<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
/x/ Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended June 30, 1996
/ / Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from ___________ to _____________
Commission file number 33-25129-LA
CHARTER COMMUNICATIONS INTERNATIONAL, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
NEVADA 84-1097751
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
17100 EL CAMINO REAL, HOUSTON, TEXAS 77058
(Address of Principal Executive Offices)
(713) 486-8337
(Issuer's Telephone Number, Including Area Code)
______________________
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
------------ -----------
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Balance Sheet, Income Statement and Cash Flow information for the period
ended June 30, 1995, has not been presented for comparative purposes as the
Company was a development stage company, without any business or operating
subsidiaries. Therefore, such information would not be relevant for comparison
purposes to the financial information for the period ended June 30, 1996.
<PAGE>
CHARTER COMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 1996
<PAGE>
CONTENTS
CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 1996
(UNAUDITED) AND DECEMBER 31, 1995 (AUDITED)
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE
AND SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED) AND
YEAR ENDED DECEMBER 31, 1995 (AUDITED)
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE
AND SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED) AND
YEAR ENDED DECEMBER 31, 1995 (AUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
<PAGE>
CHARTER COMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, December 31,
1996 1995
-------------- ------------
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 258,471 $ 43,841
Accounts Receivable, net of allowance for
doubtful accounts of $ 113,580 and $ 3,762 1,284,012 43,155
Receivables from Related Parties 73,102 34,181
Inventories 238,913
Prepaid Expenses and Other 179,911 28,169
-------------- ------------
TOTAL CURRENT ASSETS 2,034,409 149,346
PROPERTY AND EQUIPMENT, AT COST
Property, Plant and Equipment 3,101,304 933,636
Accumulated Depreciation (486,244) (146,681)
-------------- ------------
TOTAL PROPERTY AND EQUIPMENT 2,615,060 786,955
OTHER ASSETS
Advances Related to Acquisition 150,000
Deposits 33,146
Investment in Joint Venture 90,026
Intangible assets, net of accumulated
amortization of $ 204,178 2,243,011
-------------- ------------
TOTAL OTHER ASSETS 2,366,183 150,000
-------------- ------------
TOTAL ASSETS $ 7,015,652 $ 1,086,301
-------------- ------------
-------------- ------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CHARTER COMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, December 31,
1996 1995
-------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable - Trade $ 1,402,276 $ 195,730
Accrued Expenses and Other 400,281 93,008
Due to Related Parties 37,167 129,167
Unearned Revenues 287,619
Current Portion of Long-term Notes Payable 13,041
Lines of Credit 1,113,221 129,443
Loans from Shareholders 1,828 1,828
-------------- ------------
TOTAL CURRENT LIABILITIES 3,255,433 549,176
LONG TERM DEBT
Long-term Notes Payable, net 49,644
Senior Subordinated Notes, net 2,362,566 172,819
-------------- ------------
TOTAL LONG-TERM LIABILITIES 2,412,210 172,819
-------------- ------------
TOTAL LIABILITIES 5,667,643 721,995
STOCKHOLDERS' EQUITY
Preferred Stock-.01 par value; 100,000
shares authorized, 550 shares issued
and outstanding; liquidation preference
of $ 1,999,800 6
Common Stock - .00001 par value; 45,000,000
shares authorized, 11,625,231 and
7,298,393 shares issued and outstanding 116 73
Additional Paid In Capital 5,030,795 2,235,902
Accumulated Deficit (3,682,902) (1,871,675)
-------------- ------------
TOTAL STOCKHOLDERS' EQUITY 1,348,009 364,306
-------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,015,652 $ 1,086,301
-------------- ------------
-------------- ------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CHARTER COMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Six Months Year Ended
Ended June 30, Ended June 30, December 31,
1996 1996 1995
-------------- -------------- ------------
REVENUES
Communications Services $ 241,640.00 $ 299,483.00 $ 112,819.00
Hardware and Software 1,201,731.00 1,251,761.00
Service Revenues 414,540.00 414,540.00
Internet Connection Services 424,794.00 748,643.00 0.00
-------------- -------------- ------------
Total Revenues 2,282,705.00 2,714,427.00 112,819.00
-------------- -------------- -------------
COST OF REVENUES AND OPERATING
EXPENSES
Data Communications and Operations 797,962.00 1,017,647.00 31,438.00
Hardware and Software Costs 950,206.00 987,411.00
Sales and Marketing 376,602.00 556,749.00
General and Administrative 918,173.00 1,495,761.00 1,684,288.00
Bad Debts 1,164.00 1,164.00 3,762.00
Depreciation and Amortization 233,358.00 327,310.00 146,681.00
Interest Expense 111,246.00 155,764.00 123,061.00
Other Income (2,431.00) (3,369.00) (4,736.00)
-------------- ------------- -------------
TOTAL COST OF REVENUES
AND OPERATING EXPENSES 3,386,280.00 4,538,437.00 1,984,494.00
-------------- ------------- -------------
NET LOSS BEFORE INCOME TAXES
AND MINORITY INTEREST IN
CONSOLIDATED SUBSIDIARY (1,103,575.00) (1,824,010.00) (1,871,675.00)
INCOME TAX PROVISION (BENEFIT) 0.00 0.00 0.00
MINORITY INTEREST IN
CONSOLIDATED SUBSIDIARY 0.00 12,783.00 0.00
--------------- -------------- ------------
NET LOSS $(1,103,575.00) $(1,811,227.00 $(1,871,675.00)
--------------- -------------- ---------------
--------------- -------------- ---------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CHARTER COMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Six Months Year Ended
Ended June 30, Ended June 30, December 31,
1996 1996 1995
-------------- -------------- -------------
LOSS PER SHARE $ (0.09) $ (0.18) $ (0.34)
-------------- -------------- ------------
-------------- -------------- ------------
NUMBER OF SHARES USED
IN COMPUTING NET LOSS
PER SHARE 11,625,231.00 9,954,306.00 5,499,475.00
-------------- -------------- ------------
-------------- -------------- ------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CHARTER COMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Six Months Year Ended
Ended June 30, Ended June 30, December 31,
1996 1996 1995
-------------- -------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
NET LOSS $ (1,103,575) $ (1,811,227) $ (1,523,924)
ADJUSTMENTS TO RECONCILE NET LOSS
TO NET CASH USED IN OPERATING
ACTIVITIES:
Depreciation and Amortization 233,358 327,310 146,681
Bad Debts 1,164 1,164 3,762
Amortization of Discounts on
Senior Subordinated Notes 16,825 17,739
Non-Cash Consulting and
Services Fees 51,130 71,727 177,000
Decrease (increase) in
operating assets:
Accounts Receivable (427,197) (482,222) (46,917)
Receivables from Related Parties 23,688 41,924 11,858
Inventory and Other Assets 87,837 45,438
Deposits 13,598 (33,146)
Prepaid Expenses and Other 134,074 (72,079) (16,169)
Increase (decrease) in
operating liabilities:
Accounts Payable (18,184) 254,682 101,686
Accrued Expenses and Other 101,249 117,396 53,841
Due to Related Parties (129,167) 129,167
Unearned Revenues 87,794 126,093
Other (28,722) (28,722) 0
-------------- -------------- -------------
Total adjustments 276,614 258,137 560,909
-------------- -------------- -------------
NET CASH USED IN OPERATING
ACTIVITIES (826,961) (1,553,090) (963,015)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property & Equipment (869,953) (1,717,907) (231,713)
Proceeds from Sale Leaseback 66,165 274,165
Investment in Joint Venture (77,289) (154,191)
Advances related to
subsequent acquisition (150,000)
Acquisition of Subsidiary (375,000)
Purchased Goodwill (6,000)
-------------- -------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
Charter Communications International, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Six Months Year Ended
Ended June 30, Ended June 30, December 31,
1996 1996 1995
-------------- -------------- -------------
<S> <C> <C> <C>
NET CASH USED IN INVESTING
ACTIVITIES (881,077) (1,978,933) (381,713)
CASH FLOWS FROM FINANCING ACTIVITIES
Loans from Shareholders 296,828
Repayment of Loans
from Shareholders (1,227,500)
Proceeds from Lines of Credit 1,000,000 1,000,000 93,285
Repayments on Lines of Credit (8,111) (16,222)
Repayments of Bank Notes (165,809) (165,809)
Proceeds from Senior
Subordinated Notes 417,314 2,172,008 172,819
Proceeds from Issuance of
Stock Warrants 67,686 332,992 27,181
Proceeds from the Issuance of
Common Stock 365 423,684
Proceeds from Issuance of
Preferred Stock 1,999,800
-------------- -------------- -------------
NET CASH FROM FINANCING
ACTIVITIES 1,311,445 3,746,653 1,362,413
-------------- -------------- -------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (396,593) 214,630 17,685
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 655,064 43,841 26,156
-------------- -------------- -------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 258,471 $ 258,471 $ 43,841
-------------- -------------- -------------
-------------- -------------- -------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest Paid $ 67,010 $ 72,397 $ 106,248
Taxes Paid 0 0 0
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CHARTER COMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet of Charter Communications International, Inc.
(the "Company"), a Nevada corporation, and it's wholly owned subsidiaries as of
June 30, 1996 and the related statements of operations and statements of cash
flows for the three months and six months ended June 30, 1996, are unaudited.
The consolidated balance sheet of the Company and it's wholly owned subsidiaries
as of December 31, 1995 and the related statements of operations and statements
of cash flows for the year ended December 31, 1995, were audited by other
accountants and they expressed an unqualified opinion on them in their report
dated March 29, 1996, but they have not performed any auditing procedures since
that date.
In the opinion of management, all adjustments, which include only normal
recurring adjustments necessary to present fairly the financial position,
results of operations and cash flows for the periods presented, have been made.
All significant intercompany items have been eliminated in consolidation.
Certain disclosures and other information required by generally accepted
accounting principals have been omitted from these financial statements as
permitted by reference to other Securities and Exchange Commission filings.
These statements should be read in conjunction with the Company's Form 10-KSB
Annual Report as of December 31, 1995.
REVENUE RECOGNITION
Revenues from telecommunications, Internet access services and networked
computer sales and services are generally recognized when the services are
provided.
Invoices rendered and payments received for telecommunications services and
Internet access in advance of the period when revenues are earned are recorded
as unearned revenues and recognized ratably over the period the services are
provided or the term of the Internet subscription agreements, which are
generally 3 to 12 months. Sales of hardware are recognized when installation has
occurred and no further performance obligation remains. Sales of pre-packaged
software are recognized upon delivery of the product.
<PAGE>
CHARTER COMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
INVENTORIES
Inventories at June 30, 1996 consist of Internetworking and network computer
products as well as pre-packaged software used for Internet access. All
inventory is recorded as finished goods and is available for sale. Inventories
are stated at the lower of cost or market. Cost is determined on the first-in,
first-out method.
INCOME TAXES
The provision for income taxes is computed on the pretax income included in the
consolidated statement of income. The asset and liability approach is used to
recognize deferred tax liabilities and assets for the expected future tax
consequences of temporary differences between the carrying amounts and the tax
basis of assets and liabilities.
NET LOSS PER SHARE
LOSS PER SHARE - Net loss per share was computed by dividing the net loss by the
weighted average number of common and common equivalent shares outstanding
during the period. For purposes of this calculation, dilutive outstanding
warrants and employee stock options are considered common stock equivalents. Due
to the loss incurred for the periods presented, all common stock equivalents are
considered anti-dilutive and have been omitted from the respective earnings per
share calculations.
SUPPLEMENTARY LOSS PER SHARE - On March 8, 1996, the Series A Preferred Stock
was automatically converted into 2,847,412 shares of the Company's common stock.
Supplementary loss per share is the loss per share amount adjusted to reflect
the conversion of preferred stock on March 8, 1996 as if the conversion had
occurred on the day the preferred stock was issued. Supplementary loss per share
for the three and six months ended June 30, 1996 and for the year ended December
31, 1995 was ($.09), ($.16) and ($0.22), respectively.
AMORTIZATION
The company amortizes any purchased goodwill on acquisitions over a period of
not less than 60 months on a straight-line basis.
<PAGE>
CHARTER COMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
NOTE B - ACQUISITIONS
PHOENIX DATANET, INC.
On January 8, 1996, the Company acquired 90 percent of the issued and
outstanding capital stock of Phoenix DataNet, Inc. (PDN), in exchange for
$525,000 in cash. PDN, a Texas corporation, was formerly a subsidiary of
Phoenix Data Systems, Inc. (Systems). PDN was originally incorporated on
February 21, 1995, and prior to that date had operated as a division of
Systems. Systems entered into an agreement on December 22, 1995 to sell its
90 percent ownership of the issued and outstanding shares of common stock of
PDN. On March 21, 1996, the Company acquired the remaining 10 percent in PDN
through the issuance of 150,000 shares of the Company's common stock, at a
estimated fair market value of $2.00 per share at the time the transaction
was consummated. The acquisition has been accounted for as a purchase.
PDN engages in the business of providing Internet access to businesses and
individuals and a full range of related services, including the creation and
development on behalf of its customers of Internet based advertising, customer
service functions, on-line sales and services and other on-line interactive
services. Additionally, PDN sells and services a complete line of
Internetworking products for Internet access.
PHOENIX DATA SYSTEMS, INC.
On March 21, 1996, the Company acquired 100 percent of the issued and
outstanding capital stock of Systems. The transaction involved the exchange of
1,000,000 shares of the Company's common stock, 825,000 shares of which were
immediately issued free and clear of any adverse claims or encumbrances and
175,000 shares are being retained by the Company in order to secure
representations and warranties and covenants of Systems and Systems shareholders
and will be subject to offset against claims against Systems. The shares
immediately issued in the transaction were valued at $2.00 per share, the
estimated fair market value as of the date the transaction was consummated. A
separate value will be placed upon the retained shares when and if they are
eventually issued. The acquisition has been accounted for as a purchase.
Systems is in the business of providing computer network integration, service,
consulting and support for commercial businesses.
