HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Consolidated Condensed Financial Statements
For the quarterly period ended June 30, 1996
<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996 Commission file number 1-11484
------------- --------
HUNGARIAN TELEPHONE AND CABLE CORP.
(Exact name of registrant as specified in its charter)
Delaware 13-652685
- ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 First Stamford Place, Stamford, CT 06902
(Address of principal executive
offices)
(203)348-9069
Registrant's telephone number, including area code
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve 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 ninety days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the lastest possible date:
Common Stock, $.001 par value 4,166,626 Shares
- ------------------------------ ----------------
(Class) (Outstanding at August 19, 1996 )
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Table of Contents
Part I. Financial Information Page No.
Consolidated Condensed Balance Sheets 2
Consolidated Condensed Statements of Operations 3
Consolidated Condensed Statements of Stockholders' Equity 4
Consolidated Condensed Statements of Cash Flows 5
Notes to Consolidated Condensed Financial Statements 6
Management's Discussion and Analysis of Financial Condition 9
and Results of Operations
Part II. Other Information 16
Signature 18
<PAGE>
Part I. Financial Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(In thousands, except share data)
Assets June 30, 1996 December 31, 1995
------ ------------- -----------------
(unaudited)
Current assets:
Cash and cash equivalents $ 19,327 $ 16,192
Restricted cash 2,164 1,757
Accounts receivable 4,582 1,399
VAT receivable, net 5,438 4,432
Prepayments and other 34 131
Other current assets 1,817 1,598
----------- -----------
Total current assets 33,362 25,509
----------- -----------
Property, plant, and equipment 63,410 55,353
Less accumulated depreciation 2,435 1,131
----------- -----------
Property, plant and equipment,
net 60,975 54,222
----------- -----------
Goodwill and intangibles, less accumulated
amortization 15,368 19,768
Other assets 1,963 6,570
Construction deposits 7,702 4,318
----------- -----------
Total assets $ 119,370 $ 110,387
============= ===========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Current installments of long-term debt $ 9,235 $ 9,699
Short term loans 70,773 33,982
Accounts payable 5,557 8,835
Due to related parties 5,004 3,075
Accruals 2,060 5,564
Other current liabilities 6,387 2,253
----------- -----------
Total current liabilities 99,016 63,408
Long-term debt, excluding current installments 25,430 23,467
Advance subscriber payments, long term 0 2,136
----------- -----------
Total liabilities 124,446 89,011
----------- -----------
Commitments and contingencies
Minority interest 2,295 5,637
----------- -----------
Stockholders' equity:
Common stock, $.001 par value. Authorized
10,000,000 shares; issued 4,166,626 shares
in 1996 and 4,015,039 shares in 1995 3 4
Additional paid-in capital 46,834 45,358
Accumulated deficit (47,582) (26,192)
Foreign currency translation adjustment (5,750) (2,381)
Deferred compensation (876) (1,050)
------------ -----------
Total stockholders' equity (7,371) 15,739
------------ -----------
Total liabilities and stockholders equity $ 119,370 $ 110,387
=========== ===========
See accompanying notes to consolidated condensed financial statements.
<PAGE>
Part I. Financial Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
For the Three and Six Month Periods Ended June 30, 1996 and 1995
( In thousands, except share and
per share data) ( Unaudited )
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ --------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
TELEPHONE SERVICES REVENUES, NET $ 4,534 $ 832 $ 9,693 $ 1,239
Operating expenses:
Operating and maintenance expenses 6,510 5,342 11,474 6,676
Depreciation and amortisation 924 309 1,917 765
Management fees 2,011 466 3,353 888
------- ------ ------- -------
Total Operating Expenses 9,445 6,117 16,744 8,329
------- ------ ------- -------
LOSS FROM OPERATIONS (4,911) (5,285) (7,051) (7,090)
Other income (expenses):
Foreign exchange losses (178) (1,468) (1,590) (1,146)
Interest expense (3,944) (664) (6,881) (909)
Interest income 700 268 892 404
Other, net 247 459
------- ------ -------
LOSS BEFORE MINORITY INTEREST (8,086) (7,149) (14,171) (8,741)
MINORITY INTEREST 649 994 967 1,368
------- ------ ------- -------
LOSS BEFORE EXTRAORDINARY ITEMS (7,437) (6,155) (13,204) (7,373)
EXTRAORDINARY ITEM (8,186) (8,186)
-------- ------- ---------
NET LOSS $ (15,623) $ (6,155) $ (21,390) $ (7,373)
======== ======= ========= ========
LOSS PER SHARE OF COMMON STOCK
BEFORE EXTRAORDINARY ITEM $ 1.76 $ 2.17 $ 3.18 $ 2.65
EXTRAORDINARY ITEM $ 1.94 $ 1.97
-------- ------- ------- --------
NET LOSS $ (3.70) $ (2.17) $ (5.15) $ (2.65)
========== ========= ========= =========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 4,215,106 2,830,471 4,148,039 2,777,744
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
<TABLE>
<CAPTION>
Foreign
Additional Currency Total
Common Paid-in Accumulated Translation Deferred Stockholders
Shares Stock Capital Deficit Adjustment Compensation Equity
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995 4,015,039 $ 4 45,358 (26,192) (2,381) (1,050) $ 15,739
Common stock issuance 250,000 3,219 3,219
Exercise of warrants 3,016 31 31
Cancellation of shares (101,429) (1) (1,774) (1,775)
Net loss (21,390) (21,390)
Foreign currency translation adjustment (3,369) (3,369)
Earned compensation 174 174
--------- - ------ -------- ------- ---- -------
Balances at June 30, 1996 4,166,626 $ 3 46,834 (47,582) (5,750) (876) $ (7,371)
========= = ====== ======== ======= ===== =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
Part I. Financial Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
For the Six Month Period Ended June 30, 1996 and 1995
(In thousands)
( Unaudited )
1996 1995
---- ----
Net cash used in operating activities $ (11,928) $ 2,961
---------- ---------
Cash flows from investing activities:
Acquisition of property and equipment (13,679) (12,721)
Cash received from sale of subsidiaries
stock 1,464
Acquisition of interests in subsidiaries (330) 293
Adjustment of minority interest (1,382)
Adjustment of Company's share of the excess of
proceeds over book value of subsidiaries'
shares purchased by Telecom Danmark (737)
(Increase) decrease in intangible assets (731) 404
Loan receivable (11)
--------- ----------
Net cash used in investing activities (14,740) (12,690)
---------- ----------
Cash flows from financing activities:
Borrowings under long-term debt 1,499 8,531
Proceeds from short term loans 78,773 354
Proceeds from issuance of common stock 1,220
Repayment of short term loans (50,752)
Increase in amount payable to related party 511
--------- ---------
Net cash provided by financing
activities 29,520 10,616
--------- ---------
Effect of foreign exchange rate changes on cash 283 128
--------- ---------
Net increase (decrease) in cash and cash
equivalents 3,135 1,015
Cash and cash equivalents at beginning of period 16,192 6,966
--------- ---------
Cash and cash equivalents at end of period $ 19,327 $ 7,981
========= =========
See accompanying notes to consolidated condensed financial statements.
<PAGE>
Part I. Financial Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(unaudited)
(1) Basis of Presentation
The accompanying condensed consolidated financial statements have
been prepared without audit and, in the opinion of management
include all adjustments, consisting mainly of normal recurring
accruals necessary for fair presentation. Results for the interim
periods are not necessarily indicative of the results for a full
year.
(2) Cash and Cash Equivalents and Restricted Cash
(a) Cash and Cash Equivalents:
At June 30, 1996 cash of $3,038,000 denominated in U.S.
dollars was on deposit with a major money center bank and in
a U.S. Treasury money market fund, in the United States. In
addition, at June 30, 1996 $16,289,000 ($9,002,000
denominated in U.S. dollars, the equivalent of $556,000
denominated in German Deutsche Marks and the equivalent of
$6,731,000 denominated in Hungarian Forints) was on deposit
with Hungarian government-owned banks and a foreign bank in
Hungary.
(b) Restricted Cash:
At June 30, 1996, approximately $2,164,000 of cash
denominated in Hungarian Forints was restricted under
concession contract fulfillment guarantees with restrictions
to be removed principally upon the successful attainment of
certain operational requirements as prescribed in the
concession agreements. The Company expects to satisfy the
operational requirements in 1996 and therefore the restricted
cash is shown as a current asset.
(3) Related Parties
Due to related parties of $5,004,000 at June 30, 1996 is comprised
of the following: $33,000 due to Hungarian Teleconstruct Corp.
("Teleconstruct") for rent and other services, plus interest;
$1,556,000 due to TeleDanmark A/S ("TDI") for management fees
accrued under the management agreement; and $3,415,000 due to
Citizens Utilities Company ("Citizens") for reimbursable
management costs and management fees accrued under the management
services agreement .
Included in other assets at June 30, 1996 is a deposit of $250,000
paid to Teleconstruct for the purchase of a residential apartment
for which title passed to the company subsequent to the period
end, and $250,000 due from a former director of the Company for
funds advanced on a personal mortgage.
The Company purchased from Teleconstruct the premises used as
offices by the Company and its subsidiary HTCC Consulting Rt. in
Budapest, Hungary for a price of $393,000.
The Company also paid legal fees to a former officer of
approximately $71,000, during the six months ended June 30, 1996,
and a further $75,000 on July 1, 1996.
Included in long term debt at June 30, 1996 is approximately $6.0
million borrowed from TDI by subsidiaries under a subordinated
loan agreement.
