NOC, perform a
<PAGE> 88
CONFIDENTIAL TREATMENT
measurement of Optical Time Domain Reflection (OTDR), in order to find
and remedy any damages in the LWL or its terminals (ODF). Such
OTDR-testing can be supervised by HER on their request and is
considered as planned interruption of operations;
- ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## shall report test results to HER-HOC
immediately after measuring. HER is entitled to check results;
- If the test shows no increase in attenuation in the LWL, HER shall
reimburse ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## with the costs for performing the test;
- In case of an increase in attenuation exceeding the values guaranteed
under 2.4.2.4, ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT## undertakes to provide for appropriate
remedies, as agreed with the HER-NOC;
- An increase in attenuation shall only be considered as eliminated
after confirmation through an acceptance measurement.
In case of interruptions, ##MATERIAL OMITTED AND SEPARATELY FILED UNDER
A REQUEST FOR CONFIDENTIAL TREATMENT## shall perform repairs on any day
and at any point of time after receipt of the failure report.
2.8.3 PROCESSES
2.8.3.1 BEGINNING OF A FAULT SITUATION
HER-NOC reports the occurrence of a fault to ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## by
telephone and fax (failure report). The time of arrival of the fax at
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## represents the starting time for determining
the fault clearance time. ##MATERIAL OMITTED AND SEPARATELY FILED
<PAGE> 89
CONFIDENTIAL TREATMENT
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## shall immediately confirm
receipt to HER-NOC, also by fax. If no fault can be found after a
failure report was made, no fault clearance time shall accounted for.
HER shall bear the costs for the respective fault clearance call-out.
2.8.3.2 RULES FOR REPAIRS
Upon receipt of a failure report, ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## shall (as soon as
this is possible to foresee) advise HER-NOC, whether they require HER's
cooperation (e.g. coordination of measures to be taken). With their
failure report, HER-NOC will advise of any special circumstances to be
taken into account. ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## shall inform HER-NOC about the
course of repair activities (example: responsible ##MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##
representative on-site, localisation of the fault, process of repair
work, expected duration of the close-down necessitated by such work).
Permanent splices have to be constructed as fusion splices in a
recognised procedure. Upon agreement with HER-NOC, ##MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## may
remedy the interruption of a LWL by providing another LWL, which can be
used by HER (Transfer). HER-NOC and ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## may agree, that such
a transfer shall lead to a permanent LWL-exchange. Otherwise, the
original LWL has to be repaired and transferred back in a planned work
project. The time of close-down connected with such a transfer shall be
determined in mutual agreement between ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## and
Her-NOC.
2.8.3.3 END OF A FAULT SITUATION
Repairs are considered completed as of that point of time, when the
fault was eliminated and ##MATERIAL OMITTED AND SEPARATELY FILED UNDER
A REQUEST FOR CONFIDENTIAL TREATMENT##
<PAGE> 90
CONFIDENTIAL TREATMENT
notified HER-NOC to this effect by telephone. The time of completion
agreed during the telephone conversation shall be confirmed by fax. The
fault clearance time ends at the same time as the completion of
repairs. HER-NOC shall confirm this notification by fax.
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## may perform a temporary repair, if this
eliminates the fault. With regard to the end of the fault situation,
the same applies as for a regular repair, with the exception that
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## has to inform the fact, that this is a
temporary repair.
2.8.4 PLANNED CLOSE-DOWNS AND/OR TURN-OFF TIMES AS PROVIDED BY THE AGREEMENT
Planned close-downs and turn-off times are times, during which measures
are taken on the cable system, the scheduling of which had been
coordinated between HER-NOC and ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## beforehand (planned work
projects).
Date and place of planned work projects, which lead to a plannable
interruption of the LWL, shall be communicated by ##MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## as
early as possible; if the information is available, 30 days in advance.
but not later than 7 days in advance. Time and duration of the
interruption of the LWL shall be notified not later than 3 days in
advance. Planned LWL-interruptions have to be scheduled in mutual
agreement and should preferably be performed during slack periods.
3. ACCESS TO HER-FACILITIES
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## on their access requirements (by sending a fax
to the network control centre). Doing so, HER have to observe the
following notice periods:
Initial installation 1 week in advance
Upgrades 1 week in advance
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CONFIDENTIAL TREATMENT
Engineering works 3 working days in advance
Removal of equipment 5 working days in advance
(including a list of the
equipment to be removed
Routine maintenance 3 working days in advance
Repairs in case of faults immediately (24 hours / 365
days)
In all other instances, access shall be granted in mutual agreement and
after previous notice. This notice must be received by ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## not earlier than 5 working days prior to the planned
access.
4. CONTROL AND IMPLEMENTATION OF CONTRACTUALLY AGREED SERVICES AFTER
PROVISION OF FIBRE OPTIC ROUTES
HER and ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## shall, for the time following provision of the
LWL, appoint staff to be responsible for control and execution of the
contractually agreed services.
The staff appointed by HER and ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## (operations management)
shall work together to prepare a manual to determine operational
details for maintenance (examples: appointment of responsible persons,
contact points, processes, check lists, spare parts inventory, staff
training, updating of documents, monitoring functionality of the
equipment used). The manual has to be updated when required. In a
special harmonisation process, parties shall recognise the contents of
the manual as binding. This has to be in writing. Parties shall use
their best efforts to achieve mutual agreement with regard to any
measures to increase availability, if, in the LWL used by HER, the
fault clearance times indicated in the agreement are exceeded.
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## shall inform HER, if they appoint any
sub-contractors to take over any tasks and works under this contract.
In such a case, all agreements made are to be applied to the
subcontractor analogously.
<PAGE> 92
CONFIDENTIAL TREATMENT
5. COMMUNICATION
For purposes of communicating in case of faults, HER and ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## shall provide routes and means of communication, which can
be used independently of the telecommunication equipment and the cable
forming the subject matter of this agreement.
Operational communication, with the inclusion of failure notices, takes
place between the HER Europe Railtel Network Operations Center (NOC)
and ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## Headquarters. These are manned 24 h every day.
German is the permitted language.
The contact points of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## and HER shall be listed in the
manual not later than at that point of time, when the LWL is made
available. This indication in the manual has to be continuously
updated.
For each repair, ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## shall appoint a responsible
representative and notify HER accordingly. When required, HER shall
also appoint a responsible on-site representative.
6. PERMANENT MODIFICATION OF THE NETWORK
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## are authorised to change the site of the LWL
and/or HER-equipment, provided that they have a sound reason for this
and BASICALLY ONLY UNDER THE FOLLOWING CONDITIONS
a) ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## shall, as early as possible, submit
to HER an application for a permanent change of locality of
the LWL and/or the HER-equipment;
b) This permanent relocation will have no effect whatsoever on the fees
payable to ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT##;
<PAGE> 93
CONFIDENTIAL TREATMENT
c) The LWL may not be relocated in such a manner, that is runs
parallel to a route which already contains a connection. This
shall ensure to maintain the diversity of the HER-network.
This condition does not apply to links to container stations;
d) This permanent modification/relocation has to be planned in
such a manner, that the interruption of signal transmissions
on the LWL is kept as short as possible;
e) Performance criteria of the LWL or the installed equipment
must not be negatively affected as a consequence of the
modification/relocation.
Costs for relocations shall be borne wholly by ##MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##.
7. CONTAINER STATIONS
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## are prepared to assist with the procurement of
sites for container stations. Engineering costs required for this shall
be agreed separately. This also applies to the acquisition of land or
the lease of a plot, which may be required, as well as expenses for
utilisation of a plot or existing premises. Construction, installation
and maintenance of containers shall not become part of the
LWL-Agreement.
7.1 TASKS IN CONNECTION WITH CONTAINER STATIONS
Following the procurement of the respective sites or premises,
contractor shall plan and implement all measures required for
constructional preparation and/or erection of the containers, including
connection to the power supply. The containers shall be called from a
supply quota to be indicated by contract awarder or contract awarder's
customer. The erection of the containers shall be supervised by the
contractor and all finishing work up to acceptance procedures by the
authorities will be executed by him. Contractor shall take over project
management for the work mentioned above. The tasks are detailed as
follows.
- Contractor shall endeavour to procure plots with container
spaces or rooms which may be used according to the
specifications of the contract awarder. In this context, use
means: possibility for purchase, lease, rent or other
utilisation by contract awarder or his customers.
<PAGE> 94
- General arrangements with authorities, obtaining approval of
the planned measures by the authorities (also change of
utilisation of rooms) and compilation of requirements by the
authorities.
- General arrangements with the EVU in charge and, if
applicable, also with the Telekom: compilation of
requirements.
- General arrangements with the owners/usufructors of the
plot / rented space.
- Procedure to be followed when looking for a site:
The search for accommodation locations for the technical systems of
contract awarder and/or his customer shall be based upon the following
procedural mode:
- Contract awarder indicates desirable sites to contractor.
- Following this indication, stations of gas suppliers will
first be examined for possible accommodation sites.
- If the search for a site within gas supplier stations or in
their immediate vicinity remains unsuccessful, contractor
shall plan and procure other suitable sites in cooperation
with contract awarder.
During such a search, the following sequence of priorities shall as a
rule be adhered to:
o Joint use of the gas supplier's station area for the erection
of containers;
o If accommodation within the station area proves to be
impossible, then the second priority shall be an extension of
the station area (with fencing) to create container spaces;
o If this too, proves to be unattainable, contractor shall plan
and procure spaces for the erection of containers within the
area of fibre optic routes, but outside station areas;
o Joint use of buildings on gas supplier stations; if
necessary, also by extending existing buildings or erecting
additions to existing buildings;
HER shall submit specifications for the container station without delay
(see item 7.3).
<PAGE> 95
7.2 ACQUISITION OF TITLE
- if required, survey of plot and access road
- preparation of documents for the acquisition of title
- execution of the acquisition of title
7.3 LAYOUT WORK IN CASE OF CONTAINERS
- Layout of containers according to local building regulations,
o Definition of special design forms (design of roof
and exterior)
- Design of foundations, calculation of foundations, if standard
is not applicable;
o Definition of civil engineering works
- Planning of the access road (for the building phase as well as
later service) and of the plot;
o connection to a public road
o fencing (if required)
o parking facilities for service vehicles, if required
as a condition imposed by an authority;
o required planting.
- Preparation of the documentation required for the building
application and obtainment of building permits for
o access road and connection to public roads;
o erection of the cell;
o erection of fencing;
o planting.
7.4 IMPLEMENTATION IN CASE OF CONTAINER STATIONS
- Procurement of terminals
o terminal of power supplier with meter cabinet / meter
tower,
o telephone installations
- Procurement of electrical installation
o cable between power suppliers' terminal and container
area,
o grounding and lightning protection
- Procurement of building works (three inquiries each) for
<PAGE> 96
CONFIDENTIAL TREATMENT
o foundations,
o access road,
o fences, as required,
o planting
- Coordination and supervision of all individual works and
contractor's services listed above, including:
o supervision of the above mentioned works in the
realms of electrical engineering and civil
engineering,
o follow-up and control of schedule,
o measuring finished works,
o acceptance and delivery,
o call-off of containers,
o supervision of container placement.
- Performance of all required acceptance procedures by
authorities, including acceptance of:
o container and fencing,
o access road,
o planting.
- surveying existing facilities.
8. BASIC TECHNICAL SPECIFICATION FOR SYSTEM ENGINEERING STATIONS
The following data are to be understood as orientation values, intended
to describe the scale of the procurement service to be provided by
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##.
8.1 FLOOR AREAS OF CONTAINERS
An example for the dimensions of containers to be erected, with
specifications to be given by HER:##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## mm. The containers
require a power supply terminal and a Telekom terminal.
The space requirement for each container can be assumed to amount to
approx. ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##square meters. Additional space will be
required for the fence, which may be
<PAGE> 97
CONFIDENTIAL TREATMENT
necessary, the access road may necessitate compensation areas as
prescribed by the authorities; space may also be needed for an antenna
site with space for setting up radio link equipment, a parking lot,
and, if required in addition, a space which may, in case of a power
failure, be used temporarily for a mobile emergency power generating
set.
8.2 SPACE REQUIREMENT
The space requirements for each container space amounts to ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##
The room for system engineering facilities has to fulfil the following,
basic requirements (which are normal standard for EDP and
telecommunication rooms) or it must be possible to refurbish it
accordingly:
o meter of the power supplier,
o sufficient carrying capacity of ground and double bottom,
o safe cable leading
o fulfilment of safety requirements with regard to burglary, sabotage,
fire, flood
o possibility to install air conditioning facilities, e.g. outside space
to set up condensators or recoolers, as well as channels/ducts for the
necessary power lines, external and internal lightning protection and
grounding.
o access (as defined in the agreement) including closing facilities
o suitable service roads
9. DEFINITIONS
<TABLE>
<S> <C>
HER-NOC Hermes network control system in Brussels
First Level Maintenance (FLM) Simple activities (e.g. exchange of a PCB) by a
qualified technician, which serve to immediately
restore network operations.
Second Level Maintenance All activities which cannot be performed by a
FLM-technician, because they require specific
technical expertise.
FLM-technician Qualified ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##-employee or appointed qualified
third party
SLM-technician Qualified employee of HER or a third party (e.g.
manufacturer) (expert).
Level 1 refer to FLM
Fault clearance time Interval between arrival of the fax with the
failure report as defined under 2.8.3.1 ad
completion of repairs as defined under 2.8.3.3
of this Schedule. The fault clearance time is
defined for each individual fault.
</TABLE>
<PAGE> 98
CONFIDENTIAL TREATMENT
Schedule 3a
appertaining to the
Agreement on the Implementation
and Utilisation of Fibre Optic Routes
Specifications for the Section ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT##
1. Preamble
The "specifications for the section ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##" are a schedule to
the agreement between ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## and HER concerning implementation
and utilisation of fibre optic routes and procurement of container
stations.
In this section, an existing fibre optic cable with ##MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##
fibres shall be used. Technical characteristics of this cable are thus
pre-set. Skeleton conditions for repair are given as well.
2. Technical Requirements for fibre optic cables and their connection
facilities
2.1 Connection of fibre optic routes in HER-System Engineering Stations
Refer to Schedule 3.
2.2 Connection of fibre optic routes at cable branches (passive branch)
Refer to Schedule 3.
2.3 Fibre optic route connectors
Refer to Schedule 3.
2.4 Technical specification for cables and cable installation
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CONFIDENTIAL TREATMENT
The cable has ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT## fibres in accordance with ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##.
Those cable requirements, which are relevant due to their
transmission-technological characteristics, are defined in the table
below. The values for the attenuation coating as listed in the table,
refer to fibre without splices.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Characteristic Requirement Temperature Range
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Attenuation coefficient (alpha) ##MATERIAL OMITTED AND 20 degrees C - 40 degrees C
relative to ##MATERIAL OMITTED SEPARATELY FILED UNDER A
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
REQUEST FOR CONFIDENTIAL TREATMENT##
TREATMENT## nM (see note below)
maximum db/km
- -----------------------------------------------------------------------------------------------------------------
Attenuation coefficient (alpha) ##MATERIAL OMITTED AND 20 degrees C - 40 degrees C
relative to ##MATERIAL OMITTED SEPARATELY FILED UNDER A
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
REQUEST FOR CONFIDENTIAL TREATMENT## nM TREATMENT##
maximum db/km (see note below)
- -----------------------------------------------------------------------------------------------------------------
Chrom. dispersion parameter 20 degrees C - 40 degrees C
at ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL ##MATERIAL OMITTED AND
TREATMENT## nm SEPARATELY FILED UNDER A
maximum ps/[nm-km] REQUEST FOR CONFIDENTIAL
TREATMENT##
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Note:
The values refer to each individual fibre optic route within the cable.
<PAGE> 100
CONFIDENTIAL TREATMENT
Required is a homogenous progression of attenuation, however, some
attenuation jumps are permitted, provided that the total of such jumps
does not exceed the value of ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##km length of fibre optic
route. The arithmetic mean value of measurements taken on both ends is
considered as value of an individual jump in attenuation.
2.5 Acceptance tests for type samples and deliveries, testing of individual
units
Refer to Schedule 3.
2.6 Provision of LWL-lines
Refer to Schedule 3.
2.7 Failure times, fault clearance times, major damages
Refer to Schedule 3.
3. Access to HER-Facilities
Refer to Schedule 3.
4. Control and implementation of contractually agreed services after
provision of fibre optic routes
Refer to Schedule 3.
5. Communication
7. Container stations
6. Permanent modification of HER-equipment
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## are authorised to change the site of
HER-equipment, provided that they have a sound reason for this and
BASICALLY ONLY UNDER THE FOLLOWING CONDITIONS
<PAGE> 101
CONFIDENTIAL TREATMENT
a) ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## shall, as early as possible, submit
to HER an application for a permanent change of locality of
the HER-equipment;
b) This permanent relocation will have no effect whatsoever on
the fees payable to ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##;
c) This permanent modification/relocation has to be planned in
such a manner, that the interruption of signal transmissions
on the LWL is kept as short as possible;
d) Costs for relocations shall be borne wholly by ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##.
7. Container stations
Refer to Schedule 3.
<PAGE> 102
CONFIDENTIAL TREATMENT
EXHIBIT 4: EXPLANATION OF ABBREVIATIONS USED IN CONTRACT RE MILESTONE TIME TABLE
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##
<PAGE> 103
CONFIDENTIAL TREATMENT
Schedule 5
appertaining to the
Agreement on the Implementation
and Utilisation of Fibre Optic Routes
Cost Elements and Examples for Calculations
A. COST ELEMENTS
Section I:
1. Cables, assembly, assembly materials, sealing ends
Cables ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## water tight in longitudinal direction,
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## fibres.
Acceptance measurements
Assembly material: joint boxes, identification markings
Assembly work
End sealings (patch fields) within buildings (placing at disposal)
Introduction into buildings
Other cable material
Procurement of co-ownership in existing fibre optic cable systems or
cables
2. Cable ducts, material
Cable ducts (e.g. make Vogelsang), ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## (no recycling
material), compression-proof, ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##
Assembly material (joint boxes)
Other cable duct material
<PAGE> 104
CONFIDENTIAL TREATMENT
3. Civil engineering
Localisation of gas line and setting out of gas line with poles
Wood cutting, clearing of riding cuts
Embedding of cable duct with cable plough Embedding of cable duct with
trench cutting machine
Embedding of cable duct in the open pipe drench
Solo routes
Special constructions: crossings, obstacles (opening communication
passages)
Repairs of drainages in the course of embedding works
Reserves for drainage repairs (damages caused by accumulation of
water), if such damages are detected and claimed for after completion
of embedding works (##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## DM/m)
Pits for the introduction of cables (injection pits)
Construction of access roads, storage areas
Restoration of surfaces
Other civil engineering works
Liability insurances for builder and contractor
Payments to parties other than partners (gas suppliers, the routes of
which are being used) for documentation, share in the costs for
clearing riding cuts, etc.
Procurement of existing cable duct capacities through purchase
Procurement of existing cable duct capacities through leasing
(prepayment of rent, continuous rent)
4. Approvals for crossings
Fees charged by authorities for approval of crossings as set out in the
respective statement of fees (technical and administrative
examinations, etc.)
Fees raised by valuer's offices
Other fees raised by authorities
5. Engineering
Project management, coordination of engineers (fixed amount)
Determination of routes
Tenders, contract awards
Procurement of plans of holdings and titles
<PAGE> 105
CONFIDENTIAL TREATMENT
Presentation of project to authorities, agencies of public interests,
etc.
Negotiation of skeleton agreements with ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##
Procuring information about the identification of special areas,
protected areas
Procuring information about owners and managers
Investigation of routes on site
Compilation of lists of authorities
Compilation of lists of structures
Negotiations with authorities, clarification of conditions for granting
approvals
Adaptations of routes
Surveying route locations and building sites
Preparation of layouts
Ascertainment of work to be performed by third parties
Notification of property owners and managers
Obtaining approvals for crossings
Preparation of accessory landscaping plans
Handling of compensation payments for field and growth damages
Handling of approval procedures under nature protection law
Handling of approval procedures for crossings
Handling of payments to property owners and managers in connection with
the building project
Supervision of building activities
Acceptance procedures
Documentation
Other engineering work
6. Preliminary planning, project management, documentation (fixed amount
without individual proofs)
Costs for preliminary planning
Builder's project management
Coordination activities, harmonisation of activities on site
Clarifications concerning the procurement of rights of way and
approvals
Set-up of documentation
Clarification of route utilisation with gas supplying partners
Other project management activities
<PAGE> 106
CONFIDENTIAL TREATMENT
Section II:
7a) Procurement of rights of way, engineering
Handling of compensation payments under Section 57 TKG
(Telecommunication Law) Negotiations with property owners and other
title holders Contingency premiums for engineering offices
Legal proceedings to enforce claims, costs for legal disputes
Procurement of contracts on the granting of real securities: visiting
and approaching of property owners; extent to be agreed
Handling of entry in the land register
Procurement of contracts on the granting of obligatory securities
Activities to approach property owners and other title holders by
letter
Handling of compensation payments
Agricultural expertises to ascertain compensation amounts
Fees for notaries and courts
Soil expertises for crossings, if required by institutions charged with
the duty to construct and maintain roads, or by railway companies, or
others
Other engineering work to procure rights of way
7b) Procurement of rights of way, payments to property owners and other
title holders
Compensation payments under Section 57 TKG
Compensation for easements (real security)
Compensation for obligatory security
Express charges for property owners
Special compensations for building land or other value equalisation
Special equalisation payments for building land
Reimbursement of expenses for property owners and other title holders
Special payments to property owners and other title holders
Payments to associations and ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## for mediation and
consulting activities
Travel expenses, other expenses to be reimbursed to property owners and
other title holders
User fees for traffic infrastructure and railway plots
Administration fees and lump-sum compensations under Section 52 TKG
Other payments to property owners and other title holders
8. Compensation for field damages, nature protection
Compensation for field and growth damages to property owners and
managers
Handling costs for individual settlements
Obligations imposed under nature protection law, countervailing
measures
Special expertises Other compensation measures for field damages
Other nature protection measures
<PAGE> 107
CONFIDENTIAL TREATMENT
B. Examples for calculations
Calculation example 1: Liquidated damages for exceeding permissible
failure times
Note: This example does not account for liquidated damages for
exceeding permissible fault clearance times. Please see calculation
example 2.
Assumptions: Failure times amount to 18 hours and 59
minutes in the 1st year, 8 hours and 35
minutes in the second year. The length of
the total network remains unchanged at
##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##km in both years
Calculation (biennial mode):
a) Calculation of the transgression of failure times:
The total of failure times (over two years) amounts to 27 hours and 34
minutes. The permissible failure time (the length of the network has to
be considered ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT##) amounts to:
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## hours when rounded (commercial accounting).
The permissible failure time has thus been transgressed by ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## minutes.
b) Calculation of fictitious user fees:
Advance payments of user fees (assuming that the planned values of
total costs are accurate) amount to:
Partial route 1: ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT##
<PAGE> 108
CONFIDENTIAL TREATMENT
Partial route 2: ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT##
Partial route 3: = ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT##
Total of advance payments for user fees: = ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##
For a biennial turn, double of this value has to be taken into account.
The fictitious user fee for one hour is thus calculated as follows:
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##
c) Calculation of liquidated damages:
LIQUIDATED DAMAGES ARE CALCULATED AS FOLLOWS:
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##
Calculation example 2: Calculation of failure times, taking into
account: number of fibres and distance
between system engineering locations,
determination of failure time, permissible
fault clearance time and liquidated
damages
Assumptions: The number of LWL-fibres in the cable,
which are used by HER, is ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT##.
Failures occur in a section, which is
situated between two system engineering
locations, at a distance of 63 km. 2
failures occur. The actual fault
clearance time in the first failure event
is 25 hours and 13 minutes, and in the
second event 9 hours and 21 minutes.
CALCULATION (BIENNIAL MODE):
a) Calculation of failure times and liquidated damages for
transgressing the permissible failure time:
<PAGE> 109
CONFIDENTIAL TREATMENT
For each failure, the actual failure time is reduced by ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## minutes. As the distance between the system engineering
locations is larger than ##MATERIAL OMITTED AND SEPARATELY FILED UNDER
A REQUEST FOR CONFIDENTIAL TREATMENT## km, one additional hour is
deducted for each failure.
The time values to be used as a basis for calculating transgression of
failure times thus amount to ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## minutes for the first
failure event, and ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## minutes for the second event. In
total, the calculated failure time amounts to ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## minutes.
The following is found, when calculations are based upon the results
of calculation example 1:
The permissible failure time has been transgress by ##MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##
minutes. Liquidated damages amount to:
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##
b) Calculation of liquidated damages for transgressing fault
clearance times
The permissible fault clearance time of ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## plus an
additional 1 hour, because the distance between
<PAGE> 110
CONFIDENTIAL TREATMENT
the system engineering locations is longer than ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## minutes.
In the first failure event, the permissible fault clearance time has
been transgressed by ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT##. Liquidated damages are:
for the first ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT##
for the next ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT## hours or started hours
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## Liquidated damages = ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##
c) Calculation of total liquidated damages
The liquidated damages under a) and b) are added. A total of ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## DM is paid as liquidated damages.
Calculation example 3: Determination of user fee and
increase of advance payments of
user fees
Assumptions: After provision of the route, actual technical
costs are determined for each partial route.