<PAGE>
CHARTER COMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
NOTE B - ACQUISITIONS (CONT.)
PHOENIX DATA SYSTEMS, INC.
Unaudited pro forma revenues, net loss and loss per share assuming the
transaction had occurred at January 1, 1996 are as follows:
Proforma
--------
Historical Charter Communications
---------- International, Inc.
Charter Communications and Phoenix Data
International, Inc. Systems, Inc.
For the 6 Months Ended For the 6 Months Ended
June 30, 1996 June 30, 1996
------------- -------------
Revenues $ 2,714,427 $ 4,080,318
Net Loss (1,811,227) (1,936,624)
Net Loss per share (.18) (.19)
PANAMA PHONE CENTERS
On March 30, 1996 the Company acquired the assets and rights to operate long
distance telephone centers at various U.S. military installations in the
Republic of Panama. Prior to March 30, 1996 the Company had been receiving
royalties from telephone calls placed at these phone centers, under a
separate contract. The phone centers and rights to provide these service were
acquired for the price of $224,000 cash and 2,000 shares of common stock of
the Company valued at $2.00 per share. Simultaneously with the purchase the
Company entered into an agreement with a lease finance company to sell and
lease back a portion of the assets acquired. Lease financing was obtained in
the amount of $168,000, the acquisition price of the majority of the phone
center assets. The term of the lease provides for monthly payments of $5,712,
beginning on April 1, 1996 and continuing through March 1, 1999.
This transaction is not considered to be a significant business combination and
accordingly, no proforma information is presented.
JOINT VENTURE AGREEMENT
On January 24, 1996 the Company entered into an agreement for joint operations
of international telecommunications service into and out of various locations in
the Country of Mexico. The Company has agreed to incur various expenses to
reactivate the international telecommunications service to various hotel
<PAGE>
CHARTER COMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
NOTE B - ACQUISITIONS (CONT.)
JOINT VENTURE AGREEMENT (CONT.)
facilities, arrange for agreements with international carriers to provide call
termination and other services and contribute future funds for equipment to
connect new customers. As a result of these contributions and efforts the
Company will receive 50 percent of the net revenues generated from the joint
operations of this service.
NOTE C - INTANGIBLE ASSETS
Intangible assets consist of the following at June 30, 1996:
Organizational Costs $ 6,872
Non-Compete Covenant and Other 78,700
Goodwill 2,361,617
Accumulated Amortization (204,178)
------------
$ 2,243,011
------------
NOTE D - LINES OF CREDIT
The company has established three lines of credit with a commercial bank that
provides for borrowings up to $146,000, $500,000 and $500,000. The revolving
credit lines are secured by a security interest in certain electronic
equipment and securities of a shareholder of the Company. Interest is payable
monthly on two of the credit lines and quarterly on one, all at the bank's
prime rate plus 1%. Repayments of principal on these lines of credit are due
as follows:
Periodic
Balance, June 30 Payable Principal Due Balance Due
---------------- ------- ------------- -----------
$113,221 Monthly $4,056 December 10, 1996
$500,000 Quarterly $25,000 May 2, 1997
$500,000 Annually -- June 13, 1997
NOTE E - LONG-TERM NOTES PAYABLE
At June 30, 1996 the following long-term notes payable were outstanding. These
liabilities were assumed upon acquisition of Phoenix Data Systems, Inc. and have
been included in the accompanying financial statements.
<PAGE>
CHARTER COMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
NOTE E - LONG-TERM NOTES PAYABLE (CONT.)
Promissory note payable to a bank,
collateralized by an automobile, payable in monthly
installments of $445, interest at 8.5%
through January, 2000. 18,022
Promissory note payable to a bank,
collateralized by an automobile, payable in
monthly installments of $ 606, interest at 12.0%
through December 19, 1998. 16,762
Promissory note payable to a bank,
collateralized by an automobile, payable in
monthly installments of $419, interest at 8.5%
through February, 2000. 15,786
Promissory note payable to a finance company,
collateralized by office equipment, payable
in monthly installments of $1,599, including
interest through February, 1997. 12, 115
-----------
Total Long-term Notes Payable 62,685
Less current portion (13,041)
------
Long-term Notes Payable, net $ 49,644
-----------
-----------
NOTE F - SENIOR SUBORDINATED NOTES
Beginning in December, 1995, the Company made a private offering of
$2,500,000, subsequently increased to $2,873,000, of its 12% Senior
Subordinated Notes due December 31, 2000, with attached warrants which will
grant the purchasers of the Notes the right to buy 2,000,000 shares,
subsequently increased to 2,298,400 shares, of the Company's Common Stock.
The warrants grant the purchasers the right to exercise the warrants at
prices of $.70 per share in 1996, $1.25 in 1997, $1.75 in 1998, $2.25 in 1999
and $2.50 in 2000. Interest is payable quarterly at the rate of 12% per
annum, in arrears. The notes are not secured by any asset of the Company or
guaranty.
During the three and six months ended June 30, 1996, the Company granted 228,000
and 2,004,000 warrants, respectively, attached to these subordinated notes.
Prior to 1996 the Company had granted 160,000 warrants.
The fair market value of the 2,164,000 warrants issued in conjunction with the
notes was estimated by the Company to be $360,173 and is recorded as additional
paid in capital and a
<PAGE>
CHARTER COMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
NOTE F - SENIOR SUBORDINATED NOTES (CONT.)
discount on the notes. The notes are stated net of discount, which is being
amortized over the term of the notes. Amortization of this discount included
in the accompanying financial statements for the three months and six months
ended June 30, 1996, amounted to $16,825 and $17,739, respectively, and is
included in interest expense for those periods.
NOTE G - COMMON STOCK AND COMMON STOCK PURCHASE WARRANTS AND OPTIONS ISSUED
FOR SERVICES
During the three and six months ended June 30, 1996, the Company issued 2,500
and 12,500 shares, respectively, of common stock, granted 0 and 80,000,
respectively, common stock purchase warrants and granted 211,917 and 211,917,
respectively, common stock options to nonemployees for services provided to
the Company. These warrants expire between six months and five years from the
date of the grant and have an exercise price between $.70 and $2.50 per
share. The Company recognizes an expense equivalent to the fair market value
of the services.
NOTE H - STOCKHOLDERS' EQUITY
STOCK WARRANTS
During the three and six months ended June 30, 1996, the Company granted 0 and
54,400, respectively, common stock purchase warrants to certain key employees
and 0 to 100,000, respectively, to outside directors. These warrants expire
between six months and five years from the date of grant and have an exercise
price between $.70 and $2.05 per share.
At June 30, 1996 the Company had outstanding warrants that gave the holders the
right to purchase 3,877,631 shares of the Company's common stock at prices
ranging from $.70 to $2.50 per share.
STOCK OPTIONS
During the three and six months ended June 30, 1996, the Company granted 385,585
and 545,585 stock options to certain employees. The exercise price of the stock
options granted to the employees ranged from $.70 to $6.00 per share, the
estimated fair market value of the Company's common stock at the date of grant.
No compensation expense has been recognized in the financial statements related
to the grant of these options.
<PAGE>
CHARTER COMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
NOTE H - STOCKHOLDERS' EQUITY (CONT.)
STOCK OPTIONS (CONT.)
The Company has established three stock option plans, the Long-term Stock
Option Plan, the Incentive Stock Option Plan and the Nonemployee Director
Stock Option Plan. Each plan is authorized to grant options to purchase
500,000 shares of common stock. The exercise price per share must be at
least equal to the fair market value of the Company's common stock at the
date of the grant. Options can be issued with varying terms and contain
various provisions. The Company has also issued nonplan options with varying
terms and provisions. The following table represents a summary of the
outstanding options at June 30, 1996:
OPTION PRICE NUMBER OF
STOCK OPTIONS PER SHARE OPTIONS
Outstanding, beginning of year $.70 1,250,000
Granted $.70 - $6.00 757,502
Canceled $.70 - $2.00 (620,833)
---------
Outstanding, end of quarter $.70 - $6.00 1,386,669
Exercisable, end of quarter 299,167
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
(a) PLAN OF OPERATION. Over the next twelve months, the Company plans to
continue to vigorously pursue the expansion of its INTERNATIONAL PRIVATE LINES,
LONG DISTANCE TELEPHONE, DATA SYSTEMS, PHONE CENTERS, and INTERNET ACCESS
services. The Company intends to capitalize on the growing demand for these
services and gain market share by building its subscriber base both domestically
and internationally through the acquisition of additional licenses and
concessions allowing the Company to provide these services both in the United
States and in targeted Latin American countries. The Company intends to
aggressively pursue new customers by combining the highest possible level of
service with an expanded sales force and intensive marketing efforts.
The Company intends to continue to build an INTERNATIONAL PRIVATE LINE
communication network that will provide voice, data, facsimile, INTERNET,
intranet, telecommuting, and video services to government and commercial
organizations operating throughout the United States and Latin America. The
building of this private line network is complementary to the Company objective
of providing INTERNET access services. The Company is currently licensed to
provide international private line services in the United States, Honduras,
Venezuela, Mexico, and Panama. On December 5, 1995 the Company obtained a
license form HONDUTEL in Honduras to provide its private line international
telecommunications services to Honduras. The initial investment by the Company
to develop its license in Honduras to provide international private lines will
approximate $100,000 for the purchase of equipment. On April 18, 1996 the
Company obtained a concession to provide international private lines to
Venezuela from CONATEL, the Venezuelan licensing authority. The Company has
identified seven key areas in Venezuela where a significant demand for its
services exists. Initially, approximately $250,000 will be allocated for the
building of the Company's first point of presence ("POP") in Venezuela, which
will include the construction of an earth station. Over the next twelve months,
the Company intends to seek an additional $2-3 million to build-out and operate
facilities in Venezuela, which it may obtain through the public or private sale
of securities.
<PAGE>
While the Company's telecommunication business is currently focused on the
provision of international private lines, it is also participating in an
existing venture in Mexico to provide LONG DISTANCE TELEPHONE SERVICES to the
United States. The initial investment by the Company was approximately
$120,000. The Company is actively pursuing other opportunities to provide long
distance services in Mexico and other Latin American countries. While there are
presently no contractual commitments regarding the purchase of facilities and
equipment to provide these services, the Company anticipates that approximately
$300,000 to $500,000 over the next twelve months will be required to expand its
long distance service to meet the demand of existing opportunities.
The Company is vigorously pursuing both the domestic and international
expansion of its INTERNET access business. The Company's INTERNET business
continues to expand and is currently experiencing an annualized growth rate of
approximately 100% in its domestic INTERNET business. In March, 1996, the
Company formed Phoenix DataNet de Panama, a Panama corporation ("Phoenix
Panama") and commenced the offering of INTERNET services to business and
residential customers in Panama City, Panama. In the first three months of
operation, Phoenix Panama acquired over 300 new customers. On July 19, 1996 the
Company obtained an additional concession to provide INTERNET services to both
residences and business operating in Venezuela. The Company anticipates it will
spend approximately $150,000 per site in order to provide INTERNET services at
each of the seven areas targeted for private line services in Venezuela.
At its Houston headquarters, capital expenditures were made through the
six month period ended June 30, 1996, of approximately $660,000 to improve the
Company's international and domestic operations and facilities, including
approximately $90,000 spent to upgrade the facilities in Houston to provide
greater bandwidth availability to the INTERNET from the Houston domestic and
international INTERNET POP. In the last week of March, the Company completed
the construction of its second earth station in Houston for use in providing
communication services to customers in Central and South America.
The Company's available resources are not adequate to meet its requirements
for the next 12 months. The Company anticipates financing its future needs for
operational activities and capital asset acquisitions through private placements
and public offerings of equity or debt securities.
(b) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. Operations from January 26, 1994 through December 31,
1995 consisted primarily of raising capital, obtaining financing, locating,
acquiring, installing, and testing equipment, and administrative activities such
as license and concession acquisitions.
In the first quarter of 1996, the Company's first international private
line customers went on-line, the acquisition of Phoenix DataNet and Phoenix Data
Systems were completed, and the military phone centers in Panama were purchase.
Consolidated revenues from the
<PAGE>
operations of these combined lines of business totaled $431,722. Net loss
totaled ($707,652).
In the second quarter of 1996, the Company's consolidated revenues from the
operations totaled $2,282,705. Net loss totaled ($1,103,575).
During the six months ended June 30, 1996, the Company invested
approximately $870,000 in fixed asset additions representing primarily the
completion of the earth station in Houston, the upgrade of the INTERNET
access facilities in Houston, the installation of the INTERNET POP in Panama,
the equipment installations in the recently acquired Panama phone centers,
and the earth station in Honduras. Of this total, approximately $1,000,000
has been financed by a bank line of credit which totals approximately
$1,113,221 as of June 30, 1996.
Selling, general and administrative expenses were $1,294,775 and $2,052,510
for the three and six months ended June 30, 1996, respectively. Higher
administrative expenses were associated with the acquisition of PDN and PDS and
the expansion in Panama. The increase in selling expenses resulted from
increased sales volume. Selling, general and administrative expenses for the
first six months of 1996 were 82% of sales compared to 1400% of sales for 1995.
These expenses are expected to decrease proportionally with the increase in
sales volume over the remainder of 1996.
Interest expense was $111,246 and $155,764 for the three and six months
ended June 30, 1996, respectively. The increase over the same period in 1995 is
due to the Company's migration from a development stage company to a fully
operating entity. It is anticipated this figure will continue to rise as the
Company acquires debt financing to expand its international operations. The
Company's credit facilities are variable rate notes tied to the Company's
lending institution's prime rate. Increases in the prime lending rate could
negatively affect the Company's earnings.
Net earnings (losses) for the three months and six months ended June 30,
1996 were ($1,103,575) or ($.09) per share and ($1,811,227) or ($.18) per share.
Net cash used in operations for the three and six months ended June 30,
1996 was $826,961 and $1,553,090, respectively, resulted principally from cash
obtained from the private placement of approximately $2,873,000 in notes and
warrants in the fourth quarter 1995 and completed in the first quarter of 1996.