<PAGE>
Part I. Financial Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(unaudited)
(4) Credit Facility
On March 29, 1996, the Company entered into a $75.0 million
Secured Term Loan Credit Facility ("Credit Facility") and,
together with HTCC Consulting, a related Pledge and Security
Agreement with Citicorp North America, Inc. Advances under the
Credit Facility may be requested through December 31, 1996. The
Credit Facility will bear interest rates of 4.5% and 3.5% above
LIBOR or Citicorp's announced base rate, respectively at the
Company's option, up to June 30, 1996. The spreadsover LIBOR and
Citicorp's announced base rate will increase by 1% per quarter
until maturity on December 31, 1996. As of June 30, 1996, the
Company used $70,773,000 from the Credit Facility to repay all the
funds advanced or guaranteed by Citizens and Chemical Bank
pursuant to the Citizens Loan Agreement, and to meet contractual
commitments to contractors pursuant to construction contracts. In
April, 1996, the Company recorded an extraordinary loss for a
non-cash charge of approximately $8.2 million representing the
write off of the remaining unamortized deferred financing costs
pertaining to the Citizens Loan Agreement.
The Company has engaged two investment banks to serve as
underwriters for the placement of approximately $125 million of
debt securities of the Company, such underwriting is anticipated
to close in the second half of 1996.
(5) Construction Commitments
In September of 1994 Kelet-Nograd Com entered into local telephone
contracts with unrelated corporations to provide their respective
services. Re-negotiations of the largest contract have resulted in
a cancellation of a significant portion of the contract scope of
work under the original contract and a negotiation of a new
contract to perform the portion cancelled under the original
contract. This change has resulted in a cost saving to
Kelet-Nograd Com. The new contract is anticipated to be signed by
mid-September 1996. The contracts, including the renegotiations,
totalled approximately $33.5 million. Approximately $4.5 million,
was paid in advance under the original contract. The balance sheet
as of June 30, 1996 included $2.8 million of remaining advance
payments to be applied against future contract invoices.
On May 10, 1996, Papa es Tersege Telefon Koncesszios Rt
("Papatel") entered into a contract with an unrelated corporation
which provides for the construction of a local telephone exchange
in its service area on a turnkey basis, at a fixed price of
approximately $13.2 million. Included in the contract price is $
2.0 million in settlement of the contractors claims for work
performed prior to the acquisition of Papatel. Of this $2.0
million, $1.3 million was recorded at the acquisition date and the
remaining $0.7 million has been reflected as an increase in
goodwill. The contract requires full completion of construction in
1996.
In addition, on June 3, 1996, Papatel entered into a contract with
an unrelated corporation to provide a local telephone network with
capacity of 2,500 lines in the Papa primary region at a fixed
price of $2.9 million. The contract requires 100% completion by
the end of 1996.
<PAGE>
Part I. Financial Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(unaudited)
On May 23, 1996, Hungarotel Tavkozlesi Rt ("Hungarotel") entered
into a contract with an unrelated corporation to provide for
construction of a telephone network with capacity of 11,000 lines
in its Oroshaza service area at a fixed price of $14.2 million.
The contract requires 60% completion by December 31, 1996 and 100%
completion by the end of February 1997.
In addition, on June 28, 1996, Hungarotel entered into a contract
with an unrelated corporation to provide for the construction of a
telephone network with a capacity of 40,000 lines in its
Bekescsaba service area at a fixed price of $45.0 million. The
contract requires installation of 14,000 lines by December 31,
1996, and the remaining 26,000 additional lines by December 31,
1997. Financing will be provided by the contractor for the entire
contract amount. The financing agreement requires repayment in 19
quarterly installments commencing on March 31, 1998 with the final
payment due December 31, 2002. Interest will be charged at a
variable rate computed as the weighted average of the 6 and 12
month Hungarian National Treasury Bill interest rate for each
quarter plus 2.5%. Interest payments may be deferred until
December 31, 1997.
The Company has paid $7.7 million at June 30, 1996 as advanced
payments on construction contracts. The construction contracts are
denominated in U.S. dollars or Deutsche Marks and are invoiced and
payable in equivalent HUF amounts.
(6) Subsequent Event
On July 26, 1996, the Company entered into Termination and Release
Agreements, Consulting Agreements and Non-competition Agreements
with its former Chief Executive and Chairman of the Board of
Directors, former Vice Chairman of the Board of Directors, and
former Chief Financial Officer, Treasurer, Secretary and Director.
Pursuant to these agreements, the Company has agreed to make
payments for severance, consulting fees and non-compete agreements
amounting to $7.25 million, in equal monthly instalments over a 72
month period commencing August 31, 1996. These commitments are
secured on letters of credit, guaranteed by the Company.
The Company will record a charge in the three month period ending
September 30, 1996 related to these agreements.
(7) Acquisition Adjustment
On May 21, 1996, the Company and Central Euro TeleKom ( CET )
entered into a Settlement Agreement whereby the number of shares
to be issued to CET in connection with the acquisitions of
Hungarotel and Papatel was reduced based upon certain post-closing
purchase price adjustments. Pursuant to the Settlement Agreement,
the number of shares was reduced by 101,429. The reduction in
purchase price was reflected as a reduction to goodwill and the
reduction in the number of shares was reflected as a reduction to
common stock and additional paid-in-capital.
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Part I. FINANCIAL INFORMATION (Continued)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS:
Three Months Ended June 30, 1996 Compared With Three Months Ended June 30, 1995
Net Revenues
The Company recorded net revenues of $4.5 million for the three months
ended June 30, 1996 as compared to $0.8 million for the three months ended June
30, 1996, an increase of approximately $3.7 million.
Measured service revenues increased $3.9 million from $1.0 million for
the three months ended June 30, 1995 to $4.9 million for the three months ended
June 30, 1996, which was partially offset by an increase in net interconnect
charges of $1.6 million from approximately $0.4 million for the three months
ended June 30, 1995 to $2.1 million for the three months ended June 30, 1996.
This increase in measured service revenues was the result of a 365% increase in
average access lines in service to 72,489 as compared to 15,582 access lines in
the comparable three-month period. The principal reason for this significant
increase in lines was the addition of 44,414 lines in the Hungarotel and Papatel
areas which were acquired from Matav on December 31, 1995. Measured service
revenues also increased due to increased average rates and call volume for the
three months ended June 30, 1996 as compared to the three months ended June 30,
1995.
The Company recognized $1.5 million of revenues from connection and
monthly subscription fees during the three months ended June 30, 1996 as
compared to $0.2 million for the three months ended June 30, 1995. The principal
reasons for this increase relate to the addition of subscription fees from
Hungarotel and Papatel, which were not owned by the Company in the prior period,
and the Company's ongoing network construction program in all of the operating
areas which resulted in the connection of 2,641 subscribers in the three months
ended June 30, 1996 as compared to the connection of 70 subscribers in the three
months ended June 30 ,1995. Subscription fees also increased due to a 34.1%
increase in monthly Hungarian Forint subscription rates offset by the
devaluation of the Hungarian Forint versus the U.S. Dollar.
Other revenues increased to $199 thousand in the three months ended
June 30, 1996 as compared to $35 thousand in the comparable 1995 period. This
increase reflects additional revenues from the provision of direct lines,
telephone leasing and telephone sales.
Operating and Maintenance Expenses
Operating and maintenance expenses for the three months ended June 30,
1996 increased $1.2 million, or 21.9%, to $6.5 million as compared to $5.3
million for the comparable 1995 period. The $5.3 million of operating expenses
incurred in the period ended June 30, 1995 included $3.3 million of deferred
stock compensation and $0.6 million of asset write-downs. Included in operating
and maintenance expenses for the three months ended June 30, 1996 was deferred
stock compensation of $0.1 million. All of these were non-cash charges.
Operating and maintenance expenses adjusted to remove the effect of the deferred
stock compensation and asset write-downs were $1.4 million and $6.4 million for
the three months ended June 30, 1995 and 1996, respectively. The reasons for the
increase in adjusted operating expenses include $ 2.1 million attributable to
the inclusion of Hungarotel and Papatel, $0.2 million attributable to additional
maintenance expenses in KNC and Raba-Com which had 9,936 more access lines in
operation during the 1996 period, and $2.7 million attributable to additional
expenses incurred by the Company to meet its increased managerial requirements.
On a per line basis, however, adjusted maintenance expenses decreased from $90
per average access line for the three months ended June 30, 1995 to $88 for the
three months ended June 30, 1996 as the Company achieved productivity
improvements, including the decreased use of labor intensive manual switchboards
and the increased use of modern switching technology.
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Part I. FINANCIAL INFORMATION (Continued)
Depreciation and Amortization
Depreciation and amortization charges increased $0.6 million to $0.9
million for the three months ended June 30, 1996 as compared to $0.3 million for
the comparable 1995 period. This increase was due to the increase in the value
of plant and lines in operation, including the additional 47,895 average lines
in Papatel and Hungarotel, during the three months ended June 30, 1996 as
compared to the previous period. As the Company proceeds with its capital
expenditure programs in each of the operating areas, it believes that
depreciation and amortization expenses will increase as more assets are placed
into operation.
Management Fees
Management fees payable to Citizens and Tele Danmark, pursuant to their
respective management agreements, increased $1.5 million to $2.0 million for the
three months ended June 30, 1996 from $0.5 million for the comparable 1995
period. Citizens' monthly management fees commenced July 1, 1995 and, for the
three months ended June 30, 1996, amounted to $1.6 million, of which $0.8
million was for reimbursable costs.
Loss from Operations
Loss from operations decreased by $0.4 million to $4.9 million for the
three months ended June 30, 1996 from $5.3 million for the three months ended
June 30, 1995. This decrease was principally due to the $0.7 million of income
from operations contributed by Hungarotel which was acquired December 31, 1995.