Actual technical costs may, for example, amount
to the following sums, when considering
reserves and actual lengths of partial routes:
<PAGE> 111
CONFIDENTIAL TREATMENT
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
Partial route Actual technical costs (DM) Actual lengths
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
##MATERIAL OMITTED AND SEPARATELY ##MATERIAL OMITTED AND SEPARATELY ##MATERIAL OMITTED AND SEPARATELY
FILED FILED FILED
---------------------------------------------------------------------------------------------------------
UNDER A REQUEST FOR CONFIDENTIAL UNDER A REQUEST FOR CONFIDENTIAL UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## TREATMENT## TREATMENT##
---------------------------------------------------------------------------------------------------------
##MATERIAL OMITTED AND SEPARATELY ##MATERIAL OMITTED AND SEPARATELY ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR FILED UNDER A REQUEST FOR FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## CONFIDENTIAL TREATMENT## CONFIDENTIAL TREATMENT##
---------------------------------------------------------------------------------------------------------
</TABLE>
The contract value for each partial route is:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
Partial route Average contract value (DM/m) Contract value (DM)
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
##MATERIAL OMITTED AND SEPARATELY ##MATERIAL OMITTED AND SEPARATELY ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR FILED UNDER A REQUEST FOR FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## CONFIDENTIAL TREATMENT## CONFIDENTIAL TREATMENT##
---------------------------------------------------------------------------------------------------------
##MATERIAL OMITTED AND SEPARATELY ##MATERIAL OMITTED AND SEPARATELY ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR FILED UNDER A REQUEST FOR FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## CONFIDENTIAL TREATMENT## CONFIDENTIAL TREATMENT##
---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 112
CONFIDENTIAL TREATMENT
The calculation value of the technical costs is:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
Partial route Calculation value of technical Difference: actual technical
costs costs minus contract value
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
##MATERIAL OMITTED AND SEPARATELY ##MATERIAL OMITTED AND SEPARATELY ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR FILED UNDER A REQUEST FOR FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## CONFIDENTIAL TREATMENT## CONFIDENTIAL TREATMENT##
---------------------------------------------------------------------------------------------------------
##MATERIAL OMITTED AND SEPARATELY ##MATERIAL OMITTED AND SEPARATELY ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR FILED UNDER A REQUEST FOR FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## CONFIDENTIAL TREATMENT## CONFIDENTIAL TREATMENT##
---------------------------------------------------------------------------------------------------------
</TABLE>
Advance payments of user fees are increased as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------
Partial route Increase of advance payments of
user fees
----------------------------------------------------------------------
<S> <C>
##MATERIAL OMITTED AND SEPARATELY ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## CONFIDENTIAL TREATMENT##
----------------------------------------------------------------------
##MATERIAL OMITTED AND SEPARATELY ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## CONFIDENTIAL TREATMENT##
----------------------------------------------------------------------
</TABLE>
The calculated value of total costs for each partial route follows from
the total of calculated values of technical costs, fixed costs and
actual costs for rights of way and compensation for field damages. In
detail, the following applies:
<PAGE> 113
CONFIDENTIAL TREATMENT
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
Partial route Actual technical costs (DM) Calculated value of technical
costs
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
##MATERIAL OMITTED AND SEPARATELY ##MATERIAL OMITTED AND SEPARATELY ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR FILED UNDER A REQUEST FOR FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## CONFIDENTIAL TREATMENT## CONFIDENTIAL TREATMENT##
---------------------------------------------------------------------------------------------------------
##MATERIAL OMITTED AND SEPARATELY ##MATERIAL OMITTED AND SEPARATELY ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR FILED UNDER A REQUEST FOR FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## CONFIDENTIAL TREATMENT## CONFIDENTIAL TREATMENT##
---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
Partial route Fixed costs Actual costs for rights of way
and field damage compensation
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
##MATERIAL OMITTED AND SEPARATELY ##MATERIAL OMITTED AND SEPARATELY ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR FILED UNDER A REQUEST FOR FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## CONFIDENTIAL TREATMENT## CONFIDENTIAL TREATMENT##
---------------------------------------------------------------------------------------------------------
##MATERIAL OMITTED AND SEPARATELY ##MATERIAL OMITTED AND SEPARATELY ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR FILED UNDER A REQUEST FOR FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## CONFIDENTIAL TREATMENT## CONFIDENTIAL TREATMENT##
---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 114
CONFIDENTIAL TREATMENT
The following user fees result:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
Partial route Calculated value of total costs Advance payment of user fee
##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
##MATERIAL OMITTED AND SEPARATELY ##MATERIAL OMITTED AND SEPARATELY ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR FILED UNDER A REQUEST FOR FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## CONFIDENTIAL TREATMENT## CONFIDENTIAL TREATMENT##
---------------------------------------------------------------------------------------------------------
##MATERIAL OMITTED AND SEPARATELY ##MATERIAL OMITTED AND SEPARATELY ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR FILED UNDER A REQUEST FOR FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## CONFIDENTIAL TREATMENT## CONFIDENTIAL TREATMENT##
---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------
Partial route Advance payment of user fee,
including increase
----------------------------------------------------------------------
<S> <C>
##MATERIAL OMITTED AND SEPARATELY ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## CONFIDENTIAL TREATMENT##
----------------------------------------------------------------------
##MATERIAL OMITTED AND SEPARATELY ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## CONFIDENTIAL TREATMENT##
----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
Partial route Calculated value of total costs Annual user fee ##MATERIAL
OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
##MATERIAL OMITTED AND SEPARATELY ##MATERIAL OMITTED AND SEPARATELY ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR FILED UNDER A REQUEST FOR FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## CONFIDENTIAL TREATMENT## CONFIDENTIAL TREATMENT##
---------------------------------------------------------------------------------------------------------
##MATERIAL OMITTED AND SEPARATELY ##MATERIAL OMITTED AND SEPARATELY ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR FILED UNDER A REQUEST FOR FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## CONFIDENTIAL TREATMENT## CONFIDENTIAL TREATMENT##
---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 115
CONFIDENTIAL TREATMENT
Calculation example 4: Special adjustment of user fee
<TABLE>
<S> <C>
Assumptions: ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## succeed to achieve cost-saving, additional marketing by
simultaneously laying an additional LWL-cable in an additional cable duct,
which was embedded at the same time, over a certain section of partial route 1
and selling this additional cable to Third Party A. This additional marketing
refers to a distance of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## km.
Pro rata building costs (actual technical costs, fixed costs, costs for rights of
way and field damage compensation) for the additionally marketed section amount to
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##
DM. Costs for cable and cable duct for HER amount to ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## DM.
The actual distance marketed in addition is ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##.
</TABLE>
Calculation:
Pro rata building costs, with deduction of cable and cable duct costs for
HER, amount to ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT## DM. By multiplication with the factor
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## DM results.
Line (1) of the Table in item 3.5.1 has to be considered for calculation.
<PAGE> 116
CONFIDENTIAL TREATMENT
The rebate percentage F is:
For the first sections up to L ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##%
For the sections up to L = ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## Less than ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## km have been provided under the modified Cost-Plus Method,
so that the percentage F is reduced by ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## %.
The amount of rebate follows from:
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## Total
Annual user fees for this partial route would thus be reduced by ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## DM/a
(Original amount in example 3: ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT##DM/a).
<PAGE> 117
CONFIDENTIAL TREATMENT
EXHIBIT 6: AVERAGE PRICE FORECAST PER KM OWN BUILD
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##
<PAGE> 118
CONFIDENTIAL TREATMENT
Schedule 7
appertaining to the
Agreement on the Implementation
and Utilisation of Fibre Optic Routes
Rights of Way and Compensation Payments, Skeleton Agreement
1. PRIVATE PROPERTY
As a rule, Section 57 TKG (Telecommunication Law) is to be applied to
secondary embeddings of cable ducts and cables. This is based on the
assumption, that gas line facilities secured by property rights or
obligatory titles - i-e- the gas line with accessories and safety
stripe - are used for the erection, operation and reconstruction of
telecommunication lines. From the context of Section 57 (2) follows,
that secondary embeddings of cable duct facilities have to be tolerated
as well.
Gas supplying companies strive to conclude skeleton agreements with the
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##, of which the majority of the property owners
concerned are members and which play an essential role in this respect.
These agreements are based on previously agreed basic data and are for
all projects binding for the gas supplying companies. For property
owners, these skeleton agreements represent recommendations. The agreed
basic data provide for a compensation payment of ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## DM per
running meter of route, to be paid to property owners for secondary
cable embeddings. Furthermore, a minimum of ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## DM per
owner has been agreed. A lump-sum compensation for field and growth
damages in the amount of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER
A REQUEST FOR CONFIDENTIAL TREATMENT## DM per m(2) of used area, i.e.
in case of 3 m working strip width, ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## DM per meter in
regular cases, shall be offered to managers, for example lease holders,
or the property owners themselves. Managers are entitled, to
alternatively claim settlement and compensation according to individual
proofs. In this case, additional costs
<PAGE> 119
CONFIDENTIAL TREATMENT
for assessment and handling arise. In addition to that, managers are
paid a lump-sum reimbursement of expenses in the amount of ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## DM per manager. A sample for this skeleton agreement is
enclosed with this schedule 7.
This skeleton agreement has already been concluded between Ruhrgas AG
as the concerned gas supplying company and the ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## and
associations in Hesse and Rheinland-Nassau. It was not possible to
achieve a skeleton agreement with the 'Rheinischer
Landwirtschaftsverband' (Agricultural Association of Rhineland),
however, the association noted the conditions provided for in the
agreement and will refrain from giving their members diverging
recommendations.
The skeleton agreements contain a so-called most-favoured party clause,
according to which payments in excess of the agreed limits, which were
made in comparable individual cases, shall be made available to all
property owners, if need by also in retrospect. Due to this, gas
supplying companies exclude any transgression of the agreed sums.
Furthermore, the skeleton agreements provide, that a limitation of
liability has to be granted, particularly to telecommunications
companies.
The skeleton agreements leave it open, whether any legal claim to
compensation payments exists at all under Section 57 TKG.
Reimbursement of expenses to the ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## themselves, which
advise property owners and advocate the granting of permissions, are
not listed in the skeleton agreements, but have, in individual cases,
been promised in strictly confident collateral agreements.
In order to ensure, that no uncertainties exist with regard to the term
facilities (Anlagen) used in Section 57 TKG, a certain share of
LWL-fibres is earmarked for purposes of the gas supplying company. It
is thus taken as a basis, that the facilities to be erected, including
all cable ducts and cables, form part of the accessories of the gas
line facilities, which have to be
<PAGE> 120
CONFIDENTIAL TREATMENT
renewed within a foreseeable period of time, anyhow. As a rule, the
execution of rights can be left to third parties.
As a rule, gas line facilities with cables and accessories are secured
by easements entered in the land register. Economic reasons prevent
that gas suppliers keep lists of owners, cadastral notices etc.
continuously updated. Especially in case of old facilities, it is well
possible that easements were lost or cannot be proven any more due to
the effects of war or inaccuracies in the land register, which occurred
during changes in the land register and which became legally effective.
In such cases, one has to assume that the pipeline is legally secured
by way of loan for use. If such gaps in securing rights are found, gas
suppliers will try in their own best interest, to restore this real
security; however, time-consuming disputes may arise in such cases.
Handling of legal issues concerning telecommunication infrastructure
is, as a rule, performed by ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## in the name of the gas
supplying companies.
Experience gathered in other projects with handling such matters show,
that one can expect approval by a comparably large number of property
owners and other title holders. Nevertheless, a number of property
owners remains, who either do not make any statement at all, or who,
either with good reasons but in some cases also irrationally, refuse to
tolerate the building measure. If, in special cases, considerable
additional impairments are put forward, alternative solutions have to
be found. In case of unlawful bodily resistance, legal measures are
required; so far, no experience has been gathered in this respect.
There are only isolated cases of court rulings on the application of
Section 57 TKG. In this respect, imponderabilities exists, as to
whether courts will confirm applicability of this paragraph to
secondary embedding projects alongside gas lines under the
circumstances of the actual project, and whether they will confirm
and/or deal with questions of compensation obligations etc.
In some cases, e.g. for setting up connections or circumventing
obstacles such as slide valve assemblies of the gas line, one will have
to leave the secured gas line route and its protection stripes ("solo
routes"). The LWL-route for such purposes has to be negotiated and
secured by property
<PAGE> 121
CONFIDENTIAL TREATMENT
interest in free negotiations, i.e. there is no legal title to
utilisation. In case of free negotiations, increased costs for the
procurement of rights of way, compensation payments and expenses for
property owners, notaries and courts are due.
2. SPECIAL CASE; RAILWAY ROUTES
Crossings of railway routes are on principle ruled by Section 57 TKG
and have to be tolerated. In this regard, the owner is entitled to
receive reimbursement of costs incurred for technical examinations,
e.g. static determination of the stability of the railway embankment.
Without cooperation by the Deutsche Bahn AG, execution of crossing work
is excluded, due to possible impairments to the safety of railway
traffic. Given the nature of railways, circumventing railway crossings
is in most cases prevented by technical and economic reasons as well as
reasons of time schedules.
At this point of time, the Deutsche Bahn AG holds that Section 57 TKG
does not include secondary embeddings of LWL-cables along railway
lines. They have however, announced, that the are prepared to allow
speedy finalisation of building activities within the framework of a
contractual agreement with the gas supplying companies, which is
currently being drafted, as far this concerns crossings only, not
parallel routings. The legal situation, particularly entitlement to and
amount of compensation payments or user fees claimed by the Deutsche
Bahn are to be clarified in mutual agreement by way of a test case to
be submitted to courts of general jurisdiction. For this purpose, the
shareholders of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT## have concluded a contract with the
Deutsche Bahn AG, a copy of which is enclosed with this Schedule 7. It
is to be expected, but not sure, that the Deutsche Bahn AG will grant
approvals for crossings within an appropriate time frame as required
for the project schedule. Judicial enforcement of possible legal
entitlements to approvals of crossings on the basis of Section 57 TKG
cannot be expected within the time frame of the project in each
individual case.
3. TRAFFIC INFRASTRUCTURE
With respect to the utilisation of traffic infrastructure, it is
assumed that utilisation will be allowed free of charge as provided by
Section 50 TKG; this is so, because control over functions is
exclusively assigned to licence
<PAGE> 122
CONFIDENTIAL TREATMENT
holders. Contract awarder will provide ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## with
letters of confirmation, which will also include proof of the granted
telecommunication licence. (TK-licence). As recommended by the
Ministers of Transport and the Deutsche Stadtetag (Convention of
Municipal Authorities in Germany), applications for crossings and
utilisation will probably be approved, subject to the right to charge
fees. Condition for approval is, that the customer holds a licence.
Court rulings about the existence of a right of utilisation under the
conditions at hand in this project and about the issue of costs are not
in existence yet; the question of interpretation by the courts is thus
encumbered with imponderabilities. In most cases, an alternative
solution for crossing traffic infrastructure is excluded for technical
and economic reasons as well as time schedule considerations.
Experience with other projects shows, that some municipalities are not
willing to wait for the result of the complaint of unconstitutionality
by local authorities, in particular the complaint against the
utilisation of traffic infrastructure free of charge, as laid down in
Section 50 par. 1 TKG, despite reservation of payment, and that these
municipalities are already calling for conclusion of contracts of
permission with payment of user fees and normal handling fees, which we
accept. In this case too, judicial enforcement of possible entitlements
to the granting of utilisation permissions would exceed the time frame
of this project.
According to Sections 50 TKG, institutions charged with the duty to
construct and maintain roads and/or settlement authorities are
authorised to impose conditions, such as joint embedding of LWL-cable
systems for other holders of user rights.
4. OTHER APPROVALS UNDER PUBLIC LAW IN CONNECTION WITH ROUTE PLANNING.
Additional approvals under public law are required for the execution of the
project; these are amongst others, approvals under nature protection law and law
relating to water, approvals under dike law etc. Construction work may not be
executed, if such approvals are not at hand. Obtainability of these approvals,
as well as the conditions imposed in connection with these approvals can only be
ascertained in the course of the project; the same applies to the feasibility of
alternative solutions in those cases, where the required approval cannot be
obtained. Judicial enforcement of entitlements to approvals cannot be expected
within the time frame envisaged for the
<PAGE> 123
CONFIDENTIAL TREATMENT
project. Conditions imposed for approvals may generate additional
costs, e.g. for compensating measures under nature protection law (e.g.
afforestation, endowment of compensation funds, etc.).
5. Guidelines for costs of procurement of rights of way, compensation for
field damages, etc.
The guidelines below reflect expectations based on existing experience
with comparable projects, which have been handled until now. However,
these guidelines do not contain any statement, that these costs will
apply in individual cases and/or that obtainability of rights of way,
approvals etc. is warranted at all, or at the costs shown here.
<TABLE>
<S> <C>
Compensation payments to property owners per length unit ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL
TREATMENT##
Lump-sum payments to property owners, associations etc., on the ##MATERIAL OMITTED AND
average of partial routes. SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL
TREATMENT##
</TABLE>
<PAGE> 124
CONFIDENTIAL TREATMENT
<TABLE>
<S> <C>
Engineering work, attorney and court fees for handling and ##MATERIAL OMITTED AND
procurement of # approvals etc., on the average of partial routes SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL
TREATMENT##
Compensation for easements, procurement costs and expenses for ##MATERIAL OMITTED AND
free routings outside gas line routes and in unsecured gaps, on SEPARATELY FILED UNDER A
the average of partial routes REQUEST FOR CONFIDENTIAL
TREATMENT##
Lump-sum compensation of field and growth damages ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL
TREATMENT##
Additional compensation for field and growth damages for ##MATERIAL OMITTED AND
individual settlements (e.g. special cultivations), construction SEPARATELY FILED UNDER A
of access roads, excess widths, etc., on the average of partial REQUEST FOR CONFIDENTIAL
routes. TREATMENT##
</TABLE>
<PAGE> 125
CONFIDENTIAL TREATMENT
<TABLE>
<S> <C>
Nature protection measures on the average of partial routes ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL
TREATMENT##
Handling costs, expenses, expertises, etc. ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL
TREATMENT##
</TABLE>
<PAGE> 126
CONFIDENTIAL TREATMENT
EXHIBIT 8: GERMAN LICENSE
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##
<PAGE> 127
CONFIDENTIAL TREATMENT
Schedule 9
appertaining to the
Agreement on the Implementation
and Utilisation of Fibre Optic Routes
BANK GUARANTEE (STANDARD FORM)
1. Bank guarantee as provided by 7.3.1.
Absolute Bank Guarantee
Guarantee holder: ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT##
Contract Awarder: Hermes Europe Railtel B.V.
Number of guarantee
contract:
Under the provisions of the Agreement on the Implementation and Utilisation of
Fibre Optic Routes concluded on ..... between contract awarder and guarantee
holder, contract awarder is obliged as follows: (1) to make certain payments as
provided in detail by item 7.1.2.1. d), item 4.6. and item 6.2.5. and (2) in
case, that the last payment has not fallen due four weeks prior to expiry of
this guarantee, to provide a new bank guarantee in the amount of ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## to
bank guarantee holder.
We herewith, on account of contract awarder's above obligations, take over
absolute guarantee, waiving the defence of failure to pursue remedies and
waiving the defence of voidability and eligibility for offset (Section 770 BGB,
Civil Code), up to an amount of
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## with the inclusion of any and all supplementary claims
and subject to the proviso that we may only be called upon to make payments in
money under this guarantee.
<PAGE> 128
CONFIDENTIAL TREATMENT
The guarantee is payable upon first demand. Guarantee holder shall
simultaneously submit a written statement, that contract awarder has not
fulfilled his above obligations.
Our guarantee expires, when this surety bond is returned, but at the latest, if
and insofar as no claims based upon this guarantee have been put forward to us
in writing and received by us before September 1, 1997.
The guarantee is subject to the laws of the Federal Republic of Germany. Place
of jurisdiction for any disputes between guarantor and guarantee holder shall be
Aachen.
2. Bank guarantee as provided by 7.3.2.
Absolute Bank Guarantee
Guarantee holder: ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT##
Contract Awarder: Hermes Europe Railtel B.V.
Number of guarantee
contract:
Under the provisions of the Agreement on the Implementation and Utilisation of
Fibre Optic Routes concluded on ..... between contract awarder and guarantee
holder, contract awarder is obliged to pay annual user fees.
We herewith, on account of contract awarder's obligation to pay user fees
relating to the first three years and payable in 1998, 1999 and 2000, take over
absolute guarantee, waiving the defence of failure to pursue remedies and
waiving the defence of voidability and eligibility for offset (Section 770 BGB,
Civil Code), for the amount of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## DM for the 1998 fee, and ##MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## DM each for
the 1999 and 2000 user fees, and thus up to a maximum of
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## Deutsche Mark)
<PAGE> 129
CONFIDENTIAL TREATMENT
with the inclusion of any and all supplementary claims and subject to the
proviso that we may only be called upon to make payments in money under this
guarantee. The guarantee is payable upon first demand. Guarantee holder shall
simultaneously submit a written statement, that contract awarder has not
fulfilled his above obligations. The guarantee may be claimed in instalments. We
are obliged to immediately pay the instalments claimed from time to time, but we
are not entitled to demand return of the surety bond. Only when the guarantee is
claimed for the last instalment, the surety bond has to be returned to us.
Our guarantee shall expire in any event, when this surety bond is returned. Our
guarantee is subject to pro-rata expiry, i.e. on December 31, 1999 it decreases
by ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## DM, and on December 31, 2000 by ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## DM, if and in so far as no
claims have been put forward to us before above dates. The guarantee shall
expire completely, if and insofar as no claim for the last instalment has been
out forward to us in writing and received by us before December 31, 2001.
The guarantee is subject to the laws of the Federal Republic of Germany. Place
of jurisdiction for any disputes between guarantor and guarantee holder shall be
Aachen.
3. Bank guarantee for the case described under item 7.10
Absolute Bank Guarantee
Guarantee holder: ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT##
Contract Awarder: Hermes Europe Railtel B.V.
Number of guarantee
contract:
Under the provisions of the Agreement on the Implementation and Utilisation of
Fibre Optic Routes concluded on ..... between ... and guarantee holder, ... is
obliged as follows: (1) to make certain payments as provided in detail by item
7.1.2.1. d), item 4.6. and (2) in case, that the last payment has not fallen due
two weeks prior to expiry of this guarantee, to provide a new bank guarantee in
the
<PAGE> 130
CONFIDENTIAL TREATMENT
amount of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## to bank guarantee holder.
We herewith, on account of contract awarder's above obligations, take over
absolute guarantee, waiving the defences of failure to pursue remedies and
waiving the defences of voidability and eligibility for offset (Section 770 BGB,
Civil Code), up to an amount of
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##
with the inclusion of any and all supplementary claims and subject to the
proviso that we may only be called upon to make payments in money under this
guarantee.
The guarantee is payable upon first demand. Guarantee holder shall
simultaneously submit a written statement, that ... has not fulfilled his above
obligations.
Our guarantee expires, when this surety bond is returned, but at the latest, if
and insofar as no claims based upon this guarantee have been put forward to us
in writing and received by us before September 1, 1997.
Under the provisions of the Agreement on the Implementation and Utilisation of
Fibre Optic Routes concluded on ..... between ... and guarantee holder, ... is
obliged to pay annual user fees and maintenance fees.
We herewith, on account of contract awarder's obligation to pay user and
maintenance fees payable in the years from .... to ... , take over absolute
guarantee, waiving the defence of failure to pursue remedies and waiving the
defences of voidability and eligibility for offset (Section 770 BGB, Civil
Code), for the amount of ... , and thus up to a maximum of
... DM (in words: ....... Deutsche Mark)
with the inclusion of any and all supplementary claims and subject to the
proviso that we may only be called upon to make payments in money under this
guarantee. The guarantee is payable upon first demand. Guarantee holder shall
simultaneously submit a written statement, that contract awarder has not
fulfilled his above obligations. The guarantee may be claimed in instalments. We
are obliged to immediately pay the instalments claimed from time to time, but we
are not entitled to demand return of the surety bond. Only when the guarantee is
claimed for the last instalment, the surety bond has to be returned to us.
The guarantee is subject to the laws of the Federal Republic of Germany. Place
of jurisdiction for any disputes between guarantor and guarantee holder shall be
Aachen.
<PAGE> 131
CONFIDENTIAL TREATMENT
AGREEMENT
on regulations for the
"Secondary Embedding of Fibre Optic Cables
to be Used for Telecommunication Purposes "
between
... ##MATERIAL OMITTED AND SEPARATELY FILED UNDER
A REQUEST FOR CONFIDENTIAL TREATMENT## hereafter -
and
...
- called line operator hereafter -
The ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## recommends, that the respective property owners and managers proceed
in accordance with this agreement, when concluding contracts with the line
operator. The line operator on his part undertakes to use this agreement as a
basis when concluding contracts.
<PAGE> 132
CONFIDENTIAL TREATMENT
1. Lump-sum compensation for embedding
For the secondary embedding of fibre optic cables on legally secured
line routes and the set-up of a telecommunication line, which follows
from such embedding, the property owner shall be paid a lump-sum in the
amount of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## DM per running Meter. The minimum for each
property owner/community of owners shall be ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##.
2. Personal time expenditure (reimbursement for expenditure)
The line operator shall pay a single lump-sum of ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##.-- DM for
the personal time expenditure of each land manager. Necessary higher
costs are reimbursed upon production of proof.
3. Field and growth damages
Upon completion of construction work, field damages are settled with
the holder of user rights for the affected areas. This is centred on
the offer of a lump-sum compensation for grassland and ploughland of
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## DM per running Meter of cable route (this is
equivalent to ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT## DM/m(2) work area), which includes the
field damage caused in the year of construction as well as settlement
for consequential damages, with the exception of possible damages to
drainages or other hidden defects. This offer is based on a work strip
of 3 m, as determined by the width of the cable plough. In forests, the
offered lump-sum is ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## m per running Meter of cable route
(this is equivalent to ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## DM/m(2) work area). If wood
felling is required outside the centre strip, which has to be kept free
of wood for the natural gas pipeline, the expected stock value as laid
down in the guidelines for the value of forests applicable in the
respective region is paid for the felled stock of trees as
<PAGE> 133
CONFIDENTIAL TREATMENT
additional compensation. The owner of the forest may choose between
compensation with or without taking over the wood.
Special cultivations are treated individually, as a matter of
principle.