Additional cash was obtained from increases in accounts receivable and inventory
but was partially offset by the net losses from operations, non-cash charges and
the increase in accounts payable.
The rate of revenue growth in 1996 is expected to be high because the
Company will be commencing previously non-existent operations and expects to
consummate the acquisition of Overlook Communications International
Corporation ("OCI"), as discussed below. The Company expects revenue growth
beyond that which
<PAGE>
can be funded by cash flow from operations and will in fact require borrowing
on the working capital line of credit. Future infusions of cash required for
operating costs and capital equipment expansion will be dependent on the
Company's success in obtaining new customers and the closing of private
placement financing or public offerings of equity or debt securities.
Expenses incurred during 1995 and the first and second quarters of 1996 are
costs necessitated to develop, implement and market the Company's operating
strategy. As the business plan unfolds, future operating costs will
substantially increase and change in form and content from those incurred to
date. The acquisitions of PDN, PDS, and the phone centers in Panama as well as
the revenue stream increases anticipated from telecommunication sales will
propel the Company to on-going operating status in 1996 as compared to the costs
incurred in 1995 and first quarter 1996 as a development stage company.
Recent Developments. The Company recently announced the execution of a
Letter of Intent with OCI, a global interactive database and telecom services
company, pursuant to which a newly formed wholly owned subsidiary of the
Company would be merged with OCI in a reverse Triangular merger, with OCI
serviving as a wholly owned subsidiary of the Company. In the transaction,
the Company will issue 9,000,000 shares of common stock in exchange for all
the issued and outstanding capital stock of OCI. The Company and OCI have
recently executed definitive agreements and expect to consummate the
transaction, subject to the approval of OCI's shareholders in the third
quarter of 1996.
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
On June 2, 1996, the stockholders of the Company approved by written
consent the adoption of three stock option plans of the Company: the 1996
Nonemployee Director Stock Option Plan, the 1996 Executive Long-Term Stock
Option Plan and the 1996 Incentive Stock Option Plan (collectively, the
"Plans"). Under the corporation laws of the State of Nevada and the Company's
Articles of Incorporation and Bylaws, the stockholders of the Company may take
actions by less than unanimous written consent; provided that the consent is
signed by stockholders representing the number of shares required to authorize
the actions authorized in the consent. Pursuant to the Nevada corporation laws
and the Articles of Incorporation and Bylaws of the Company, the vote of a
majority of the common stock of the Company was required to approve the Plans.
On June 2, 1996, the date of the Consent, the Company had 11,787,805 shares of
Common Stock issued and outstanding and entitled to vote on the approval of the
Plans. Seven stockholders representing in the aggregate 7,250,622 shares, or
61.5%, of the Company's Common Stock executed the consent. After the consent
was executed by stockholders holding sufficient voting power to authorize the
actions set forth therein, the consent was not submitted to any other
stockholders for approval. Accordingly, the Company has no information as to
whether such stockholders would have voted in favor of the proposal, against the
proposal or would have abstained from voting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits required by Item 601 of Regulation S-B.
Exhibit 3.03 - Amended Bylaws of the Company
<PAGE>
Exhibit 10.07 - Agreement with Honduran Telecommunications Company
Exhibit 10.08 - Agreement with Telecomunicaciones De Mexico
Exhibit 10.09 - Agreement with Comision Nacional de
Telecomunicaciones
Exhibit 27 - Financial Data Schedule
(b) REPORTS ON FORM 8-K.
The following reports on Form 8-K were filed by the Company during the
quarter for which this report on Form 10-QSB is being filed:
(i) Form 8-K/A - amending Form 8-K dated April 19, 1996, regarding
dismissal of Price Waterhouse LLP as the registrant's independent
accountants.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHARTER COMMUNICATIONS
INTERNATIONAL, INC.
Date: August 14, 1996 By: /s/ David G. Olson
Chief Executive Officer
Date: August 14, 1996 By: /s/ John Slusser
Chief Accounting Officer
<PAGE>
BYLAWS
OF
CHARTER COMMUNICATIONS INTERNATIONAL, INC.
ARTICLE I
OFFICES
1.01 REGISTERED OFFICE. The registered office shall be located at 502
East John Street, Carson City, Nevada 89706.
1.02 OTHER OFFICES. The Corporation may also have offices at such other
places located within or without the State of Nevada as the Board of Directors
may from time to time determine, or as the business of the Corporation may
require.
ARTICLE II
STOCKHOLDERS
2.01 LOCATION OF MEETINGS. Meetings of stockholders shall be held at
the principal business office of the Corporation, or at any other location which
may be specified in the notice of the meeting or in a duly executed waiver
thereof. Meetings of stockholders may be held by means of conference telephone
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, and such participation shall constitute
presence in person at such meeting, except where a person participates in the
meeting for the express purpose of objecting to the transaction of any business
on the ground that the meeting is not lawfully called or convened.
2.02 ANNUAL MEETINGS. Unless a unanimous consent of the stockholders is
submitted to the Corporation pursuant to Section 2.10, an annual meeting of
stockholders shall be held annually at such date and time as shall be designated
from time to time by the Board of Directors and stated in the notice of meeting.
At this meeting, the stockholders shall elect a Board of Directors, and may
transact other business properly brought before the meeting. The failure to
hold the annual meeting or to file the written consent in lieu thereof will not
cause a forfeiture or dissolution of the Corporation.
2.03 LIST OF STOCKHOLDERS. At least ten (10) days before each meeting
of stockholders, a complete list of the stockholders entitled to vote at said
meeting arranged in alphabetical order, with the address of each and the number
of voting shares held by each, shall be prepared by the office or agent having
charge of the stock transfer book. This list shall be kept on file at the
registered office of the Corporation and shall be subject to inspection by any
stockholder at any time during usual business hours for a period of ten (10)
days prior to such meeting. This list shall be produced and kept open at the
time and place of the meeting and shall be subject to the inspection of any
stockholder during the whole time of the meeting.
2.04 SPECIAL MEETINGS. Special meetings of the stockholders may be
called by the President, the Board of Directors, or the Chairman of the Board of
Directors, if one is appointed.
<PAGE>
2.05 NOTICE OF MEETINGS. A written or printed notice stating the place,
day and hour of any meeting and, in the case of a special meeting, the purpose
or purposes for which the meeting is called, shall be delivered not less than
ten (10) nor more than sixty (60) days before the date of the meeting, either
personally or by mail, by or at the direction of the President, the Secretary or
the officer or person calling the meeting, to each stockholder of record
entitled to vote at the meeting. If mailed, notice shall be deemed to be
delivered when deposited, postage prepaid, in the United States mail, addressed
to the stockholder at his address as it appears on the stock transfer books of
the Corporation. If a stockholder gives no address, notice shall be deemed to
have been given to the stockholder if sent by mail or other written
communication addressed to the place where the Corporation's registered office
is located, or if published at least once in some newspaper of general
circulation in the county in which the Corporation's registered office is
located. Where notice is required to be given and notice of two (2) previous
consecutive annual meetings or notices of meetings or notice of taking of action
without a meeting by written consent have been mailed and addressed to a
stockholder at the address as shown on the records of the Corporation and have
been returned undeliverable, the giving of further notice to the stockholder is
not required.
2.06 QUORUM. The holders of a majority of shares entitled to vote or,
in the event of any vote by class or classes, a majority of each class of the
shares entitled to vote as a class, represented in person or by proxy, shall
constitute a quorum at meetings of stockholders, except as otherwise provided by
statute, the Articles of Incorporation or these Bylaws. If, however, a quorum
shall not be present or represented at any meeting of the stockholders, the
stockholders present in person or represented by proxy shall have the power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting. At any adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally notified.
2.07 MAJORITY MAY CONDUCT BUSINESS. When a quorum is present at the
meeting, the vote of the holders of a majority of all the shares entitled to
vote represented in person or by proxy shall be the act of the stockholders'
meeting, unless the vote of a greater number is required by statute, the
Articles of Incorporation or these Bylaws.
2.08 VOTING OF SHARES. Each outstanding share, regardless of class,
shall be entitled to one vote on each matter submitted to a vote at a meeting of
the stockholders, except to the extent that the voting rights of the shares of
any class shall be limited or denied by the Articles of Incorporation and except
as otherwise provided by statute.
2.09 PROXIES. A stockholder may vote either in person or by proxy
executed in writing by the stockholder or by his duly authorized attorney-in-
fact. No proxy shall be valid after eleven (11) months from the date of its
execution, unless otherwise provided in the proxy. Each proxy shall be
revocable unless expressly provided therein to be irrevocable and unless
otherwise made irrevocable by law. Each proxy shall be filed with the Secretary
of the Corporation not less than 48 hours prior to the meeting.
2.10 ACTION WITHOUT MEETING. Any action required by statute to be taken
at a meeting of the stockholders, or any action which may be taken at a meeting
of the stockholders, may be taken without a meeting if a consent in writing,
setting forth the action so taken, shall be signed
2
<PAGE>
by stockholders holding such number of shares as are required to authorize the
action so taken and which are entitled to vote with respect to the subject
matter thereof.
2.11 VOTING OF SHARES OF CERTAIN HOLDERS.
(a) Shares standing in the name of another corporation may be voted
by such officer, agent or proxy as the bylaws of such corporation may
authorize, or in the absence of such authorization, as the Board of
Directors of such corporation may determine.
(b) Shares held by an administrator, executor, guardian, or
conservator may be voted by him so long as such shares are in the
possession and forming a part of the estate being served by him, either in
person or by proxy, without a transfer of the shares into his name. Shares
standing in the name of a trustee may be voted by him, either in person or
by proxy, but no trustee shall be entitled to vote shares held by him
without a transfer of the shares into his name as trustee.
(c) Shares standing in the name of a receiver may be voted by the
receiver, and shares held by or under the control of a receiver may be
voted by him without the transfer thereof into his name if authority to do
so is contained in an appropriate order of the court by which he was
appointed.
(d) A stockholder whose shares are pledged shall be entitled to vote
such shares until they have been transferred into the name of the pledgee,
and thereafter the pledgee shall be entitled to vote the transferred
shares.
(e) Treasury shares, shares of its own stock owned by another
corporation, the majority of the voting stock of which is owned or
controlled by it, and shares of its own stock held by the Corporation in a
fiduciary capacity shall not be voted, directly or indirectly, at any
meeting, and shall not be counted in determining the total number of
outstanding shares at any given time.
2.12 RECORD DATES. For the purpose of determining stockholders entitled
to notice of, or to vote at, any meeting of stockholders or any adjournment
thereof, or entitled to receive payment of any dividend, or in order to make a
determination of stockholders for any other proper purpose, the Board of
Directors may provide that the stock transfer books shall be closed for a stated
period not to exceed sixty (60) days. If the stock transfer books are closed
for the purpose of determining stockholders entitled to notice of, or to vote
at, a meeting of stockholders, the books shall be closed for at least ten (10)
days immediately preceding the meeting.
In lieu of closing the stock transfer books, the Board of Directors may fix
in advance as the record date for determination of stockholders, a date in any
case to be not more than sixty (60) in case of a meeting of stockholders, not
less than ten (10) days prior to the date on which the particular action
requiring the determination of stockholders is to be taken.
If the stock transfer books are not closed and no record date is fixed for
the determination of stockholders entitled to notice of, or to vote at, a
meeting of stockholders, or entitled to
3
<PAGE>
receive payment of a dividend, the date on which notice of the meeting is mailed
and the date on which the resolution of the Board of Directors declaring such
dividend is adopted, as the case may be, shall be the record date for
determination of stockholders.
When a determination of stockholders entitled to vote at any meeting of
stockholders has been made, as provided in this section, such determination
shall apply to any adjournment thereof, except where the determination has been
made through the closing of stock transfer books and the stated period of
closing has expired, in which case a new determination shall be made in
accordance with the provisions of this section.
ARTICLE III
DIRECTORS
3.01 POWERS. The business and affairs of the Corporation shall be
managed by its Board of Directors, which may exercise all powers of the
Corporation and do all lawful acts and things as are not by statute or by the
Articles of Incorporation or by these Bylaws directed or required to be
exercised or done by the stockholders.
3.02 NUMBER AND ELECTION. Except as otherwise fixed pursuant to the
provisions of the Articles of Incorporation, as amended, the number of directors
constituting the initial Board of Directors of the Corporation shall be as set
forth in the Articles of Incorporation, as amended, and the number of directors
may be changed by the Board of Directors from time to time by appropriate
resolution of the Board. The directors shall be elected at the annual meeting
of the stockholders, except as provided in Section 3.03, and each director
elected shall hold office until the next succeeding annual meeting and until his
successor shall have been elected and qualified, except as otherwise provided in
the Articles of Incorporation or in these Bylaws. Directors need not be
residents of the State of Nevada or stockholders of the Corporation.
3.03 ELECTIONS TO FILL VACANCIES. Any vacancy occurring on the Board of
Directors may be filled by the affirmative vote of a majority of the remaining
directors though less than a quorum of the Board of Directors, or by a sole
remaining director. A director elected to fill a vacancy shall be elected for
the unexpired term of his predecessor in office. Any directorship to be filled
by reason of an increase in the number of directors may be filled by election at
an annual or special meeting of stockholders called for that purpose, or may be
filled by the Board of Directors, for a term of office continuing only until the
election of one or more directors by election at an annual or special meeting of
stockholders called for that purpose.
3.04 LOCATION OF MEETINGS. Meetings of the Board of Directors, regular
or special, may be held either within or without the State of Nevada. Members
of the Board of Directors or of committees thereof may participate in and hold a
meeting of the Board of Directors or committee thereof by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in such a
meeting shall constitute presence in person at such meeting, except where a
person participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
4
<PAGE>
3.05 FIRST MEETING OF NEWLY ELECTED BOARD. The first meeting of each
newly elected Board of Directors shall be held at such time and place directly
following the annual meeting of the stockholders or as shall be fixed by the
vote of the stockholders at their annual meeting, and no notice of such meeting
shall be necessary to the newly elected directors in order legally to constitute
the meeting, provided that a quorum shall be present. In the event such meeting
is not held after the annual meeting of the stockholders or in the event of a
failure of the stockholders to fix the time and place of the first meeting of
the newly elected Board of Directors, or in the event the meeting is not held at
the time and place so fixed by the stockholders, such meeting may be held at the
time and place specified in a notice given as provided for special meetings of
the Board of Directors, or as specified in a written waiver signed by all of the
directors.