Foreign Exchange Losses
Foreign exchange losses decreased $1.3 million from $1.5 million for
the three months ended June 30, 1995 to $0.2 million for the three months ended
June 30, 1996. Such foreign exchange losses resulted from the devaluation of the
Hungarian Forint against the U.S. Dollar and the German Mark. The Company has
incurred debt and other obligations which are denominated in U.S. Dollars and
German Marks in order to commence the construction of its telecommunication
networks. During the three months ended June 30, 1996, the Hungarian Forint
devalued against a basket of major currencies by 4.3% as compared to 5.1% in the
three months ended June 30, 1995. The decrease in foreign exchange loss was
primarily attributable to the reduced devaluation of the Hungarian Forint in the
1996 period and an adjustment in the June 30, 1995 quarter of $1.1 million to
record the exchange loss on a contract entered into in the period at historic
exchange rates. It is the policy of the National Bank of Hungary to continue to
devalue the Hungarian Forint in order to ensure its relative competitiveness.
For the remainder of 1996, the National Bank of Hungary has announced that it
will manage the devaluation of the Hungarian Forint against a basket of major
currencies at a 1.2% rate per month. Since a substantial portion of the
Company's liabilities are denominated in currencies other than the Hungarian
Forint, the Company expects to continue to incur additional foreign currency
losses in the future.
Net Interest Expense
Net interest expense increased $3.2 million to $3.9 million for the
three months ended June 30, 1996 as compared to $0.7 million for the three
months ended June 30, 1995. The principal reason for this increase was
attributable to higher average debt levels in the three months ended June 30,
1996 as compared to the comparable 1995 period as the Company incurred
indebtedness in order to commence the construction of its telecommunications
networks. An increase in interest income of $0.4 million from $0.3 million for
the three month period ended June 30, 1995 to $0.7 million for the three month
period ended June 30, 1996 was due to higher average cash balances. The average
rate of interest accrued by the Company on its indebtedness decreased from 23.1%
for the three months ended June 30, 1995 to 14.8% for the three months ended
June 30, 1996 as the proportion of U.S dollar denominated debt increased in the
1996 period.
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Part I. FINANCIAL INFORMATION (Continued)
Other
Other income increased from nil for the three months ended June 30,
1995 to $0.2 million for the three months ended June 30, 1996 principally due to
income from ancillary activities and the sale of non-operating assets.
Loss Before Extraordinary Item
As a result of the factors discussed above, loss before extraordinary
items increased $1.2 million to $7.4 million for the three months ended June 30,
1996 from $6.2 million for the three months ended June 30, 1995.
Extraordinary Item
For the three months ended June 30, 1996, the Company recorded an
extraordinary item for a non-cash charge of $8.2 million related to the
write-off of the remaining unamortized deferred financing costs pertaining to
the Citizens Loan Agreement, on repayment of the relevant loan.
Net Loss
As a result of the factors discussed above, for the three months ended
June 30, 1996, the Company recorded a net loss of $15.6 million as compared to a
net loss of $6.2 million for the period ended June 30, 1995.
Six Months Ended June 30, 1996 Compared With Six Months Ended June 30, 1995
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Part I. FINANCIAL INFORMATION (Continued)
Net revenues for the six months ended June 30, 1996 were approximately
$9.7 million as compared to approximately $1.2 million for the six months ended
June 30, 1995, an increase of $8.5 million, or 708%.
Measured service revenues increased $8.5 million from $1.5 million for
the six months ended June 30, 1995 to $10.0 million for the six months ended
June 30, 1996, which was partially offset by an increase in net interconnect
charges of $3.6 million from approximately $0.6 million for the six months ended
June 30, 1995 to $4.2 million for the six months ended June 30, 1996. This
increase in measured service revenues reflects a 524% increase in average access
lines in service to 69,936 as compared to11,206 access lines in the comparable
six-month period. The principal reason for this significant increase in lines
was that the Company commenced operations in Raba-Com on January 1, 1995, in KNC
on March 1, 1995 and in Hungarotel and Papatel on December 31, 1995. Results for
the six month period ended June 30, 1995 only include six months of operations
for Raba-Com and four months of operations for KNC as compared to the six months
ended June 30, 1996, which include the results of operations for all four of the
Company's operating subsidiaries for the entire period. Measured service
revenues also increased due to increased average rates and call volume for the
six months ended June 30, 1996 as compared to the six months ended June 30,
1995. As a result, net measured service revenues per average access line
increased $12 from $71 per average access line for the six months ended June 30,
1995 to $83 for the six months ended June 30, 1996.
The Company recognized $3.2 million of revenues from connection and
monthly subscription fees during the six months ended June 30, 1996 as compared
to $0.3 million for the six months ended June 30, 1995, an increase of $2.9
million. The principal reason for this increase relates to the Company's ongoing
network construction program in all of the Operating Areas which resulted in the
connection of 9,653 subscribers in the six months ended June 30, 1996 as
compared to the connection of 70 subscribers in the six months ended June 30
,1995. Subscription fees also increased due to the greater average number of
access lines in operation during the six months ended June 30, 1996 and a 34.1%
increase in monthly Hungarian Forint subscription rates offset by the
devaluation of the Hungarian Forint versus the U.S. Dollar.
Other revenues increased to $0.7 million for the six months ended June
30, 1996 as compared to $0.1 million for the comparable 1995 period. This
increase reflects additional revenues from the provision of direct lines,
telephone leasing and telephone sales.
Operating and Maintenance Expenses
Operating and maintenance expenses for the six months ended June 30,
1996 increased $4.8 million, or 72%, to $11.5 million as compared to $6.7
million for the comparable 1995 period. The $6.7 million of operating and
maintenance expenses incurred in the period ended June 30, 1995 includes $3.6
million of deferred stock compensation and $0.6 million of asset write-downs.
Included in operating and maintenance expenses for the six months ended June 30,
1996 was deferred stock compensation of $0.2 million and asset write-downs of
$0.6 million All of these items were non-cash charges. Operating and maintenance
expenses adjusted to remove the effect of the deferred stock compensation and
asset write-downs increased $8.2 million to $10.7 million as compared to $2.5
million for the comparable 1995 period. The reasons for this increase relate
primarily to the inclusion of results for all four operating subsidiaries as
discussed above, which resulted in an increase in the number of average access
line in operation of 58,730. On a per line basis, however, adjusted operating
and maintenance expenses decreased from $223 per average access line for the six
months ended June 30, 1995 to $153 for the six months ended June 30, 1996 as
high labor cost manual switchboards were eliminated and the use of modern
digital switching technology was increased.
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Part I. FINANCIAL INFORMATION (Continued)
Depreciation and Amortization
Depreciation and amortization charges increased $1.1 million to $1.9
million in the six months ended June 30, 1996 as compared to $0.8 million for
the comparable 1995 period. This increase stems from the fact that the Company
had significantly more fixed assets in operation as there were 58,730 more lines
in operation, including 46,911 additional average lines in Papatel and
Hungarotel, during the six months ended June 30, 1996 as compared to the
previous period. As the Company proceeds with its capital expenditure programs
in each of the Operating Areas, it believes that depreciation and amortization
expenses will increase as more assets are placed into operation.
Management Fees
Management fees payable to Citizens and Tele Danmark, pursuant to their
respective management agreements, increased $2.5 million to $3.4 million for the
six months ended June 30, 1996 from $0.9 million for the comparable 1995 period,
principally because fees to Citizens commenced July 1, 1995.
Loss from Operations
Loss from operations remained unchanged at $7.1 million for both the
six months ended June 30, 1995 and 1996. The operating loss in the 1996 period
was principally due to additional expenses incurred by the Company to expand
management, project oversight, engineering design and systems which will be
needed to achieve rapid line growth and revenue increases, and provide for the
introduction and control of new services.
Foreign Exchange Losses
Foreign exchange losses increased $0.5 million from $1.1 million for
the six months ended June 30, 1995 to $1.6 million for the six months ended June
30, 1996. Such foreign exchange losses resulted from the devaluation of the
Hungarian Forint against the U.S. Dollar and the German Mark. The Company has
incurred debt and other obligations which are denominated in U.S. Dollars and
German Marks in order to commence the construction of its telecommunication
networks. During the six months ended June 30, 1996, the Hungarian Forint
devalued against a basket of major currencies by 4.3%. It is the policy of the
National Bank of Hungary to continue to devalue the Hungarian Forint in order to
ensure its relative competitiveness. For the remainder of 1996, the National
Bank of Hungary has announced that it will manage the devaluation of the
Hungarian Forint at a 1.2% rate per month. Since a substantial portion of the
Company's liabilities are denominated in currencies other than the Hungarian
Forint, the Company expects to continue to incur additional foreign currency
losses in the future.
Net Interest Expense
Net interest expense increased $6.0 million to $6.9 million for the six
months ended June 30, 1996 as compared to $0.9 million for the six months ended
June 30, 1995. The principal reason for this increase was attributable to higher
average debt levels in the six months ended June 30, 1996 as compared to the
comparable 1995 period as the Company incurred indebtedness in order to commence
the construction of its telecommunications networks. Interest income increased
from $0.4 million for the six month period ended June 30, 1995 to $0.9 million
for the six month period ended June 30, 1995 due to higher average cash
balances. The average rate of interest accrued by the Company on its
indebtedness decreased to 16.0% for the six months ended June 30, 1996 as
compared to 21.6% for the six months ended June 30, 1995, as the proportion of
US dollar denominated debt increased.
Other
Other income increased from nil for the six months ended June 30, 1995
to $0.5 million for the six months ended June 30, 1996 principally due to income
from ancillary activities and the sale of non-operating assets.