Lump-sum compensations are to be understood as inclusive of value-added
tax, lost premiums/price compensation payments, supplementary benefits
(e.g. straw, chips, beet tops), aggravation of farming and costs for
seed and sowing. The lump-sum compensation does not include restoration
of fences, roads and facilities, it does furthermore not include field
damages outside the work strip defined above, damages in special
cultivations caused by special structures as e.g. injection pits or
storage areas.
The land manager may decide for individual measurements instead of the
flat-rate measurement, and/or he may decide for an individual
determination of damages according to the appraisal guidelines of the
... ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##, instead of the flat-rate settlement of field
damages.
Other damages (particularly subsidence, accumulation of water, damages
to drainage, picking up rocks, etc.) and the consequential damages
caused by this, shall be cleared by the line operator and/or
compensated for separately upon request and production of appropriate
proof.
4. Execution of construction works and excavations
If excavations over large areas (e.g. injection pits) are required, top
soil has to be dug up, stored and filled back again separately from the
subsoil. The soil has to be treated carefully.
Functionality of drainages and other existing pipes and lines has to be
preserved. Any damages have to be cleared by the line operator or he
shall reimburse the required costs - upon prior agreement. The original
status has to be restored.
The same applies, if embedding of the cables is proven to have caused
disruptions of the natural groundwater flow, necessitating water
engineering measures.
5. Overground facilities
<PAGE> 134
CONFIDENTIAL TREATMENT
The line operator shall pay a compensation for required sign posts and
other overground facilities. This compensation is assessed according to
the normal compensation for overground facilities in gas pipeline
projects.
The position of sign posts shall be agreed with the owner and the
manager of the property.
6. Minimum soil coverage
Embedding of fibre optic cables is performed in such a manner, that a
minimum soil coverage of 1 Meter is ensured and that the embedded
LWL-cables are, as a rule, not positioned higher within the ground,
than the existing gas pipeline. In justified cases, the parties
concerned may agree on deeper embedding at the line operator's expense.
7. Access road
During the course of building activities, access to the properties has
to be ensured. If required, the line operator has to make provisions
for passage.
8. Use of land
The period of use and the start of construction work shall be announced
to the property owner as well as the property manager in due time.
9. Terms for payment
The lump-sum compensation shall be paid at the start of construction
work, to the bank account indicated by the owner. Should this payment
be delayed, interest at a rate of ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## above the valid
discount rate of the Deutsche Bundesbank shall be due as of that point
of time.
If reimbursements of expenses according to item 2, and compensations of
field and growth damages according to item 3 are paid later than 4
weeks after the affected areas were surveyed, the respective sums shall
also be liable to interest at a rate of ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## above the
valid discount rate of the Deutsche Bundesbank.
<PAGE> 135
CONFIDENTIAL TREATMENT
10. Valuation and reapplication of boundary marks
Valuation costs and costs for the reapplication of boundary marks to
property plots, which may be required in individual cases, shall be
borne by the line operator.
11. Route changes
If the property is not used due to a later change of route, the land
manager is not required to return his compensation for expenses
according to item 2 and the property owner is not required to return
the minimum amount for lump-sum compensation according to item 3.
12. Value-added tax.
The property owner and the land manager may invoice the line operator
with the amount of above payments to be made by the line operator, in
order to indicate statutory value-added tax separately, if this is
required by the individual case at hand.
13. Disputes
Should any disputes arise, the parties concerned shall endeavour, with
assistance by the ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT##, to achieve an amicable
settlement.
14. Compensation payments according to the Directive on Cultivated Plants
The set-up of the telecommunication line must not cause the involved
land manager, provided that he shows orderly conduct, to suffer any
disadvantages with respect to price equalisation payments by the EU,
due to standards set by the Directive on Cultivated Plants. The same
applies to the obligation of the involved farming operations, to set
aside agricultural land.
15. Liability
The line operator is liable for damages caused by embedding and
operation of telecommunication lines, as provided by law. He
indemnifies the property owner against any claims by third parties due
to embedding and
<PAGE> 136
CONFIDENTIAL TREATMENT
operation of the telecommunication line. The line operator may not
invoke Section 831, paragraph 1, clause 2 BGB (Civil Code).
16. Injection points
In case of injection points, field and growth damages shall be
compensated as ascertained by measurements. In other respects, items 3
and 4 of this agreement apply accordingly.
17. Most-favoured party
If, within the ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT## territory and under comparable
circumstances, the line operator pays a higher equalisation payment to
an involved property owner, or if he pays higher compensations for
damages to an involved land manager, all other property owners or land
managers within the territory of the ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##, who are affected by
secondary embeddings of fibre optic cables, shall receive an equivalent
supplementary payment.
18. Secondary embedding of fibre optic cables outside the legally secured
line route and/or, in case of forest properties, outside the strip to
be kept free from wood.
Outside of legally secured line routes, separate, individual agreements
with property owners and land managers, who are not subject to this
agreement, shall be concluded. If cables are embedded within forests,
but outside the strip to be kept free from wood, separate agreements
have to be concluded with the owner of the forest, too.
19. Close-down and removal
If a utility line secured by property lien is closed-down definitely,
and when the easements entered in the land register are cancelled, the
regulation under item 18 shall apply for the continuation of the
telecommunication line.
If a closed-down utility line is removed, and if, at that point of
time, the fibre optic cable has been definitely closed down as well,
the property
<PAGE> 137
CONFIDENTIAL TREATMENT
owner may demand removal of the cable, if a permissible use of the
property is prevented, when the cable remains in place.
20. Duration
This agreement shall remain in effect until December 31, 1999. It is
tacitly renewed by one year every year, unless terminated with
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## months written notice to the end of the year
by one of the parties to the agreement.
... ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##
<PAGE> 138
CONFIDENTIAL TREATMENT
Schedule 10
appertaining to the
Agreement on the Implementation
and Utilisation of Fibre Optic Routes
Intended Benchmarks for Subcontractor Agreements
<TABLE>
<CAPTION>
Important contract Engineering work Construction work LWL-cables and Cable ducts
clauses components of LWL-cable
systems
<S> <C> <C> <C> <C>
1 Liquidated damages none, unenforceable ##MATERIAL OMITTED ##MATERIAL OMITTED ##MATERIAL OMITTED
AND SEPARATELY AND SEPARATELY AND SEPARATELY
FILED UNDER A FILED UNDER A FILED UNDER A
REQUEST FOR REQUEST FOR REQUEST FOR
CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
TREATMENT##, TREATMENT## TREATMENT## of
calculated on the basis of calculated on the basis of individual order or
the total order value the total order value call
2 Insurances Liability insurance for Demanded is a sum insured Demanded is a sum insured none
engineers, sum insured: of 10 mio. DM minimum of 10 mio. DM minimum (supply transaction)
1 mio. DM per claim for per claim, as flat rate for per claim, as flat rate for
bodily injury and other bodily injury, material bodily injury, material
damages, no pecuniary damages and/or pecuniar damages and/or pecuniary
losses. losses, including liability losses, including liability
for effects on the for effects on the
environment. The environment. The
environmental liability environmental liability
insurance covers the insurance covers the
following risks: following risks:
1. risk to WHG-facilities, 1. risk to WHG-facilities,
2. risk to sewage facilities 2. Risk to sewage facilities
and nuisance risk and nuisance risk
3. supplementary cover 3. supplementary cover
(basic cover) (basic cover)
Contract awarder is Contract awarder is
required to conclude a required to conclude a
builder's and assembler's builder's and assembler's
liability insurance. liability insurance.
Existence of insurance has Existence of insurance has
to be proven prior to to be proven prior to
execution of the contract. execution of the contract.
</TABLE>
<PAGE> 139
CONFIDENTIAL TREATMENT
<TABLE>
<S> <C> <C> <C> <C>
3 Liability Limited to the amount Contractor is liable as Contractor is liable as As provided by the
of payments by provided by law. In other provided by law. General Purchasing
contractor's liability respects, as provided by Contractor's liability shall Conditions of the
insurance with a cover section 22 of the AVB not be limited by the fact ##MATERIAL OMITTED
of 1 mio DM per claim that the builder's and AND SEPARATELY
for bodily injury and assembler's liability FILED UNDER A
other damages, no insurance held by him does REQUEST FOR
pecuniary losses. not, or only partly, cover CONFIDENTIAL
the actual damage. TREATMENT##.
4 Rescission . / . Contractor grants contract Contractor grants contract Contract awarder
awarder a right of awarder a right of is entitled to
termination for the event, termination for the event, perform necessary
that the project is not that the project is not changes to the
executed due to exceptional executed due to exceptional order any time,
circumstances. If contract circumstances. If contract or to limit the
awarder makes use of this awarder makes use of this scope of supply
right, costs for work right, costs for work and performance.
performed until that point performed until that point
of time shall be of time shall be
remunerated upon remunerated upon
appropriate proof. appropriate proof.
Addition:
right of rescission in case
of failure to remedy faults
after a reasonable extension
was granted, transgression
of the original delivery date
by more than 2 months,
failure to achieve defined
specifications.
</TABLE>
<PAGE> 140
<TABLE>
<S> <C> <C> <C> <C>
5 Bank guarantees none Contractor has to provide Contractor has to provide None
an absolute bank guarantee an absolute bank guarantee
in the amount of 5% of the in the amount of 5% of the
total order value as partial total order value as partial
security for his warranty. security for his warranty.
In other respects, section For new suppliers only: As
25 the AVB apply. security for the fulfilment
For new suppliers only: As of the order, contractor
security for the fulfilment shall provide a performance
of the order, contractor bond in the amount of not
shall provide a performance less than 10 % of the total
bond in the amount of not order value, by way of an
less than 10 % of the total absolute bank guarantee.
order value, by way of an
absolute bank guarantee.
6 Secrecy A clause to this effect A clause to this effect A clause to this effect A clause to this
shall be prescribed for shall be prescribed for shall be prescribed for effect shall be
the respective the respective contractor the respective contractor prescribed for the
contractor and and his subcontractors. and his subcontractors. respective
his subcontractors. contractor and his
subcontractors.
7 Warranted . / . Selected specified Selected specified Selected specified
characteristics characteristics. characteristics. characteristics.
</TABLE>
<PAGE> 141
<TABLE>
<S> <C> <C> <C> <C>
8 Warranty Contractor warrants The warranty period is The warranty period of 5 The warranty period
Indemnity professional, faultless 5 years. In other respects, years. is 2 years. In
Remedy of faults execution of his work section 23 of the AVB Contractor is liable for other respects, as
according to recognised apply, as enclosed. defects occurring during the provided by the
engineering rules. The warranty period in that enclosed General
warranty period is 5 years manner, that deficient Purchasing
after acceptance of the performances or supplies Conditions of the
respective work. are improved, re-supplied ##MATERIAL OMITTED
Indemnity is limited to or exchanged promptly AND SEPARATELY
cover for bodily injuries after notification to this FILED UNDER A
or other damages through an effect. All reasonable REQUEST FOR
engineer's liability efforts have to be taken and CONFIDENTIAL
insurance, with a sum no costs may be caused for TREATMENT##
insured of 1 mio. DM per contract awarder. All costs
claim, no pecuniary losses. incurred, particularly costs
In case of performance, incurred for assessment of
which is not in keeping the defect, removal and
with the contract, contract re-assembly of defective parts
awarder is entitled to and all other additional
subsequent improvement, collateral performances are
until the defect is to be borne by contractor.
remedied. Contract awarder If contractor repeatedly
shall grant contractor an delays remedy of defects, or
appropriate extension if imperative necessities of
period for subsequent contract awarder's operation
improvement. If require immediate remedy
subsequent of the defect, contract
improvement fails awarder is entitled to either
twice, contract remedy the defect himself
awarder shall be at contractor's expense or
entitled to perform the to have it remedied by a
secondary third party. Indemnity for
improvement himself, want of a warranted
contractor's costs, or to characteristic.
have them performed
by a third party.
</TABLE>
Explanatory notes:
"AVB" denominates the General Conditions for the Award of Contracts of the
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##; the relevant sections 22, 23 and 25 are enclosed. The General
Purchasing Conditions of the ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## are enclosed as well.
"WHG" denominates the Law on the Management of Water Resources
<PAGE> 142
19.3 Payments shall be made upon proper invoicing only. All invoices and
payment request have to be issued to the builder in twofold. They have
to indicate the order number and the items to be settled and are to be
submitted to the address indicated in the order. Accounting documents
suitable for auditing, proofs of ascertained performances, such as
surveys etc. have to be added (see also item 18.3).
20 SUPPLEMENTARY CLAIMS
Supplementary quotations have to be submitted within 30 days after the
notification of change (Schedule 9). They have to comprise all
documents required for evaluation (statement of reasons including
differentiation from existing performance contracts, detailed
specification of services, written instruction by engineer/builder,
proofs of supply and performance recognised by the [illegible],
detailed statements of calculations and costs, etc.) and are to be
submitted to the engineer (headquarters) in negotiable form.
Insufficiently substantiated and/or proven supplementary quotations
have to be proven by the contractor in a complete manner upon prior
demand to improve by the engineer. This has to be done within 20
working days after receipt of mail. If this timelimit is exceeded,
builder and/or his engineer shall fix prices in their own fair
judgement.
After submission of final accounts, supplementary claims are not
permitted, unless contractor is not to be held responsible for failure
to assert such claims in time. Contractor has to prove this.
21 PASSING OF RISK
With effect from the date of the delivery record (Schedule 5, page 5)
the risk of accidental loss or accidental deterioration of the work
passes to the engineer/builder.
22 LIABILITY
22.1 Contractor is liable as provided by law. This includes liability for
negligence of his vicarious agents. This liability also applies to
damages caused during contractual work. The builder is to be
indemnified against claims for damages by any third party, which may
arise during execution of the contractual work, he is also to be
indemnified against disadvantages, which may accrue to builder from any
release from liability of a subcontractor. In case of doubt, contractor
has to prove that he is not at fault.
22.2 Contractor is liable for any and all claims by third parties on account
of infringements of property rights committed in connection with his
work. He holds the builder harmless against any such claims, unless the
acts, which lead to such infringement, were prescribed by the builder.
22.3 Contractor's liability is not limited or reduced by the fact, that the
liability insurance held by him or the builder's and assembler's
liability insurance held by the builder, as provided under item 24,
does not cover the damage or does so only in part.
<PAGE> 143
22.4 Liability of builder and builder's vicarious agents for slight
negligence is excluded.
23 WARRANTY
Faulty work (e.g. damages in sheathing or subsidence) are subject to
warranty, even before acceptance.
23.1 Contractor warrant, that all supplies and services made and rendered by
him, his subsuppliers or subcontractors, are completely free from any
defects. He particularly warrants faultless constructional [illegible],
professional selection and processing of the materials and supplies
used by him, and durable workmanship and construction, as appropriate
for the material involved, according to the latest state of the art.
Long-term fulfilment of specified characteristics, performance and
quality data is warranted
23.2 Defects occurring within a period of three years after acceptance
(record date as provided under item 17.1) are to be remedied by
contractor at his expense, immediately after the complaint was made.
Remedy is to be performed , at builder's option, by subsequent
improvement, supply or exchange. Contractor has to bear all costs
incurred in connection with the assessment and remedy of the defect,
including all additional services, even if such services have not been
performed by contractor.
23.3 If contractor delays performance of remedying defects or if safety
interests or operational circumstances of the builder/operator require
immediate action, then builder may take measures for immediate
elimination of the defect, also by a third party, at contractor's
expense. Parts exchanged in the course of such actions are placed at
contractor's disposal, after examination by the builder. As for the
rest, he shall receive a report on the defects. In case of delays,
builder may, besides replacement, also demand a price reduction or
indemnity for damages.
23.4 Should any defects occur, the nature of which prevents rectification,
or which recur continuously for reasons of systematic, then builder is,
in addition to the entitlements under item 23.2 and 23.3, also entitled
to demand a price reduction or indemnity for damages
23.5 Above warranty applies to the entire scope of supply and performance,
including all supplementary supplies and supplementary performances. It
extends in particularly to the freedom of the gas line from any defects
in sheathing and freedom from electric contacts, which are detrimental
to the functioning of the cathodic protection system. Should defects of
this kind occur, costs for corrections and re-adjustments of the
corrosion protection equipment, elimination of contacts and possible
compensation for field damages are to be borne by the contractor as
well.
23.6 As long as type and cause of a defect are under discussion, before a
written complaint is filed, running of the warranty period under item
23.2 is suspended. The written complaint interrupts running of the
warranty period.
23.7 Items 23.2 to 23.6 also apply to cases of lack of warranted
characteristics.
23.8 Fault clearance work may only be performed upon prior approval by the
engineer and the operator.
<PAGE> 144
24 INSURANCES
24.1 Contractor is obliged to maintain, at his expense, a manufacturer's
liability insurance for bodily injury, property damages and pecuniary
losses, with inclusion of damages to water/other environmental damages.
Flat-rate cover has to amount to 5,000,000 DM, when the building
project involves parallel routing with other utility lines, and/or
10,000,00 DM for each claim, if drinking water protection areas or
water extraction areas are touched by the route. Insurance protection
has to begin in due time prior to the start of work and may only end
after complete acceptance of the entire building project by the
builder. Its existence has to be proven upon submission of the
quotation. It may neither be reduced nor terminated [illegible] expiry,
without prior notification to the builder. Insurance cover has to be
reinstated for work performed under warranty.
24.2 Builder shall conclude a transport, builder's and assembler's
insurance, which includes contractor's risk. Contractor may request a
copy of valid terms and conditions of the current insurance contract
through the engineer (standard form: refer to Schedule 3).
Claims on the contractor's side, which are to be indemnified by the
transport, builder's and assembler's insurance, have to be reported to
the engineer in writing within [illegible]. This report has to include
a detailed description. It has to be complemented by two complete sets
of copies for the builder and the insurance.
25 PROVISION OF SECURITY
To secure his contractual rights, builder shall retain as security 5 %
of each invoiced amount until the end of the warranty period plus a
supplementary period of 3 months.
This security may be replaced by an absolute guarantee of a big German
bank or, provided the builder agrees, by an absolute guarantee of the
Group. The guarantee is not to be subjected to the condition, that
payments by the builder have to be effected to accounts held by the
contractor with the guaranteeing institute.
The guarantee has to be designed in such a way, that it is payable upon
first demand, and that it only expires upon release by the builder.
Builder may call upon the security any time. He has to notify
contractor and give reasons for this.
26 Exclusion of assignment
Assignment of contractor's claims against the builder accruing from
this order is not allowed, with the exception of assignments to
contractor's suppliers granted within the realm of the building project
for securing unavoidable trade credits. Under no circumstance may above
claims be made the object of overall assignments.
27 TERMINATION WITHOUT NOTICE
Builder may terminate the agreement without notice, if contractor
ceases payments, if insolvency proceedings are instituted with regard
to his property of if an application for institution of such proceeding
is filed, or if his claims against builder are seized or attached in
full or in part.
<PAGE> 145
CONFIDENTIAL TREATMENT
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##
Note by the translator: this text is barely legible!
GENERAL PURCHASING CONDITIONS
(October 1993 Version)
1. Scope
The General Purchasing Conditions shown below apply, unless and to the
extent as otherwise agreed, to all our orders for delivery of goods
and/or provision of services.
2. Acceptance of an order
The "order acceptance form" included with our order has to be signed
and returned to us within 8 days. Subject to the regulations in section
3, the contract shall only be considered as concluded, after we are in
possession of the "order acceptance form" signed by the supplier
(contractor). By signing the "order acceptance form", supplier
(contractor) acknowledges our General Purchasing Conditions. Changes or
amendments which deviate from the content of our order, shall only be
effective after we have confirmed them in writing. Delivery or
performance conditions of the supplier or contractor shall not place us
under any obligation, even of we do not protest against such
conditions. If the supplier (contractor) executes the order, although
we did not receive the "order acceptance form" within the term
mentioned in section 1, execution of the order shall be construed as
acknowledgement of our General Purchasing Conditions.
3. Terms and deadlines
The agreed deadlines for delivery and performance have to be strictly
observed. If the supplier/contractor realises, that he will be unable
to comply with the deadline for delivery/performance, he shall advise
us immediately, so that we can make appropriate arrangements in time.
4. Shipping documents
Shipping documents have to be sent to our Department [illegible] in
?fold, immediately after the respective shipment was cleared. In
addition to that, the shipment has to be accompanied by a packing list
in [illegible] Date and number of the order, item number and allocation
to an account have to be indicated in the shipping papers.
5. Invoicing and payment
Invoices have to be submitted to us immediately after delivery or
performance was made. They have to be issued for each order separately
and have to be provided with indication of order date, order number,
number of the ordered item, and disposition number of the order.
Invoices must not be included with shipments. Settlement shall be made
by means of payment at our option. This includes bills of exchange.
When paying with bills of exchange, we shall reimburse reasonable
discounting expenses on the basis of the discount rate set by the
Deutsche Bundesbank, expenses to be calculated on the basis of the
status, which was in effect on the day of handing over the bill of
exchange. In case of payment within two weeks after delivery and
receipt of the invoice by us, we shall be entitled to deduct a discount
of 2% from the invoiced amount.
<PAGE> 146
6. Assignment of claims
Supplier (contractor) is not authorised to assign his claims against us
in full or in part or to have them collected by any third party,
without our prior approval, which we shall not withhold without
important reason.
7. Warranty
The supplier (contractor) has to remedy defects in his delivery or
performance without delay and at his expense (subsequent improvement);
the limitation period shall be one year from the time of passing of the
risk. We may demand rescission of sale or reduction of the price, in
place of subsequent improvement, or, in case of purchase by
description, we may also demand delivery of replacements free of
charge. In case of contracts for work and performances, we may assert
these rights, when contractor refuses to perform subsequent
improvements, if this is impossible for him, or if he is in delay with
the subsequent improvement. In urgent cases, or in case of delay by the
supplier (contractor), we may remedy the defect either ourselves or
have them remedied, at supplier's (contractor's) expense and without
setting any further timelimit. If the supplier (contractor) delays
remedying the defect, we may withdraw from the contract or claim
damages for non-performance. When the supplier (contractor) remedies
defects, the warranty period shall be prolonged by that period of time
which elapsed between complaint and acceptance of repairs. Above
provisions shall apply mutates mutants to deliveries of replacements or
subsequent improvements.
8. LIABILITY
Supplier (contractor) shall also be liable for his vicarious agents,
when these caused the damage on the occasion of performance. He waives
the possibilities of discharge under Section [illegible] BGB.
9. Withdrawal
If a change in the conditions, which were decisive for concluding the
contract, occur without our fault, and if this occurs before
performance of the contract, we shall be entitled to demand performance
of the contract under different terms, or to withdraw from the contract
in full or in part.
<PAGE> 147
10. Data processing
We are authorised to process personal data in the sense of the Federal
Data Protection Act, as far as this is required for execution of the
contract.
11. Place of performance
Place of performance for any and all deliveries or performances by
supplier (contractor) is the place of destination, which we indicate in
each case. Place of performance for payments is Essen.
12. Place of jurisdiction
Place of jurisdiction for merchants who have been entered in the trade
register is Essen.
13. Applicable law
Applicable law for relations between ourselves and supplier
(contractor) is the law of the Federal Republic of Germany. The United
Nations Convention on Contracts for the International Sale of Goods
(CISG) shall not be applied.
<PAGE> 148
CONFIDENTIAL TREATMENT
MEMORANDUM
AD NO. 1.1.4 AND 3.5.4 OF THE LWL-AGREEMENT DATED SEPTEMBER 24, 1997.
With respect to the free provision of LWL-fibres to gas supplying companies, the
pipeline routes of which are to be used, as provided by the LWL-Agreement, the
parties to the LWL-Agreement agree as follows:
When utilising LWL-fibres, which were made available free of charge, for
telecommunication purposes outside the realm of the gas business, the provisions
on special adjustments of user fees under No. 3.5.1 and 2 shall be applied
accordingly. In view of the fact that HER does not know the agreement between
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## and the gas supplying companies, this provision shall apply
independently of the question, whether and to what extent ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## shall or shall be
able to make the gas supplying companies bear a share of costs for the setting
up of the route in case of its use for telecommunication purposes outside the
realm of the gas business.
Hoeilaart, September 24, 1997 Hoeilaart, September 24 1997
Signature illegible Signature illegible
Hermes Europe Railtel B.V. ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL
TREATMENT##
<PAGE> 149
CONFIDENTIAL TREATMENT
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##
Date: September 24, 1997
LWL-AGREEMENT DATED SEPTEMBER 24, 1997
Dear Sir or Madam,
This is to advise you that our shareholders on their meeting, agreed to the
conclusion of the LWL-contract dated September 24, 1997 and that the reservation
to this effect under No. 7.14 of the agreement has thus been lifted by us.
<PAGE> 150
CONFIDENTIAL TREATMENT
Contract
between
##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##
and
the gas supplying companies listed below:
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##
- called GVU hereafter -
the following agreement is concluded:
<PAGE> 151
CONFIDENTIAL TREATMENT
PREAMBLE
The GVU intend to modernise existing technical facilities along their gas
pipelines and to extend their capacity at this occasion in such a manner, that
they may also be used for public telecommunication services, for example by
letting lines to telecommunication companies. The intend furthermore, to equip
future crossings with ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT##-property with additional fibre optic cables and
cable ducts for telecommunication purposes. They are of the opinion, that
property owners have to tolerate set-up, operation and renovation of
telecommunication lines under the provisions of Section 57 Paragraph 1 No. 1 TKG
(Telecommunication Law).
According to the GVU's opinion, this right also includes the right to adjust and
amend their technical facilities crossing railway property accordingly. They are
of the opinion that, under the provisions of Section 57 Paragraph 2 TKG, the
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## has to tolerate the modification and amendment of crossings without
remuneration. Only expenses incurred for handling applications for modifying
crossings were to be reimbursed on the grounds of the contracts on railway
crossings, which were concluded on the basis of rules and regulations for
railway crossings, by payment of a lump sum not higher than 377.50 DM per
crossing.