3.06 REGULAR MEETINGS. Regular meetings of the Board of Directors may
be held without notice at such times and places as shall, from time to time, be
determined by the Board.
3.07 SPECIAL MEETINGS. Special meetings of the Board of Directors may
be called by the Chairman of the Board of Directors or the President. Notice of
special meetings of the Board of Directors may be given personally, either
verbally or in writing, or sent in writing by United States mail, or by
facsimile. In case the notice is mailed, the notice shall be deposited in the
mail at the place in which the principal business office of the Corporation is
located at least five (5) days prior to the time of the holding of the meeting.
In case the notice is delivered personally, either verbally or in writing, or is
sent by facsimile, the notice shall be so delivered at least two (2) hours prior
to the time of the holding of the meeting. The delivery, mailing, or sending by
facsimile as above provided shall constitute due, legal and personal notice to
the director. Notice shall be given by the person calling the meeting or by the
Secretary. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in any
notice or waiver of notice, except as may otherwise be expressly provided by
statute, the Articles of Incorporation or these Bylaws.
3.08 QUORUM. A majority of the directors shall constitute a quorum for
the transaction of business, and the act of a majority of the directors present
at a meeting at which a quorum is present shall be the act of the Board of
Directors, unless a greater number is required by statute, the Articles of
Incorporation or these Bylaws. If a quorum shall not be present thereat the
directors may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
3.09 ACTION WITHOUT MEETING. Any action that may be taken by the
executive committee, if any, or the Board of Directors at a meeting may be taken
without a meeting if a consent in writing setting forth the actions so taken
shall be signed by all of the members of the executive committee or all of the
directors.
3.10 COMPENSATION. Directors, as such, shall not receive any salary for
their services, but, by resolution of the Board may receive a fixed sum and
necessary expenses of attendance of each regular or special meeting of the
Board. Members of the executive committee, by resolution of the Board of
Directors, may be allowed like compensation for attending committee meetings.
Nothing herein contained shall be construed to preclude any director from
serving the Corporation in another capacity and receiving compensation therefor.
5
<PAGE>
ARTICLE IV
NOTICES
4.01 CONTENT AND METHOD. Notices to directors and stockholders shall be
in writing unless otherwise provided in these Bylaws, shall specify the time and
place of the meeting, and shall be delivered personally or mailed to the
directors or stockholders at their addresses appearing on the books of the
Corporation. Notice by mail shall be deemed given at the time when the notice
is placed in the United States mail, postage prepaid. Notice to directors may
also be given by facsimile.
4.02 WAIVER OF NOTICE. Whenever any notice is required to be given to
any stockholder or director under the provisions of applicable statutes, the
Articles of Incorporation or these Bylaws, a waiver thereof in writing, signed
by the person or persons entitled to such notice, whether before or after the
time stated therein, shall be equivalent to the giving of notice.
4.03 ATTENDANCE CONSTRUED AS WAIVER OF NOTICE. Attendance of a
stockholder, in person or by proxy, or a director at a meeting shall constitute
a waiver of notice of such meeting, except where a director or stockholder
attends a meeting for the express purpose of objecting to the transaction of any
business on the ground that the meeting is not lawfully called or convened.
ARTICLE V
OFFICERS
5.01 TITLES. The officers of the Corporation shall consist of a
President, a Secretary, a Treasurer and, in the discretion of the Board of
Directors, such other officers as are contemplated by Section 5.03 hereof, each
of whom shall be elected by the Board of Directors. Any two or more offices may
be held by the same person.
5.02 ELECTION. The Board of Directors, at its first meeting after each
annual meeting of stockholders, shall elect a President, a Secretary, and a
Treasurer and may elect one or more Vice Presidents, none of whom needs to be a
member of the Board, and may appoint a member of the Board of Directors as
Chairman of the Board.
5.03 OTHER OFFICERS. Such other officers and assistant officers and
agents as may be deemed necessary may be elected or appointed by the Board of
Directors.
5.04 COMPENSATION. The compensation of the President, any Vice
Presidents, the Secretary and the Treasurer shall be fixed by the Board of
Directors, but the compensation of all minor officers and all other agents and
employees of the Corporation may be fixed by the President, unless by resolution
the Board of Directors shall determine otherwise.
5.05 TERM OF OFFICE. Each officer of the Corporation shall hold office
until his successor is chosen and qualifies, or until his death or removal or
resignation from office. Any officer, agent or member of the executive
committee elected or appointed by the Board of Directors may be removed by a
majority vote of the Board of Directors whenever in its judgment the best
interests of the Corporation will be served thereby, but such removal shall be
without
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prejudice to the contract rights, if any, of the person so removed. Any vacancy
occurring in an office of the Corporation for any reason may be filled by the
Board of Directors.
5.06 CHAIRMAN OF THE BOARD. In the event that a Chairman of the Board
is designated by the Board of Directors, the Chairman shall preside over all
meetings of the stockholders and of the Board of Directors. He shall see that
all orders and resolutions of the Board of Directors are carried into effect.
The Chairman shall have such other powers and duties as usually pertain to such
office or as may be assigned to him from time to time by the Board of Directors.
In the event that a Vice-Chairman of the Board is designated by the Board of
Directors, the Vice-Chairman shall, in the absence of the Chairman, exercise the
powers and have the duties of the Chairman.
5.07 PRESIDENT. In the absence of the Chairman and Vice-Chairman of the
Board, the President shall preside at all meetings of the stockholders and, if
the President is also a member of the Board of Directors, at all meetings of the
directors. Unless the Board of Directors shall otherwise direct, the President
shall have general and active management responsibility for the business of the
Corporation.
5.08 VICE PRESIDENTS. In the event that the Board of Directors shall
provide for one or more Vice Presidents, then each of the Vice Presidents, in
the order of his seniority, unless otherwise determined by the Board of
Directors, shall in the absence or disability of the President, serve in the
capacity of the President and perform the duties and exercise the powers of the
President. Each Vice President shall perform such other duties and have such
other powers as the Board of Directors shall from time to time prescribe.
5.09 SECRETARY. The Secretary shall:
(a) attend all meetings of the Board of Directors and of the
stockholders, and shall record all votes and keep the minutes of all such
proceedings in one or more books kept for that purpose;
(b) perform like services for the executive committee of the
Board of Directors, if any;
(c) give, or cause to be given, notice of all meetings of the
stockholders and special meetings of the Board of Directors;
(d) keep in safe custody the seal of the Corporation, and when
authorized by the Board of Directors, affix the same to any instrument
requiring it and when so affixed, it shall be attested by the Secretary's
signature, or by the signature of the Treasurer, if any, or any Assistant
Secretary or Assistant Treasurer; and
(e) perform all duties incidental to the office of Secretary and
such other duties as, from time to time, may be assigned to the Secretary
by the President or Board of Directors, under whose supervision the
Secretary shall function.
5.10 ASSISTANT SECRETARIES. Each Assistant Secretary, if any, in the
order of his seniority, unless otherwise determined by the Board of Directors,
in the absence or disability
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of the Secretary, shall perform the duties and exercise the powers of the
Secretary, and shall perform such other duties and have such other powers as the
Board of Directors may, from time to time, prescribe.
5.11 TREASURER. The Treasurer shall:
(a) have custody of the corporate funds and securities;
(b) keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation;
(c) deposit all money and other valuable effects in the name and
to the credit of the Corporation;
(d) disburse such funds of the Corporation; taking proper
vouchers for all disbursements;
(e) render to the Board of Directors at the regular meetings of
the Board of Directors, or whenever the Board of Directors may require, an
account of all transactions entered into under this Section 5.11 and of the
financial condition of the Corporation; and
(f) perform all such other duties as, from time to time, may be
assigned to him by the Board of Directors.
5.12 TREASURER'S BOND. If required by the Board of Directors, the
Treasurer or such other officer as designated by the Board of Directors to
perform the duties enumerated in Section 5.11 above shall give the Corporation a
bond in such sum and with such surety or sureties as shall be satisfactory to
the Board of Directors for the faithful performance of the duties of his office,
and for the restoration to the Corporation, in case of his death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his control belonging
to the Corporation.
5.13 ASSISTANT TREASURERS. Each Assistant Treasurer, if any, in the
order of his seniority unless otherwise determined by the Board of Directors,
shall in the absence or disability of the Treasurer perform the duties and
exercise the powers of the Treasurer, and shall perform such other duties and
have such other powers as the Board of Directors may, from time to time,
prescribe.
ARTICLE VI
CERTIFICATES REPRESENTING SHARES
6.01 DESCRIPTION. The Corporation shall deliver certificates
representing all shares to which stockholders are entitled. Certificates shall
be signed by the President and the Secretary of the Corporation, or in the
absence of the President and/or Secretary, a Vice President and/or Assistant
Secretary if such offices have been appointed or elected by the Board of
Directors and may be sealed with the seal of the Corporation or a facsimile
thereof. No certificate shall be issued for any share until the consideration
therefor has been fully paid. Each certificate shall be consecutively numbered
and shall be entered in the books of the Corporation as issued. Each
8
<PAGE>
certificate representing shares shall state upon the face thereof that the
Corporation is organized under the laws of the State of Nevada, the name of the
person to whom issued, the number and class of shares and the designation of the
series, if any, which such certificate represents.
6.02 FACSIMILE SIGNATURES. The signature of the President and the
Secretary upon a certificate may be facsimiles. In the event that an officer
who has signed or whose facsimile signature has been placed upon a certificate
shall cease to be such officer before the certificate is issued, the certificate
may be issued by the Corporation with the same effect as if he were such officer
at the date of issuance.
6.03 LOST CERTIFICATE. The Board of Directors may direct new
certificate(s) to be issued in place of any certificate(s) previously issued by
the Corporation alleged to have been lost or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate(s) to be lost or
destroyed. When authorizing such issuance of new certificate(s), the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of the lost or destroyed certificate(s), or his legal
representative, to advertise the same in such manner as it shall require and/or
to give the Corporation a bond in such sum and form and with such sureties as it
may direct as an indemnity against any claim that may be made against the
Corporation with respect to the certificate(s) alleged to have been lost or
destroyed.
6.04 TRANSFER OF SHARES. Shares of stock shall be transferable only on
the books of the Corporation by the holder thereof in person or by his duly
authorized attorney-in-fact. Upon surrender to the Corporation or the transfer
agent of the Corporation, of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
6.05 TRANSFER AGENTS AND REGISTRARS. The Corporation may have one or
more transfer agents and one or more registrars of its stock, whose respective
duties the Board of Directors may, from time to time, define. No certificate of
stock shall be valid until countersigned by a transfer agent, if the Corporation
shall have a transfer agent, or until registered by the registrar, if the
Corporation shall have a registrar. The duties of transfer agent and registrar
may be combined.
6.06 REGISTERED OWNERS. The Corporation shall be entitled to recognize
the exclusive rights of a person registered on its books as the owner of shares
to receive dividends and to vote as such owner, and shall not be bound to
recognize any equitable or other claim to, or interest in, such share or shares
on the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of the State of Nevada.
ARTICLE VII
GENERAL PROVISIONS
7.01 DIVIDENDS. The Board of Directors may declare and the Corporation
may pay dividends on its outstanding shares in cash, property or its own shares,
pursuant to law and subject to the provisions of its Articles of Incorporation.
9
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7.02 EXECUTION OF INSTRUMENTS. Unless otherwise authorized by the Board
of Directors, deeds, transferees, assignments, contracts, obligations,
certificates (other than certified copies of instruments, which need be signed
by only one of the following persons) and other instruments may be signed on
behalf of the Corporation by two persons, one of whom holds the office of
Chairman of the Board, Vice-Chairman of the Board or President or Senior Vice-
President or director and the other of whom holds one of the said offices or
holds the office of Vice-President, Secretary, Treasurer, Assistant Secretary or
Assistant Treasurer or any other office created by bylaw or by resolution of the
Board of Directors; provided that if the Corporation has only one director, that
director alone or the President alone may sign any instrument on behalf of the
Corporation. In addition, the Board of Directors may from time to time direct
the manner in which and the person or persons by whom any instrument or
instruments may or shall be signed. Any signing officer may affix the corporate
seal to any instrument requiring the same but no instrument is invalid merely
because the corporate seal is not affixed thereto.
7.03 RESERVES. The Board of Directors may by resolution create a
reserve or reserves out of earned surplus for any purpose or purposes, and may
abolish any such reserve in the same manner.
7.04 SIGNATURES. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or other person or
persons as the Board of Directors may, from time to time, designate.
7.05 FISCAL YEAR. The fiscal year of the Corporation shall be fixed by
resolution of the Board of Directors.
7.06 CORPORATE SEAL. The corporate seal shall have inscribed thereon
the name of the Corporation and shall be in the form determined by the Board of
Directors. The seal may be used by causing it, or a facsimile thereof, to be
impressed, affixed or in any other manner reproduced. The use of the seal is
not necessary on any corporate document and its use or nonuse shall not in any
way affect the legality of the document.
ARTICLE VIII
INDEMNIFICATION
8.01. THIRD PARTY ACTIONS. The Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement or conviction, or upon a plea of
10
<PAGE>
nolo contendere or its equivalent, shall not, of itself, create a presumption
that the person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Corporation, and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
8.02. ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. The Corporation
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the Corporation to procure a judgment in its favor by reason of the fact that
he is or was a director, officer, employee or agent of the Corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the Corporation unless and only to
the extent that the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which such court shall deem proper.