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Part I. FINANCIAL INFORMATION (Continued)
Loss Before Extraordinary Item
As a result of the factors discussed above, loss before extraordinary
item increased $5.8 million to $13.2 million for the six months ended June 30,
1996 from $7.4 million for the six months ended June 30, 1995.
Extraordinary Item
For the six months ended June 30, 1996, the Company recorded an
extraordinary item for a non-cash charge of $8.2 million related to the
write-off of the remaining unamortized deferred financing costs pertaining to
the Citizens Loan Agreement, on repayment of the relevant loan.
Net Loss
As a result of the factors discussed above, for the six months ended
June 30, 1996, the Company recorded a net loss of $21.4 million as compared to a
net loss of $15.6 million for the period ended June 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company was considered a development stage company through March
31, 1995. It has historically funded its capital requirements primarily through
a combination of debt, equity and vendor financing. The ongoing development and
installation of the network in each of the Company's operating areas requires
significant capital expenditures. These expenditures, together with associated
operating expenses, will continue to result in substantial cash requirements at
least until a customer base large enough to provide sufficient revenues and
operating cash flow is established.
On March 20, 1996, the Company entered into a $75.0 million credit
facility (the "Credit Facility") and, together with HTCC Consulting, a related
pledge and security agreement with Citicorp North America, Inc. Advances under
the Credit Facility may be requested through December 31, 1996 and will bear
interest rates of 4.5% and 3.5% above LIBOR or Citicorp's announced base rate,
respectively, up to June 30, 1996. Such rates will increase by 1% per quarter
until maturity on December 31, 1996. On April 3, 1996, the Company used $50.8
million from the Credit Facility to repay all the funds advanced or guaranteed
by Citizens Utilities, Inc.("Citizens") and Chemical Bank. As of such date, all
loan agreements with Citizens and Chemical Bank were terminated. Accordingly, in
April 1996, the Company incurred a non-cash charge of approximately $8.2 million
representing the remaining unamortized deferred financing costs pertaining to
the loan agreements with Citizens. On June 28, 1996, the Company's Hungarotel
subsidiary entered into a $45.0 million construction contract for the
construction of a telephone network with a capacity of 40,000 lines in its
Bekescsaba service area. Financing will be provided by the contractor for the
entire contract amount. The financing agreement requires repayment in 19
quarterly installments commencing on March 31, 1998 with the final payment due
December 31, 2002. Interest will be charged at a variable rate computed as the
weighted average of the six and 12 month Hungarian National Treasury Bill
interest rate for each quarter plus 2.5%. Interest payments may be deferred
until December 31, 1997.
In 1995, the Company applied for network construction subsidies from
the Hungarian government. In December 1995, certain of the Company's
applications were approved, subject to certain conditions, resulting in the
Company being awarded subsidies aggregating $0.9 million. The Company expects to
receive such subsidies in installments in the fourth quarter of 1996 and the
first quarter of 1997. One-half of such funds will be received in the form of a
grant and one-half in the form of a non-interest bearing loan repayable over a
three year period.
Net cash used by operating activities as shown on the Statement of Cash
Flows increased to $11.9 million for the six months ended June 30, 1996 as
compared to $3.0 million for the six months ended June 30, 1995. For the six
months ended June 30, 1996, the Company used $14.7 million in investing
activities as compared to $12.7 million for the six months ended June 30, 1995.
Of the $14.7 used through June 30, 1996, $13.7 million was used to fund the
construction of the Company's telecommunications networks. Financing activities
provided net cash of $10.6 million and $29.5 million for the six months ended
June 30, 1995 and 1996, respectively.
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Part I. FINANCIAL INFORMATION (Continued)
The Company anticipates that the capital expenditures necessary to
complete the modernization and construction of its networks will require
approximately $45.9 million from July 1, 1996 through the end of 1996 and $43.8
million through the end of 1997. Funding for the Company's future capital
requirements may include the sale of equity or debt of HTCC or one or more of
the operating companies. There can be no assurance that such financing will be
available to the Company when needed, on commercially reasonable terms, or at
all.
In order to meet its financial obligations incurred in connection with
the acquisition and construction of the telecommunications networks of its
operating companies and to meet ongoing operational requirements (including
working capital needs), it is necessary for the Company to increase its
operating cash flows. The Company believes that there will be sufficient
customers in its operating areas willing and able to pay for telecommunications
services. The Company's ability to generate revenues sufficient to meet its
operating and other expenses will be dependent primarily on the Company's
ability to meet the telecommunications needs of its existing and potential
subscribers. In the meantime, shortfalls in construction funding and working
capital needs may require additional financing arrangements, which could include
the sale of equity or debt securities of HTCC. There can be no assurance that
the Company's operations will achieve sufficient cash flows necessary to service
any long-term financing that it may be able to obtain, or that the Company will
be able to obtain new financing arrangements on commercially reasonable terms
adequate to meet its operational needs and payment obligations.
The Company has engaged two investment banks \
to serve as underwriters for the placement of approximately $125 million of debt
securities of the Company, such underwriting is anticipated to close in the
second half of 1996
INFLATION AND FOREIGN CURRENCY
For the six months ended June 30, 1996, inflation in Hungary was
approximately 23.6% on an annualized basis. It is the stated policy goal of the
Hungarian government to keep inflation from exceeding approximately 20% for the
entire year.
The Company's Hungarian operations generate revenues in Hungarian
Forints and incur operating and other expenses, including capital expenditures,
in Hungarian Forints, U.S. Dollars and German Deutsche Marks. The Company's
resulting foreign currency exposure cannot be practically hedged due to the
significant costs involved and the lack of a market for such hedging. In
addition, certain of the Company's balance sheet accounts are expressed in
foreign currencies other than the Hungarian Forint, the Company's functional
currency. Accordingly, when such amounts are expressed in U.S. Dollars for
reporting purposes, the Company is subject to translation adjustments, the
effect of which are reflected in a component of stockholders equity.
While the Company has the ability to increase the prices it charges for
its services commensurate with increases in the Hungarian Producer Price Index
("PPI") pursuant to its license from the Hungarian government, it may choose not
to implement the full amount of the increase permitted due to competitive and
other concerns. In addition, the rate of increase in the Hungarian PPI may be
less than the rate at which the Hungarian Forint devalues. As a result, the
Company may be unable to increase its prices to the degree necessary to meet its
obligation in currencies other than the Hungarian Forint.
<PAGE>
PART II -- OTHER INFORMATION
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security-Holders
a. Annual Meeting of Shareholders on May 9, 1996.
b(i) Election of Directors
FOR WITHHELD
Robert Genova 3,681,759 58,730
Frank R. Cohen 3,681,259 59,230
John B. Ryan 3,681,219 59,270
Max Metzlaff 3,680,719 59,770
Donald K. Roberton 3,680,959 59,530
James H. Season 3,680,719 59,770
(ii) Proposal to amend the Registrant's Certificate of
Incorporation to increase the number of authorized
shares of common stock thereunder from 10,000,000
to 25,000,000
For: 3,562,372
Against: 163,547
Abstention: 14,570
(iii) Proposal to amend the Registrant's Certificate of
Incorporation to authorize the issuance of up to
5,000,000 shares of preferred stock.
For: 2,292,373
Against: 220,220
Abstention: 17,900
Broker Non-Votes: 1,209,996
(iv) Proposal to amend the Registrant's 1992 Incentive
Stock Option Plan, as amended, to increase the number
of shares of the Registrant's common stock available
thereunder from 250,000 to 750,000.
For: 1,388,795
Against: 309,735
Abstention: 831,963
Broker Non-Votes: 1,209,996
(v) Ratification of the appointment of KPMG Peat Marwick
LLP as auditors of the Registrant for the fiscal year
ending December 31, 1996.
For: 3,723,649
Against: 5,430
Abstention: 11,410
<PAGE>
PART II -- OTHER INFORMATION
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 10.74 -- English translation of Contruction
Contract between Papa es Tersege Telefon Koncesszios
Rt. and Fazis Telecommunication System Design and
Contruction Corporation dated May 10, 1996.
Exhibit 10.75 -- English translation of
Construction Contract between Hungarotel
Tavkezlesi Rt. and Ericsson Kft. dated May 17, 1996.
Exhibit 10.76 -- English translation of Construction
Contract between Papa es Tersege
Telefon Koncesszios Rt. and Ericsson Kft. dated May
31, 1996.
Exhibit 10.77 -- English translation of
Construction Contract between Hungarotel
Tavkezlesi Rt. and Fazis Telecommunication System
Design and Contruction Corporation dated June 28,
1996.
Exhibit 10.78 -- English translation of Amended and
Restated Concession contract between Papa es Tersege
Telefon Koncesszios Rt. and the Hungarian Ministry
for Transportation, Telecommunications and Water
Management dated as June 3, 1996.
Exhibit 10.79 -- English translation of
Amended and Restated Concession Contract
between Hungarotel Tavkozlesi Rt. and the
Hungarian Ministry for transportation,
Telecommunications and Water Management dated as of
June 3, 1996. (Oroshaza)
Exhibit 10.80 -- English translation of
Amended and Restated Concession Contract between
Hungarotel Tavkozlesi Rt. and the Hungarian
Ministry for Transportation, Telecommunications and
Water Management dated as of June 3, 1996.
(Bekescsaba)
b. Reports on Form 8-K
None.
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned thereunto duly authorized, in the
City of New York, on the 19th day of August 1996.
HUNGARIAN TELEPHONE AND CABLE CORP.