The GVU finally hold, that a free right of use may also be derived from
regulations under general law, such as competition law, antitrust law and
others.
In opposition to that, the ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## is of the opinion that Section 57 TKG - if
at all - only applies to the lines or facilities, which were in existence at the
time when the law became effective, and that only these facilities may be used
for telecommunication purposes. Consequently, later technical modifications or
enhancements for telecommunication purposes would not fall under the scope of
Section 57 TKG so that the ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## were under no obligation to tolerate such
impact on their properties. Consequently, the ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## is of the opinion, that an
appropriate fee is payable for the right to use property of the ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL CONFIDENTIAL
TREATMENT
TREATMENT##. The ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## holds, that payment of an amount of not less than DM
8,200.00 per crossing is appropriate for expenses incurred and as fee for the
right of utilisation (3,200.00 DM administration expenses, 5,000.00 DM user
fees).
Agreement on these differing legal viewpoints is not obtainable; thus, the
following understanding is concluded:
<PAGE> 152
CONFIDENTIAL TREATMENT
SECTION 1
Use of Property of the ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT##
1. Maintaining their respective legal viewpoints, ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## and GVU
agree that the signatory GVUs are entitled to equip existing crossings
between their gas pipelines and ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## property with additional
fibre optic cables and cable ducts for telecommunication purposes and
to use them accordingly for the provision of telecommunication services
to the general public. Longitudinal routings up to a length of 300
Metres shall also be considered as crossings. Embedding of optic fibre
cables and cables ducts along longitudinal routes longer than that
requires a separate agreement with ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##.
2. The GVU concerned in each instance shall submit appropriate
applications to ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT## undertakes to process these applications
by the GVU within an appropriate period of time. Facilities earmarked
for telecommunication purposes are also subject to the technical
specifications of the rules and regulations for railway crossings.
SECTION 2
Fees
1. Maintaining their respective legal viewpoints, ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## and GVU
agree that GVU shall pay a preliminary amount of DM 8,200.00 per
crossing to the ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT##, until a final decision of a possible
legal dispute under Section 3 or any other mutually agreed
clarification is found.
2. This amount does not include construction costs, costs for securing
measures etc. which may be incurred by the ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##.
<PAGE> 153
CONFIDENTIAL TREATMENT
3. All amounts are understood net, plus statutory value-added tax.
SECTION 3
Legal dispute
For the event, that GVU or ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## wish to enforce their legal viewpoints in
court, the following shall apply:
1. A lawsuit shall be conduced by way of test case for a minimum of ten
crossings.
2. ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## and GVU undertake to accept a final court
decision in appeal proceedings, which shall be passed on the matter in
dispute in this test case in favour of or against ##MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## and
the GVU signing this agreement, for all corresponding crossings.
3. Parties will set up their statement of facts in such a manner, that the
court will decide the facts in dispute, which are described in the
preamble, on the basis of the actual conditions, which existed before
this agreement was concluded.
Should the courts pass a final decision that ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## is under
no obligation to allow the GVUs joint use of railway property for
telecommunication purposes other than operational purposes, then the
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## shall submit to the GVUs a contractual offer
for joint use of railway property against payment of a fee, which
allows unlimited use of the telecommunication lines. Fees and other
conditions shall be free from any discrimination in relation a
comparable uses for telecommunication purposes; uses by ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##and their subsidiary and holding enterprises including
<PAGE> 154
CONFIDENTIAL TREATMENT
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##, shall not be taken into consideration for
this.
Until that time, when such a contractual offer shall be submitted, and
for an appropriate period of time after that, ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## shall
permit continued used of the embedded LWL-cables and cables ducts and
shall not interrupt operation of the cables.
4. For the case of a legal dispute, ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## reserves the right
to claim fees other than those agreed under Section 2.
5. Parties agree that the ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## is actively legitimated for the
GVUs signing this contract. As far as no crossings held by ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## herself, are concerned, ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## shall safeguard the
rights and duties of the GVU concerned as representative of that GVU.
6. It is agreed, that Frankfurt/M. shall be place of jurisdiction for
lawsuits under this agreement.
7. ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## and the GVUs agree, that the amounts to be
claimed or claimed back for the crossings concerned, after a final
judgement was passed, shall bear 5% interest per annum. The handling
fee of the ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## for modifications of existing crossings in the
amount of 377.50 DM shall not be paid back under any circumstances.
<PAGE> 155
CONFIDENTIAL TREATMENT
SECTION 4
Final rulings
1. This agreement shall become effective for each signatory GVU at that
point of time, when the GVU signs the agreement.
2. Contracting parties may terminate the agreement with three months
notice to the end of a calendar year, for the first time December 31,
1999. This shall apply to telecommunication lines to be newly embedded
for the first time after that point of time.
3. Amendments of and/or supplements to this agreement have to be in
writing. The same applies to revocation of the requirement of writing.
4. Should a provision of the agreement be or become invalid or
unenforceable, validity of the remaining agreement shall remain
unaffected. Parties shall agree a provision to replace the invalid or
unenforceable provision, which, under economic aspects, comes as close
as possible to the invalid or unenforceable provision.
Frankfurt/Main, July 23, 1997 Essen, July 30, 1997
Signatures illegible Signatures illegible
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##
<PAGE> 1
EXHIBIT 10.17
CONFIDENTIAL TREATMENT
Agreement on the Utilisation of Fibre Optic Cables
and Infrastructure
("LWL Agreement")
between
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##
- "GVS" -
and
Hermes Europe Railtel B.V.
Drentestraat 20
NL - 1083 HK Amsterdam, Netherlands
- "HER" -
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
INTRODUCTION
1. SUBJECT MATTER OF THE UTILISATION AGREEMENT 1
1.1 FIBRE OPTIC ROUTES (LWL ROUTES) 1
1.2. USING THE STATIONS, / SYSTEMS ENGINEERING LOCATIONS 2
1.2.1 FINDING LOCATIONS 2
1.2.2 SETTING UP SYSTEMS ENGINEERING LOCATIONS 3
1.2.3 CLOSING DOWN SYSTEMS ENGINEERING LOCATIONS 4
1.3 CONTENT AND SCOPE OF THE RIGHT OF UTILISATION 4
1.3.1 LWL ROUTES 4
1.3.2 OPERATION, REPAIRS AND ADMINISTRATION 4
1.4 LAYING CABLES AT STATIONS 5
1.5 ACCESS TO STATION PREMISES 6
2. COMPLETION AND ACCEPTANCE OF THE LWL ROUTES 5
2.1 COMPLETION DATES 5
2.2 TIME SCHEDULE 5
2.3 INFORMATION ON THE PROGRESS OF THE PROJECT 6
2.4 ACCEPTANCE PROCEDURE ON COMPLETION OF THE LWL ROUTES 6
2.5 DOCUMENTATION 7
2.6 FAILURE TO COMPLY WITH THE COMPLETION DATES AND
TECHNICAL DEFECTS, NOTICE OF TERMINATION 7
2.6.1 BASIC PRINCIPLES 7
2.6.2 DAMAGES 8
2.6.3 HER'S DUTY TO COOPERATE 8
3. REMUNERATION 10
3.1 THE USER FEE AND THE ADJUSTMENT OF THE USER FEE 10
3.1.1 THE USER FEE 10
3.1.2 MARKETING THE ROUTES TO THIRD PARTIES 10
3.1.3 ADJUSTMENT OF THE USER FEE 11
3.2 ADVANCE PAYMENTS 11
3.3 VALUE ADDED TAX 12
3.4 DUE DATES FOR PAYMENT 12
3.5 BANK ACCOUNTS 12
3.6 LATE PAYMENT 13
4. INDEPENDENCE OF THE LWL ROUTES 13
5. TERMINATION UNTIL THE TIME THAT THE ROUTES ARE
MADE AVAILABLE/ UNTIL ACCEPTANCE 14
5.1 TERMINATING THE AGREEMENT IN RESPECT OF ROUTES WHICH 14
HAVE BEEN NEWLY BUILT
5.2 TERMINATION IF IT SHOULD NOT BE POSSIBLE TO FIND 14
SYSTEMS ENGINEERING LOCATIONS
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
6. AVAILABILITY OF THE ROUTES AFTER ACCEPTANCE 15
6.1 PERMISSIBLE DOWNTIMES 15
6.2 PUTTING THE CABLE FACILITIES OUT OF OPERATION 15
6.3 DOWNTIMES, TIME REQUIRED TO RECTIFY FAULTS, SERIOUS DAMAGE 16
6.3.1 EXCEEDING THE PERMISSIBLE DOWNTIMES 16
6.3.2 INTERRUPTIONS TO OPERATIONS CAUSED BY GVS 17
6.3.3 INTERRUPTIONS TO OPERATIONS CAUSED BY HER 17
6.3.4 SERIOUS DAMAGE TO / DESTRUCTION OF THE ROUTES 17
7. LIABILITY 18
8. FORCE MAJEURE 18
9. SCHEDULES TO THIS AGREEMENT 18
10. THE DURATION OF THE AGREEMENT / OPTION TO 18
PROLONG THE AGREEMENT
11. BURDENS IMPOSED BY TAXIES AND LEVIES 20
12. ECONOMIC FEASIBILITY 20
13. ASSIGNMENT OF A PARTY'S CONTRACTUAL RIGHTS 20
AND OBLIGATIONS TO THIRD PARTIES
14. CONFIDENTIALITY 20
15. SEVERABILITY 22
16. ADDITIONS AND AMENDMENTS TO THIS AGREEMENT 22
17. ARBITRATION CLAUSE 22
18. PROPER LAW / LANGUAGE OF BUSINESS 23
19. LIST OF SCHEDULES TO THIS AGREEMENT 23
</TABLE>
<PAGE> 4
CONFIDENTIAL TREATMENT
1. SUBJECT MATTER OF THE UTILISATION AGREEMENT
The subject matter of this Agreement is that GVS shall make the LWL routes
which are specified in greater detail below available to HER for the purpose of
telecommunications operations and shall provide HER with the possibility of
freely using such routes on a long-term basis.
As the LWL routes which are the subject of this Agreement were not yet ready on
the date of its execution, GVS shall first of all construct these LWL routes.
GVS particularly undertakes to find and provide the locations which are
required to accommodate system equipment for the specified purposes and to set
up systems engineering locations in the manner described in Schedule 4. After
the LWL routes have been made available, GVS, as lessor of the LWL routes,
shall then be responsible for their upkeep and especially for the maintenance
work specified in Schedule 3.
1.1 FIBRE OPTIC ROUTES (LWL ROUTES)
The LWL cables to be laid for the purpose of constructing the routes shall be
laid in a cable duct in the shelter belts of the natural gas pipelines
belonging to GVS. The LWL cables consist of ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## of which HER shall make
available to GVS for service purposes in connection with the LWL cable.
Separate LWL cables shall be laid for HER.
The LWL routes to be provided by GVS shall run along the following GVS
pipelines:
* ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## (LWL route 1);
* ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## (LWL route 2). LWL route 2 shall be divided
into two parts: the first part as far as ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## shall be
designated "LWL Route 2a" and the second part "LWL Route 2b".
The actual direction of the routes is set out in Schedule 1 (General Map) and
in Schedule 2 (List of the LWL Routes with Their Approximate Lengths). In case
of doubt the List of LWL routes (Schedule 2) shall have priority. The final
lengths are evident from the planned length of the cable duct (deep-level
length including points of intersection). GVS shall calculate these lengths
after constructing the relevant LWL routes and shall provide HER with suitable
evidence of these lengths. These final lengths, rounded up or down to complete
kilometres, shall form the basis for the calculation of the user fee.
Initially only LWL route 1 shall be subject to this Agreement.
<PAGE> 5
CONFIDENTIAL TREATMENT
The parties have come to the following arrangement regarding LWL route 2:
HER shall be entitled to make a written declaration including this route in
this Agreement. This route shall then become subject to this Agreement. Such a
declaration must have reached GVS by no later than 15 October 1997.
The technical requirements which the required LWL routes must fulfil and the
specification for the LWL cable and the connector of the long-distance cable
are set out in Schedule 3 (Technical Conditions for the Utilisation of Fibre
Optic Cables and Basic Technical Specifications for Systems Engineering
Locations). The LWL fibres shall end at the connector of the long-distance
cable at GVS's cable terminal.
During the construction phase GVS must take account of the branching points
(branch sleeves) and connection points in its planning. HER shall make these
items known beforehand. GVS shall carry out such work in return for the
reimbursement of the costs on the basis of the actual work done at the usual
rates (non-recurring payments). It shall be possible for HER to add additional
exit points at a later date. Such work shall be carried out by GVS at HER's
request, while HER shall bear the costs in this connection, in as far as this
is not in contradiction with any legal or planning aspects.
1.2. USING THE STATIONS, / SYSTEMS ENGINEERING LOCATIONS
1.2.1 FINDING LOCATIONS
To ensure the operation of the LWL routes, HER requires systems engineering
locations which should be situated at distances of approx. ##MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## km along the
relevant LWL route.
There is a particular need for systems engineering locations at the following
four places along the LWL route, as specified in Schedule 2:
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##
GVS shall make every effort to provide or find the required locations for
systems engineering equipment at the places set out above. HER shall bear the
costs thereby incurred.
For this purpose GVS shall make available its own station premises which are
its property. These stations shall then be used to accommodate the transmission
equipment in return for an adequate fee, should this be in HER's interests and
should it not be to the serious detriment of GVS's interests. GVS shall not be
entitled to claim the reimbursement of expenses incurred in searching for
locations in as far as it makes its own stations available.
<PAGE> 6
CONFIDENTIAL TREATMENT
At present GVS owns the following premises where areas are available for use
systems engineering locations:
Along LWL route 1:
* ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## (compressor station)
* ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## (control point for communication engineering)
* ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## (compressor station)
Along LWL route 2:
* ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## (control point)
Should these locations should not be suitable for the accommodation of systems
engineering equipment, particularly if a reason for their lack of suitability
is that the maximum distances between the systems engineering locations is
exceeded, GVS shall make every endeavour to provide or obtain other suitable
accommodation possibilities or surfaces for the system equipment. HER shall
bear any costs incurred in doing so. The extent of the efforts which GVS shall
make in this respect is set out in Schedule 4 to this Agreement.
The basic technical specifications for the systems engineering locations are
set out in Schedule 3. The detailed specifications required for evidence shall
be handed over to GVS at the dates set out in the Time Schedule (Schedule 5).
At HER's request GVS shall, if necessary, find or set up other or additional
systems engineering locations along the LWL routes. These shall locations that
meet the specifications set out in Schedule 3 and 4 or other systems
engineering plants. HER shall bear the costs incurred.
GVS shall make its contacts available for the connections that HER requires to
the city centres.
1.2.2 SETTING UP SYSTEMS ENGINEERING LOCATIONS
On HER's behalf GVS shall establish four systems engineering locations. This
shall include the necessary infrastructure. HER shall bear the costs incurred
in doing so. The requirements which the establishment of such systems
engineering locations should meet are set out in detail in Schedules 3 and 4 to
this Agreement. HER shall provide GVS with turn-key containers for the purpose
of setting up systems engineering locations. These containers are and shall
remain the property of HER. HER shall provide GVS with the turn-key containers
by no later than 10 November 1997. They shall be delivered
<PAGE> 7
CONFIDENTIAL TREATMENT
free of charge to the building site, including a call off period of 5 days and
transport to the relevant location. The containers shall be set up on GVS's
land in such a way that they are removable at any time. They shall be set up
only for the duration of this Agreement pursuant to section 95, paragraph 1 of
the German Civil code (BGB).
GVS shall provide HER with engineering services for systems engineering
locations, as set out in Schedule 4. GVS shall charge HER for these services on
the basis of the effort involved.
1.2.3 CLOSING DOWN SYSTEMS ENGINEERING LOCATIONS
HER may require at any time that systems engineering locations be closed down
and the LWL cable connected up via the former location. HER shall bear the
costs in this connection. GVS shall be entitled to restore the location to its
original condition HER shall bear the costs incurred in doing so.
1.3 CONTENT AND SCOPE OF THE RIGHT OF UTILISATION
1.3.1 LWL ROUTES
GVS shall provide HER with the LWL routes which are the subject matter of this
Agreement and shall also provide HER with systems engineering locations for
HER's free and unrestricted use for purposes of telecommunications. This shall
particularly include the right allow third parties the full or partial use of
the LWL route or its transmission capacity for purposes of telecommunications.
Section 549, paragraph 1 of the German Civil Code shall not apply. GVS shall
allow HER to exercise its rights of way in respect of the LWL cables which are
to be made available.
HER shall have functional control over the LWL route, as defined in the Law on
Telecommunications (TKG).
1.3.2 OPERATION, REPAIRS AND ADMINISTRATION
Within the framework of its obligations as lessor GVS shall be responsible for
repairing the LWL cables in the event of faults, in each case up to the
connector of the long-distance cable. GVS shall also be responsible for
carrying out any modification work on the LWL cables. GVS shall set up or have
a third party set up an emergency service to be on call 24 hours a day.
In addition to this, GVS, within the framework of its obligations as lessor,
undertakes to take on the responsibility for the upkeep (maintenance and
repairs) of the system engineering locations ("first-level maintenance"), also
to the limited extent set out in Schedule 6 to this Agreement and for the
duration of the time that these locations are used by HER. Should more than
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## hours' work (including travelling times) per year
<PAGE> 8
CONFIDENTIAL TREATMENT
be required for first-level maintenance, GVS shall charge for the maintenance
services separately and on an hourly basis as from the ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## hour.
As regards any possible damage to the LWL cable, GVS undertakes to adhere to
the standard repair times for the standard faults, both of which are set out in
Schedule 7.
GVS shall notify HER of all plans for any work which will lead interruptions in
the LWL cable on which the LWL routes are based. Should it be necessary to
divert any cables GVS shall also ensure that the LWL cable is also diverted. In
addition to this, GVS shall, if possible, also notify HER in good time of any
other work in the shelter belt of the gas pipelines which could hinder the
functioning of the LWL cable. The deadlines for such notification and their
required contents are set out in Schedule 3 to this Agreement.
GVS shall ensure the proper administration and enforcement of all rights. This
includes technical administration, such as responding to questions from third
parties in connection with third-party lines. GVS shall have the particular
responsibility of ensuring that rights of way are obtained in order to lay and
operate fibre optic cables for purposes of telecommunications, with the
possibility of leasing them and subleasing them to third parties.
GVS shall be entitled to entrust third parties with the duties set out above.
1.4 LAYING CABLES AT STATIONS
HER shall be entitled to lay cables under the land of the stations which are
owned by GVS, up as far as the boundary of the property. The cables should not
impair the functioning and the safety of GVS's natural gas pipelines nor of the
communication and control facilities which have been installed. In this respect
the consent of GVS must be obtained for the route along which the cables are to
be laid.
GVS shall make every effort to support HER in acquiring rights of way beyond
the boundaries of its property. HER shall bear the costs incurred in this
respect.
1.5 ACCESS TO STATION PREMISES
GVS shall grant HER's specialised manpower and, if applicable, the specialised
manpower of companies to which HER farms out work access to the locations used
by HER and HER's customers, after such staff have received the relevant
instructions and after prior appointment by telephone. This shall apply in as
far as these locations are the property of GVS. If necessary, this right of
access shall also apply outside GVS's normal business hours. Prior appointment
by telephone shall only be required if HER's manpower or the manpower of
companies to which HER farms out
<PAGE> 9
CONFIDENTIAL TREATMENT
work enter the premises themselves or have to cross over the premises,
particularly when there are no separating fences.
2. COMPLETION AND ACCEPTANCE OF THE LWL ROUTES
2.1 COMPLETION DATES
The LWL routes, including the systems engineering locations and the remaining
infrastructure which form the subject matter of this Agreement, as set out in
clause 1 and its paragraphs, are to be made available to HER for acceptance
tests (in the form of measurements) by the following dates:
LWL route 1: To be completed for acceptance test by: ##MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##
LWL route 2: To be completed for acceptance test by: ##MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##
2.2 TIME SCHEDULE
A time schedule forms Schedule 5 to this Agreement. This Schedule contains a
list of the most important dates for the fulfilment of the obligations which
are the subject matter of this Agreement.
2.3 INFORMATION ON THE PROGRESS OF THE PROJECT
GVS shall immediately inform HER if there are any signs of difficulty in
constructing the route which could influence the completion dates set out in
clause 2.1.
2.4 ACCEPTANCE PROCEDURE ON COMPLETION OF THE LWL ROUTES
By giving at least ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## notice GVS shall notify HER that the relevant LWL
route is ready to be made available and that an acceptance test (measurement)
can be carried out. In this notification GVS shall indicate the date for such a
measurement. The acceptance test (measurement) set out in the specifications in
the Technical Conditions (Schedule 3) shall then be carried out on the
specified date. The test certificates shall be handed over to HER.
If the LWL route meets the requirements set out in the Technical
Specifications, HER shall notify GVS of this within ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## days of receiving
the test certificates. The route shall be deemed made available when such
notification has been received.
<PAGE> 10
CONFIDENTIAL TREATMENT
Should HER receive the test certificates and not submit a complaint regarding
the results of the acceptance test within a time limit of ##MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## days, the LWL
route shall be deemed made available when this time limit has expired.
As from the time that the route has been made available, GVS shall be
responsible for keeping it in functioning order and for its upkeep. HER shall
be obliged to pay the user fee specified in clause 3.1.
If the LWL route does not meet the requirements set out in the Technical
Specifications and should HER submit a complaint regarding the result of the
acceptance test, the route shall be regarded as not having been made available.
If the acceptance test cannot be carried out within ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## days after GVS
gives punctual notification that the LWL route is ready to be made available
and should this be due to reasons which are the responsibility of HER, the LWL
route shall be deemed made available and handed over after this time has
expired.
Each party shall separately bear the costs it incurs in carrying out the first
acceptance test and recording of the results in a test certificate. GVS shall
be particularly responsible for bearing the costs of the technical part of the
acceptance test.
Should the acceptance test initially show that the LWL route is not fit to be
put into operation and should HER notify GVS of this fact in good time, GVS
shall be obliged to immediately make the LWL route fit to be put into
operation.
Should this be the case and GVS has already started work on making the LWL
route fit for operation, GVS shall immediately notify HER in writing as soon as
such work has been completed. Then the aforesaid procedure shall be repeated at
GVS's expense.
As from the time that the route is made available, GVS shall guarantee that the
rights required in order to use the LWL route for purposes of
telecommunications, including the right to make the route completely or partly
available to third parties, are sufficiently protected against any opposing
interests of the owners of the land. GVS shall particularly guarantee that any
compensation payments that may be due pursuant to section 57 of the Law on
Telecommunications have been paid. These rights must be sufficiently protected
even if GVS partly or completely ceases its gas supply operations on the LWL
routes.
GVS shall also be responsible for obtaining any official approvals which are
required in order to construct and operate the LWL routes. This shall
<PAGE> 11
CONFIDENTIAL TREATMENT
particularly include approval or permission in connection with crossing traffic
highways and laying cables along or under traffic highways, including
agreements for the utilisation of highways with those affected by the burden of
the building work. It shall also include approval or permission in connection
with crossing waterways or setting up facilities in or near rivers and lakes
and for work in areas susceptible to flooding or work which could have an
effect on the water economy and approvals which could be necessary in
connection with the German Nature Conservation Act and the nature conservation
and landscape conservation laws of the German Lander, or in connection with
building or planning laws or laws on regional planning.
2.5 DOCUMENTATION
The contracting parties shall provide each other with all the necessary
information and documentation required for planning and implementing the
project and for the operation and upkeep of the routes.
GVS shall allow HER to inspect the plans for the route in as far as this should
be necessary for their subsequent use of the part of HER. HER shall provide GVS
with the documentation and information which GVS requires in order to perform
its obligations under this Agreement.
When the routes are made available, GVS shall provide HER with the plans for
the entire network of LWL routes. These plans shall be drawn up on a scale of
1:25,000 and on a scale of 1:1,000/1:2,000 for the areas around connection
points.
2.6 FAILURE TO COMPLY WITH THE COMPLETION DATES AND TECHNICAL DEFECTS,
NOTICE OF TERMINATION
2.6.1 BASIC PRINCIPLES
Should GVS fail to make the routes available on schedule or fail to make them
available in a proper condition, GVS shall pay HER the liquidated damages set
out in clause 2.6.2. GVS's contractual and legal liability to make the routes
available in good time and in proper condition shall be limited to these
penalties.
Should the routes not be made available or not be made available on schedule
due to failure to obtain rights of way or official approvals or failure to
obtain such rights of way or official approvals in good time, GVS shall assume
no liability or warranty and shall not be liable to pay damages.
Furthermore, should the completion of LWL route 1 be delayed by more than
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## days for reasons which are the responsibility of GVS, HER shall be
entitled to withdraw from this Agreement and to demand the reimbursement of the
advance payment which has already been remitted.
<PAGE> 12
CONFIDENTIAL TREATMENT
HER shall not be entitled to withdraw from this Agreement if the completion
deadline is exceeded due to failure to obtain rights of way or official
approvals or due to failure to obtain such rights of way or official approvals
in good time.
The aforesaid arrangements shall also apply if an LWL route has technical
defects at the time that it is made available, as long as the technical defects
are so minor that all LWL fibres are available and the transmission properties
of the LWL fibres diverge from the specifications to such a minor extent that
the LWL route can be used for its intended purpose.
The defects shall be deemed minor if they are not of such as nature as to
prevent the routes being made available and accepted (clause 2.4). In this
event GVS shall rectify these defects within four weeks.