8.03. DETERMINATION OF CONDUCT. The determination that an officer,
director, employee or agent, has met the applicable standard of conduct set
forth in Sections 8.01 and 8.02 (unless indemnification is ordered by a court)
shall be made (1) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or proceeding,
or (2) if such quorum is not obtainable, or even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (3) by the stockholders.
8.04. PAYMENT OF EXPENSES IN ADVANCE. Expenses incurred in defending a
civil or criminal action, suit or proceeding shall be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding as
authorized by the Board of Directors in the specific case upon receipt of an
undertaking by or on behalf of the director, officer, employee or agent to repay
such amount unless it shall ultimately be determined that he is entitled to be
indemnified by the corporation as authorized in this Article VIII.
8.05. DEFINITION. For purposes of this Article VIII, references to "the
Corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, and employees
or agents, so that any person who is or who was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this Article VIII, with
respect to the resulting or surviving corporation as he would have with respect
to such constituent corporation if its separate existence had continued.
8.06. INDEMNITY NOT EXCLUSIVE. The indemnification provided hereunder
shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled
11
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under any other Bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
8.07 AMENDMENT OR REPEAL. Neither the amendment nor repeal of this
Article VIII of these Bylaws, nor the adoption of any provisions of these
Bylaws, any other bylaw or any statute inconsistent with this Article VIII of
these Bylaws shall eliminate or reduce the effect of this Article VIII of these
Bylaws in respect of any acts or omissions occurring prior to such amendment,
repeal or adoption of any inconsistent provision.
ARTICLE IX
AMENDMENTS
Unless otherwise provided in the Articles of Incorporation, these Bylaws
may be altered, amended or repealed, and new bylaws may be adopted by the
affirmative vote of a majority of either the Board of Directors or the holders
of a majority of the shares entitled to vote, present at any meeting at which a
quorum of each respective body is present, provided that notice of the proposed
alteration, amendment, repeal or adoption shall be contained in the notice of
the meeting. This power to alter, amend or repeal these Bylaws, and to adopt
new bylaws, may be modified or divested by action of the holders of a majority
of the shares entitled to vote taken at any regular or special meeting of the
stockholders.
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C.C.I. AND HONDUTEL
BILATERAL AGREEMENT
TO PROVIDE
INTERNATIONAL SATELLITE PRIVATE LINE SERVICE
In the city of Tegucigalpa, M.D.C. on this fifth day of the month of December of
Nineteen Hundred and Ninety Five, WE: CHARTER COMUNICACIONES INTERNACIONALES
GRUPO, S. A. (C.C.I) of Panama, with its commercial offices respectively located
at Calle 50, Edificio de Iberoamerica, Oficina 9 B, Piso 9, Balboa Panama,
Panama and HONDUTEL (Honduran Telecommunications Company), located in
Tegucigalpa, Honduras, accord the following:
1. C.C.I. and HONDUTEL will together provide international satellite private
line services utilizing the earth station facilities of satellites:
SOLIDARIDAD, PANAMSAT or the satellite INTELSAT of the Atlantic Ocean
Region (AOR). The services stipulated under this contract will require
multiple access techniques such as FDMA-MCPC. FDMA-SCPC-DAMA (assignment on
demand) for point to point services, as well as eventual TDMA access and
fixed TDMA access for services that employ stations recognized as VSAT for
transmission of data only. For services with FDMA access, C.C.I. teleports
that act as shared usage stations or dedicated stations assigned by C.C.I.
will be used. To render TDMA services to multi-users, an earth station
HUB shared with C.C.I. and space segment techniques of shared time will be
used.
2. The services to render by HODUTEL to users (carrier) in Honduras will be
the following:
a) Authorize all the licenses and permits required by the client
(proprietary of the terminal satellite) to provide and operate the
service in the country of Honduras, in accordance with the country's
current laws.
b) Prepare and send the descriptive technical forms of the satellite half
circuit relative to HONDUTEL (for INTELSAT, form SSOG 200).
a) Provide C.C.I with the rates that HONDUTEL will charge for the "half
circuit" associated with these services of behalf of HONDUTEL. These
rates are competitive on the international market of international
private line services.
3. The services that C.C.I. will provide for the execution of these services
are the following:
a) Provide access to the space segment entrance and exit from the half
circuit to the United States or Mexico (whichever the case). Stated
space segment will be acquired and furnished by C.C.I.
b) Provide HUB services including access, capacity, operation and
maintenance.
c) Provide the operation and monitoring of the Total Network from any of
the C.C.I. Operation Network Centers located in Mountain View,
California, USA or in Mexico City, Mexico.
<PAGE>
d) Provide and maintain an updated list of C.C.I. contacts (Exhibit D)
and the installations for payment of C.C.I. invoices (Exhibit ).
e) C.C.I or its clients will be responsible for the realization of the
following work for the preparation of the site: approval of all the
permits of or the proprietors of the locales where the satellite
terminals are installed, civil work to penetrate walls with the
objective of interconnection cabling, construction of a protection
screen that may be required at the installations at ground level and
whichever electrical or ventilation work.
a) C.C.I. or its clients will assume responsibility for all work and
transactions related to shipping, importation and transportation of
the satellite terminals.
g) C.C.I. will assure that its clients obtain the licenses necessary to
operate the terminals (client property) as private satellite
communication stations, according to HONDUTEL regulations.
h) C.C.I. will be responsible for the studies of the site, interference
analysis, installations, tests, start up and operation of the
satellite stations employed in the services described in this
Contract.
i) "For the earth stations to be installed on Honduran territory, the
activities mentioned in the above point will be conducted in
coordination with HONDUTEL."
4. C.C.I. will provide only one location for invoicing the client. HONDUTEL
services will be invoiced to C.C.I.
5. HONDUTEL will receive monthly payments for its services in accordance with
Exhibit A and B.
6. C.C.I. will be responsible for the leasing of the space segment for the
corresponding half circuit.
7. The initial sites for the terminals and VSAT equipment, as well as the
initial SCPC type terminals are defined in the attached exhibit
(hereinafter referred to as the sites). The exhibit to be defined can be
modified in parts from time to time to reflect the addition or withdrawal
of clients.
8. C.C.I. and HONDUTEL will not permit the connection of terminals described
in this Contract to whichever connected public line. C.C.I. and HONDUTEL
will put forth their best effort to assure that clients do not utilize the
VSAT service for whichever application that is not private corporate type
communication (not public)
9. C.C.I. and HONDUTEL will maintain all information that is not intended
public knowledge in complete confidentiality during the duration of this
Contract and cannot provide this information without consent by both
parties.
10. C.C.I. commits to not render the National VSAT service at HONDUTEL
utilizing the installed VSAT for international use and recognizes that only
HONDUTEL is authorized to render this service.
<PAGE>
11. If either of the two parties does not comply with the realization of the
material obligations agreed upon, the other party has the right to
terminate the Contract in ten (10) days by means of written notification to
the other party.
12. "HONDUTEL has the right to conduct technical, financial, administrative and
operational audits to verify and account that these channels are not used
for resale of services or to flow international public voice traffic. The
audits can be conducted by HONDUTEL without prior notification and has
complete access to the facilities."
Both parties and consequently their Administrations are committed to
supervise that the international service is not used by the Companies as
resale to third parties.
13. The relation established by this Contract does not constitute or authorize
C.C.I. to be an agent or partner of HONDUTEL.
It also does not constitute or authorize HONDUTEL to be an agent or partner
of C.C.I. The services to be provided described in this Contract do not
establish any joint operation (consortium) or fiduciary relationship
between C.C.I. and HONDUTEL.
14. HONDUTEL will proceed to rescind this Contract without any responsibility
and immediately cancel the operation of the services established in this
Contract in Honduras should it detect any non-compliance of that set forth
in point 11.
15. C.C.I. and HONDUTEL convene and accept that whichever controversy related
to the execution and whichever other issue in connection with the
development and compliance of this Contract will be resolved in a friendly
and reconciling manner. Should both parties not come to a satisfactory
agreement, the litigation will be submitted for resolution to a Honduran
court therefore, both parties renounce their present domicile and
diplomatic rights, and have as address to receive notifications, citations
and summons, as described in this Contract.
HONDUTEL
Palacio de las Comunicaciones Electricas
Apartado Postal 1794
Tegucigalpa, M. D. C.C.I..
Honduras, C.A.
C.C.I.
Calle 50, Edificio de Iberoamerica
Oficina 9B, Piso 9 Balboa Panama
Panama
It is understood that any change in address should be notified to the other
party by written within a term of ten days from the date of change. On the
contrary, all notifications, citations and summons made to the current
address will hold.
16. The obligations and rights of this Contract cannot be transferred by either
of the parties to third persons without written consent of the other party.
17. The following documentation will serve as supporting documentation of this
Contract:
<PAGE>
INTERNATIONAL COMMERCIAL DIGITAL CIRCUITS (ICDC)
18. The duration and term of this Contract will be five (5) years as of the
date signed. This contract may be extended for subsequent periods of one
year. In case of an extension to the duration of the Contract, the request
for extension should be provided in writing no later than ninety (90) days
to the termination of the initial termination period or the subsequent
periods thereafter.
Extension may be granted due to delays produced by natural causes during
the installation period which is ninety (90) days from the day of
commencement.
<PAGE>
HONDUTEL:
___________________________________ Date: December 5, 1996
Jose Mario Maldonado (attorney) -----------------------------
General Manager
Honduran Telecommunications Company
C.C.I.:
_____________________________________ Date: December 5, 1996
William C. Comee -----------------------------
Administrative Director
Charter Comunicaciones Internacionales
Grupo, S. A.
<PAGE>
EXHIBIT A
MONTHLY RATES APPLICABLE
TO INTERNATIONAL CORPORATE SERVICE VIA SATELLITE
(SECOINSAT)
(US$ MONTHLY)
I. Rates indicated in continuation correspond to the INTERNATIONAL CORPORATE
SERVICE rendered through the HONDUTEL Earth Station (TELEPORT - HONDUTEL).
The price includes the portion of the space segment of Honduras, use of the
installations of TELEPORT - HONDUTEL and does not include the local loop
between TELEPORT - HONDUTEL and the client.
Transmission Velocity Commitment Period
--------------------- -----------------
1 Year 5 Years
56/64 kbits/s 4,000.00 3,500.00
128 kbits/s 6,400.00 5,600.00
192 kbits/s 9,600.00 8,400.00
256 kbits/s 12,800.00 11,200.00
1.544 mbits/s 25,000.00 22,000.00
2.048 mbits/s 30,300.00 28,000.00
For velocities greater than 256 kbits/s but less than 1.544 mbits/s or
2.048 mbits/s, the rate will be the result of multiplying the rate of
US$3,200.00 for a period of one year and US$ 2,800.00 for a period of five
years by the number of units required of 64 kbits/s.
Commitments cannot be canceled before the termination of the period. Thus,
in case of premature termination either party will pay 25% of the balance
of the charges related to the remainder of the agreement.
I. The rates indicated in continuation correspond to the INTERNATIONAL SERVICE
CONTRACT rendered by the Client's Earth Station. The price includes the
portion of the Honduran space segment. In case the client's earth station
utilize an antenna with a diameter less than the equivalent to
multiplicative factor of 1.0. The cost of penalization for the circuit
applied to Hondutel will be transferred to the client.
Transmission Velocity Commitment Period
1 Year 5 Years 10 Years 15 Years
56/64 kbits 1,165 910 850 792
1.544 mbits/s 17,475 17,335 16,217 15,937
2.048 mbits/s 23,300 23,113 21,622 20,131
For velocities greater than 64 kbits/s but less than 1.544 mbits/s or 2.048
mbits/s, the rate will be the result of multiplying the 64 kbits/s rate by
the number of units required for 64kbits/s.
<PAGE>
Commitments cannot be canceled before the termination of the period. Thus,
in case of premature termination either party will pay 25% of the balance
of the charges related to the remainder of the agreement, in addition to an
annual payment of $680.00 for authorization of the Frequency License, plus
a one time payment of US$2,000.00 for an Interference Study at the time of
initial installation.
<PAGE>
EXHIBIT B
a. US$500.00 when the HUB has 20 or more antennas.
b. US$700.00 when the HUB has from 11 and 19 VSAT antennas.
a. US$1,000.00 when the HUB has 10 or less VSAT antennas.
Plus a deposit of US$2,500.00 to guarantee the transaction that will be
reimbursed at the time the service is retired in the Republic of Honduras,
and an annual payment of US$680.00 for the authorization of the License for
the use of the Frequency, as well as a one time payment of US$2,000.00 for
a study prepared on Interference at the time of initial installation.
These rates are valid for a term of three (3) years and will remain in
effect for the duration of the Contract. The rates may change upon review
of this bilateral agreement.
<PAGE>
EXHIBIT C
PERSONNEL TO CONTACT AT HONDUTEL
<PAGE>
EXHIBIT D
LIST OF CONTACTS FROM
CHARTER COMUNICACIONES INTERNACIONALES GRUPO, S.A.
a. Lic. Leonel Gutierrez Minera
Resident Attorney
Telephone: (504) 32-1291
b. William C. Comee
Administrative Director
Telephone: (507) 264-8531
c. Carlos Vega
Technical Manager
Telephone: (507) 264-8531
d. Edilbrando Denis
General Manager
Telephone: (507) 264-8531
<PAGE>
AGREEMENT OF INTERCONNECTIVITY FOR THE EXTENSION OF SATELLITE NETWORKS BETWEEN
THE UNITED STATES OF MEXICO AND THE UNITED STATES OF AMERICA, MADE BY THE
DECENTRALIZED ORGANIZATION TELECOMUNICACIONES DE MEXICO, HEREINAFTER REFERRED TO
AS "TELECOMM", REPRESENTED HEREIN BY THEIR GENERAL MANAGER, ING. CARLOS MIER Y
TERAN ORDIALES AND THE CORPORATION NAMED CHARTER COMMUNICATIONS INTERNATIONAL,
INC., HEREINAFTER REFERRED TO AS "CCI", REPRESENTED HEREIN BY THEIR PRESIDENT,
MR. ROAN SCRAPER, IN CONFORMITY WITH THE FOLLOWING INFORMATION, STATEMENTS AND
ARTICLES:
STATEMENTS
I. TELECOMM STATES:
I.1 That in accordance with Article 5, 2nd fragment, of the telecommunications
regulations, the public services for the conduction of signals by satellite
and of international links will be made by the federal government or by the
decentralized organizations established for that purpose.