-----------------------------------
(Registrant)
By :/s/James G. Morrison
-------------------------------
James G. Morrison
President and Chief Executive Office
By:/s/Andrew Nicholson
--------------------------------
Andrew Nicholson
Controller
PAPA REGIONAL TELEPHONE CONCESSION CORPORATION
FAZIS TELECOMMUNICATION SYSTEM DESIGN AND CONSTRUCTION
CORPORATION
MAIN CONTRACT WITH CONTRACTOR
Dated as of
May 10, 1996
<PAGE>
PAPA ES TERSEGE TELEFONKONCESSZIOS RESZVENYTARSASAG having a registered office
at 8500 Papa, Major u. 2. hereinafter referred to as the "Owner"
Representatives: James Morrison and Andrew Nicholson
FAZIS TAVKOZLESI HALOZATTERVEZO, KIVITELEZO RESZVENYTARSASAG
having a registered office at 1106 Budapest, Tarna u. 6. hereinafter referred
to as the "Contractor"
Representatives: Gyula Zold (1026 Budapest, Tomorkeny u. 3/a)
Telephone: 275-1663
Facsimile: 275-1994
The Owner and the Contractor together shall be hereinafter referred to as the
"Parties". At the undersigned place and date according to the following
conditions:
1. Contractual Declarations
1.1 The Owner hereby instructs the Contractor to perform all the work set
out in this Contract according to all the conditions set out herein.
1.2 The Contractor hereby accepts the instruction of the Owner set
out in Clause 1.1 according to all the conditions set out herein.
2. Specification of the Duties of the Contractor
2.1 Parties agree that the duties of the Contractor as described in Annex 1
"Scope of Work" hereof include the updating of the network planning of
the Papa prime region, the licensing, the construction together with
the supply of the transmission technique equipment and their
installation, and setting up a minimum total of 13,250 new pair
capacity to be located in accordance with Annex 8 hereof after the
signing of this Contract in the framework of which the Contractor's
duties include:
2.1.1 Modernizing the plans of the Papa local network, the optical cable
network, the unified and the local network and to ensure the building
licenses relating to the partially completed works not yet handed over.
2.1.2 The further extension of the local network in the Papa
city area in accordance with the schedule of the Annex 2
Schedule", supplying the new and existing subscribers up to
the wall jack, design, implementation, installation of the
telephone sets supplied by the subscribers or Owner, and
putting the system into operation.
2.1.3 Modernizing and construction of the construction plans
of the optical cables between the remote switching centres.
Installation of the transmission technique systems on new
optical cables and the use of the 2 existing PCM copper
cables.
2.1.4 Planning and construction of the unified network
connecting to the Papa HOST centre and the remote switching
centres.
2.1.5 Design, implementation, and commissioning of the
transmission and distribution network for each settlement in
the Papatel region including the connection of new and
existing subscribers up to the wall jacks, installation of
subscriber radio units and house wire for radio in the local
loop (RLL) customers at Owner's request with all radio
components and testing equipment (provided for the duration of
this work) for the purpose of antenna alignment supplied by
Owner, connection to the new switching centers, and connecting
the delivered telephone sets.
2.1.6 Execution of all duties connected to the above tasks.
2.2 The detailed technical content of this Contract is specified by Annex
4 "Technical Specifications".
2.3 The type approved telephone sets shall be provided by the Owner or the
subscriber, and the Contractor shall install them.
2.4 Parties agree that Contractor is entitled to use the technical plans or
existing supporting structure (conduits, poles, etc.) completed
previously by the Contractor for the development of the Papa primary
region at no charge to the Contractor.
3. Final Performance Deadline of the Contract:
December 31, 1996
3.1 Parties agree that the Contractor is entitled to complete any segment
of the project ahead of schedule.
3.2 Parties agree that the breakdown of the schedule is set forth in
Annex 2 hereof detailed in accordance with the construction phases.
3.3 Any deviation from the scheduled performance must be agreed in
writing by the Parties in advance save for the case provided for in
Article 3.1.
3.4 Contractor shall give highest priority to scheduling the completion of
all excavation work prior to November 15, 1996.
4. The Contract Price
4.1 Parties agree that the fixed price of this Contract shall be
HUF 1,953,189,000
i.e. One-billion-ninehundred-fiftythree-million-and-onehundred-eightynine-
thousand forints
which amount equals to USD 13,152,785 as calculated at the April 15, 1996
HUF/USD exchange rate (i.e.USD 1= HUF 148.5) plus VAT as applicable from time to
time (currently 25%) payable upon invoices issued in accordance with the
contractual schedule.
4.2 Parties agree that the fix price specified in point 4.1 contains
a) HUF 297,000,00 excluding VAT which will be paid by
the Owner to the Contractor on the day of coming into force
of the Contract under a separate agreement concluded by the
Parties;
b) the total compensation for all duties of the
Contractor as specified in Article 2 of this Contract.
4.3 Parties agree that the fixed price of this Contract as defined in
Articles 4.1 and 4.4 herein may only be changed with the prior written
agreement of the parties in the form of a Change Order. Change Orders
will be calculated in accordance with Annex 6 Unit Price List" which
Owner accepted.
4.4 Parties agree that the instalments specified in the detailed
construction and financial schedules as set out in Annex 2 and the HUF
fixed price of this Contract will be modified in accordance with any
change in the middle currency exchange rate of HUF/USD published by the
National Bank of Hungary between the date of signing of the Contract
and the date of issuance of the invoice for the instalment payment.
Parties agree that if the Contractor is delayed with his performance as
scheduled in Annex 2 the payable amount shall be calculated using the
currency exchange rate that would have been applicable if the
performance would have been completed according to Annex 2.
5. Payment Terms
5.1 Parties agree that the Owner transfers HUF 282,001,500 i.e. Two
hundred-eighty-two- million-one thousand -five hundred forints as
advance payment to the Contractor's escrow account No.
__________________ held by Postabank, within one banking day of the
execution of this Agreement under the advance payment invoice issued by
the Contractor for an amount of HUF 352,501,875 including 25% VAT,
exclusively for purchasing, installing, and commissioning the equipment
specified in Annex 3 "List of Equipment". The Contractor declares,
represent and warrants that he will not use the amount thus deposited
in the escrow account for purposes other than the aforementioned, he
will not grant any right to a third party in respect of the deposited
amount, and there is no immediate seizure right in favour of any third
party in respect of Contractor's aforementioned account. The Owner
hereby undertakes to transfer the amount of VAT attaching to the
invoice issued in accordance with this Article after having been
reimbursed to the Contractor within three (3) banking days following
the date of crediting Owner's bank account. If the amount of VAT
claimed to be reimbursed is not thus credited due to Owner's default,
Owner shall pay the same amount due as VAT from another source. The
Contractor shall copy Owner with a written instruction given to
Postabank and its confirmation by Postabank in a form as set forth in
Annex 9 hereof that the escrow amount shall not be paid by Postabank
for any purpose other than purchases and installation of and costs
related to assets as listed in Annex 3. The Contractor shall provide a
detailed list of the technical content set forth in Annex 3 as
consideration for the advance payment.
5.2 Parties agree that the payment schedule for the amounts to be paid,
other than the advance payment specified in Article 5.1 herein, are
contained in Annex 2 Payment schedule" hereof.
5.3 Parties agree that the scheduled amounts are exclusively due and
payable if the Preliminary Take-over (i.e. settlement or fiber
construction segment completed and tested but cannot carry commercial
traffic) according to the take-over protocol of the scheduled part of
the work developed as defined in Annex 2 hereof by the Owner and
Contractor is fulfilled. Placing into operation ( i.e. a network
connection of subscribers -- save for subscribers who fail to provide
access to Contractor despite Contractor's best efforts -- and of the
transport of commercial traffic) which meets all applicable standards
and technical requirements set out in Annex 4 hereof is deemed equal to
Final Take-over. Contractor shall notice Owner on cases without delay
where his access to subscriber premises was not made possible.
5.4 The Parties agree that the Owner is entitled to retain the 20% of the
gross amount until the Final Take-over of a scheduled part of the work,
including obtaining all necessary government permits and approvals, the
operational license among them, occurs. The Owner hereby undertakes to
pay the retained amount within three (3) banking days following the
Final Take-over. Parties agree, that the portion of work corresponding
to those set out in Annex 4, applicable standards and technical
conditions (except for those mentioned in Article 5.1) corresponding to
a retained amount will be deemed transferred into the final possession
of the Owner upon the transfer of this retained amount to the
Contractor by the Owner.
5.5 Parties agree that payments shall be effected by bank transfer
within fifteen (15) days following the receipt of an invoice issued
in accordance with Article 5 hereof.
5.6 In case of late financial performance, the Contractor is entitled
to a monthly 2.5% penalty interest based on the duration of the late
payment pro rated on a daily basis.
5.7 The Contractor shall not assign to a third party any receivables under
this Contract without the prior written approval of the Owner.
Notwithstanding the foregoing any duty of the Owner which a third party
may claim pursuant to an assignment of Contractor must not be more
burdensome for the Owner in any respect and the third party assignee
must expressly acknowledge that the assignment must not affect the
defences, counterclaims, etc. of the Owner against the Contractor, and
the approval of the Owner shall not be interpreted as a waiver of any
claim or right of the Owner against the Contractor and it shall not
change the obligations of the Contractor under the Contract.
If the foregoing conditions are met or if the assignee is Postabank, Rt., Owner
will not withhold the approval.
6. The Responsibilities of the Contractor
6.1 The overall responsibilities of the Contractor
The Contractor must implement the project under the conditions outlined
in Annexes 1-8 hereof using the necessary care and effort toward its
completion. The whole workforce including supervisors, the materials,
the tools, and any other temporary or lasting things regardless of
whether or not mentioned in the Contract or in its Annexes which are
necessary for the implementation of the project must be provided by the
Contractor.