2.6.2 DAMAGES
The damages which GVS shall be obliged to pay to HER in accordance with clause
2.6.1 shall be as follows:
<TABLE>
<CAPTION>
Delay (in days) DM/calendar date/LWL route
--------------- --------------------------
<S> <C>
for LWL route 1
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## REQUEST FOR CONFIDENTIAL TREATMENT##
more than ##MATERIAL OMITTED AND SEPARATELY FILED ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## REQUEST FOR CONFIDENTIAL TREATMENT##
for LWL routes 2a and 2b
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## REQUEST FOR CONFIDENTIAL TREATMENT##
more than ##MATERIAL OMITTED AND SEPARATELY FILED ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## REQUEST FOR CONFIDENTIAL TREATMENT##
</TABLE>
The damages payable for LWL route 1 shall amount to a maximum of DM ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##,
while the damages payable for LWL routes 2a and 2b shall amount to a maximum
sum of DM ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##. These damages shall also be payable if a route is
defective at the time that it is made available or accepted, should such
technical defects be greater than merely minor defects, i.e. defects that are
so minor that all LWL fibres are available and the transmission properties
diverge from the specifications to such a minor extent that the LWL route can
be used for its intended purpose.
<PAGE> 13
CONFIDENTIAL TREATMENT
2.6.3 HER'S DUTY TO COOPERATE
The parties are in agreement that LWL route 1 can only be made available by the
completion date if HER provides the planning permission documents for the
systems engineering locations punctually by 25 July 1997 and the containers for
the systems engineering locations punctually by 10 November 1997, as envisaged
in the Time Schedule (Schedule 5)
Should HER provide the planning permission documents or the containers for the
systems engineering locations at a date which is later than that specified in
the Time Schedule, GVS shall nevertheless make every effort to comply with the
completion date which has been agreed on for LWL route 1. In detail the
following shall apply:
In view of GVS's obligation to pay damages (clause 2,.6.2) and HER's right to
withdraw from the agreement after a delay in excess of ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## days (clause
2.6.1), the completion date shall be postponed by the same amount of time that
HER delays in complying with its duty to cooperate (providing the documents or
the containers). The parties are furthermore in agreement that the term for the
completion of LWL route 1 shall be suspended from 22 December 1997 until 6
January 1998. The same shall apply for times when work that is still necessary
to complete the route cannot be carried out due to bad weather conditions,
should such weather conditions delay the construction of the route.
Should the completion of LWL route 1 be delayed to such an extent that it is
still not ready after 15 January 1998 due the planning permission documents or
the containers for systems engineering locations not being made available,
after 15 January 1998 HER shall pay damages amounting to DM ##MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## for each day
that the completion of the route is delayed. Such damages, however, shall be
limited to a maximum sum of DM ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT##. HER shall not be obliged to pay damages
should the delay be due to the fact that GVS carried out no work on the route
during the period from 22 December 1997 to 6 January 1998 or due to bad weather
conditions.
If it is not possible for the route to be made available by 15 February 1998,
also due to a failure on HER's part to comply with its duty to cooperate, the
LWL route shall be deemed made available in respect of the user fee which is
payable. This shall not apply should the delay be due to the fact that GVS
carried out no construction work during the period between 22 December 1997 and
6 January 1998 or due to bad weather conditions. At all events GVS shall remain
under obligation to complete the route and make it available within the
extended deadline which shall apply due to a delay on HER's part in providing
documents and containers.
Should GVS delay in making the route available after the delayed provision of
the planning permission documents or the containers, HER shall no longer be
obliged to pay damages or user fees as from the time that GVS defaults on its
<PAGE> 14
CONFIDENTIAL TREATMENT
obligations. In this respect the general arrangements concerning delayed
completion on the part of GVS set out in clauses 2.6.1 and 2.6.2 shall apply.
Any damages payable by GVS shall be set off against any damages payable by HER.
Within a time limit of one week GVS shall examine the planning permission
documents for the construction of the systems engineering locations which HER
has submitted and shall notify HER of whether the planning permission documents
are complete from the point of view of GVS. GVS shall confirm this in writing
by sending HER a fax within the one-week time limit allowed for the examination
of the planning permission documents. Should GVS confirm that the planning
permission documents are complete from its point of view, HER shall be deemed
to have complied with its obligation to submit planning permission documents as
from the date that GVS receives them. Should this not be the case, HER shall
provide any planning permission documents which are missing as quickly as
possible and the procedure set out above shall be repeated accordingly.
Should it become apparent during the processing of the planning permission
documents that they are incomplete from the point of view of the authorities
and should the completion of LWL route 1 be delayed as a result, the time
allowed for completion on the part of GVS shall be prolonged by a period which
is equal in length to the period during which completion was not possible to
due failure to obtain approval from the authorities. If this means that the
route cannot be made available until after 14 January 1998, HER shall not be
obliged to pay damages. Should completion not be possible until after 15
February 1998 for the same reasons, the LWL route shall be deemed not yet made
available in respect of the payment of the user fee.
3. REMUNERATION
3.1 THE USER FEE AND THE ADJUSTMENT OF THE USER FEE
3.1.1 THE USER FEE
HER shall pay GVS a user fee for the LWL routes which are made available. The
user fee shall be calculated per metre of the length set out in clause 1.1 and
shall amount to DM ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##/m of the final length per year. Should HER be the
first client to use LWL route 2b, the user fee for this route shall be composed
of a non-recurring user fee of DM ##MATERIAL OMITTED AND SEPARATELY FILED UNDER
A REQUEST FOR CONFIDENTIAL TREATMENT##/m and an ongoing user fee of DM
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##/m per annum.
<PAGE> 15
CONFIDENTIAL TREATMENT
3.1.2 MARKETING THE ROUTES TO THIRD PARTIES
Should HER exercise the option set out in clause 1.1 for at least LWL route 2a,
and should part of LWL route 1 be marketed to third parties, GVS shall grant
HER a ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## % discount on the annual user fee for the part of LWL route 1 that
has been marketed to third parties.
Should HER exercise the option set out in clause 1.1 for LWL route 2b as the
first client to use this route and should LWL route 2b be marketed to third
parties, the annual user fee shall be reduced to DM ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##/m for the part of
LWL route 2b that has been marketed to third parties. Should LWL route 2 a be
marketed to one or several third parties GVS shall grant HER a ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## %
discount on the annual user fee for the part of LWL route 2a that has been
marketed to third parties.
If the fibres are used for operational purposes (not for providing commercial
telecommunications services) by GVS or its shareholders, this shall not be
regarded as a case of the route having being marketed to a third party.
3.1.3 ADJUSTMENT OF THE USER FEE
Should the fictitious user fee, which shall adjusted on 1 July of each year in
accordance with the formula set out below, be brought in line with the general
development of wages and salaries and the prices for capital goods and should
such an adjustment mean that the user fee then exceeds the user fee subject to
this Agreement by more than ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT##, the parties shall negotiate an adequate
adjustment of the user fee. Whenever the adjustment of the fictitious user fee
result in a rise by a further ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## in comparison with the user fee subject to
this Agreement, the parties shall once again negotiate an adequate adjustment
of the user fee.
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##
I(n) The index for capital goods (1) in the relevant year of utilisation
I(0) The index for capital goods (1), as published in the year that the
Agreement was concluded
L(n) The index for wages and salaries (2) in the relevant year of
utilisation
L(0) The index for wages and salaries (2) in the year that the Agreement was
concluded
<PAGE> 16
CONFIDENTIAL TREATMENT
(1) The producer price index for commercial products (domestic sales)
according to the Annual Statistics published by the Federal Statistical
Office (series 23.7, Equipment and Facilities for Communication
Technology, 1995 edition)
(2) The index of average gross earnings in industry according to the Annual
Statistics published by the Federal Statistical Office (series 22.2,
The Industry for Capital Goods, 1995 edition)
The formula above relates to the ongoing user fee payable for the utilisation
of LWL route 1, free of any discounts. The fictitious, ongoing user fee payable
for the utilisation of routes 2a and 2b shall calculated by adding the ongoing
user fee payable in the year that this Agreement was concluded and the sum
which results from the difference arrived at by applying the adjustment formula
for route 1 (Ne(n) - NE(0)).
3.2 ADVANCE PAYMENTS
As an advance payment on the payments to be remitted under this Agreement for
the services rendered by GVS in the field of telecommunications and which are
the subject matter of this Agreement HER has already remitted the sum of DM
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## by virtue of a basic agreement which the two parties concluded on
25 June 1997 (clause 1, paragraph 3 of the said agreement). This advance
payment shall be set off against all claims that GVS has under the present
Agreement in the sequence that such claims become due for payment.
GVS reserves the right to pay back at any time the part of the advance payment
that has not yet been set off against its claims.
3.3 VALUE ADDED TAX
In view of the decision taken by the European Commission on 17 March 1997
(official collection L86/9) and the circular of the German Minister of Finance
dated 29 April 1997 (DSTR 1997, page 700), the parties assume that the services
which GVS shall render for HER under this Agreement will not attract value
added tax in Germany. Should this assumption prove to be incorrect, HER shall
remit all payments plus value added tax at the applicable statutory rate, in as
far as such value added tax is payable.
3.4 DUE DATES FOR PAYMENT
As from the time that the routes are made available and accepted the annual
user fees shall be paid for the 18-year period that HER uses the LWL route.
Such fees shall be due in four equal instalments, each in the middle of a
quarter for the current quarter after an invoice has been issued. The first
<PAGE> 17
CONFIDENTIAL TREATMENT
instalment of the user fee shall be paid on the first due date which follows
the origin of the obligation to remit payment.
The non-recurring user fee for LWL route 2b shall be due 14 days after this LWL
route has been made available and an invoice has been issued. All other
payments under this Agreement shall be due within 14 days after an invoice has
been issued.
3.5 BANK ACCOUNTS
Payments shall be deemed remitted on the date on which the bank account entry
becomes effective in GVS's account (on the value date):
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##
or in HER's account
ABN AMRO
Kneuterdijk
Postbus 165
2501 AP Den Haag
Account no.: 42.84.19.682
Clause 16 of this Agreement (clause on the written form) shall not apply as
regards a change of bank account. In this connection written notification to
the other contracting party by registered mail with acknowledgement of receipt
shall be deemed sufficient.
3.6 LATE PAYMENT
Should HER or GVS be late in remitting any payments due under this Agreement,
interest shall be charged at a rate of ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## above the applicable discount rate
of the German Bundesbank.
Should HER default on payment of the user fee for two dates in succession or
should HER be late in paying an amount equal to the amount payable for two
six-monthly periods for a period which encompasses a longer period of time than
two due dates and should HER then fail to remit payment, despite receiving two
reminders (the second threatening to terminate the Agreement), each allowing a
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##-day period for payment, GVS shall have the right to terminate the
Agreement on exceptional grounds in respect of the LWL route which is affected
by the late payment.
<PAGE> 18
CONFIDENTIAL TREATMENT
In this case GVS shall be entitled to claim damages in respect of the user fee
which HER has failed to pay. Such damages shall amount to the annual user fees
set out in clause 3.1 and shall be calculated as from the time that notice to
terminate the Agreement on exceptional grounds becomes effective until the time
that the Agreement expires, as set out in clause 10, less any expenses saved.
The damages shall be immediately payable in a lump sum. The amount which is
payable shall be calculated on the basis of the total expenses incurred by the
time that the Agreement actually expires discounted and reduced by sum of the
expenses saved or the user fees charged to third parties (current value of the
user fees). Interest shall be calculated on the basis of the discount rate
charged by the German Bundesbank at the time that the Agreement expires plus
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##.
To limit the damage GVS shall endeavour to find suitable alternative clients.
Should GVS succeed in finding such clients for the LWL route affected by the
termination of the Agreement on exceptional grounds, the user fees obtained for
this route shall be set off against GVS's claims for damages.
4. INDEPENDENCE OF THE LWL ROUTES
The LWL routes under this Agreement are legally independent of one other. The
termination of the Agreement in respect of certain LWL routes shall not affect
the rights and duties in connection with the remaining LWL routes.
5. TERMINATION UNTIL THE TIME THAT THE ROUTES ARE MADE AVAILABLE/ UNTIL
ACCEPTANCE
5.1 TERMINATING THE AGREEMENT IN RESPECT OF ROUTES WHICH HAVE BEEN NEWLY
BUILT
Regardless of whether any dates scheduled for completion are overstepped, HER
shall have the right to give written notice of termination in respect of a
route which is being newly constructed up until the time that this new LWL
route is made available (see clause 2.4) if HER is the first client for this
route. The notice of termination shall become effective one week after GVS has
received it
In all cases in which HER gives notice of termination in accordance with the
aforesaid arrangement the following shall apply:
When notice of termination becomes effective GVS and HER shall be released of
their contractual obligations in respect of the LWL route for which notice of
termination has been given with the exception of the obligations set out below.
<PAGE> 19
CONFIDENTIAL TREATMENT
GVS shall work out all expenses it has incurred until receipt of the notice of
termination in respect of the LWL route concerned. HER shall reimburse GVS for
these expenses within ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT## days after an invoice has been issued.
To limit the damage GVS shall endeavour to find suitable alternative clients
for the LWL route affected by the termination. Should GVS succeed in finding
such clients for the LWL route for which notice of termination has been given
within ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## months after the notice of termination becomes effective or if
alternative clients have already been found for the route at the time that
notice of termination becomes effective, the contracting parties, in
consideration of the circumstances, shall reach an arrangement which takes
account of the payments rendered by HER as set out above.
Apart from this, the contracting parties shall not have the right to assert any
further claims against the other party.
5.2 TERMINATION IF IT SHOULD NOT BE POSSIBLE TO FIND SYSTEMS ENGINEERING
LOCATIONS
Should GVS not succeed in finding suitable locations for systems engineering
equipment, pursuant to clause 1.2.1, at acceptable conditions within one year
of the completion date set out in clause 2.1., both contracting parties shall
be entitled to terminate this Agreement in respect of the LWL route affected.
In all cases in which HER gives notice of termination in accordance with the
aforesaid arrangement the following shall apply:
When the notice of termination becomes effective GVS and HER shall be released
from their obligations under this Agreement in respect of the new LWL route for
which notice of termination has been given, with the exception of the
obligations set out below.
Should GVS give notice of termination in respect of LWL route 1 according to
the aforesaid arrangement, GVS shall reimburse HER for the advance payment
which HER has remitted in accordance with clause 3.2 for LWL route 1. This
shall be done within a period of 14 days.
Should HER give notice of termination according to the aforesaid arrangement,
GVS shall calculate all expenses which GVS has incurred in relation to the LWL
route concerned up to the time that it receives the notice of termination and
HER shall reimburse GVS for these expenses within 14 days of an invoice having
been issued. If LWL route 1 is affected, these expenses shall be set off against
the advance payment which HER has remitted for LWL route 1. Should the advance
payment be in excess of the expenses which GVS has incurred, GVS shall reimburse
HER for this amount.
<PAGE> 20
CONFIDENTIAL TREATMENT
To limit the damage GVS shall endeavour to find suitable alternative clients
for the LWL route for which notice of termination has been given. Should GVS
succeed in finding such alternative clients within ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## years after
notice of termination becomes effective or should alternative clients already
have been found for the route at the time that the notice of termination
becomes effective, the contracting parties, taking the relevant circumstances
into consideration, shall negotiate an arrangement which takes adequate account
of the payments which HER has remitted, as set out above.
Apart from this, the contracting parties shall not have the right to assert any
further claims against the other party.
6. AVAILABILITY OF THE ROUTES AFTER ACCEPTANCE
6.1 PERMISSIBLE DOWNTIMES
GVS shall be obliged to rectify any faults in the LWL cables as quickly as
possible. GVS shall guarantee the system's availability with regard to
downtimes due to failure as set out in clause 6.3.
6.2 PUTTING THE CABLE FACILITIES OUT OF OPERATION
Should it be necessary and planned to put the cable facilities out of operation
or to switch off the LWL routes owing to maintenance work on the gas pipelines,
such measures shall not be taken into account when calculating the permissible
downtimes. The planning and consultation process for scheduled work is set out
in Schedule 3 (Technical Conditions).
Should it be necessary to put the cable facilities out of operation because it
has become necessary to divert the routes (due to road construction measures
etc.), such measures shall also not be considered when calculating the
permissible downtimes.
The aforesaid arrangements shall not apply if GVS should, by wilful intent or
due to negligence, fail to comply with its obligation to provide information as
set out in Schedule 3, paragraph 6. The degree of negligence involved shall be
irrelevant.
If the cable facilities are put out of operation or switched off due to
measures to divert the routes, such measures should be co-ordinated and carried
out in one block and, if possible, for each LWL route separately and at only
three or four dates in a year.
<PAGE> 21
CONFIDENTIAL TREATMENT
6.3 DOWNTIMES, TIME REQUIRED TO RECTIFY FAULTS, SERIOUS DAMAGE
The arrangements set out in the following subparagraphs concerning downtimes
and times required to rectify faults are final. Should an LWL route be put out
of operation due to technical reasons, the contracting parties shall not be
entitled to assert any claims for damages, claims for the payment of the user
fee or claims for reductions in the user fee, nor shall this entitle them to
give notice of termination. Only the legal consequences set out hereunder shall
apply. This shall not affect the right of either party to give notice of
termination on exceptional grounds. The limitation of liability under this
Agreement shall apply in as far as nothing to the contrary is set out in the
more specific subparagraphs below.
6.3.1 EXCEEDING THE PERMISSIBLE DOWNTIMES
Should an LWL route become completely or partially inoperable for longer than
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## hours within the first ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## years after it has been made
available and should this be due to one or several downtimes along this route,
GVS shall compensate HER by paying a sum of money which is four times the
amount of the annual user fee for one hour's use of the relevant LWL route
(blanket guarantee for the availability of the network). GVS shall pay such
compensation for each hour and partial hour that the route remains inoperable
after the expiry of the ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT## hours set out above, regardless of the question of
blame and regardless of whether the unavailability of the route is due to a
case of force majeure.
Should GVS exceed the regular periods of time allowed for rectifying certain
standard faults, as set out in Schedule 7, GVS shall pay HER damages for each
hour and partial hour and for each separate fault. Such damages shall amount to
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## of the annual user fee for the relevant LWL route.
Should it become apparent in hindsight that the fault in the LWL cable facility
(the LWL cable including the connector of the long-distance cable) was not the
responsibility of GVS, HER shall reimburse GVS for all expenses in connection
with troubleshooting measures and measures to rectify the fault. In such a case
the hours of downtime shall not be considered when calculating the permissible
downtime of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## years, as set out in paragraph 1, and GVS shall not be
liable for damages in the event that the standard period of time allowed for
rectifying faults has been exceeded.
Should the downtime hours of an LWL route amount to fewer than ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
<PAGE> 22
CONFIDENTIAL TREATMENT
CONFIDENTIAL TREATMENT## years after the route has been made available, HER
shall reimburse GVS any damages it may have paid in this connection.
After the expiry of the introductory period of ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## years the maximum
downtime guaranteed by GVS shall be adjusted in accordance with the experiences
gained in operating LWL routes in Baden-Wurttemberg and in comparable regions
in Germany and in Europe.
Serious damage or a possible destruction of the LWL routes shall not be taken
into consideration in calculating the hours of downtime. Such cases of serious
damage or destruction shall be subject to the arrangement set out in clause
6.3.4.
Should an LWL route which is the subject to this Agreement become unavailable,
so that HER is unable to use it, without HER being able to assert any claim for
the payment of damages by GVS, HER shall be released from its obligation to pay
the ongoing user fee for the LWL route in question. This shall not apply if the
unavailability of the route is HER's responsibility
6.3.2 INTERRUPTIONS TO OPERATIONS CAUSED BY GVS
Should GVS be guilty of gross negligence in causing an interruption to
operations in the context of the business of supplying gas, GVS's liability for
consequential damage in each case of such an interruption shall be limited to
the sum of DM ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##. This liability is independent of the liability to pay
damages according to the aforesaid arrangement. GVS shall bear the burden of
evidence in proving that it is not guilty of gross negligence. This shall not
affect the arrangements set out in clause 7.
6.3.3 INTERRUPTIONS TO OPERATIONS CAUSED BY HER
GVS shall be released of the obligation to pay the damages set out in clause
6.3.1 above should HER or HER's agents of performance be responsible for the
fact that the downtimes set out in clause 6.3.1 have been exceeded. In this
case HER shall also bear the costs for the repair of the LWL route.
6.3.4 SERIOUS DAMAGE TO / DESTRUCTION OF THE ROUTES
The arrangements set out in clause 6.3.1, clause 6.3.2 and clause 6.3.3 shall
not apply in the case of serious damage to or a possible destruction of any LWL
routes. In these cases the arrangement set out below shall apply.
Serious damage or destruction under this Agreement is defined as an
interruption of operations which is of such a nature that it cannot be remedied
within ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
<PAGE> 23
CONFIDENTIAL TREATMENT
CONFIDENTIAL TREATMENT## hours, even by making exhaustive use of all possible
technical measures.
In such cases GVS shall immediately restore the LWL routes which are affected.
HER shall be released of its obligation to pay the ongoing user fee for the LWL
route affected by such damage as long as this route remains unavailable.
Should GVS cause serious damage to or the destruction to an LWL route by wilful
intent or due to gross negligence, the time during which this LWL route remains
unavailable shall be regarded as a downtime as defined in clause 6.3.1,
paragraph 1.
7. LIABILITY
If nothing to the contrary is stated elsewhere in this Agreement, the
contracting parties shall only be liable towards each other for damage which
has been caused by wilful intent or by gross negligence. In the case of gross
negligence liability shall be limited to direct damage. Compensation for
financial loss shall be excluded. Liability for direct damage shall be limited
to DM ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## per case of damage.
8. FORCE MAJEURE
In cases of force majeure, the following shall apply in as far as nothing to
the contrary is stated elsewhere in this Agreement:
Should it not be possible for one of the contracting parties to fulfil its
obligations entered into under this Agreement due to events of force majeure,
the contracting party in question shall be released of its obligation to fulfil
these obligations for the duration of such events. In a similar manner, the
other party shall also be released of its corresponding obligations.
The contracting party affected by events of force majeure, as set out in
paragraph 1, shall immediately notify the other contracting party of its
limited ability to comply with its contractual obligations and shall endeavour
to remove the impediments which hinder it in fulfilling its contractual
obligations and to do so with the utmost speed.
Force majeure shall be deemed as any external event whose occurrence cannot be
avoided, even if proceeding with the greatest possible caution. Particular
events of force majeure shall be deemed as war, civil unrest, sabotage, acts on
the part of legislators, strike, in as far as the courts regard a strike as a
case of force majeure, natural catastrophes and exceptionally bad weather
conditions, although other events may also be deemed cases of force majeure.
The parties are in agreement that damage caused by third parties to the LWL
route, apart from cases of sabotage, shall not be regarded
<PAGE> 24
CONFIDENTIAL TREATMENT
as force majeure. The same applies for damage caused by GVS or its agents of
performance.
9. SCHEDULES TO THIS AGREEMENT
The Schedules mentioned in the present Agreement form an integral part of this
Agreement in addition to their function of referring to certain points in the
Agreement. In the event of any contradiction between the Agreement and the
Schedules thereto, the arrangements set out in the Agreement shall prevail in
case of doubt.
10. THE DURATION OF THE AGREEMENT / OPTION TO PROLONG THE AGREEMENT
This Agreement shall become effective on execution by the two parties. HER's
right of utilisation shall run for 18 years for each LWL route, starting on the
date that the LWL route is made available/accepted (see too clause 2.6.1.,
paragraph 1).
HER shall have the option to prolong the Agreement and to exercise this option
for each individual LWL route. Should HER wish to exercise such an option, HER
shall be required to submit a written declaration to this effect to GVS by no
later than ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## months before the end of the contractual period of use
of the first LWL route to be made available. Should this option be exercised,
this Agreement shall be prolonged by such a period for each LWL route that a
total lease of 30 years results, measured in terms of the LWL route first made
available to HER.
The following arrangement shall apply as regards the user fee during the period
affected by the option set out in paragraph 2:
GVS shall calculate the real market value of the network (##MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## of its
replacement value at the time that the option was exercised) at the beginning
of the period when the option starts and shall notify HER of this value.
Should HER not be in agreement with the replacement value as calculated by GVS,
the contracting parties shall endeavour to reach a unanimous agreement
concerning the replacement value within four weeks of receipt of the above
notification. Should it not be possible for the parties to reach such an
agreement within this period, they shall appoint an expert to calculate the
replacement value and shall make such an appointment within a further period of
two weeks. Should the contracting parties, during this extended period, fail to
reach an agreement concerning which expert to appoint, a suitable expert shall
be appointed by the President of the Chamber of Industry and Commerce in
Frankfurt on the application of one of the parties. An expert appointed in this
way shall calculate the replacement value in the
<PAGE> 25
CONFIDENTIAL TREATMENT
capacity of an arbitration expert pursuant to sections 315 ff of the German
Civil Code (BGB). The expert shall also decide who is to pay his or her fees.
The real market value calculated in this way (##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## of the replacement value)
shall be valued using a suitable factor to take account of the cost of capital.
This shall be based on a rate of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER
A REQUEST FOR CONFIDENTIAL TREATMENT## % per annum in the year that the
Agreement was concluded. The market price of leasing comparable LWL routes
shall also be calculated and a discount of ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## shall be deducted to take
account of technical modifications or technical progress. The price of the
option shall correspond to the average of these two values, but shall at least
correspond to the value calculated on the basis of the real market value. The
annual user fee to be paid if this option is exercised shall correspond to the
average of these two values, but shall at least correspond to the value
calculated on the basis of the real market value.
Should HER not be in agreement with the user fee for the option period, HER
shall be entitled to decline to exercise this option by observing a time limit
of 4 weeks, as from the time that GVS notifies HER of the user fee, or from the
time that HER is informed of the conclusions reached by the expert. The
Agreement shall then end on the expiry of the term originally envisaged or, if
this term should have already expired, with immediate effect.
After the expiry of the option period the Agreement shall automatically be
prolonged by a further period of 10 years if neither of the contracting parties
gives notice to terminate it by observing a ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##-year period of notice.