I.2 That it is a decentralized organization of the federal government of Mexico
created by means of the presidential decree published in the official
journal of the federation on August 20, 1986 and revised by several decrees
published in the same journal on November 17, 1989, and October 29 & 30,
1990, with legal status and [TOTAL ASSETS], whose principal objective is to
render the public services of telegraphy, radiotelegraphy and
communications via satellite and telecommunications as charged by the
federal executive.
I.3 That by designation from the federal executive, its general manager is Ing.
Carlos Mier Y Teran Ordiales, who has sufficient authority to oblige and
contract under the organization's name subject to the dispositions
contained in Article 22 of the federal law of state institutions, to the
applicable prescriptions of its organic law and to the decrees mentioned in
the preceding declaration.
I.4 That its code for federal registry of contracting parties is
TME-891117-F56.
I.5 That for the practice and fulfillment of the rights and obligations derived
in this Agreement, appoints as its domicile the one located in the Eje
Central Lazaro Cardenas N DEG. 567, Col. Narvarte, C.P. 03028, Mexico City,
D.F.
II. CCI STATES:
II.1 That it is a corporation duly constituted in conformity to the laws of the
state of Nevada, United States of America, which has granted to it the
Incorporation Certificate N DEG. 2367-95, of February 14, 1995, granted by
the Secretary of the State of Nevada, United States of America, duly
legalized by the Mexican Consul, C. Francisco Gonzalez Cosio,
<PAGE>
authorized by the Secretary of Foreign Affairs in the City of
Houston, Texas, and translated to the spanish language by an expert
translator authorized by the Supreme Court of Justice.
II.2 That its president, Mr. Roan Scraper, is duly authorized to sign this
Agreement and oblige CCI under its terms.
II.3 That it has obtained from the Federal Communications Commission (FCC)
authorizations N DEG. I-T-C-95-160 and TAO-2515, to operate its own
teleports that will be used in the performance of this Agreement.
II.4 That for the practice and fulfillment of its rights and obligations
derived from this Agreement, it designates as its legal domicile the
one located at: 530 South Fourth Street, Las Vegas, NV 89101.
III.1 JOINT DECLARATIONS
III.1 That the assembly of Intelsat's has authorized, starting from
September 11, 1985, the extension of the domestic satellite networks
of Mexico and the United States of America to render public
telecommunication services between both countries. Said authorization
being complimentary with subsequent approvals.
III.2 TELECOMM and CCI both agree that TELECOMM'S satellite network,
described under the first article of this Agreement, will be extended
to the Republic of Panama with support from the teleports of Charter
Communicaciones Internacionales Grupo, S.A., a subsidiary of CCI
located in the Republic of Panama.
III.3 That the parties' intend to fulfill the above mentioned extension to
render public telecommunication services between Mexico and the United
States of America and thereby promote the development of said services
for the benefit of their respective customers.
In accordance with the preceding declarations, the parties agree to bind
themselves to comply with the following:
ARTICLES
PURPOSE OF THE AGREEMENT
FIRST TELECOMM agrees to extend to the Republic of Panama its satellite
network, INCLUDING ITS SPACE SEGMENT, BY MEANS OF EARTH STATIONS
WITHIN THE AREA OF COVERAGE OF THE MEXICAN SATELLITE SYSTEM, WITH
THE TELEPORTS OF CCI IN SAID COUNTRY, IN ORDER TO PROVIDE
PERMANENT SERVICE OF DIGITAL SIGNALS.]
TELECOMM and CCI bind themselves to carry out such interconnection
according to the technical operations, financial accounting,
commercial and administrative terms and formalities detailed in the
Operations Agreement attached hereto and duly signed by the Parties
set forth as Annex I.
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INTERCONNECTION POINT
SECOND TELECOMM agrees to interconnect its satellite network with the
Teleports of Charter Comunicaciones Internacionales Grupo, S.A.
(Charter Panama), a subsidiary of CCI located in the county of Panama,
as well as those CCI subsequently establishes, with the purpose of
providing the conduction of digital signals as set forth herein.
TELECOMM is responsible for the conduction of the signal to its
satellites, and for its relay to the teleports of CCI.
CCI is responsible for the conduction of the signal between its
teleports and to its customers within the United States of America.
CCI'S PARTICIPATION
THIRD CCI binds itself to maintain its teleports with sufficient
capacity to provide for the requirements of customers and the
conduction it considers necessary for the correct delivery of
signals to their final destination.
FOURTH CCI binds itself to pay monthly to TELECOMM, according to the
applicable and existing rates, the invoices issued in accordance with
the terms set forth in the Tenth Article of this Agreement, to the
following account of TELECOMM:
International Bank
Account N DEG. 0004004-001-5010
New York Agency
New York, N.Y.
FIFTH CCI commits itself that its customers in the Mexican territory
will establish the infrastructure necessary to access the Mexican
satellite system, subject to authorization by the Secretary of
Communications and Transportation, which CCI will present to
TELECOMM before commencing services.
SIXTH CCI binds itself to respect the agreements that TELECOMM has
entered with other Institutions, to provide services through the
solidaridad satellite system.
SEVENTH TELECOMM binds itself to lease to CCI directly or through their
Brokers' capacity space segment in the Mexican satellite system in
accordance with CCI's request and subject to availability.
For the Mexican customers' of CCI, CCI must present authorization of
the Secretary of Communications and Transportation.
EIGHTH TELECOMM binds itself to coordinate its performance with customers and
CCI in fixing technical requirements, tests for accessibility to the
Mexican satellite system, and informing CCI and customers of assigned
technical parameters once these have satisfied said technical
requirements.
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NINTH TELECOMM will inform CCI of the assigned parameters to customers,
once these have satisfied the technical requirements mentioned in
the preceding Article.
INVOICING
TENTH TELECOMM will prepare invoices for the satellite capacity
assigned to CCI, according to the current rates authorized,
including taxes to be retained and paid pursuant to the fiscal
code of the United States of Mexico.
NO EXCLUSIVITY
ELEVENTH The Parties agree that in this Agreement, does not create any right of
exclusivity, and acknowledge that both are free to establish relations
with third parties in order to provide similar services or different
services.
REVISIONS TO THE AGREEMENT
TWELFTH The Parties agree that this Agreement can be revised only by means of
an additional agreement executed by both of the undersigned Parties.
BOND
THIR-
TEENTH CCI binds itself to guarantee the satellite capacity utilized with an
amount equivalent to 3 (three) times what corresponds to the monthly
amount of the applicable and standing rates with said capacity, CCI
being solely liable by means of the bond issued by "Institucion
Afianzdora Mexicana" authorized for that purpose on behalf of
TELECOMM.
CCI binds itself to deliver to TELECOMM the bond within five (5)
working days after the assignation of the capacity requested in
writing.
The Bond must contain the following terms:
- - That the Bond be issued under the terms of this Agreement.
- - That the Bond must be sufficient based upon any modifications to the
applicable and standing rate and any increase in demand for capacity.
- - That the Bond guarantees an amount equivalent to 3 (three) times the
monthly amount of the applicable and standing rates of said capacity.
- - That it remains in effect until TELECOMM expressly authorizes its
cancellation.
- - That it is expressly subject to the execution proceedings set forth in
Articles 95, [95 BIS] and 118 of the Federal Law of Bonding Companies.
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- - That the Bond will remain in effect during the pendency of any
proceeding or lawsuit until a final resolution is pronounced by a
competent authority.
USAGE OF BRAND NAMES
FOUR-
TEENTH This Agreement does not grant the right to any of the Parties to use
any type of industrial property, including trademarks, service brands,
as well as copyright, symbol, corporate abbreviation or logo, without
the prior written consent of the proprietor party.
Any Party violating these requirements will be obliged to pay for the
damages and prejudice caused to the other Party and third parties, and
will pay for the expenses and costs related to any dispute resulting
from such violation, including legal fees.
CONTINUANCE OF SERVICE
FIF-
TEENTH TELECOMM and CCI each agree to establish appropriate procedures to
promptly solve technical and operative problems that may arise and to
facilitate a reliable and efficient rendering of the services to which
this Agreement relates.
SIX-
TEENTH The Parties agree to take the necessary actions within their
respective technical areas in order to obtain the required facilities
needed to properly interconnect their networks at a level of quality
that will make possible the provision of the services contemplated
herein.
DURATION OF THIS AGREEMENT
SEVEN-
TEENTH The Parties agree that the duration of this Agreement will be 10 (ten)
years commencing on the date signed, which may be extended by
agreement of the parties.
IF EITHER PARTY WISHES TO END THIS AGREEMENT, IT MUST SUBMIT A WRITTEN
NOTICE TO THE OTHER PARTY AT LEAST NINETY (90) DAYS BEFORE THE
EXPIRATION OF THE AGREEMENT.
FORCE MAJEURE
EIGHT-
TEENTH Neither Party shall be responsible for nonfulfillment of any
obligations under this Agreement, whenever said nonfulfillment results
from force majeure circumstances.
Likewise, both Parties agree that they will be responsibility for
interruptions in services due to necessary normal repairs or
modifications of their installations, for
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which they will advise the other Party in writing a minimum of 30
(thirty) days in advance.
TELECOMM and CCI shall provide the same notices to their customers.
THIRD PARTIES
NINE-
TEENTH The present Agreement is for the benefit of the undersigned Parties
and any right or interest derived from the same cannot be assigned or
transferred, in whole or in part, to any third party, without prior
written consent from the other.
EARLY TERMINATION
TWENTI-
ETH Any Party can terminate this Agreement at any time for reasonable
cause duly established, whereupon the Parties will proceed to a final
accounting necessary to end this Agreement.
TWENTY-
FIRST If during this Agreement either of the Parties feels that the
other has not complied with any of the requirements of this
Agreement, the aggrieved Party shall deliver a written notice of
said nonfulfillment to the Party at fault, specifying its
objections; within seven (7) days beginning from the day of
nonfulfillment, including its reasons, whereupon the Parties will
endeavor to find a satisfactory agreement. If the Parties cannot
agree, either Party can invoke the application of the article of
Controversy in this Agreement.
OFFICIAL LANGUAGE
TWENTY-
SECOND The Parties agree that spanish will be the official language for the
interpretation and fulfillment of this Agreement, its articles and
annexes.
APPLICABLE LAW
TWENTY-
THIRD This Agreement will be ruled by the applicable and existing
federal laws of the United States of Mexico and the Parties agree
to submit any conflict related to the interpretation and
fulfillment of this Agreement and its articles to said laws.
ADMINISTRATIVE RESCISSION
TWENTY-
FOURTH The parties agree that TELECOMM can rescind the current Agreement for
any of the following causes:
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<PAGE>
1. Because CCI does not provide the facilities necessary for the
interconnection which is the objective of this Agreement.
2. Because CCI does not provide service to customers in the U.S.A. in
conformity with what is established in this Agreement and the
Operative Agreement.
3. Because the teleports of CCI does not satisfy the technical
requirements for the conduction of the digital signals via satellite.
4. Because CCI transfers or assigns in any form, totally or partially,
the rights and obligations of this Agreement without the express
written authorization of TELECOMM.
5. Because CCI has declared bankruptcy, is insolvent or is dissolved by a
competent authority.
6. Because CCI does not present on time and in proper form the bond
policy referred to in the thirteenth Article of this Agreement.
7. Because CCI does not update on time and in proper form the bond policy
named in the thirteenth Article of this Agreement.
8. In general, for the nonfulfillment of any of the obligations of CCI
set forth in this Agreement.
TWENTY-
FIFTH If TELECOMM determines that CCI has violated on any of the
provisions for rescission set forth in the preceding Article, it
will inform CCI, in writing, that CCI must establish its rights
in respect to the nonfulfillment of such obligations within ten
(10) working days, and if after this term CCI has not manifested
any defense or if after analyzing the reasons, TELECOMM
determines that the same are not satisfactory, it may terminate
this Agreement.
LABOR RELATIONS
TWENTY-
SIXTH CCI as employer of the personnel that are employed in connection
with this Agreement, will be responsible for and agrees to
respond to all the claims that their laborers present against
them or against TELECOMM, related to the nonfulfillment of this
Agreement, and in the same way, TELECOMM will assume the
nonfulfillment of the and social security in respect to the
laborers serving them in the fulfillment of this Agreement and
agree to respond for all the claims in respect of this Agreement.
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<PAGE>
AGREEMENT CHARACTER
TWENTY-
SEVENTH This Agreement and the Operations Agreement represent the totality of
agreements between the Parties; revisions to this Agreement will be by
mutual agreement and in writing, whenever such may result from future
negotiations between the representatives duly authorized by the
Parties.
CONTROVERSY
TWENTY-
EIGHTH In case any controversy arises relating to the interpretation and
nonfulfillment of the articles this Agreement and cannot be resolved
by agreement, the Parties agree to the jurisdiction of the Federal
courts of Mexico City, federal district.
Having Read this Agreement, the Parties acknowledge its contents and extent and
have Signed in Quadruplicate, the [15TH] day of the month of [JULY] 199[5], in
Mexico City, Federal District.
FOR TELECOMM FOR CCI
ING. CARLOS MIER Y TERAN ORDIALES MR. ROAN SCRAPER
GENERAL DIRECTOR PRESIDENT
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ANNEX 1
OPERATING AGREEMENT
<PAGE>
OPERATING AGREEMENT
I. General provisions
I.1 This Operating Agreement regulates the conditions of the technical
operations, financial accounting and commercial responsibilities that
Telecomm and CCI will apply in the interconnection and installation of the
satellite networks between the United States of Mexico and the United
States of America, conforming to the Agreement of which this annex is an
integral part.
I.2 This Operating Agreement is part of the Agreement and will be reviewed as
and when the needs of the service thus require it.