The Contractor has full responsibility for the suitability, the
stability and the security of the work and construction methods done on
the site.
6.2 Supervising responsibilities of the Contractor
Contractor and Owner will designate their Project Managers (with
deputies for project sub-elements, as appropriate) with overall
responsibility for the day to day conduct of the project and
maintaining a day to day contact with each other. Neither party will
reassign this responsibility without notifying the other. The
Contractor's Project Manager will be replaced upon the Owner's
reasonable request where such request demonstrates due cause (including
chronic delays, missed project milestones, failure to be fully informed
of project activities, and failure to properly conduct progress
meetings or provide agreed upon project reports) for that replacement.
6.3 The employees of the Contractor
The Contractor can employ only those people who have the necessary
skills and experience for the job, or people, who are capable and
qualified to perform their parts. The Contractor must provide the
employees continuous education, concerning especially the skills, and
also provide the employees with the necessary designs, drawings and
standards.
6.4 Care during job performance
The Contractor is fully responsible for maintaining the project in a
safe condition from the beginning of the work until final acceptance.
If, for any reason, the project or a part of it suffers damage or loss
of any kind during that period, when the Contractor is responsible for
it, the Contractor shall be obligated to repair or reconstruct it at
his own expense, and the project must be in perfect condition when
completed and the state of the project meets all the requirements of
the Contract. The Contractor is also responsible for the damage of the
project which is caused by him during completion of any outstanding
portion of work.
Parties agree that the Contractor shall be responsible for the
performance and damage caused by subcontractors engaged by the
Contractor in the same manner as if it was done or caused by the
Contractor.
6.5 Indemnification
The Contractor must release the Owner and its employees from any kind
of obligations, claim, loss, expense, damage or proceeding, placed by a
third party, that is based on a cause for which the Contractor or his
subcontractors are liable in connection with the Contract.
The parties agree that Contractor shall indemnify Owner for any kind of
obligations, claim, loss, expense, damage or proceeding which arises
from a failure of Contractor to transfer full ownership title to Owner
of any goods or other part of the Project provided that Owner fulfilled
all obligations to the Contractor.
6.6 Legal environment
The Contractor must fulfill in every respect the statutory
requirements, and comply with all of the rules and decrees issued by
the local authority or by other agencies that are competent in respect
of the project. The Contractor must also observe the regulations of
public utilities which affect the work. The Contractor shall indemnify
the Owner for any kind of fine, penalty or duties imposed because of
failure to obey these laws, regulations, decrees or rules.
6.7 Taxes
The Contractor is responsible for all the scheduled taxes, official
duties, and authorization fees connected to the Contract, and is
obliged to pay them. Owner shall reimburse Contractor for the
government fee for the operational license as it is not included in the
contract price.
6.8 Objects found in the ground
The finds (coins, valuable objects, antiquities, buildings, as well as
objects, remains with geological or archaeological value, etc.) found
on the location of the work, must be given to the Owner, as its
exclusive property.
The Contractor must take reasonably necessary precautions against
damaging or stealing of these objects by its employees or anybody else.
In addition to this, the Contractor must notify the Owner about the
find, right after the excavation, but before the removal, and must
follow its instructions about the find, at the expenses of the Owner.
6.9 Usage of the public property and easements
Any kind of work, necessary for the implementation of the project must
be done in a way, such that it does not cause needless or senseless
inconvenience for the public, or does not block the approach, use or
occupancy of public or private roads, which serve buildings, owned by
the Owner or by anyone else in case a claim, proceeding, obligation
entailed by the damage, or expenses of any kind arise, resulted from
failure to observe the above specified rules, the Contractor - if it is
its responsibility, and it could obtain the same results by another way
as well - is obligated to release the Owner form the responsibility for
them.
6.10 Location maintenance
The Contractor must keep the site clean and free of debris or wastes
during the process of implementation. The location must be free from
unnecessary obstacles. The waste and debris, as well as the temporary
buildings that are no longer required must be removed by the
Contractor.
After the implementation of the project the Contractor must remove all
the equipment, left over or waste material, or any kind of temporary
construction and leave the entire site and the project in a clean and
proper condition, acceptable to the Owner.
6.11 Plan of work and behavioral norms
6.11.1 The Contractor is obligated to take all the necessary
action to give its employees work continuously and to meet the
commitments undertaken by itself in the contract for
employment.
6.11.2 In case of an epidemic like outbreak of an epidemic
illness, the Contractor must observe and enforce the
provisions, ordered by the Government of the local Health
Department to combat it.
6.11.3 The Contractor must take the expected and reasonable
precautions at any time, to forestall illegalities or any
other kind of untolerated misconduct on the part of the
employee, and to avoid any kind of damage to the property or
to personal safety, during the process of implementation of
the project.
6.11.4 The Contractor can work by its own plan, but it must
notify the Owner about any kind of deviation from an ordinary
work plan. The work, that is performed during the afternoon,
evening or night shifts, or on weekends or holidays, cannot be
noisy, smelly, or disturb the peace of the surroundings.
6.11.5 It is the responsibility of the Contractor to require
the subcontractors and their employees to observe the above
mentioned regulations, and hold true for them too. The
sanitary, and the accident precautionary regulations also must
be observed on the fields of work or in the transport.
6.11.6 The Contractor must take on any kind of financial and
legal consequences resulting from any violation of the above
specified regulations. In addition, the Contractor must fully
indemnify the Owner for any legal claim that may arise against
the Owner.
6.11.7 Parties agree that the Owner shall have no labor
law-based responsibility for the employees of the Contractor.
6.12 Building permits, and other licenses or approvals of the authorities
The Contractor must secure all the licenses, approvals and
authorizations necessary for the implementation of the project, or
required for the fulfillment of the Contract with Contractor (e.g. for
the legal occupancy of public areas, for demolishing the road concrete,
for traffic control) or for reporting the start of the work to the
authorities, etc. and the Contractor must pay the compensation for the
damage, caused during the work process. The Contractor must understand,
the delay in taking out the above specified permits, etc. can not cause
delay in the implementation of the project.
6.13 The cooperation of the Owner
The Owner representative must provide reasonable help to support the
Contractor to obtain the above specified authorizations.
6.14 Change Orders
Contractor and Owner cannot unilaterally modify the value, schedule, or
design of the project without prior written permission of the owner in
the form of a change order which will become a subsequent clause to the
contract. Parties agree that any Owner directed changes be submitted to
the Contractor no less than fifteen (15) days prior to the commencement
date of scheduled performance. The value of any Change Order i.e. that
of requested additional technical content will be calculated in
accordance with the Unit Price list as set out in Annex 6 hereof.
6.15 Transfer of project to Owner
The project must be transferred to the Owner by the Contractor in time
schedule set out in Annex 2 attached to this Contract. The event or the
cancellation of the transference, and the related conditions must be
recorded in written form according to Article 6.20 hereof.
6.16 The necessity of scheduling
Annex 2 attached to this Contract contains the time schedule of the
Contract. If at any time the Owner finds that the actual progress of
the work does not meet the requirements of the approved schedule, the
Contractor shall at the request of the Owner set an amended schedule
which assures the work is completed by the deadline.
6.17 Lighting and security of the location
Regarding the work process, the Contractor must provide and maintain at
its own expense any kind of lighting, security or fence.
6.18 Control and corrections
In compliance with the order of the Owner representative, the
Contractor is obligated to dismantle any part of the project and then
reconstruct it if it is found to be in violation of the installation
standards governing this Contract.
If any of the above mentioned parts of the project are covered, and/or
become invisible after the Contractor fulfilled the above requirements,
and it is established that these parts of the project are implemented
in accordance with the requirements of the Contract, the costs of
discovering, restoring and cleaning up the relevant site shall be borne
by the Owner. In any other case such costs shall be borne by the
Contractor.
6.19 Penalty for delay
Owner shall be entitled to claim penalty for delay if the Contractor
fails to meet the final deadline set out in Article 3 of this Contract
for any reason. The penalty is 2.5% monthly payable by Contractor for
the actual period of the delay. The penalty is to be calculated based
on the aggregate values set out in Annex 2 of this Contract for
technical units which have been not delivered or put into operation by
the final deadline. Sub-deadlines are not subject to penalty for delay.
6.20 Take-over protocol
6.20.1 Five days before a part of the project is scheduled for
completion the Contractor must so advise Owner in writing. The
Owner shall set a date and time for the hand-over of the
implemented part of the project for no later than 15 days
after the planned completion. The Parties shall attend the
hand-over procedure. Owner and Contractor shall jointly make a
protocol regarding the delivery. Owner can refuse the delivery
only if the network is not ready for operation. The discovered
insufficiencies which do not affect the operation the
Contractor shall correct in 30 days following the technical
delivery. In case the Contractor fails to correct the
insufficiencies concerned, the Owner can deduct the sum of the
next invoice by the amount needed to correct the defect. If
Owner fails to attend the hand-over procedure, the Contractor
can complete the procedure alone and in finding it suitable
can submit the invoice to the Owner.
6.20.2 Conditions of delivery
The conditions of delivery of the project are made
according to the requirements of the Contract and
must include the following:
-Statement of the Contractor
-meeting first class requirements and those
of the contract
-applicable standards and the related
requirements,
-register of the fiber optic cable /3
months after delivery of the project/,
-handing over a complete, detailed
and revised documentation in three copies
of the project as completed,
-final test measurement records and
documents.
-geodetic survey documentation in three
copies
-handing over of original construction
plan media (digital, vellum, or mylar).
If the system is suitable for
operation the Owner is obliged to accept it
or it is equal to acceptance if the Owner
puts it into operation.
6.21 Period of warranty
The defects subject to the warranty which occurred during the warranty
period must be eliminated free of charge in 30 days by the Contractor.