11. BURDENS IMPOSED BY TAXIES AND LEVIES
The fees which have been agreed on include all taxes and levies, with the
exception of value added tax (clause 3.3). In the event of any future
additional burdens for the telecommunications industry due to the introduction
of new taxes or levies with regard to the provision of LWL fibres or other
activities falling within the scope of this Agreement, GVS shall be entitled to
raise the fee accordingly.
12. ECONOMIC FEASIBILITY
If the technical, economic or legal preconditions under which the terms of this
Agreement (remuneration and conditions) have been negotiated suffer any
fundamental change, and, in consequence, one of the parties can no longer be
reasonably expected to comply with the terms of this Agreement, because the
contracting parties' intention of giving equitable consideration to the
economic interests of both parties under this Agreement can no longer be
realised, this party can require that the terms of the Agreement are amended in
conformity with the changed circumstances, unless this affects a contractual
provision which explicitly involves a shift in the balance of risk. If this is
the case, no amendment can be required. This shall not affect HER's rights to
terminate the Agreement in accordance with clause 5 with the legal consequences
set out there.
13. ASSIGNMENT OF A PARTY'S CONTRACTUAL RIGHTS AND OBLIGATIONS TO THIRD
PARTIES
With the consent of GVS, HER shall have the right to assign its legal position
under this Agreement to a legal successor. In this event all HER's rights and
obligations under this Agreement shall pass to HER's legal successor. In this
event HER shall inform GVS of the capitalisation of the legal successor.
Should the business of supplying gas be discontinued or should any LWL routes
and/or the relevant gas pipelines be sold, GVS shall take adequate measures to
ensure that the obligations it has entered into towards HER are fulfilled.
<PAGE> 26
CONFIDENTIAL TREATMENT
14. CONFIDENTIALITY
The contracting parties hereby undertake to treat as confidential all
information which they obtain either directly or indirectly from the other
party in connection with this Agreement, its preparation and its performance.
"Treating information as confidential" means that the information obtained from
the other contracting party shall not be made accessible to third parties and
that this information may not be used for a party's own commercial purposes,
neither directly nor indirectly, nor exploited on behalf of third parties. The
parties undertake to use the information they receive only for the purpose set
out in the introduction to this Agreement. If the information is to be used for
any additional purposes or disclosed to third parties, this, in every
individual case, shall require the prior written consent of the party which has
provided the information, specifying the contents of the information, its scope
and the addressee. It shall, however, be permissible to pass on information to
corporate groups if this is necessary for the implementation of the project and
to individual consultants on fiscal or legal matters and to pass on technical
information which is needed for the implementation of the project to
subcontractors, without any special written consent on the part of the party
which has provided the information, on condition that no more information is
disclosed than that needed in order to perform this Agreement and that the
receiving parties undertake to treat the information as confidential, as
defined under this Agreement. The parties also undertake to impose an
obligation on their staff to treat such information as confidential.
This shall not affect GVS's right to disclose information to interested parties
about the individual LWL routes which are available along its routes and in its
basic data, in as far as this is necessary and unavoidable for its additional
marketing measures.
Each party shall protect the information given to it by the other party with
the same care as it protects its own business and trade secrets. The parties
shall at least exercise the care incumbent on a cautious businessman.
The obligation to maintain secrecy shall not apply for information
- - which was already known to the receiving party at the time that the
information was provided, without there having been an obligation to
maintain secrecy, or
- - which was already accessible to the general public at the time that it
was made available or which became generally accessible at a later
date, without the receiving party being at fault, or
- - which is regularly received from a third party without there being any
obligation to maintain secrecy.
The party which discloses the information shall bear the burden of proof in
this respect.
There shall be no further obligation imposed upon the parties than that imposed
by the aforesaid arrangement, neither internally nor vis-a-vis third parties.
Any additional obligation shall require a further written agreement.
Without prejudice to the provisions set out above, each party shall be entitled
to comply with its disclosure obligations under the law and according to its
corporate articles, also with regard to the information it has received.
The obligation to maintain confidentiality shall remain in force for a period
of five (5) years after the expiry of the period of utilisation required by
HER.
The content, form date etc. of any public disclosure concerning the business
venture undertaken by the two parties, the Agreement and the parties' jointly
adopted position towards the authorities, associations, owners of land,
governmental units, other companies etc. shall be agreed on between the
parties.
15. SEVERABILITY
Should any provision of this Agreement be or become invalid, this shall not
affect the legal validity of the remaining provisions. To replace the invalid
provision the contracting parties shall agree on a valid provision which comes
as close as possible to the economic intention of the two parties. The same
shall apply for filling any gaps in this Agreement.
16. ADDITIONS AND AMENDMENTS TO THIS AGREEMENT
Amendments and/or additions to this Agreement and side agreements to this
Agreement need to be made in writing and signed by both contracting parties.
The same shall apply for any waiver of the written form.
17. ARBITRATION CLAUSE
Any disputes in connection with this Agreement and its performance shall be
decided by a court of arbitration, excluding normal recourse to a court of law.
The court of arbitration shall be set up according to the following
arrangement.
The court of arbitration shall consist of three arbitrators, of whom one is to
preside as umpire. The umpire must be authorised to practise as a judge. The
court of arbitration shall sit at Frankfurt. The court of arbitration shall be
formed by the active party specifying the subject of the dispute and one
arbitrator and requesting the other party to appoint the other arbitrator. The
arbitrators appointed shall select the umpire. Should the other party not have
complied with the request to appoint the second arbitrator within four weeks
after receiving the request, the party which has issued this request may
request the President of the Provincial Court of Frankfurt to appoint an
arbitrator. The proposal shall be binding on the two parties. If the
arbitrators have not selected the umpire within four weeks after the second
arbitrator has been selected, the President of the Higher Provincial Court of
Frankfurt shall be requested to propose an umpire. This proposal shall be
binding on the two parties.
<PAGE> 27
CONFIDENTIAL TREATMENT
Apart from this, the legal provisions of the German Code of Civil Procedure
(ZPO) shall apply for the arbitration procedure, it being specified that the
time limit of one week specified in section 1031 of the German Code of Civil
Procedure shall be replaced by a time limit of four weeks and that the
President of the Higher Provincial Court of Frankfurt shall replace the
competent court mentioned there. The competent court as defined under sections
1045 and 1046 of the German Code of Civil Procedure shall be the Provincial
Court of Frankfurt.
In the event of disputes as defined under section 91, paragraph 1, sentence 1
of the Act Against Restraints of Competition (GWB), a decision by a court of
arbitration shall require a prior agreement.
18. PROPER LAW / LANGUAGE OF BUSINESS
This Agreement shall be subject only to the law of the Federal Republic of
Germany, with the exception of the CISG.
The language of business for the mutual performance of this Agreement shall be
German. This particularly applies for the communication procedures set out in
the Schedules to this Agreement in connection with the operation and
maintenance of the LWL routes and the systems engineering locations.
<PAGE> 28
CONFIDENTIAL TREATMENT
19. LIST OF SCHEDULES TO THIS AGREEMENT
The schedules set out below form part of this Agreement:
SCHEDULE 1: General Map
SCHEDULE 2: List of the LWL Routes with Their Approximate Lengths
SCHEDULE 3: Technical Conditions for the Use of Fibre Optic Routes and
Basic Technical Specifications for Systems Engineering
Locations
SCHEDULE 4: Engineering Work for the Systems Engineering Locations
SCHEDULE 5: Time Schedule
SCHEDULE 6: Maintenance Measures
SCHEDULE 7: Standard Faults and Standard Repair Times
SCHEDULE 8: GVS Cost Rates
Stuttgart, dated Stuttgart, dated
...................................... .......................................
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## (Hermes Europe Railtel B.V.)
<PAGE> 29
CONFIDENTIAL TREATMENT
EXHIBIT 1: MAP OF ROUTES
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##
<PAGE> 30
CONFIDENTIAL TREATMENT
EXHIBIT 2: LIST WITH ROUTES AND KM
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##
<PAGE> 31
CONFIDENTIAL TREATMENT
EXHIBIT 3: TECHNICAL CONDITIONS FOR USE OF FIBRE ROUTES AND TECHNICAL
SPECIFICATIONS FOR SYSTEM ENGINEERING LOCATIONS
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##
<PAGE> 32
CONFIDENTIAL TREATMENT
EXHIBIT 4: ENGINEERING WORK REQUIRED FOR SYSTEM ENGINEERING LOCATIONS
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##
<PAGE> 33
CONFIDENTIAL TREATMENT
EXHIBIT 5: TIME SCHEDULE
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##
<PAGE> 34
CONFIDENTIAL TREATMENT
EXHIBIT 6: MAINTENANCE MEASURES
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##
<PAGE> 35
CONFIDENTIAL TREATMENT
EXHIBIT 7: STANDARD PRICE LIST RE FAULT & REPAIR ACTIVITIES
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##
<PAGE> 36
CONFIDENTIAL TREATMENT
EXHIBIT 8: GVS COST RATES
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##
<PAGE> 1
EXHIBIT 10.18
CONFIDENTIAL TREATMENT
BETWEEN THE UNDERSIGNED:
1/ ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##a mixed business limited liability company, with a capital of
161,580,100 F, whose head office is located at ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##
Represented by ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##, the company's Chairman, provided with due mandate for
the purposes of this Agreement
hereinafter called "##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##",
on the one hand,
and:
THE COMPANY HERMES EUROPE RAILTEL B.V., whose head office is located at
Strawinskylaan 305, NL-1077 XX Amsterdam, The Netherlands, registered in the
Amsterdam CR under the number 33.267935, represented by Mr Jan LOEBER, the
company's General Manager, provided with due mandate for the purposes of this
agreement,
hereinafter called "THE OPERATOR"
on the other hand,
THE FOLLOWING POINTS HAVE BEEN AGREED:
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CONFIDENTIAL TREATMENT
CONTENTS
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FOREWORD.......................................................... 6
DEFINITIONS....................................................... 7
Article 1 - Purpose............................................... 10
Article 2 - Legal nature and scope of the agreement............... 10
2.1 Intuitu personae.............................................. 10
2.2 Exclusivity................................................... 10
2.3 Contractual relationships - Validity.......................... 10
2.4 Authorisation to occupy the public domain..................... 11
Article 3 - start date - duration - renewal....................... 11
3.1 Start date.................................................... 11
3.2 Duration...................................................... 11
3.3. Renewal...................................................... 11
Article 4 - Rights of usage granted to the operator............... 12
Article 5 - Initial option for reservation........................ 12
Article 6 - Limitation of the right of use........................ 12
Article 7 - Specific Technical Appendices......................... 13
Article 8 - Availability of dark fibre optics..................... 14
Article 9 - Technical and organisation relating to ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##....................................................... 14
9.1 Quality of the network leased................................. 14
9.2 Commitment to availability.................................... 14
9.2.1 Accidental interruption of service.......................... 14
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CONFIDENTIAL TREATMENT
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<S> <C>
9.2.2 Planned interruption of service.............................. 16
9.2.3 Exclusions................................................... 16
9.2.4 Exemption from paying licence fee............................ 17
9.3 Maintenance.................................................... 17
9.3.1 Accidental interruption of service........................... 17
9.3.2 Planned interruption of service.............................. 17
9.3.3 Invoicing to the OPERATOR.................................... 18
9.3.4 Malfunction.................................................. 18
9.4 Provisions relating to existing ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##
premises made available to the OPERATOR........................ 18
9.5 Production of premises or sleeves by ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##
at the request of the OPERATOR................................. 19
9.5.1 Construction of premises by ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##.................................................. 19
9.5.2 Construction of sleeves by ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##........... 20
9.6 Electricity.................................................... 20
9.7 Telephone network.............................................. 20
Article 10 - Technical and organisational provisions relating to
the operator.......................................... 21
10.1 Acceptance.................................................... 21
10.1.1 Acceptance of D.F.O. by the OPERATOR........................ 21
10.1.2 Acceptance of technical premises made available to the
OPERATOR.................................................... 22
10.1.3 Acceptance of technical premises built by the OPERATOR...... 22
10.1.4 Acceptance of the OPERATOR's installations.................. 22
10.2 Maintenance - Movement - Modifications........................ 22
10.2.1 Maintenance................................................. 22
10.2.2 Movement - modifications to equipment....................... 22
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10.3 Construction of premises or sleeves on the MPDC by the
OPERATOR.................................................. 23
10.3.1 Construction of premises by the OPERATOR................ 23
10.3.2 Construction of sleeves by the OPERATOR................. 24
10.4 Emergencies............................................... 24
10.5 Withdrawal of Equipment................................... 25
Article 11 - General conditions for access to installations and
intervention on the MPDC.......................... 25
Article 12 - Liability - Insurance............................. 25
Article 13 - Financial arrangements............................ 26
13.1 Fees...................................................... 26
13.2 Conditions for establishing fees.......................... 27
13.2.1 Nature of prices........................................ 27
13.2.2 Date payable............................................ 27
13.2.3 Price indexation........................................ 27
13.2.4 Special conditions...................................... 28
13.3 Conditions for invoicing and payment...................... 28
13.3.1 Invoicing............................................... 28
13.3.2 Payment of invoices..................................... 29
Article 14 - Co-ordination - Extensions........................ 29
14.1 Co-ordination............................................. 29
14.2 Extensions................................................ 30
Article 15 - Termination penalties............................. 31
15.1 Termination of the Agreement caused by the Public
Authorities............................................... 31
15.2 Restriction of the Scope of application of this Agreement. 32
15.3 Penalties and termination for non-fulfilment of the
Agreement................................................. 33
15.4 Release of the MPDC....................................... 33
Article 16 - Non-disclosure.................................... 34
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CONFIDENTIAL TREATMENT
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Article 17 - Co-operation between the parties.................. 34
Article 18 - Communication campaigns........................... 34
Article 19 - Partial validity - Disputes....................... 35
Article 20 - Special provisions................................ 35
Article 21 - Costs and Registration............................ 36
</TABLE>
Appendix 1.1 - Description of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## optical connection leased firm to the
OPERATOR.
Appendix 1.2 - Description Section by Section of ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## optic connection
leased firm to the OPERATOR.
Appendix 2 - Initial reservation option - Description of Connections reserved by
the OPERATOR
Appendix 3 - Sample of Special Technical Appendix
Appendix 4 - Technical Specifications of the Connections
Appendix 5.1 - Conditions for access and carrying out work on the MPDC
Appendix 5.2 - General Regulations for Carrying Out Works
Appendix 6 - Table of lease indices
Appendix 7.1 - Summary table of the annual lease prices for the D.F.O leased
firm by the OPERATOR before discount on turnover
Appendix 7.2 - Table of lease prices of the D.F.O. leased firm by the OPERATOR
in Appendix 1 - Schedule of Payments
Appendix 8 - Summary of annual licence fees featured in each Special Technical
Appendix.
<PAGE> 6
CONFIDENTIAL TREATMENT
FOREWORD
1/ By virtue of an agreement for the concession to construct and operate
motorways granted by the State on 10th January 1992 and approved by Decree on
7th February 1992, modified by an amendment approved by Decree on 10th May 1996,
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##is the concession holder for a Motorway Network located in the south
of France. The network currently operated includes the following motorways:
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##
2/ Across this motorway network, ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## has studied and implemented the laying of a
network of fibre optics, part of which it agrees to lease to the OPERATOR.
3/ The OPERATOR, which is the holder of an operating licence for a network open
to the public by virtue of article L.33-1 of the post and telecommunications
code, issued on 22nd October 1997 and published in the Official Gazette on 19th
November 1997, intends to deploy its optical telecommunications network towards
the South, and with this in mind, wishes to lease pairs of Dark Fibre Optics
from ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##.
4/ In the context of the Act of 26th July 1996 and its decrees for application
covering the regulation of telecommunications, the Parties approached one
another with a view to ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT## leasing to the OPERATOR a certain number of dark
fibre optics along its Motorway Network.
5/ The Parties signed a draft agreement on 15th July 1997, making way for the
negotiations for this Agreement.
<PAGE> 7
CONFIDENTIAL TREATMENT
DEFINITIONS
In this Agreement, the Parties agree to give the words and expressions
designated hereinafter, the following meaning:
1/ Optical Cable: cable containing D.F.O. (see below).
2/ Agreement: this Agreement and its Appendices.
3/ Delivery Date: contractual date on which one or more Sections of D.F.O. are
delivered to the OPERATOR for acceptance.
4/ Effective Start Date: date on which one or more Sections of D.F.O. are
accepted by the OPERATOR. This takes the form of the signing of an acceptance
Report by both Parties. It is also the starting point for the charging of leases
for the Section(s) concerned.
5/ Motorway Public Domain Concession or MPDC: the whole of the property holdings
acquired by ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##, included in the Public Domain and which are required
for constructing and operating its network of motorways.
6/ Malfunction: An operating anomaly in the D.F.O. caused by the non-compliance
of the optical specifications defined in Appendix 4, but not preventing
operation.
7/ Active Transmission Equipment: technical equipment making it possible to use
a D.F.O. and installed by the OPERATOR.
8/ Network terminals: Delivery Points located at the far extremities of
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## concession.
9/ Dark Fibre Optic: a fibre optic which has no active equipment, leased to the
OPERATOR and designated by the term D.F.O.
10/ Plug: mobile part of a connector immovably attached to the fibre to be
connected.
11/ Sleeves: for the purposes of connecting Equipment Sites to the outside
networks, the creation of sleeves in the trenches on the MPDC may be necessary.
This is in any event
<PAGE> 8
CONFIDENTIAL TREATMENT
subject to the agreement of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT##.
There are two types of Sleeve:
* either the sleeve is installed by ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## in a trench dug by ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##. This
would then be a Type 1 Sleeve.
* or the sleeve is installed by the OPERATOR in a trench dug by the OPERATOR,
under certain conditions and under the control of ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##. This would then
be a Type 2 Sleeve.
12/ Interruption to Service: deterioration in the characteristics of the D.F.O.
(set out in Appendix 4), even going as far as a cut which prevents all services.
This interruption may be accidental or planned.
13/ Connection: a group of continuous Sections (see below) leased to the
OPERATOR, including Type 1 Equipment Sites and defined in Appendix 1 and 2.
14/ Pair: two D.F.O. located in the same Optical Cable.
15/ Delivery Point: A point physically made up of the terminal part of a Pair of
D.F.O. linked to a Plug. The Plug marks the cut-off point of the liability of
the two Parties.
This Plug is installed:
* Either in an Equipment Site (see below). This would then be a Type A Delivery
Point.
* Or within the MPDC in a specially made protective device. This would then be a
Type B Delivery Point.
16/ Motorway Network: the whole of the kilometres of motorway in service for
which ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## holds the concession at the time of signing,
<PAGE> 9
CONFIDENTIAL TREATMENT
added as time goes by to the motorways that ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## will place in service during
the lifetime of the Agreement.
17/ Equipment Site: enclosed technical area developed in an existing building or
built specifically within the MPDC. This Equipment Site is designed to enable
the OPERATOR to install its Active Transmission Equipment and to operate its
optical network.
There are two types of Equipment Site:
* either the technical premises are developed or built by ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##. This would then
be a Type 1 Equipment Site.
* or the technical premises are developed or built by the OPERATOR. This would
then be a Type 2 Equipment Site.
18/ D.F.O. Section or Section: part of the network of D.F.O. leased to the
OPERATOR, comprising at least one Pair of D.F.O. located between two adjacent
Delivery Points and, where necessary, including an Equipment Site.
<PAGE> 10
CONFIDENTIAL TREATMENT
ARTICLE 1 - PURPOSE
The purpose of this Agreement is to define the conditions under which ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## will
lease the OPERATOR Sections of D.F.O. between Delivery Points spread across the
route of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## optical network, with a view to enabling the OPERATOR
to carry telecommunications signals.
For each Section of D.F.O., a Special Technical Appendix will give details of
the delivery conditions of the D.F.O. as well as the conditions for carrying out
all of the works relating to the Delivery Points at the Equipment Sites, the
Sleeves and electricity.
ARTICLE 2 - LEGAL NATURE AND SCOPE OF THE AGREEMENT
2.1 Intuitu personae
The Agreement is entered into intuitu personae.
The Parties may only assign their rights and obligations under the terms of the
Agreement once prior written consent has been obtained from the other Party.
This consent will not be necessary in the event of assignment to any subsidiary
company belonging to either of the Parties. In this case, the assigning party
will notify the other party in writing of its intention prior to the assignment.
2.2 Exclusivity
The Agreement is entered into by ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## without exclusivity in favour of the
OPERATOR, except where the D.F.O. made available are concerned.
2.3 Contractual relationships - Validity
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CONFIDENTIAL TREATMENT
This Agreement and its Appendices cancels and replaces any previous agreements
between the Parties and constitutes the whole of the agreements between the
Parties.
The illegality or invalidity of any provision within this Agreement which is not
of an essential nature, will not bring into question the validity of the other
provisions.
Any modification to the Agreement will only be effective once an amendment has
been signed by each of the Parties.
2.4 Authorisation to occupy the public domain
The whole of the construction holdings occupied or used by the OPERATOR for its
Equipment Sites, are located within the MPDC. The authorisations granted by
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## to the OPERATOR in application of this Agreement are of a precarious
and revocable nature to authorise occupation of the public domain. They do not
confer any real right over the said public domain (Article L34 of the State
Domain Code).
ARTICLE 3. START DATE - DURATION - RENEWAL
3.1 Start date
The Agreement will come into force on the day it is signed by the two parties.
3.2 Duration
The Agreement is entered into for a minimum duration of ten years, to run from
the Effective Availability Date of all of the Sections of D.F.O. leased firm in
the sense of articles 4 and 8 below and described in Appendix 1. The Effective
Availability Date of each Section will correspond to the signature date of the
acceptance report "the Report" drafted by the OPERATOR and dealt with in article
10.1.1 below. This Effective Availability Date will be detailed for each Section
in appendix 7.
Any additional availability of Sections under articles 5 or 14 below, will be
made by way of an amendment.
<PAGE> 12
CONFIDENTIAL TREATMENT
3.3 Extension
The Agreement may be extended tacitly for a period of two years, unless notified
to the contrary by registered letter signed for receipt by one Party to the
other before the expiry date of the term.
In any event, ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## may limit this extension if its duration exceeds the
duration of its own concession.
ARTICLE 4 - RIGHTS OF USE GRANTED TO THE OPERATOR
Appendix n(0) 1 gives details, Section by Section, of the specifications of the
Connection leased firm (length, number of D.F.O., Delivery Date for acceptance,
Equipment Sites, Delivery Points requested, etc.).
With the development of the network, surplus capacity and the requirements of
the OPERATOR, there could be a modification to the item leased which can be made
by way of an amendment, together with updates to the corresponding Appendices
(see article 14 - Extensions).
ARTICLE 5 - INITIAL RESERVATION OPTION
In addition to the D.F.O. Sections leased firm, dealt with in article 4 and
Appendix 1, the OPERATOR also has the opportunity of reserving some additional
D.F.O. Connections with ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT## once this Agreement has been signed.
These additional Connections are dealt with in Appendix 2. They are four in
number. The Connections, subject of this Initial Reservation Option, will
benefit from the same tariff reductions as the Connection leased firm, provided
the option is converted into a firm order before 1st April 1998 and that the
Delivery Dates of these Connections are at the latest:
<PAGE> 13
CONFIDENTIAL TREATMENT
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## for Connection 4 ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## for Connections 2, 3 and 5.
This reservation is valid for the period between the signing of this document
and 1st April 1998.
Beyond this date, and for the remainder of the calendar year, Article 14-2
applies in full.
Article 6 - Limitation of the right of use
Any request for a reduction amendment must comply with a notice period of
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##months and will be subject to the following conditions:
* For a request for an amendment within 5 years of signing this document, the
OPERATOR will owe a start-up fee to ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##, calculated in the following
manner:
(table):
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<S> <C>
Reduction of between 0 and 25% of the overall ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
amount of the annual licence fee. REQUEST FOR CONFIDENTIAL TREATMENT## of the
individual annual licence fees for the Section of
D.F.O. concerned.
- ----------------------------------------------------- ----------------------------------------------------
Reduction of between 26 and 50% of the overall ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
amount of the annual licence fee. REQUEST FOR CONFIDENTIAL TREATMENT##of the
individual annual licence fees for the Section of
D.F.O. concerned.
- ----------------------------------------------------- ----------------------------------------------------
</TABLE>
<PAGE> 14
CONFIDENTIAL TREATMENT
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- ----------------------------------------------------------------------------------------------------------
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Reduction of between 51 and 75% of the overall ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
amount of the annual licence fee. REQUEST FOR CONFIDENTIAL TREATMENT## of the
individual annual licence fees for the Section of
D.F.O. concerned.
- ----------------------------------------------------- ----------------------------------------------------
- ----------------------------------------------------- ----------------------------------------------------
Reduction of more than 75% of the overall amount of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
the annual licence fee. REQUEST FOR CONFIDENTIAL TREATMENT##the individual
annual licence fees for the Section of D.F.O.
concerned.
- ----------------------------------------------------- ----------------------------------------------------
</TABLE>
* For a request arising more than 5 years after signing this document, the
amount of the start-up fees above is reduced by ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##.
The right to use the D.F.O., in accordance with the provisions of article 2,
confers no right of ownership on the OPERATOR.
ARTICLE 7 - SPECIAL TECHNICAL APPENDICES
The Special Technical Appendices dealt with in article 1 Purpose, will cover all
of the detailed provisions concerning each Section of D.F.O. These Special
Technical Appendices will contain reminders of the specifications of the D.F.O.
leased described in Appendix 1, the description of the Delivery Points,
Equipment Sites and Sleeves, giving details in each case of whether it is a Type
1 or Type 2, as well as the whole of the detailed provisions concerning access,
electricity supplies and the operation of Sites. In addition to the D.F.O., the
Special Technical Appendices will give details of the nature and lease prices of
premises, land, sleeves, electricity, etc. by applying the indices featured in
article 13 and Appendix 6.