I.3 Modifications and changes to be included in this Agreement by Telecomm and
CCI are to be signed by the legally recognized representatives of each.
I.4 The persons authorized to respond to technical, financial and commercial
questions can be substituted by means of prior notification to the other
party.
II. Technical-operation provisions
II.1 Telecomm agrees to extend to the United States of America their
satellite network, integrated with space segment of its satellites,
by means of the interconnection of earth stations established in
the domiciles of the users with the proprietary teleports of CCI in
each country, with the end purpose to present permanent service to
conduct digital signals, according to the following:
A. In Mexican territory, Telecomm will provide the conduction of the
digital signals, proportional to the space segment necessary for the
user according to his need.
B. Users must comply with the legal dispositions and regulations in
effect in each country, as well as the administrative issues in
effect at Telecomm. The users will be responsible for the operation
and maintenance of the earth stations installed in their domiciles.
C. In the United States of America, CCI will be responsible [TO PROVIDE
THE FACILITIES OF THEIR TELEPORTS, AS WELL AS THE METHODS OF
TRANSMISSION THEY NEED TO TRANSMIT THE SIGNALS OF THE USERS TO THEIR
INSTALLATIONS.]
II.2 The parties agree to combine their forces to secure the highest
quality service, including the corresponding preventative
maintenance and correction of control systems, with the
objective to eliminate possible technical problems that present
themselves. At the same time, CCI agrees to effect the
alignment of the earth stations that the users utilize for the
establishment of the respective satellite connection not less
than two days prior to the initiation of service operations.
<PAGE>
II.3 Telecomm and CCI [COUNT ON EACH OTHER AND TRUST ONE ANOTHER
TO RESOLVE THE POSSIBLE FAILURES IN THE SERVICE, AS WELL AS
PROBLEMS OF THE USERS IN RELATION TO THE SAME SERVICE. PARTIES
WILL PROVIDE NOTICE OF ANY FAILURE IN THE COUNTRY WHERE IT
ORIGINATED VIA TELEPHONE OR FAX OR TELEX.]
Telecomm will send notice of failures or problems to:
Jay Mueller
CCI will notify:
Manager of Satellite Control
III. Commercial provisions
III.1 Telecomm obligates itself to assign frequencies to the Mexican
satellite system to CCI.
III.2 Telecomm will provide to CCI the space segment for commercial use not
subject to interruption.
CCI, for its part, will pay monthly to Telecomm the
corresponding price to the bank mentioned in the Agreement. CCI
will send notice in writing to Telecomm of the deposit.
III.3 In the case of service interruptions, the party affected will notify
the other of interruption after the interruptions have been verified,
subject to the general conditions of the public service documents of
Telecomm.
III.4 Previous consent is required for material publication of the name of
one party or the other.
III.5 Contact names
PV. Contact names
V. Contact names
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REPUBLIC OF VENEZUELA
MINISTRY OF TRANSPORTATION AND COMMUNICATIONS
NATIONAL TELECOMMUNICATIONS COMMISSION
(CONATEL)
C-RPT-008
Caracas, March 28, 1996
Years 185 DEG. and 136 DEG.
By request of the President of the Republic of Venezuela, in conformity with
that established in Article 33, fragment 13 of the Organic Law of Central
Administration, in concordance with Article 1 of the Telecommunications Law and
Article 4 of the Regulation on the Operation of Private Telecommunications
Networks, this Firm:
RESOLVES:
To authorize this CONCESSION TITLE NO. RPT-C-024 to the Corporation Charter
Communications International de Venezuela, C.A., inscribed in the Fifth
Mercantile Registrar of the Judicial Circumscription of the Federal District
and State of Miranda, under No. 16, Tome 10-A-Qto., dated the 20th day of
November of 1995, to install, maintain, administer, operate and commercially
exploit a PRIVATE TELECOMMUNICATIONS NETWORK with the objective of rendering
non-exchangeable, point to point and point to multi-point services for the
transportation of voice signals, text, video or data, integrated or not
integrated, under the terms and conditions established by the Concession
Contract that will be subscribed with the Republic of Venezuela and this
Corporation. The duration of this Contract will be ten (10) years.
Notify interested party
Through the Delegation of the Minister:
JOSE SORIANO SANCHEZ
GENERAL DIRECTOR
NATIONAL TELECOMMUNICATIONS COMMISSION
(CONATEL)
<PAGE>
Between the Republic of Venezuela, by instrument of the Ministry of
Transportation and Communications, through the National Telecommunications
Commission (COMISION NACIONAL DE TELECOMUNICACIONES [CONATEL]), created by
Decree No. 1.826 dated September 5, 1991, published in the Official Gazette of
the Republic of Venezuela No. 34.801 dated September 18, 1991, represented in
this contract by the General Director JOSE SORIANO SANCHEZ, Identity Credential
No. 941.597, according to Resolution No. 376, dated November 23, 1994, emanated
from the Ministry of Transportation and Communications, and published in the
Official Gazette of the Republic of Venezuela No. 35.597, dated November 28,
1994, which duly acts by the attribution conferred by Article 7 of stated Decree
No. 1.826, in concordance with point "a" of Article 2 of the Resolution
aforementioned, hereinafter denominated the REPUBLIC, on one hand, and on behalf
of the Corporation CHARTER COMMUNICATIONS INTERNATIONAL DE VENEZUELA, C.A.,
inscribed in the Fifth Mercantile Registrar of the Judicial Circumscription of
the Federal District and State of Miranda, under No. 16, Tome 10-A-Qto., dated
the 20th day of November of 1995, hereinafter denominated LICENSEE represented
in this contract by the North American citizens ROAN L. SCRAPER and Z. A. HAKIM,
holders of passports numbers, H336928 and H7595893, respectively, acting as
President and Vice President of the LICENSEE, as established in Article 13 of
the Corporation s By-Laws, both parties have agreed to celebrate this concession
contract which is to be governed by the clauses set forth in continuation:
CHAPTER I
OBJECTIVE OF THE CONTRACT
CLAUSE I: OBJECTIVE
The objective of this contract consists of establishing the terms and conditions
under which the LICENSEE should exploit the activities inherent to the
concession authorized by Administrative Title NO. RPT-C-024, dated March 28,
1996, for the installation, maintenance, administration, operation and
commercial exploitation of a private telecommunications network (PTN) with the
objective of executing non-exchangeable services, point to point and point to
multi-point, of transportation signals for voice, text, image, video or data,
integrated or not integrated.
These services will be operated by the LICENSEE in accordance with the
Telecommunications Law, the Regulation on the Operation of Private
Telecommunications Networks and other applicable standard instruments.
CLAUSE 2: AMPLIFICATIONS AND MODIFICATIONS TO THE NETWORK
Any amplification or modification to the project described in Exhibit "A" should
be previously approved by CONATEL. The modifications authorized will form an
integral part of this Contract.
Without affecting the previous paragraph, the LICENSEE may incorporate new
clients or users to its private network without previous authorization by
CONATEL.
<PAGE>
CHAPTER II
DOCUMENTS INTEGRATING THE CONTRACT
CLAUSE 3: DOCUMENTS
The attached exhibits form an integral part of this Contract:
EXHIBIT "A" Technical-Economic Project of the Private Telecommunications Network
presented by the LICENSEE, in accordance with the requisites required by
CONATEL.
OTHER EXHIBITS: Modifications to this Project authorized by CONATEL made after
the date this Contract is signed will be denominated Exhibits and be designated
a corresponding letter.
CHAPTER III
DURATION OF THE CONTRACT
CLAUSE 4: DURATION
The duration of this Contract will be ten (10) years, beginning as of the date
the ADMINISTRATIVE CONCESSION TITLE was granted, unless the concession is
terminated under the conditions established in this Contract.
CLAUSE 5: EXTENSION
This Contract will terminate upon completion of the period stipulated in clause
4. However, it can be extended for an additional term of ten (10) years if the
LICENSEE issues a written request at least one (1) year prior to the established
termination of the fixed term and if CONATEL accords such after considering
national public interest and provided that the LICENSEE has duly complied with
the clauses set forth in this Contract. In any case, both parties may always
agree to a new concession contract, subject to applicable legal requirements.
CHAPTER IV
OBLIGATIONS OF THE LICENSEE
CLAUSE 6: EXECUTION OF SERVICES
The LICENSEE will be obligated to render the services described and that
constitute the object of this Contract in a continuous, regular, uniform and
efficient form, in conformity with the terms established in this Contract, the
obligations imposed by law, regulations and other administrative dispositions,
as well as the respective technical standards and international agreements
subscribed and ratified by the REPUBLIC. In addition, the LICENSEE will only
render services provided in this concession to those subscribers or clients that
hold their service contracts with the LICENSEE.
CONATEL in turn will treat the LICENSEE in the same manner as those other
licensees of the Private Telecommunications Network.
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CLAUSE 7: INTERRUPTION AND SUSPENSION OF SERVICES
Solely upon authorization of CONATEL will services provided in this concession
be partially or totally interrupted. Notwithstanding, the LICENSEE may suspend
service temporally when necessary for the purpose of installation, repair or
change of equipment, upon notification and presentation of a notice to CONATEL
and its express acceptance. In case the services are interrupted by unknown or
natural causes, the LICENSEE shall notify CONATEL and present a report of the
unknown or natural cause that has caused the interruption of service within a
period of forty-eight (48) hours after the interruption.
CLAUSE 8: INVOICING
Client invoices should separately reflect each charge for each service, showing
the type of service and relevant details of each charge.
CLAUSE 9: SYSTEM OF MEASUREMENT AND QUALITY CONTROL
The LICENSEE shall use only high precision and reliable measurement equipment
for the purposes of invoicing and quality control of services. This equipment
will be reviewed and inspected by the proper authorities.
CLAUSE 10: APPLICABLE LEGISLATION AND SPECIAL TAXES PAYABLE
The LICENSEE shall respect and comply with the juridical dispositions
applicable, especially the Telecommunications Law and its regulations, as well
as the technical norms that have been stipulated by applicable authorities.
The LICENSEE will be subject to the payment of taxes established by the
Telecommunications Law. Taxes will be an amount equivalent to five percent (5%)
of gross invoicing of all services indicated in clause 1. Tax payments will be
made annually within the first two (2) months following December 31 of the prior
year.
CLAUSE 11: RIGHT OF CONCESSION
As a sole pecuniary contribution for the concession of the services indicated in
clause 1, the LICENSEE will pay CONATEL on a annual basis the equivalent of one
half of one per cent (0.5%) of gross invoicing of such services.
This payment will be made quarterly within the first thirty (30) days of each
quarter of the calendar year and will be calculated on the base of gross
invoicing pertaining to the prior quarter. In the first quarter of each
calendar year, an adjustment will be made to the amount paid by the LICENSEE
during the previous year and a complementary payment or a corresponding
reimbursement will be made.
CLAUSE 12: INFORMATION
The LICENSEE will present a report containing the following information every
six months:
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a) List of subscribers during the period.
b) Updated map of channel or circuit routing and an updated map of
subscribers, therein indicating the assigned capacities and their uses.
c) Updated block diagrams of LICENSEE network configuration.
d) Updated map of LICENSEE network frequencies.
e) In cases where the LICENSEE's private network is utilized to interconnect
its subscribers private telephone lines, the routing plans for each line
shall be provided to CONATEL.
The LICENSEE will provide CONATEL with audited financial statements within two
(2) months after each year ended December 31.
The LICENSEE will annually certify CONATEL of the compliance of its subscribers
with the prohibition of traffic flow to, or directed to, a basic
telecommunications network.
At any time, CONATEL may request from LICENSEE additional information that it
estimates necessary or convenient to exercise its authority of inspection or
surveillance.
Noncompliance with dispositions set forth in this clause will be sanctioned in
conformity with that established in clause 26 of this Contract.
CLAUSE 13: CONTRACTS WITH CORRESPONDENT FOREIGN
TELECOMMUNICATIONS COMPANIES
CONATEL will establish the policies that the LICENSEE shall follow in the
contracts that it establishes with correspondent foreign telecommunications
companies. The LICENSEE shall present these contracts to CONATEL, who will make
necessary modifications to adapt these to the policies established.
CLAUSE 14: ACQUISITION OF EQUIPMENT
The LICENSEE may not impose conditions of exclusivity on its providers of goods
or services to the detriment of competition, unless the goods or services are
patented to LICENSEE.
CLAUSE 15: PLAN OR DIAGRAM OF ROUTING AND INTERCONNECTION
Within the three (3) months following the granting of this concession, the
LICENSEE will present CONATEL with a routing plan for channels or circuits and
interconnection plan between its subscribers. Within the thirty (30) days
following its presentation, CONATEL will approve each plan as presented, or
indicate the modifications that in its opinion should be made to each to make it
compatible to the policy established and the applicable regulations.
CLAUSE 16: INITIATION OF OPERATIONS
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The LICENSEE is obligated to notify CONATEL of the conclusion of the
installation of the Private Telecommunications Network. CONATEL will order on
inspection and, as per the results, will authorize the initiation of operations.
CLAUSE 17: TRANSFER OF THE CONCESSION
The LICENSEE may not yield or transfer the concession, in whole or in part. It
may neither yield or transfer the rights or obligations derived from the
Administrative Concession Title without previous authorization from CONATEL.
The LICENSEE or its stockholders may not yield stock, financial or managerial
control of the LICENSEE, in whole or in part, without previous authorization
from CONATEL.
CLAUSE 18: CONTROL OF THE CONCESSION
No individual or company that directly or indirectly exercises stock, financial
or managerial control of the LICENSEE can directly or indirectly associate or
come to an agreement of any nature with any other licensee of the Private
Telecommunications Network, when as a result of such, restrictive effects on
free competition are generated or such produces a situation of market dominance.
CLAUSE 19: PROHIBITION OF DISLOYAL COMPETITION
The LICENSEE will not apply practices that impede or restrict free competition.
It may not associate or come to an agreement of any nature with another licensee
for the execution of services herein granted, when as a result of such,
restrictive effects on free competition are generated or such produces a
situation of market dominance.