The Contractor is also obligated to reimburse for the damage caused.
Upon the technical delivery of the technical projects, the Contractor
will undertake a warranty for 12 months commencing on the actual date
of Final Takeover of the project.
The written statement of the Owner representative on the same subject
is qualified as a warranty claim. The Contractor must notify the Owner
representative about the expected length and the conditions of the
repair. Regarding this, the Owner representative has a supervision and
approval right.
In case the Owner wants a replacement under warranty, the warranty time
applicable to that part of the project automatically starts again.
The Contractor guarantees the quality and accuracy, within the
boundaries determined by the authorized standards, total conformity
with the requirements of the Contract, the required high quality
indexes, as well as the completeness and technical feasibility of the
construction design and all of the documentation made by him.
The Contractor must guarantee that the whole project or any of its
parts has the quality, that is based on the usually expected technical
experience described in the Contract, and, fulfills the requirements of
the established standards of the technology.
7. Cooperation liability
The Parties will reach an agreement how they will cooperate in order to
carry out the Contract, and they will meet regularly with their
representatives to oversee the development of the implementation of the
Contract.
7.1 Design
The Contractor will have the necessary design work finished. The
Designer will send invitations for an opening meeting on the design to
the interested Parties 8 days before the event. The Owner at this
opening meeting must represent itself by representatives authorized to
take a position. The Designer has to have the design previously checked
by the Telecommunication Inspectorate at Sopron. The Designer will
bring the design before a Special Design Confirmation Committee only in
case of preapproval of the inspectorate, or correction of the errors
found by them in the design. The Special Design Confirmation Committee
must complete the examination of the design in 8 business days after it
has been submitted, and must notify the Contractor about the results in
writing.
The Owner can refuse the approval of the design only in that case, when
it fails to comply with the requirements, or if it is inadequate for
implementation.
7.2 Construction
Construction work can be done only according to approved plans and
building permits. The Contractor may deviate from this provision at his
own risk. The Owner has a right to supervise the construction work as
well as place the errors on record in the construction book, and the
Contractor must correct them in 14 days. If authority's approval is
needed for correcting the errors the 14 days shall be calculated from
when the approval date comes into force.
7.3 The requirements for starting the operation
The boundary of the implementation work to be performed by the
Contractor is the equipment side of the optical digital distribution
frame of the transmission equipment to be installed in the PAPA HOST
exchange to the telephone wall jack in the subscriber dwelling or
business. The Contractor shall arrange for the operational license for
Owner as provided for in this Contract. Owner shall provide an
authorization for Contractor to enable Contractor to fulfill duties
undertaken regarding permits and licenses,etc.
7.4 Selection of supplier
The optical cables and the transmission technique equipment shall meet
the requirements set out by Chief Telecommunications Inspectorate.
However the Contractor is fully responsible for selecting the suppliers
with the approval of the Owner. Contractor is obliged to notify the
Owner in writing 8 working days prior to the purchasing of the above
selected materials. Owner is obliged to respond by approving or not
approving within 3 working days following the receipt of the
notification. The Owner shall approve the identity of the vendor
selected by the contractor provided that the equipment offered by this
vendor meets the requirements set forth in Annex 3 hereof.
8. The responsibilities of the Owner
8.1 Supplying data
The Owner undertakes to continuously hand over the data he possesses
and especially the data of the already existing subscribers and the
data of the subscribers on the waiting list within fifteen (15) working
days following the coming into force of this Contract. If the owner
fails to provide the aforementioned data in a timely manner, the Owner
shall take into account this delay when he permits a deadline extension
for the Contractor.
8.2 Access to site
The parties agree that sites needed for Contractor's work have been
accessible for Contractor, his personnel and subcontractors.
Unless specially requested, Owner premises are available only during
normal business hours. In the case of work requiring Contractor access
beyond such hours, access will be requested no less than 24 hours prior
to expected use. Contractor staff working on Owner premises will be
supervised and expected to carry appropriate identification, and
conform with the dress and demeanor of Owner staff at that activity.
9. Other agreements
9.1 Force Majeure
In relation to this Contract, those reasons considered Force Majeure
that are out of the control of the Contractor or the Owner, and make
the satisfactory implementation or the project difficult for them.
The cases of Force Majeure include but are not limited to the
following:
-war, hostilities, riot,
-extreme weather or natural disaster, /earthquake, flooding,
etc.
-fire, explosion, epidemic,
-strike, or a concerted action of the work force, except if
the party, that refers to Force Majeure could prevent it
If one of the parties of the Contract is prevented by Force Majeure, it
must notify its contracted party in writing, within 5 days from the
event that took place. In this notice the contracted party must
determine the details of the Force Majeure with the proof of its
inevitability, and a statement, if it delays their contracted
obligations or interferes with them. The notice must contain also an
estimate for the length of Force Majeure as well as a statement that
releases the concerned party from the implementation of the obligations
under discussion as long as the Force Majeure exists. The Contractor is
not entitled to rely on an event otherwise qualifying as Force Majeure
if the scheduled deadline of the portion of work concerned was due
before such event.
If the continuance of the Force Majeure is longer than 5 days, the
parties must hold a consultation with each other to agree about the
necessary modifications in the Contract, in case the parties cannot
agree with each other, or, if they are unable to establish any kind of
Contract with each other, then legal proceedings must be requested.
9.2 Governing Law and settlement of legal disputes
Parties agree that all the legal questions not regulated by this
Contract are governed by the laws of Republic of Hungary.
The Owner and the Contractor must make every effort for the sake of
settling peacefully, in a direct negotiation, any kind of disagreement
or dispute which arises between the parties during the course of the
Contract.
If the Parties are unable to settle any legal dispute including the
existence, validity, or termination of this Contract that has arisen on
the basis of the Contract or in relation to it within 30 days from the
beginning of the above mentioned direct and informal negotiations, then
the Permanent Arbitration Court attached to the Hungarian Chamber of
Commerce and Industry will have exclusive jurisdiction in these
matters.
9.3 Construction book
The construction book is a basic document for the establishment and the
implementation of the Contract. It is kept on the location by the
Contractor however, the construction book must be available at any time
for the representative of the Owner too. There are 3 copies of the book
and only a representative of the Contractor or the Owner may write in
it. One copy of the construction book is due to the Contractor, and the
other copy is due to the Owner, and the original copy must stay on the
location. Parties agree that the Contractor shall deliver the copy due
to the Owner every week.
9.4 Suspension of work
Owner hereby acknowledges that if he fails to fulfill its data supply
or financial obligations as required for the performance of the
Contract based on the terms herein and two subsequent notices given by
the Contractor regarding such failures, the Owner will have after the
due date indicating sufficient time eight (8) days to remedy the
failure. If the notices prove fruitless, the Contractor is entitled to
suspend any or all of his duties unless the parties agree otherwise.
10. Representatives of the Parties and notices
10.1 Parties agree that in the course of the performance of this Contract, a
declaration, specifically making a confirmation of the technical
performance on behalf of the Owner can be made exclusively by a
representative appointed by Mr. Les Bender, Mr. James Morrison, or
Andrew Nicholson in writing and exclusively in the English language.
Any other declaration made on behalf of the Owner will have no legal
effect.
10.2 Parties agree that in the course of the execution of the Contract,
technical questions may be addressed by the Owner directly to Mr. Al
Rymarz, Project Manager of the Papa primer region; however, this
provision does not effect the provision set out in 10.1 related to the
legal effect.
10.3 Parties agree that in the course of the performance of the Contract,
the following persons can make declarations having legal effect on
behalf of the Contractor:
-In all aspects of the Contract: Zold Gyula,
-In respect of project implementation, technical content, scheduling
and care of the project, etc. the designated Project Manager shall
be Ferenc Juhasz.
10.4 The Parties agree that any change order can be authorized only by James
Morrison.
10.5 Any kind of notice that applies, according to the Contract, either to
the Owner or the Contractor, must be mailed or delivered to their
correct addresses determined for this purpose in this Article.
10.6 If either Party changes its address given below, it must notify in
advance the other party in writing.
10.7 The addresses below are given by the Parties of the Contract:
Contractor:
Mr. Gyula Zold
FAZIS TAVKOZLESI HALOZATTERVEZO ES KIVITELEZO RT.
(1026 Budapest, Tomorkeny u. 3/A)
Phone: 275-1663
Fax: 275-1994
Owner:
James Morrison
Papa es Tersege Telefon Reszvenytarsasag
(8500 Papa, Major u. 2.)
Phone: 212-1100
Fax: 202-4778
11. Cancellation
Parties agree that if either of them cancels this Contract for a reason
falling into its own scope of interest, the cancelling party shall pay
a penalty payment equal to 20% of the total amount of the work not
started as of the date of the cancellation and the justified extra
costs of the other party (including the amount of the penalty payment
eventually payable by the Owner based on the concession contract
obligation). In this case the Owner shall pay commensurate compensation
for work done but not yet delivered by the Contractor.
12. Coming into force
Parties agree that this Contract comes into effect as set out by the
provisions of the separate Contract concluded by the parties on
May 10, 1996.
Parties have both read this contract, and mutually agreed and under-
stood its contents.
Budapest, May 10, 1996
1996
Parties have both read this Contract, and mutually agreed and
understood its contents.
Budapest, May 10, 1996
43014
HUNGAROTEL TAVKOZLESI RESZVENYTARSASAG
ERICSSON KORLATOLT FELELOSSEGU TARSASAG
TURN-KEY CONTRACT
Dated as of
May 17, 1996
<PAGE>
1 INTRODUCTION
1.1 Purpose
This document constitutes the agreement between Hungarotel Rt. and
Ericsson Kft., governing the latter's provision, on a Turn-key basis,
of a telephone network of 7,500 telephone lines for the Oroshaza and
Bekescsaba Primary Regions based upon the tender invitation dated 1
October, 1995 from Owner.