<PAGE> 15
CONFIDENTIAL TREATMENT
Each Special Technical Appendix will be signed by both Parties and will form an
integral part of this Agreement once it is signed. The Parties will do their
utmost to develop and sign each Special Technical Appendix relating to a Section
of D.F.O leased firm along the lines of articles 4 and 8 and Appendix 1 at the
latest ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## months before the Availability Date of the Section concerned.
A sample Special Technical Appendix appears in Appendix 3.
ARTICLE 8 - AVAILABILITY OF THE D.F.O.
Availability is made on Plugs at the Delivery Points. The Plugs represent the
extent of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## responsibility. Depending on whether the Delivery
Points are Type A or Type B, the Plugs are installed in the premises at the
Equipment Site or in a specially produced protective device.
The Effective Availability Date for each Section corresponds to the signing by
the Parties of the acceptance Report drafted jointly by the OPERATOR and
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## after acceptance has been made in accordance with the acceptance
specifications described in article 10.
In the event of delay in comparison with the Delivery Date laid down in Appendix
1 and the Special Technical Appendix, the OPERATOR will receive by right a fixed
and final penalty amounting to ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## of the annual licence fee, excluding tax,
for the Connection concerned, for each week of delay, unless this delay is
attributable to the OPERATOR or a case of force majeure. In any event,
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## must notify the OPERATOR of the reason for the delay and the new
Delivery Date for the Connection, and will credit the OPERATOR for an amount
calculated pro rata temporis per indivisible week for the annual licence fee
paid for.
<PAGE> 16
CONFIDENTIAL TREATMENT
ARTICLE 9 - TECHNICAL AND ORGANISATIONAL PROVISIONS RELATING TO ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##
9.1 Quality of the network leased
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## guarantees the OPERATOR that the D.F.O. will conform to the
technical specifications detailed in Appendix 4 for the entire duration of the
Agreement.
Evaluation of the quality of the service dealt with above, may be the subject of
an annual measurement, which can be planned jointly.
9.2 Commitment of availability
9.2.1 Accidental interruption to Service
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## undertakes that the physical integrity of each Section of D.F.O.
will not be altered accidentally more than ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## a year, and that any
Interruption to Service will not last longer then ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## hours under the
conditions below:
* In the event of the Interruption of a Section of D.F.O., ##MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## undertakes to
restore the service or, provided there is availability, to make available a
replacement Section to the OPERATOR, without any additional cost to the
OPERATOR, within a maximum period of ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## hours, to run from the time that
intervention was requested by the OPERATOR, which can be made 24 hours a day, 7
days a week.
<PAGE> 17
CONFIDENTIAL TREATMENT
* If the Interruption on this Section goes on for longer, other than as the
result of an OPERATOR fault, than ##MATERIAL OMITTED AND SEPARATELY FILED UNDER
A REQUEST FOR CONFIDENTIAL TREATMENT## hours, ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## will credit the OPERATOR with
payment of an indemnity corresponding to that portion of the annual licence fee
relative to the Section pro rata temporis, by indivisible hours beyond
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## hours, multiplied by a factor of ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##
The same penalty will apply from the first hours of the second Interruption on
the same Section in the same year.
The period of Interruption to Service is measures in indivisible hours from the
moment the OPERATOR's request for intervention is received at ##MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## (fax), until
the moment that ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## notifies the OPERATOR, by fax, that service has been
restored.
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## undertakes to study the conditions in which the risk of other
Accidental Interruptions to Service linked to maintenance works on the motorway
can be reduced in the event of an Interruption to Service, with the aim of not
risking other simultaneous Accidental Interruptions caused by works on the
motorway over the whole of the Sections leased.
If during the repair period of a Section affected by an Accidental Interruption
to Service, as described above, a second Accidental Interruption to Service
should occur as a result of maintenance works on the motorway to the continuous
body of Sections affected by the first Accidental Interruption, ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## will
credit the OPERATOR with payment of an indemnity corresponding to that portion
of the annual licence fee for the continuous body of Sections leased in
question, pro rata temporis per indivisible hour, from the first hour onwards,
multiplied by a factor of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST
<PAGE> 18
CONFIDENTIAL TREATMENT
FOR CONFIDENTIAL TREATMENT##. This indemnity will cease as soon as one of the
two Accidental Interruptions has been repaired, to be replaced by the indemnity
provided for above for the Section concerned by the remaining cut.
In the same way, any Accidental Interruption to Service will result, during the
period of this Accidental Interruption, in the cancellation of any cut which may
have been planned over the whole of the Sections leased (see 9.2.2 below).
9.2.2 Planned Interruptions to Service
Planned Interruptions to Service are those for which the OPERATOR has been
warned at least 14 (fourteen) days in advance by ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##, and if possible
with notice of 30 days.
Planned Interruptions to Service in order to maintain ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## optical network or
for purposes linked to works on the motorway, which result in the service being
unavailable for less than ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## hours for each Section, accumulated
annually, will not give rise to the right of a penalty for the OPERATOR.
However, ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## undertakes that the number of Planned Interruptions to
Service should not be greater than ##MATERIAL OMITTED AND SEPARATELY FILED UNDER
A REQUEST FOR CONFIDENTIAL TREATMENT## per year, per Section. If the number of
Planned Interruptions to Service exceeds that amount, the penalty provided for
in article 9.2.1 above for Accidental Interruption, will apply for the Section
in question beyond the ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT## hour of break down accumulated annually and from
the ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##hour of the ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT## breakdown in the year in question.
<PAGE> 19
CONFIDENTIAL TREATMENT
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## undertakes for the whole of the Sections leased firm not to have two
Planned Interruptions to Service at the same time.
In the event of a Planned Interruption to Service carried out at the request of
the OPERATOR, this will not be taken into consideration for the Section in
question. In this case, the OPERATOR may not claim any indemnity from ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## and
will bear all costs and indemnities due to other users of the continuous network
of fibre optics affected by this Planned Interruption to Service.
9.2.3 Exclusions
The financial provisions dealt with in 9.2.1 and 9.2.2 above, do not apply in
the event of an Interruption to Service for a Connection on a Section resulting
from:
* malicious acts, crimes, sabotage, etc. carried out by unidentified third
parties,
* something the OPERATOR does,
* force majeure.
However, ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## will do its utmost to restore the Connection within the
lead times detailed in 9.2.1 and 9.2.2.
Furthermore, any intervention carried out by ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## at the request of the
OPERATOR and which turns out to be unjustified, will be invoiced to the OPERATOR
in the amount of the expenses incurred by ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## in intervening.
9.2.4 Exemption from Payment of the licence fee
From the first hour of Interruption on a Section, and throughout the entire
during of that Interruption, the OPERATOR will be exempt from paying licence
fees relating to the shortest continuous body of the Sections affected by the
Interruption, between two
<PAGE> 20
CONFIDENTIAL TREATMENT
Extremities of the Network leased to the OPERATOR by ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##. This exemption
will take the form of a discount to be applied on the subsequent invoice.
9.3 Maintenance
Maintenance of the D.F.O. leased and the Plugs supplied by ##MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##, is carried
out at ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## expense.
9.3.1 Accidental Interruption to Service
As soon as an Accidental Interruption to Service on a Section of D.F.O. has been
noted, the OPERATOR will notify it by whatever means possible to ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##.
However, it will only ask for ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## to intervene, by fax, after ensuring that
the Interruption has not been caused by any of its Active Transmission Equipment
or from the part of the Connection between the Delivery Point and the said
Equipment, for which ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## is not responsible.
When a request for intervention has been made, ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## will designate a
representative to the OPERATOR who will be able to provide information on the
state of progress of repairs to the Connection. The OPERATOR will provide access
to the ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## engineer or anybody he assigns to resolve the incident, to all
information and all equipment installed, with a view to identifying and
remedying the fault.
<PAGE> 21
CONFIDENTIAL TREATMENT
When the intervention has been completed, ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## will notify the OPERATOR by
fax of the repair of the faulty Connection, and will give details of the nature
of the action taken.
9.3.2 Planned Interruption to Service
Except in the event of emergency work associated with operating the motorway, if
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## has to maintain, repair, replace or move its fibres in order to
comply with the specifications stipulated in Appendix 4 or to carry out work on
its own operations, it will send written notification with a minimum notice
period of 14 days, and will indicate the estimated duration of the intervention.
If this intervention requires there to be an Interruption to Service, ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## will
do its utmost to minimise its duration and to plan this interruption for the
best possible time, in consultation with the OPERATOR.
In the event of an emergency, the OPERATOR will be warned of the Interruption as
far in advance as possible.
9.3.3 Invoicing to the OPERATOR
In the three following cases not covered by the maintenance obligations, all
interventions will be invoiced to the OPERATOR:
* Correcting operational faults caused by modifications or repairs carried out
by the OPERATOR (or an agent acting on its behalf) on the equipment made
available, without the consent of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER
A REQUEST FOR CONFIDENTIAL TREATMENT##.
* Correcting operational faults caused by an error by the OPERATOR (or an agent
acting on its behalf) or non-compliance by this (these) agent(s) of the rules of
the trade, or for the technical specifications for operating the optical
network.
<PAGE> 22
CONFIDENTIAL TREATMENT
* Modifications to ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## equipment requested by the OPERATOR, excluding any
conformity works covered in Appendix 4.
9.3.4 Malfunction
In the event of the Malfunction of an D.F.O., the Parties will consult without
delay, at the request of the OPERATOR, in order to determine the cause of the
Malfunction and to set the lead time for intervention and the duration of the
Interruption to Service that may be necessary. If the Malfunction is not the
fault of the OPERATOR, this Interruption to Service, if it is required, will be
kept to a minimum and may not exceed ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## hours. If ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## has mot remedied a
Malfunction for which it is responsible under the conditions agreed between the
Parties, the OPERATOR will be exempted from payment of the licence fees relating
to the shortest continuous body of Sections affected by the Malfunction, between
two Extremities of the Network leased to the OPERATOR by ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##, for the surplus
duration of the aforementioned agreed conditions.
9.4 Provisions relating to existing ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## premises made available to the
OPERATOR
These premises consist of Type 1 Equipment Sites for the OPERATOR.
They consist of the availability in existing ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## premises of an enclosed area
reserved for the use of the OPERATOR to install its Active Transmission
Equipment, in return for the payment of a rent. The amount of this rent is laid
down in article 13 "Financial Arrangements" and in Appendix 6.
The premises made available are unadorned and with no interior facilities other
than full-wall or caged partitions shutting of the ##MATERIAL OMITTED AND
<PAGE> 23
CONFIDENTIAL TREATMENT
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## installations,
electric lighting and private access.
The D.F.O. are brought into these premises by ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## with sufficient excess
length. They can be equipped with Plugs at the request of the OPERATOR.
Electricity is provided by ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## under the conditions described below in
article 9.6.
The OPERATOR will carry out any development work on the premises made available
itself, after it has obtained agreement from ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## regarding its proposed
development. However, if these premises receive any developments carried out by
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## at the request of the OPERATOR, such, for example, the securing of
the electrical supply, air-conditioning or access control, these works carried
out by ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##will be reimbursed by the OPERATOR, in accordance with the financial
evaluation submitted to it in advance, approved by both Parties.
The provisions regarding these premises, as well as any checking files involved,
will be included in the Special Technical Appendix.
9.5 Creation of premises or sleeves by ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## at the request of the OPERATOR
If the premises or connecting Sleeves from the Equipment Sites to the existing
external networks are not sufficient to meet the requirements of the OPERATOR,
it may ask for the premises and Sleeves to be created. If ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
<PAGE> 24
CONFIDENTIAL TREATMENT
TREATMENT## builds these premises and Sleeves, resulting in Type 1 services,
articles 9.54.1 and 9.5.2 below apply.
If ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## authorises the OPERATOR to build these premises and Sleeves, which
are Type 2 services, the provisions of article 10.3 below apply.
9.5.1 Construction of premises by ##MATERIAL OMITTED AND SEPARATELY FILED UNDER
A REQUEST FOR CONFIDENTIAL TREATMENT##
For each Type 1 Equipment Site built by ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##, the OPERATOR will provide a set of
specifications which features in particular a detailed installation plan for the
equipment, as well as the environment specifications required to construct
unadorned premises.
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## will reply to the OPERATOR's request within a period of one month.
If this reply is favourable, it will give details of the technical evaluation
which will enable the corresponding Special Technical Appendices to be drafted.
If required, ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## will build the premises to a capacity greater so that
they can house equipment from other operators, while still providing enclosed
areas for each of them.
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## will retain total ownership over the premises created in this way
and made available to the OPERATOR in return for a rental payment based on the
index featured in Appendix 6, the value of which will be given in the
corresponding Special Technical Appendix.
9.5.2 Construction of Sleeves by ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT##
<PAGE> 25
CONFIDENTIAL TREATMENT
In the same spirit as for the premises, ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## may also construct Type 1 Sleeves,
designed to meet the special requirements of the OPERATOR.
These Sleeves will be leased to the OPERATOR in accordance with the index
featured in Appendix 6, except where this involves Sleeves included in the
specifications for the premises built by ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##, dealt with in the previous
article. These provisions will appear in the corresponding Special Technical
Appendix.
9.6 Electricity supply
For those premises which exist already or which are built by ##MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##, connection to
the local EDF network will be provided by ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##. If the OPERATOR cannot be
given an individual meter, a fixed annual fee will be asked of it by ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##, in
accordance with the index featured in Appendix 6. Except where provision to the
contrary is made in the Special Technical Appendix, the OPERATOR will handle any
works it wishes to carry out to secure the electricity supply.
9.7 Telephone network
For those premises which exist already or which are built by ##MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##, connection to
the Switched Telephone Network of France Telecom will be provided by ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##.
ARTICLE 10 - TECHNICAL AND ORGANISATIONAL PROVISIONS RELATING TO THE OPERATOR
<PAGE> 26
CONFIDENTIAL TREATMENT
10.1 ACCEPTANCE
10.1.1 Acceptance of D.F.O. by the OPERATOR
The availability by the OPERATOR of Sections of D.F.O. at the Delivery Points is
subject to acceptance by both parties, which is designed to enable the
conformity of the Section of D.F.O.. to be checked with the specifications
described in Appendix n(0) 4.
Within a period of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## days, to run from the date the registered letter is
received from ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## informing it of delivery for acceptance at the delivery
points in compliance with the stipulations in Appendix 1 and the Special
Technical Appendix relating to it, the OPERATOR may:
* either grant acceptance based on the set of specifications provided by
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## and draft the corresponding acceptance Report signed by the local
representatives of the two Parties,
* or proceed itself, at its own expense, to carry out the tests provided for in
Appendix 4 and draft the corresponding acceptance Report signed by the local
representatives of the two Parties if the results of the tests are satisfactory.
The date on which the Parties sign the Report marks the Effective Availability
Date of the Sections at the Points of Delivery.
The OPERATOR may grant acceptance with reservations in all cases where one or
more of the D.F.O. on the Section accepted do not conform with the specification
in Appendix 4.
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## then has a period of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## days to carry out or have carried out by
its installers any additional work required, before proceeding with the OPERATOR
to carry out new measurements agreed by both Parties of the specifications
featured in Appendix 4.
<PAGE> 27
CONFIDENTIAL TREATMENT
Once this period has expired, if the D.F.O. have not been accepted, the OPERATOR
will receive by right the penalties provided for in article 8.
If a fault noted on a Section, or a delay in the Delivery Date should prevent
the introduction of a particular Connection, the date on which the lease payment
for the body of Sections on that Connection is due, will be postponed to the
Effective Availability Date for the Section concerned (see 13.2.2), provided
this fault has not been caused by the OPERATOR.
10.1.2 Acceptance of technical premises made available to the OPERATOR
The technical premises made available by ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## will be accepted by the OPERATOR.
Acceptance will result in the drafting of a report added to the corresponding
Special Technical Appendix.
10.1.3 Acceptance of technical premises built by the OPERATOR (see 10.3 below)
Technical premises built by the OPERATOR will be accepted by ##MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## on a date
fixed by the OPERATOR. Acceptance will result in the drafting of a report added
to the corresponding Special Technical Appendix.
10.1.4 Acceptance of the OPERATOR's installations
The OPERATOR's installations will be accepted by ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## insofar as it is
necessary to check for the absence of electromagnetic interference caused by the
installations, on a date fixed by the OPERATOR. Acceptance will result in the
drafting of a report added to the corresponding Special Technical Appendix.
10.2 Maintenance - Movement - Modifications
<PAGE> 28
CONFIDENTIAL TREATMENT
10.2.1 Maintenance
The OPERATOR will monitor and maintain its Active Transmission Equipment in a
good state of repair, at its own expense and risk. It will do this in such a way
that it will cause no obstruction or present any danger for the MPDC and its
operation.
In the event or a failure or lack of measures being taken to ensure this
maintenance, ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## may have the work carried out by right after warning
the OPERATOR, except in an emergency, to consult jointly on what work is
necessary and to carry out said work within a period of ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## days.
The OPERATOR will reimburse ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## for any costs incurred in this way,
increased by an operating coefficient, plus general expenses of ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##
10.2.2 Movement - modifications to Equipment
If at any time, the requirements of the MPDC, general interest or public safety
require the movement or modification of the OPERATOR's equipment, these works
will be carried out by the OPERATOR at is own expense and with no indemnity.
The period of time granted to the OPERATOR to carry out the works required of it
will be at least a minimum of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## months, to run from the time of
notification, unless a better agreement is reached between the Parties.
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## will do its utmost to find a substitute solution that is
satisfactory for the OPERATOR.
10.3 Construction of premises or Sleeves on the MPDC by the OPERATOR
<PAGE> 29
CONFIDENTIAL TREATMENT
In the event that ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## is unable to make available premises or Sleeves to the
OPERATOR to connect the Equipment Sites to the existing outside networks, or in
the event that ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## does not wish to build the premises or Sleeves itself,
the OPERATOR will be authorised to build on the MPDC, provided it has the
required administrative authorisations, any premises and Sleeves designed to
satisfy requirements, which would then constitute a Type 2 service.
10.3.1 Construction of premises by the OPERATOR
For each Type 2 Equipment Site, the OPERATOR will provide a set of
specifications containing all of the descriptive and functional elements of the
projected premises, as well as the architectural party intended to be used.
Within a period of one month, ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## will make known to the OPERATOR is
agreement, with or without modifications, or its rejection of the proposal.
In the event of disagreement, the Parties will consult to develop a project
which can receive the approval of the two Parties.
Construction of the premises will be subject to the following conditions:
1. The works will be carried out in strict accordance with the rules and
regulations governing works on the MPDC,
2. The premises will be built by the OPERATOR at its own expense, with the
OPERATOR also paying for any costs incurred by the works (modifications to
fences, etc.),
3. A plan of the footprint of the technical premises will be drawn up in
consultation with ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## for each premises concerned, and signed by the
representatives of both Parties,
<PAGE> 30
CONFIDENTIAL TREATMENT
4. The OPERATOR will take care of connection to and subscriptions for the EDF
and France Telecom networks.
5. The premises will be kept in a good state of repair at all times.
6. The OPERATOR will handle any administrative formalities required.
For the construction of a Type 2 Equipment Site, ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## will make
available an unadorned area within the MPDC in return for payment of an annual
lease, the amount of which is shown in Appendix 6.
If necessary, ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## may require the OPERATOR to build premises of a
capacity greater than its needs with a view to providing accommodation for
another user.
If this is the case, the OPERATOR will be reimbursed for that part of the works
which may be used at a later stage by another user, once the works are finished.
The whole of the provisions relating to the construction of these premises will
be incorporated into the corresponding Special Technical Appendix.
10.3.2 Construction of Sleeves by the OPERATOR
In the same spirit as for the premises, the OPERATOR may be authorised to build
Type 2 Sleeves designed to meets the special needs concerning the connection of
the Equipment Sites to the networks outside the MPDC. This possibility only
applies to those parts of the MPDC which are located away from the carriageways.
The OPERATOR will provide a set of specifications including all of the
descriptive elements of the projected sleeve. ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## will reply within a period of
one month to the OPERATOR's request and will give details at that time of any
possible prohibitions regarding the works. The works will be carried out in
strict compliance with the rules and regulations governing works on the MPDC
featured in Appendix 5. Authorisation to build these sleeves will be subject to
payment to ##MATERIAL OMITTED AND
<PAGE> 31
CONFIDENTIAL TREATMENT
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## by the OPERATOR of
a right of way according to the provisions featured in Appendix 6.
10.4 Emergencies
In an emergency on the Equipment Sites, ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## will do its utmost to make
available a space of approximately 6 metres by 3 metres to install a container
housing its replacement Equipment. ##MATERIAL OMITTED AND SEPARATELY FILED UNDER
A REQUEST FOR CONFIDENTIAL TREATMENT## and the OPERATOR will co-operate to
ensure the connection of the said equipment to the D.F.O. in order to restore
the continuity of the services operated by the OPERATOR.
10.5 Withdrawal of Equipment
At the end of this Agreement or of a Special Technical Appendix, the OPERATOR
will proceed by its own resources and at its own expense, with the removal of
its Equipment.
Any developments to the property which may have been carried out by the OPERATOR
at ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## premises will remain acquired free of charge by ##MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##, except where
provision is made to the contrary in article 15.
A report for the return of the premises to ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## will be signed between
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## and the OPERATOR.
ARTICLE 11 - GENERAL CONDITIONS FOR ACCESS TO INSTALLATIONS AND INTERVENTION ON
THE MPDC.
<PAGE> 32
CONFIDENTIAL TREATMENT
The OPERATOR's agents and any companies acting on its behalf, will have
permanent access to the Equipment Sites under the conditions described in the
corresponding Special Technical Appendices. They will be required to abide by
the general rules for carrying our works as described by the general document
attached in Appendix n(0) 5 for movement on the section of motorway as well as
on Equipment Sites.
In particular, before any intervention on a site, the OPERATOR must notify the
representative designated by ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## for this site by fax. a list of the
OPERATOR's representatives and any subcontractors authorised to intervene in the
OPERATOR's technical installations will be provided by the OPERATOR each year to
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##.
ARTICLE 12 - LIABILITY - INSURANCE
The OPERATOR undertakes to guarantee ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## for any negative ruling against it
requiring damage caused by the OPERATOR and resulting from the installation,
maintenance or removal of its technical equipment, as well as their operation,
including intangible damage caused or not, such as operating losses. With this
in mind, ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## must inform the OPERATOR without delay of all claims or
procedures begun by a third party against it and to call on it to guarantee the
OPERATOR's right to defend itself.
Any indemnity for intangible damages which may be incurred by the OPERATOR as
the result of an Accidental Interruption to Service will be limited to the
amount of the penalties dealt with in article 9, not including the penalties
covered in article 15.3 in the event of the Agreement being terminated
attributable to ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##
For all damages other than those described in the previous paragraph, the
liability of the Parties vis-a-vis one another is strictly limited to ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## MF per
claim.
<PAGE> 33
CONFIDENTIAL TREATMENT
After works have been carried out, any deterioration or damage caused to the
motorway installations or to the installations of other operators as the result
of works carried out by the OPERATOR, will be carried out after a joint report
at the expense of the OPERATOR.
The OPERATOR must maintain its Technical Equipment used specifically for the
services which it operates from each site according to the rules of the trade,
at its own expense and sole liability, in such as way that no disruption of
operations may occur to ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT## or to any other cohabitant.
Each of the Parties will be required to take out one or more insurance policies
with one or more insurance companies represented in France, in order to cover
the risk of fire, explosion, water damage, civil liability in general and any
special risks linked to its activities.
Each of the Parties will produce for the other party, as soon as requested, any
certificates for the insurance cover taken out.
ARTICLE 13 - FINANCIAL ARRANGEMENTS
13.1 Licence fees
The Agreement is allowed in return for the payment by the OPERATOR to ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## of an
overall annual licence fee which is the sum of the individual licence fees for
each of the Sections.
The individual licence fees for each Section are made up of principal licence
fees for the availability of D.F.O. and Additional fees for Additional services
(availability of premises, land, sleeves, right of way, electricity), as
detailed in each Special Technical Appendix.
The index for each of the fees is shown in Appendix 6, "Table of lease indices".
The total amount of principal licence fees for the whole of the network of
D.F.O. leased to the operator by ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## is summarised in Appendix 7 "Table of lease
prices for D.F.O.". This also shows a schedule of payments.
<PAGE> 34
CONFIDENTIAL TREATMENT
The total amount of the additional fees in each Special Technical Appendix will
be summarised of the signing of all of the Special Technical Appendices and
incorporated into Appendix 8 within the lead times featured in article 7.
13.2 Conditions for establishing fees
13.2.1 Nature of prices
All of the prices mentioned in the tables attached to this article are firm and
indexable. These are shown excluding tax at August 1997 values.
If necessary, taxes will be added to the amount of the licence fees at the
invoicing stage.
13.2.2 Due date
The due date for payment of licence fees for a particular Section is the
Effective Availability Date of this Section of D.F.O. (cf. article 8). However,
in the event of a major fault in a Section preventing a Connection from being
introduced into service, the due date of the lease payment for the whole of the
Sections on the Connection concerned will be postponed, as indicated in
paragraph 10.1.1, final paragraph, provided this fault is not attributable to
the OPERATOR.
13.2.3 Indexation of prices
On 1st January of each calendar year, the unit prices for each of the fees on
the lease index will be updated in accordance with the following formula:
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##
in which Po is the unit price for the index in August 1997
So is the value of the general Wages index in the Mechanical and Electrical
Industries for the whole of France, including employment charges in August 1997,
i.e. 790.9
<PAGE> 35
CONFIDENTIAL TREATMENT
PSdT(o) is the value of the index (published in the BOCCCRF) for Miscellaneous
Products and Services in the Telephone Industry in August 1997, i.e. 115
and S and PSdT are the values of these same indices taken three month before the
update, i.e. in August of the previous year.