CLAUSE 20: RADIO STATIONS
The LICENSEE can only operate or connect to its network radio stations that
possess the corresponding operations permit, in accordance with the Regulation
of Radiocommunication and other applicable dispositions.
CHAPTER V
LICENSEE RIGHTS
CLAUSE 21: TARIFFS
The LICENSEE will pay, invoice and receive the amounts corresponding to the
tariffs for the services it renders. The tariffs for the services offered by
the LICENSEE should be within a maximum and minimum limit established by the
REPUBLIC, without applying discounts for volume, refunds or any other measure
set by the tariffs under the minimum limit established by the REPUBLIC. All
tariffs must be published by the LICENSEE and all replacement tariffs should
also be previously established by the REPUBLIC. Therefore, a replacement tariff
is understood to be all tariffs that modify the maximum or minimum limit.
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CHAPTER VI
JURISDICTION OF THE REPUBLIC
CLAUSE 22: POWER OF TARIFF
The REPUBLIC, as an instrument of CONATEL, will establish the maximum and
minimum tariff limits for the LICENSEE.
CLAUSE 23: PROGRAMS FOR EMERGENCY SITUATIONS
The REPUBLIC in coordination with the LICENSEE will maintain an action plan and
update it periodically. Such will permit a guarantee of a defense of national
interest and security in the case of emergencies or commotions that could
interrupt the peace of the REPUBLIC or grave circumstances that affect social or
economic life. During this period, the LICENSEE's rights, in relation to the
present concession, will be reduced as necessary for the functions of national
defense or supervision, directly or indirectly, by the REPUBLIC. The time
limits related to the plans foreseen in this Contract will be subjected to an
adequate extension, relative to the mentioned period.
While emergency situations persist as explained in the previous paragraph, the
REPUBLIC will have the right to substitute the LICENSEE and take possession and
make temporary use of LICENSEE property, equipment and installations with the
obligations of reinstituting such upon the end of the causes giving rise to such
emergency. The property, equipment and installations will be returned to the
LICENSEE in the same state received, less normal use and deterioration.
The LICENSEE will have the right to compensation for damage and injury as a
direct consequence of such substitution which is imputable to the REPUBLIC.
CLAUSE 24: INSPECTION AND SURVEILLANCE
The REPUBLIC, as an instrument of CONATEL, will exercise the inspection and
surveillance of LICENSEE activities with the objective of assuring continuous
and efficient execution of services and compliance of enforced juridical and
technical standards, as well as all the obligations that this Contract imposes
on the LICENSEE.
In accordance with this clause, CONATEL officials may inspect LICENSEE equipment
and installations, as well as its accounting, and may request information
necessary for the surveillance of LICENSEE, which is required to facilitate the
functions of these officials.
CLAUSE 25: REGULATING ENTITY
In case present legislation is modified to transfer to another regulatory entity
various duties of CONATEL, all legislation referred to in this contract will
duly transfer to the regulating entity.
6
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CHAPTER VII
INFRINGEMENTS AND SANCTIONS
CLAUSE 26: INFRINGEMENTS
In addition to the sanctions foreseen by the Law, the REPUBLIC may initiate a
procedure to sanction the LICENSEE when it:
a) Cedes or transfers in whole or in part the concession, for whatever reason
or in whatever form, enters into any type of association with third parties
that transfers the commitment to comply with the concession or the control
of the LICENSEE or the obligations imposed by the concession, or that
modifies LICENSEE'stock, financial or managerial control, without previous
authorization from CONATEL, in accordance with clause 17 of this document.
b) Engages in acts that infringe clauses 12, 18, 19 and 20 of this Contract.
c) Interrupts total or partial execution of services, with the exception of
those causes foreseen in clause 7 of this document.
d) Installs, operates or connects to its network equipment that does not
comply with applicable technical norms or for which the LICENSEE does not
have permission to employ.
e) Renders telecommunication services that are not included in this Contract
without having obtained the appropriate administrative permit.
f) Makes use of commercial practices that signify a violation of the tariff
limits established by CONATEL.
g) Fails to abide by the prohibitions of connection or interconnectivity
foreseen in article 5 of the Regulation on the Operation of Private
Telecommunications Networks.
h) Becomes delinquent on the payment of a contribution or evades the payment
of applicable taxes, in conformity with clauses 8 and 9, respectively, of
this Contract.
i) Impedes or prevents inspections authorized by CONATEL.
j) Declares or is declared in a state of liquidation, insolvency or
bankruptcy.
k) Does not present in an opportune manner, or does not comply with the plan
or diagram for routing of channels and interconnection referred to in
clause 15 of this Contract.
l) Engages in any other act not in compliance with this Contract.
7
<PAGE>
CLAUSE 27: SANCTIONS
In accordance with graveness of the fault, and without affecting the applicable
laws and regulations, CONATEL may impose on the LICENSEE'some of following
sanctions:
a) Public admonition in two (2) national newspapers, whose costs are payable
by the LICENSEE. Assignment during a period of one (1) year of two (2)
infringements sanctioned with public admonition will impose the penalty
contemplated in paragraph b) of this clause.
b) Penalty up to a maximum equivalent to five percent (5%) of gross invoicing
of LICENSEE produced during the calendar year prior to the corresponding
last audited financial statements and in conformity with the results of
such.
c) Revocation of the concession and consequently termination of this Contract,
in conformity with clause 28 of this document.
CLAUSE 28: REVOCATION
The following are cause for revocation of the concession and termination of the
contract:
a) Situations contemplated in points a, c, e, f, g, k, and l of clause 26.
The delay of the contribution foreseen in clause 10 and the fines
established in clause 27 must be greater than six (6) months to constitute
cause for revocation.
b) Interruption, total or partial, of services as established in clause 7,
when resulting from causes imputable to the LICENSEE which are not
corrected within a term conceded by CONATEL.
c) Noncompliance with Article 5 of the Regulation of the Operation of Private
Telecommunications Networks.
CLAUSE 29: FINES AND ADMONITIONS
Situations contemplated in clause 26 that are not included in clause 28 will
incur fines and admonitions in conformity that indicated in clause 27, according
to the graveness of each error.
CLAUSE 30: ADMINISTRATIVE PROCEDURE
Substantiation, application and review of sanctions are subject to the
stipulations of articles 47 and following of the Charter Law of Administrative
Procedures, as modified by the second paragraph of clause 32 of this Contract.
8
<PAGE>
CHAPTER VIII
TERMINATION
CLAUSE 31: NORMAL TERMINATION
This Contract will terminate upon completion of the term stipulated in clause 4
and 5 of this document.
CLAUSE 32: TERMINATION DUE TO INCOMPLIANCE
This Contract will end prematurely in case of grave incompliance by the
LICENSEE, in accordance with the qualification provided by CONATEL, in
conformity with clause 28 of this contract.
If CONATEL considers that one of the points in clause 28 has occurred, it will
notify the LICENSEE in writing indicating the circumstances and reasons for its
decision. Within the forty five (45) days following reception of the notice
from CONATEL, the LICENSEE will respond, also in writing, and will set forth its
arguments for defense. It is understood that if the LICENSEE does not respond
in an opportune manner, the LICENSEE agrees with the accusations made by
CONATEL. Upon receipt of LICENSEE's response, and once the initial forty five
day period has expired, and if CONATEL has not responded, CONATEL will have
another forty five days to adapt and communicate its definitive decision to the
LICENSEE. Should the decision be to rescind the Contract, it shall become
effective immediately based on CONATEL's decision and the LICENSEE will only be
able to question the termination of the contract via administrative or judicial
means.
CLAUSE 33: NULLITY
This Contract will end prematurely if it is declared null in its totality via
judicial court. In case of partial nullity, the rest of the Contract will
continue in effect in accordance with the terms established therein. In any
case, CONATEL and the LICENSEE will put forth their best efforts to review the
Contract together.
CLAUSE 34: SETTLEMENT
Once the Administrative Concession Title and this Contract are terminated,
nothing will be owed to either party, with the exception of payments outstanding
from the execution of the Contract and without affecting the stipulations of
clauses 32 and 35 of this Contract.
CLAUSE 35: PENAL CLAUSE
If termination results from that stipulated in clause 32, the LICENSEE,will be
obligated to pay the REPUBLIC an indemnity from damages and fines caused which
is an amount equivalent to five percent (5%) of gross income obtained by the
LICENSEE during the fiscal year to which the last audited financial statements
correspond and in conformity to their results. The LICENSEE will pay this
indemnity within thirty (30) days following notification on behalf of the
REPUBLIC.
9
<PAGE>
CLAUSE 36: INDEMNITY DUE FOR PREMATURE TERMINATION
If the termination results from causes imputable to the REPUBLIC, the REPUBLIC
shall pay the LICENSEE an amount which covers the damages and injury having been
demonstrated as a direct consequence of the premature termination.
CLAUSE 37: REVERSION
Once the Administrative Concession Title and this Contract are terminated for
whatever reason, all real estate, equipment, construction and installations
destined for the execution of the services conceded may become property of the
REPUBLIC. The REPUBLIC will pay the LICENSEE the value determined by an
independent and expert appraiser, elected by mutual agreement. The amount
determined will be paid to the LICENSEE within one (1) year as of the date of
the aforementioned decision.
CHAPTER IX
SYSTEM FOR PROTECTING SUBSCRIBERS
CLAUSE 38: CLAIMS
The LICENSEE'shall establish an efficient mechanism for taking in subscriber
claims and the repair of system failures. The LICENSEE will inform CONATEL on a
quarterly basis of the number of claims and the results of repairs, as well as
the authorization of compensation to subscribers as a result of service
interruption.
CLAUSE 39: RESPONSIBILITY TO SUBSCRIBERS
The LICENSEE will be solely responsible to its subscribers for services rendered
through its network. CONATEL is exempt from all responsibility.
CLAUSE 40: PRINCIPLE OF EQUAL TREATMENT
In those cases where CONATEL determines that the LICENSEE offers its services on
a non-competitive basis, CONATEL will obligate the LICENSEE to render such
services on a just and reasonable basis, authorizing the same treatment to all
its subscribers in like situations and under a tariff regime controlled by
CONATEL.
CLAUSE 41: INVIOLABILITY
The LICENSEE will adopt, in accordance with applicable legislation and available
technology, measures conducive to preserve the inviolability of all
communication traffic through its system, and in no case will it authorize the
divulgence of the contents of such communications without consent of those
interested or order by competent authority.
10
<PAGE>
CLAUSE 42: SERVICE CONTRACTS
Upon completion of the approval of the conditions for executing services, the
LICENSEE will submit to CONATEL the respective model service contracts and their
modifications within a period indicated by CONATEL.
CLAUSE 43: COMPENSATION TO THE CLIENT OR SUBSCRIBER
When services are interrupted for causes imputable to the LICENSEE for more than
seventy two (72) consecutive hours, after having been reported, the LICENSEE
will compensate the subscriber. This compensation will be proportional to the
duration of the interruption based on a prior month's invoicing, whose service
has not been interrupted. In all cases, the LICENSEE is obligated to
reestablish service to the subscriber as quickly as possible.
CLAUSE 44: SUSPENSION OF SERVICE
The LICENSEE can only suspend service in conformity with that stipulated in this
Contract and the corresponding service contract.
CHAPTER X
GUARANTEE OF COMPLIANCE
CLAUSE 45: GUARANTEE OF RELIABLE COMPLIANCE
To guarantee the reliable, exact and opportune compliance of the obligations the
LICENSEE is assuming, the LICENSEE'shall file a bond for an amount equivalent to
1% of the investment in the project within the sixty (60) days following the
date this Contract is signed. The bond should be granted by a banking
institution or an insurance company, legally established within the country, of
solvent recognition and satisfactory to the REPUBLIC and in conformity with the
model prepared by the REPUBLIC as an instrument of CONATEL. In case such cannot
be provided, a real guarantee of twice the amount stipulated will be provided.
All guarantees of amounts stipulated will be effective throughout the life of
this Contract.
The guarantees shall expressly respect the right of the REPUBLIC to realize
payments and measures necessary to maintain such current should the LICENSEE not
do so. The LICENSEE is liable for such payments made by the REPUBLIC in
accordance herewith.
CHAPTER XI
FINAL DISPOSITIONS
CLAUSE 46: JURISDICTION AND APPLICABLE LEGISLATION
Disputes and controversies that cannot be resolved amicably by both parties will
be submitted to the courts of the country of Venezuela in conformity with its
laws. For no reason will foreign governments become involved in any claims.
11
<PAGE>
CLAUSE 47: SPECIAL DOMICILE
For all purposes of this Contract, both parties elect as their special domicile
the city of Caracas where both parties will be heard. Effective this _________
day of the month of _____________ of Nineteen Hundred Ninety _______ (199_).
For the LICENSEE For CONATEL
- ------------------------------------ ---------------------------------------
JOSE SORIANO SANCHEZ
General Director
Comision Nacional de Telecomunicaciones
(CONATEL)
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT JUNE 30, 1996 (UNAUDITED) AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED) AND
IS QUALIFIED IN ITS ENIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> JUN-30-1996
<CASH> 258,471
<SECURITIES> 0
<RECEIVABLES> 1,397,592
<ALLOWANCES> 113,580
<INVENTORY> 238,913
<CURRENT-ASSETS> 2,034,409
<PP&E> 3,101,304
<DEPRECIATION> 486,244
<TOTAL-ASSETS> 7,015,652
<CURRENT-LIABILITIES> 3,255,433
<BONDS> 0
0
0
<COMMON> 116
<OTHER-SE> 5,030,795
<TOTAL-LIABILITY-AND-EQUITY> 7,015,652
<SALES> 2,714,427
<TOTAL-REVENUES> 2,714,427
<CGS> 2,005,058
<TOTAL-COSTS> 4,058,732
<OTHER-EXPENSES> 479,705
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 155,764
<INCOME-PRETAX> (1,811,227)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,811,227)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,811,227)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> (0.18)
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