13.2.4.1 Basic tariffs
The OPERATOR selects Option 2 of the basic tariff in Appendix 6 for the whole
duration of the Agreement.
13.2.4.2 Incidence of duration on prices
A discount of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## on the lease price (excl. tax) of the Sections of
D.F.O. is granted for a commitment longer than ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## years.
This discount applies for all Sections for which the total duration of
availability reaches the minimum amount of ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## years, to run from the
Effective Availability Date (Article 8).
This discount is calculated and applied during the raising of each quarterly
invoice (see 13.3 below).
At the request of the OPERATOR, ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## may temporarily make available to the
OPERATOR additional fibres depending on availability, at a tariff equal to
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## time the basic tariff, pro rata temporis, per indivisible day.
13.2.4.3 Discount linked to the amount of annual licence fees
<PAGE> 36
CONFIDENTIAL TREATMENT
A discount of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## is granted on that part of the annual licence fee
between ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## million francs, excluding tax.
A discount of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## is granted on that part of the annual licence fee above
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## francs, excluding tax.
These discounts are calculated an applied when raising the last invoice of each
year and depending on the annual total of fees.
13.3 Conditions for invoicing and payment
13.3.1 Invoicing
The annual licence fee is calculated for the period running from 1st January to
31st December.
The amount of the licence fee for a section which becomes available during a
quarter is calculated pro rata temporis by indivisible days.
When the Agreement has been signed, ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## will send the OPERATOR and invoice
by registered letter signed for receipt for an amount excluding tax equal to
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## of the total annual licence fee for the network of D.F.O. leased
firm featured in Appendix 7.
This advance amount will be deducted from the final invoice of the first year.
Invoices will be sent by registered letter signed for receipt to the following
address:
<PAGE> 37
CONFIDENTIAL TREATMENT
HERMES EUROPE RAILTEL B.V.
Strawinskylaan 305
NL-1077 XX AMSTERDAM
THE NETHERLANDS
13.3.2 Payment of invoices
Payments will be made by bank transfer ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## days after the invoice is received
by the OPERATOR.
In the event of late payment less than or equal to ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## days late,
penalties equal to ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##times the legal interest rate on any sums due beyond the
due date may be claimed by right by ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##.
Beyond that time and after a warning has remained unheeded, after a period
greater than 15 days, ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT## will be able to terminate the Agreement under the
conditions in article 15.3.
ARTICLE 14 - CO-ORDINATION - EXTENSION
14.1 Co-ordination
A Co-ordination Committee will be set up between the Parties which will meet at
intervals agreed mutually, but at least once a year or at the request of either
party.
The Co-ordination Committee will be compulsorily made up of the following
people:
* a general representative from ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT##, plus a representative from each of
##MATERIAL OMITTED AND SEPARATELY
<PAGE> 38
CONFIDENTIAL TREATMENT
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##Regional Operating Management
areas concerned,
* a project manager from the OPERATOR,
* any other person required by the agenda for the meeting.
Minutes of meetings will be drafted by ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## and sent to the OPERATOR for
analysis and comment.
The minutes will have to be signed for agreement by each of the Parties.
Unless they are formalised as an amendment, the minutes cannot result in a
modification to this Agreement.
14.2 Extensions
Depending on the development of the ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##optical network, availability on the
existing or future network, and the requirements of the OPERATOR, the
availability of additional Sections or D.F.O. may be created by way of an
amendment.
With this in mind, each Party undertakes to notify the other each time that it
believes it to be necessary and at least once a year during the meeting of the
Co-ordination Committee, of its forecast deployment plans for the OPERATOR and
any new availability on the optical network that ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## is likely to
offer.
If, depending on the availability of ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## optical network, it appears that
extensions are possible, the OPERATOR will have the facility to reserve with
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## additional Sections of D.F.O., under the following conditions:
<PAGE> 39
CONFIDENTIAL TREATMENT
1 - The OPERATOR may at any time inform ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## by registered letter signed for
receipt, giving a notice period of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER
A REQUEST FOR CONFIDENTIAL TREATMENT## months, of its intention to reserve a
defined number of dark fibre optics. ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## has a period of ##MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## month to
acknowledge receipt of the reservation and to make known its agreement,
agreement with reservations, or refusal. Beyond this period, the lack of
response from ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## will mean a refusal.
2 - Reservations are only valid for ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## months, to run from the time the
request is accepted.
3 - Once its reservation has been recorded according to the conditions described
above, the OPERATOR may at any time during the reservation period request by
registered letter signed for receipt sent to ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## that the fibres reserved be
made available.
For its part, ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## may at any time during the reservation period request
the OPERATOR by registered letter signed for receipt to confirm that it intends
to lease the dark fibre optics that it has reserved. The OPERATOR then has a
period of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## days, to run from receipt of the aforementioned letter,
to give its reply by registered letter signed for receipt. In the absence of a
reply, or in the event of a negative reply, the OPERATOR is then deemed to have
cancelled its reservation and ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## may then freely use the said dark fibre
optics.
<PAGE> 40
CONFIDENTIAL TREATMENT
4 - As soon as the request for lease has been confirmed through the
implementation of one of the two procedures defined in point 3 above, the
availability of the Sections of dark fibre optics concerned will be the subject
of an amendment to this Agreement within the two months following the request to
lease. This lease will take place in accordance with the provisions dealt with
in articles 8 and 10 above.
5 - At the end of the period of reservation, the OPERATOR will inform ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## by
registered letter with ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT## notice, of its intention to renew or cancel its
reservation. A lack of response from ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## within a period of one month will
represent ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## tacit agreement to renew the reservation.
The absence of request from the OPERATOR within the period laid down, will
result in the cancellation of the reservation and ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## will then have
free access to the fibres concerned after the period of reservation has expired.
Article 15 - Termination - penalties
15.1 Termination of the Agreement brought about by the Public Authorities
15.1.1 In the event of the premature and simultaneous withdrawal of the
Ministerial Authorisations then in effect or of the non-renewal at the expiry
date of the final Ministerial Authorisation still in effect for the OPERATOR,
this Agreement may be terminated by right after a period of ##MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## months, to run
from the time ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## receives a registered letter signed for receipt sent to
it by the OPERATOR, notifying it of the said decision to withdraw or
non-renewal, without any damages being due to ##MATERIAL
<PAGE> 41
CONFIDENTIAL TREATMENT
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##.
15.1.2 In the event of the premature withdrawal or non-renewal of ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## rights
to operate the whole of its concession, this Agreement may be terminated by
right after a period of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST
FOR CONFIDENTIAL TREATMENT## months, to run from the time OPERATOR receives a
registered letter signed for receipt sent to it by the ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##, notifying it of
the said decision of premature withdrawal or non-renewal, without any damages
being due to the OPERATOR.
15.1.3 In the event of the withdrawal of the OPERATOR's rights due to its
inability to operate its network of fibre optics on French territory, if the
continuity of this Agreement cannot be guaranteed by an authorised third party,
the OPERATOR will be required to pay ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## the fixed indemnity dealt with in
article 15.3.
15.2.4 In the event of the rights of ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## to operate the whole of its
concession being removed, if the continuity of this Agreement cannot be
guaranteed by an authorised third party, and if the State refuses to guarantee
the continuity of this Agreement. ##MATERIAL OMITTED AND SEPARATELY FILED UNDER
A REQUEST FOR CONFIDENTIAL TREATMENT## will be required to pay the OPERATOR the
fixed indemnity dealt with in article 15.3.
The Parties are obliged to keep one another carefully informed if such events
are likely to occur so that each party can then take any action necessary to
ensure the continuity of its service.
<PAGE> 42
CONFIDENTIAL TREATMENT
15.1.5 In the same way, this Agreement may be terminated in the event that it
were to be contrary to future provisions laid down by the authority responsible
for the concession. In this event, the financial provisions in article 15.3
would apply.
15.1.6 In any of the cases above, the technical arrangements for the OPERATOR's
departure would be negotiated between the parties.
15.2 Restriction of the scope of application of this Agreement
15.2.1 In the event of the premature withdrawal or the non-renewal at its expiry
date of one of the Ministerial authorisations granted to the OPERATOR and dealt
with in article 15.1.1, the scope of application of this Agreement would, as a
result, be restricted by right to the only network(s) remaining in operation,
without this restriction giving rise to any payment of damages in favour of
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##.
15.2.2 In the event of the premature withdrawal, non-renewal or removal of the
rights of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## to operate a part of its concession or to occupy the
roadway public domain for the continuity of its network of fibre optics, the
sections concerned would be withdrawn from the scope of application of this
Agreement.
If this removal of sections still enabled the OPERATOR to continue operating its
network, the OPERATOR may make no claim for an indemnity from ##MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##.
If the contrary were true, the OPERATOR would be able to terminate this
Agreement by right:
* under the conditions of article 15.1.2, if the withdrawal was not due to the
fault of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##,
<PAGE> 43
CONFIDENTIAL TREATMENT
* under the conditions of article 15.1.4 if the withdrawal was due to the fault
of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##.
15.2.3 In any event, the technical arrangements for the departure of the
OPERATOR will be negotiated between the Parties.
15.3 Penalties and termination for non-fulfilment of the Agreement
In the event of one or other of the Parties not fulfilling any one of its
obligations created by this Agreement, the Parties would then consult regarding
the causes of the shortcoming, the solutions to apply in order to remedy it and,
if necessary, the timetable for implementing those solutions.
If, on completion of the consultation procedure covered above the Party at fault
were not to implement the solutions agreed on jointly, the other Party could
then warn it by registered letter signed for receipt to make good this
shortcoming by any appropriate means within a period of ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## months.
If, on completion of this period, the said warning were to remain unheeded, the
Party invoking the shortcoming could, without any indemnities or compensation
other than those covered below, terminate this Agreement by registered letter
signed for receipt, giving sound reason and subject to a notice period of
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## months.
The effect of terminating this Agreement for non-fulfilment brought about in
this way, would result in the termination of all of the Special Technical
Appendices, as well payment by the defaulting party to the other party of a
fixed and final indemnity equal to:
* In the event of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## defaulting: ##MATERIAL OMITTED AND SEPARATELY FILED
UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## of the total annual licence fee.
<PAGE> 44
CONFIDENTIAL TREATMENT
The deposit dealt with in article 13.3.1 will be returned to the OPERATOR in the
event of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##defaulting if the default occurs before the deposit has
been taken into account with the amount of the lease payments due.
* In the event of the OPERATOR defaulting: ##MATERIAL OMITTED AND SEPARATELY
FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## of the total annual licence
fee, with any sums paid to ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## by the OPERATOR becoming permanently the
property of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##.
15.4 Release of the MPDC
In all of the cases above (Articles 15.1, 15.2 and 15.3), the OPERATOR has a
period of ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## months, to run from the time the Agreement is
terminated, to proceed at its own expense if termination is its fault, with the
dismantling of its specific Equipment and to refurbish the sites made available
to it, unless ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## prefers to keep them for their net accounting value in
the OPERATOR's books, and that the OPERATOR consents to it.
Article 16 - Non-disclosure
Subject to any legislative and regulatory provisions, the contracting Parties
undertake to respect the confidentiality of any written or spoken information
exchanged during the development and implementation of this Agreement. The
Parties further undertake not to communicate to third parties, with the
exception of companies within their Group, or in any way to exploit this
confidential information, unless they are required to do so to accomplish the
purpose of this Agreement.
This obligation for non-disclosure will remain in effect for a period of three
years, to run from the expiry date or termination of this Agreement, no matter
what the cause or who might be responsible.
<PAGE> 45
CONFIDENTIAL TREATMENT
ARTICLE 17 - CO-OPERATION BETWEEN THE PARTIES
17.1 The two Parties undertake to co-operate in a spirit of close co-operation
technical openness.
17.2 On this matter, they undertake to inform one another immediately of any
difficulties that they may encounter with regard to these articles.
17.3 The Parties agree to work together to complete and steps taken of common
interest in areas concerning continuity (connection of the ##MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## network to
other networks, etc.), integrity, the security of the optical network or
improvement of the quality of services to customers.
ARTICLE 18 - COMMUNICATIONS CAMPAIGNS
Any commercial, promotional or information campaign carried out at the
initiative of one or other of the Parties, relating to the services offered by
the OPERATOR and carried out on ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A
REQUEST FOR CONFIDENTIAL TREATMENT## motorway holdings, must, after mutual
consultation, have the written approval of each of the Parties, which have the
right, if necessary, to refuse approval without having to state the reasons for
refusing.
The OPERATOR may in no event use the Equipment Sites made available to it or
constructed by it for advertising purposes.
ARTICLE 19 - PARTIAL VALIDITY - DISPUTES
19.1 If one or more stipulations of this Agreement are held to be invalid or
declared as such by the application of a law or regulation, or as the result of
a decision made permanent by a competent jurisdiction, the other stipulations
will retain all of their strength and scope. The Parties agree to replace any
invalidated provisions of the Parties by other provisions which come as close as
possible to the common intention expressed in the framework of this Agreement.
<PAGE> 46
CONFIDENTIAL TREATMENT
19.2 This Agreement is governed by French law. Any dispute relating to the
application of this Agreement which cannot be settled amicably between the
Parties, will be submitted to the administrative Court of PARIS.
ARTICLE 20 - SPECIAL PROVISIONS
In the event of a modification to the legislative, regulatory or economic
environment in which the Parties have contracted have an effect on the
provisions included in this Agreement, the Parties will approach one another to
agree on possible correlative adaptations which may be necessary or of use to
ensure the coherence of this Agreement in the modification incorporated.
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## declares that it will not agree on conditions which are of a
discriminatory nature to other operators. As a result, in the event that
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## should grant other operators in a comparable situation conditions
which on the whole would be more favourable than those covered in this contract,
the Parties would consult as to any action to be taken and any correlative
adaptations to this Agreement to ensure that the OPERATOR benefits from the same
conditions.
ARTICLE 21 - COSTS AND REGISTRATION
The expenses, costs and fees relating to this document will be borne by the
Party which would like to submit a copy of this document to the formality of
being registered, if required.
Drafted in two copies,
In Paris, 15th December 1997
For the OPERATOR
Jan LOEBER
## MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT ##
<PAGE> 47
CONFIDENTIAL TREATMENT
APPENDIX 1.1 AND 1.2: MAP AND DESCRIPTION OF LEASED ROUTE SEGMENTS
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##
<PAGE> 48
CONFIDENTIAL TREATMENT
- --------------------------------------------------------------------------------
INITIAL RESERVATION OPTION
APPENDIX 2
DESCRIPTION OF THE CONNECTIONS RESERVED BY THE OPERATOR
- --------------------------------------------------------------------------------
Connection 4: This Connection comprises a pair of D.F.O. ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## km long and
consists of a second pair of D.F.O. on Connection 1.
Connection 5: This Connection comprises a pair of D.F.O. ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## km long and
consists of a second pair of D.F.O. on Connections 2 and 3. It is subject to the
same reservation as Connection 3 since it uses the same Section of the public
road network.
<PAGE> 49
CONFIDENTIAL TREATMENT
EXHIBIT 3: TEMPLATE TECHNICAL ANNEX
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##
<PAGE> 50
CONFIDENTIAL TREATMENT
EXHIBIT 4: TECHNICAL SPECIFICATIONS OF CONNECTIONS
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##
<PAGE> 51
CONFIDENTIAL TREATMENT
EXHIBIT 5.1: GENERAL RULES OF SAFETY ALONG PUBLIC MOTORWAYS
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##
<PAGE> 52
CONFIDENTIAL TREATMENT
- --------------------------------------------------------------------------------
APPENDIX 5-2
GENERAL RULES FOR THE CARRYING OUT OF WORKS
- --------------------------------------------------------------------------------
In addition to abiding by the stipulations of the "Manual of General Safety
Rules on a motorway concession open to traffic", the subject of Appendix 5.1,
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## requires companies working on the MPDC to abide by the following
general rules:
1/ Work sites must be enclosed and inaccessible to the public.
2/ Companies are strictly required to abide by the legislation regarding the
safety of work site staff, and in particular the following decrees:
* N(0) 92-158 of 20th February 1992
* N(0) 94-1159 of 26th December 1994.
3/ Access to works should preferably be from outside the MPDC. If access if
through the MPDC, it should be via an interchange.
<PAGE> 53
CONFIDENTIAL TREATMENT
- --------------------------------------------------------------------------------
APPENDIX 6
TABLE OF LEASE INDICES
- --------------------------------------------------------------------------------
Prices excluding tax at the conditions in August 1996
1 - Lease licence fee for dark fibre optics
* BASIC TARIFFS (PRICES EXCLUDING TAX):
Two options are possible. The option selected is applied throughout the duration
of the contract.
OPTION 1
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##
OPTION 2
The following tariff is applied, per section, for each pair of fibres leased in
a continuous manner.
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##
For both options, the minimum accumulate leased length is ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## km.
* DURATION DISCOUNT:
This depends on the duration of the Agreement and is applied to the annual
amount of the licence fee, calculated from the basic tariffs:
<PAGE> 54
CONFIDENTIAL TREATMENT
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##
* VOLUME DISCOUNT:
This is applied, per section, on the annual amount of the licence fee,
calculated on basic tariffs, possibly reduced by the duration discount:
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##
2 - LEASE INDEX FOR TYPE 1 PREMISES
The lease price for Type 1 Equipment Sites under the technical conditions
defined in Article 9, paragraphs 4 and 5, is established as follows:
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##
in which
A represents the number of square metres of the premises occupied,
B represents the occupation fee per square metre for technical premises, i.e.
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## excluding tax per year,
C represents a fixed and set amount per technical premises fixed at ##MATERIAL
OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##F
excluding tax per year.
3 - INDEX FOR THE BORROWING RIGHTS FOR A SLEEVE OF A TYPE 1 ##MATERIAL OMITTED
AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT## TUBE AS
DEFINED IN ARTICLE 9, PARAGRAPH 5:
<PAGE> 55
CONFIDENTIAL TREATMENT
* For a length of less than or equal to 10 metres: ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##, * Beyond:
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT## F excluding tax per year per linear metre, * Per additional tube in
the same trench: ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT## F excluding tax per year, per linear metre.
4 - INDEX OF THE PRICE FOR SUPPLYING ELECTRICITY
* ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##F excluding tax per year for an installed power of 15 kW.
5 - LEASE INDEX FOR A BARE PIECE OF LAND TO BUILD A TYPE 2 EQUIPMENT SITE, AS
DEFINED IN ARTICLE 10, PARAGRAPH 3:
* ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##F excluding tax per year.
6 - INDEX FOR THE RIGHT OF WAY ON THE MPDC FOR A TYPE 2 SLEEVE CONSTRUCTED BY
THE OPERATOR, AS DEFINED IN ARTICLE 12, PARAGRAPH 3:
##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT##,
<PAGE> 56
CONFIDENTIAL TREATMENT
- --------------------------------------------------------------------------------
APPENDIX 7-1
SUMMARY TABLE OF THE ANNUAL LEASE PRICES FOR D.F.O. LEASED FIRM BY THE
OPERATOR IN APPENDIX 1 BEFORE DISCOUNT ON TURNOVER
PRICE EXCLUDING TAX - ECONOMIC CONDITIONS OF AUGUST 1997
- --------------------------------------------------------------------------------
Connection N(0) 1
Pair N(0) 1
Total length leased: ##MATERIAL OMITTED AND SEPARATELY FILED UNDER A REQUEST FOR
CONFIDENTIAL TREATMENT##km
Tariff per km/per year depending on the length leased: ##MATERIAL OMITTED AND
SEPARATELY FILED UNDER A REQUEST FOR CONFIDENTIAL TREATMENT##KF excluding tax
<TABLE>
<CAPTION>
- ------------ -------------- ------------ -------------- ------------- ---------------
Section N(0) Effective Duration Unit km Length in Annual
availability price (KF) km lease price
date (F excluding
tax)
- ------------ -------------- ------------ -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
1 10 years ##MATERIAL ##MATERIAL ##MATERIAL
2 10 years OMITTED AND OMITTED AND OMITTED AND
3 10 years SEPARATELY SEPARATELY SEPARATELY
4 10 years FILED UNDER A FILED UNDER A FILED UNDER A
5 10 years REQUEST FOR REQUEST FOR REQUEST FOR
6 10 years CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
7 10 years TREATMENT## TREATMENT## TREATMENT##
8 10 years
9 10 years
10 10 years
- ------------ -------------- ------------ -------------- -------------- ---------------
</TABLE>
<PAGE> 57
CONFIDENTIAL TREATMENT
- ---------------------------------------------------------- ----------------
ANNUAL TOTAL pair N(0)1 ##MATERIAL
OMITTED AND
SEPARATELY
FILED UNDER A
REQUEST FOR
CONFIDENTIAL
TREATMENT##
- ---------------------------------------------------------- ----------------
<PAGE> 58
CONFIDENTIAL TREATMENT
- --------------------------------------------------------------------------------
APPENDIX 7-2
TABLE OF LEASE PRICES FOR D.F.O. LEASED FIRM BY THE OPERATOR IN APPENDIX 1
PRICES EXCLUDING TAX - ECONOMIC CONDITIONS OF AUGUST 1997
- --------------------------------------------------------------------------------
Indicative schedule of payments
<TABLE>
<CAPTION>
- ---------------------------------- -------------------------------- ------------------------------
DUE DATE AMOUNT REMARKS:
- ---------------------------------- -------------------------------- ------------------------------
<S> <C> <C>
##MATERIAL OMITTED AND SEPARATELY ##MATERIAL OMITTED AND Deposit
FILED UNDER A REQUEST FOR SEPARATELY FILED UNDER A REQUEST
CONFIDENTIAL TREATMENT## FOR CONFIDENTIAL TREATMENT##
- ---------------------------------- -------------------------------- -------------------------------
##MATERIAL OMITTED AND SEPARATELY Depending on the Effective
FILED UNDER A REQUEST FOR Availability Date of the
CONFIDENTIAL TREATMENT## Connections leased firm. The
amount of the deposit will be
deducted.
- ---------------------------------- -------------------------------- -------------------------------
##MATERIAL OMITTED AND SEPARATELY ##MATERIAL OMITTED AND
FILED UNDER A REQUEST FOR SEPARATELY FILED UNDER A REQUEST
CONFIDENTIAL TREATMENT## FOR CONFIDENTIAL TREATMENT##
- ---------------------------------- -------------------------------- -------------------------------
##MATERIAL OMITTED AND SEPARATELY ##MATERIAL OMITTED AND
FILED UNDER A REQUEST FOR SEPARATELY FILED UNDER A REQUEST
CONFIDENTIAL TREATMENT## FOR CONFIDENTIAL TREATMENT##
- ---------------------------------- -------------------------------- -------------------------------
</TABLE>
<PAGE> 59
CONFIDENTIAL TREATMENT
<TABLE>
<CAPTION>
- ---------------------------------- -------------------------------- -------------------------------
<S> <C> <C>
##MATERIAL OMITTED AND SEPARATELY ##MATERIAL OMITTED AND
FILED UNDER A REQUEST FOR SEPARATELY FILED UNDER A REQUEST
CONFIDENTIAL TREATMENT## FOR CONFIDENTIAL TREATMENT##
- ---------------------------------- -------------------------------- -------------------------------
##MATERIAL OMITTED AND SEPARATELY ##MATERIAL OMITTED AND
FILED UNDER A REQUEST FOR SEPARATELY FILED UNDER A REQUEST
CONFIDENTIAL TREATMENT## FOR CONFIDENTIAL TREATMENT##
- ---------------------------------- -------------------------------- -------------------------------
##MATERIAL OMITTED AND SEPARATELY ##MATERIAL OMITTED AND Last payment
FILED UNDER A REQUEST FOR SEPARATELY FILED UNDER A REQUEST
CONFIDENTIAL TREATMENT## FOR CONFIDENTIAL TREATMENT##
- ---------------------------------- -------------------------------- -------------------------------
</TABLE>
<PAGE> 60
- --------------------------------------------------------------------------------
APPENDIX 8
SUMMARY OF ADDITIONAL ANNUAL FEES FEATURED IN EACH SPECIAL TECHNICAL APPENDIX
PRICES EXCLUDING TAX - ECONOMIC CONDITIONS OF AUGUST 1997
- --------------------------------------------------------------------------------
Technical Appendix N(0) 1................F excluding tax
Technical Appendix N(0) 2................F excluding tax
Total..................F excluding tax
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES
<TABLE>
<CAPTION>
<S> <C>
Hermes Europe Railtel (Holdings) B.V. --- The Netherlands
Beheer-en Beleggingsmaatschappij Vesto B.V. --- The Netherlands
Hermes Europe Railtel (Ireland) Limited --- Ireland
Hermes Europe Railtel (Network) Limited --- Ireland
HER Network Services B.V.B.A --- Belgium
Hermes Europe Railtel (UK) Limited --- United Kingdom
Hermes Europe Raitel (Germany) GmbH --- Germany
Hermes Europe Railtel (France) Sarl --- France
Hermes Europe Railtel (Italy) s.r.l. --- Italy
Hermes Europe Railtel (Spain) S.L --- Spain
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 12/31/97
AUDITED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 204,327
<SECURITIES> 0
<RECEIVABLES> 2,129
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 249,325
<PP&E> 209,227
<DEPRECIATION> 4,283
<TOTAL-ASSETS> 495,850
<CURRENT-LIABILITIES> 61,980
<BONDS> 404,568
0
0
<COMMON> 96,757
<OTHER-SE> (45,915)
<TOTAL-LIABILITY-AND-EQUITY> 495,850
<SALES> 0
<TOTAL-REVENUES> 5,373
<CGS> 0
<TOTAL-COSTS> 9,972
<OTHER-EXPENSES> 18,860
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,826
<INCOME-PRETAX> (29,689)
<INCOME-TAX> 0
<INCOME-CONTINUING> (29,689)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (29,689)
<EPS-PRIMARY> (0.33)
<EPS-DILUTED> (0.33)
</TABLE>