1.2 Parties declare they have all the necessary authorizations to conclude
the present Contract.
2 DEFINITIONS
"Building(s)" means the premises as described in Attachment V used for
technical purposes which are necessary and suitable for the
accommodation of the telecommunication equipment and system included in
the Contract. The building can be ordinary construction or container.
"Change Order" means the process to handle the changes requested by
Owner or Contractor that will affect the value, schedule, or design of
the Contract.
"Connected Capacity/Connected Lines" means those Ordered Lines where
the connection to particular subscribers actually occurred and by
connecting a telephone set to it voice grade telephone calls can be
originated and terminated.
"Contract" means this Contract concluded between Owner and Contractor,
including all the documents being referred there as well as the
mutually accepted modifications and/or alterations.
"Contractor" means Ericsson Kft and includes its successors. Customer
Premise Equipment" (CPE) means the subscriber telephone instrument.
"Day" means calendar day unless stated otherwise.
"Goods" means all the equipment, material, components, software, or any
other component, which must be fully or provisionally type approved in
Hungary, where applicable, to be supplied by Contractor to Owner in
accordance with the Contract necessary for the normal, commercial
operation of the lines ordered for this Contract.
"Installation". An all inclusive term referring to the placement
of equipment and material and encompassing all related general
(e.g. construction, erection) and specific (e.g. splicing,
connecting, and testing) terms employed to describe such activities.
"Line Connection Certificate" means the form statement as defined as
Attachment VI/11 duly signed by the subscriber upon installation and
testing, as described in Attachment VI of a Connected Line which will
certify the full capability of the connection and for normal commercial
operation of the Connected Line.
Line Price" means the fixed price of USD 1,300 per Ordered Line.
"Ordered Capacity/ Ordered Lines" mean any and all particular telephone
lines which Owner requested Contractor to build under the Contract
including those requested via Change Orders; the term comprises
Connected Lines and Rejected Lines.
"Ordered Spare Capacity/Ordered Spare Lines" means prospective
telephone lines which Owner requested Contractor to build under the
Contract where it is not required to implement the subscriber
premises radio equipment (FAU/SRT).
"Owner" means Hungarotel Rt. and includes its successors.
"Parties" mean the Owner and the Contractor together.
"Permit" means all official documents necessary for the implementation
and turning into commercial operation of the Project with special
regard to network and building construction, access to public
utilities, type approval if applicable, of all the Goods, radio
licenses for all relevant Goods required by law, or other access from
all government agencies or third parties.
Project" means all Goods and Services to be delivered and performed
for the PRTN
"Project Manager" means the authorized representative of Owner and
Contractor being entitled to control all the activities to be performed
by Owner and Contractor as well as to give instructions and/or
approvals, including the express authority to hand over/take over of
completed work products of Contractor, which are necessary regarding
the daily completion of the Contract.
"Project Executive" means the authorized officers of both parties
having full authority to execute the Project.
"Project Schedule" A comprehensive, computer based schedule employing
Critical Path methodology, which identifies relationships between
project tasks and, based on the quantity of work required, resources
assigned, and expected productivity, predicts the achievement of key
project milestones.
"PRTN" Primary Region Telephone Network, (Bekescsaba and Oroshaza
Primary region) including the telephone infrastructure to be provided
under this Contract.
"Rejected Lines" mean those Ordered Lines where Contractor was unable
to connect a subscriber even after Contactor's best effort, the minimum
of which is provided for in the Contract; the Rejected Lines shall in
effect be considered as additional Ordered Spare Capacity/Ordered Spare
Lines.
"Services" mean all the activities which appear in non-objectified form
(therefore are not "Goods") but form an integral, inseparable part of
the Project, assembly, commissioning, design, installation,
commissioning, and project management necessary to put the Ordered
Lines into commercial operation.
"Site" means locations, building and other places where the
implementation work will take place.
"Sub-Contractor" means those corporate bodies or entrepreneurs licensed
or qualified to perform activities on the commission of Contractor and
with the full and unlimited responsibility of the Contractor to fulfill
the Project.
"System Acceptance" Owners statement declaring that all contractual
obligations of the Contractor, except where explicitly provided
otherwise are fulfilled.
"System Integration" means those activities of Contractor which are
necessary for the connection and communication of the existing and the
new telephone system to be implemented by Contractor in the PRTN on the
level of the host exchanges within the relevant primary region.
"Technical Documentation" means all the technical documents for all
components and the network installed in accordance with the Contract
that Contractor has to deliver to Owner for the normal commercial
operation of the Project as required by law.
Telecommunications Authority of Hungary" (HIF) means a government
agency authorized to issue telecommunication-related licenses and/or
related permits.
"Test" means the procedures and other measurements carried out by
Contractor on units of the Project according to the manufacturers'
instructions and the internal proceedings and practices of Contractor
and applicable Hungarian rules and regulations aimed to check the
compliance with the relevant technical and functional parameters for
the commercial operation of the Project delivered to the Owner in a
format approved in the Contract.
"Technological Spare Capacity" means an excess number of prospective
telephone lines which were not ordered by Owner but instead arise from
technological circumstances and are therefore neither chargeable
against nor useable by Owner.
"Turn-key Project" The delivery of a complete and functioning telephone
system which provides normal commercial telephone services for the
Primary Regions (Bekescsaba and Oroshaza) capable of commercial
operation for public telephone services by Owner's employees capable of
operation for the purpose intended by Owners and in compliance with the
technical documentation of this Contract. This includes Engineering,
Furnishing, Installing and Testing (EFIT) of all system equipment and
components excluding Customer Premise Equipment with the exception of
installation and testing.
"Unit Price" means the price of goods and services listed in Attachment
I. Should the need of any unit price not listed in the Attachment I
mentioned above arise during implementation, Contractor shall define an
appropriate unit as approved by Owner.
3 SCOPE OF WORK
3.1 General.
Contractor shall provide Goods and Services to be supplied in a
Turn-key Project for the development of a fully functional telephone
system of 7,500 new subscriber lines in the following priority: 64 pay
telephones in 32 settlements, the connection of subscribers in defined
6 villages, LB subscribers, and the exceeding amount of the Ordered
Lines shall be connected to subscriber selected by Contractor from the
waitlisted and CB subscribers at the Contractor's discretion and shall
take into account the technical conditions and subscriber ranking as
defined in Attachment V. The Project shall be implemented such that at
least 80% of the implemented Ordered Lines shall be Radio in the Local
Loop (RLL) technology comprising the Connected Lines and the Ordered
Spare Capacity in accordance with the requirements of Owner as set
forth in Attachment V hereof. Furthermore, the Project shall satisfy
the System Integration requirement as defined herein as well as the
satisfaction of Change Orders which are accepted pursuant to the
Contract. These activities and responsibilities of Contractor include
without limitation, regarding the content of this contract, the design,
engineering, manufacturing, supply, installation, obtaining of all
relevant permits and licenses, commissioning, testing, delivery of
technical documentation, and warranty of the following: 3.1.1 Switching
- AXE 3.1.2 Wired and Optical Transmission Equipment 3.1.3 RAS 1000
Radio Access System 3.1.4 DRA 1900 DECT/RLL 3.1.5 Microwave
Transmission 3.1.6 Main Distribution Frame (MDF) 3.1.7 Power Supply to
the Equipment 3.1.8 Digital Distribution Frame (DDF) 3.1.9 Trunk
Network 3.1.10 Connection to the backbone network 3.1.11 Pay phones and
booths 3.1.12 Buildings and environmental systems 3.1.13 Structures
3.1.14 Copper based network.
3.2 Network boundaries
On one side of the connection of the host exchanges to the DDF of the
existing EWSD exchange in Bekescsaba region, and connection to the DDF
of the secondary network in Oroshaza, and on the other side the wall
socket of the Customer Premise Equipment including testing and
installation of the CPE if provided by the Owner. The scope of work
excludes the extension and/or improvement of the existing telephone
network in the PRTN and the extension of the secondary exchanges.
3.3 Grade of service for the Project
The Grade of Service shall be P. 01 and the traffic performance shall
be .05 Erlang per subscriber.
3.4 Attachments
The following Attachments are considered, read and interpreted as
inseparable part of the Contract:
3.4.1 I Unit Prices
3.4.2 II Ericsson Retention Guarantee
3.4.3 III (Not used)
3.4.4 IV Text of Corporate Guarantee
3.4.5 V Owner Information
3.4.6 VI Technical Appendices (specifications and descriptions),
Tests Procedures
3.4.6.1 VI/1 Switching
3.4.6.2 VI/2 Wired Transmission (PDH) 3.4.6.3 VI/3 Microwave
Transmission (MINILINK) 3.4.6.4 VI/4 Power Supply 3.4.6.5 VI/5 Main
Distribution Frame (MDF) 3.4.6.6 VI/6 Digital Distribution Frame (DDF)
3.4.6.7 VI/7 Network Management (XMATE) - optional 3.4.6.8 VI/8 RAS
1000 RLL 3.4.6.9 VI/9 DRA 1900 (DECT) RLL 3.4.6.10 VI/10 Network
Construction 3.4.6.11 VI/11 Training 3.4.6.12 VI/12 Line Connection
Certificate 3.4.6.13 VI/13 Pay phones and booths 3.4.6.14 VI/14 General
notes 3.4.7 VII Warranty Response Obligations 3.4.8 VIII Change Order
Form
4. CONTRACTOR'S OBLIGATIONS AND RESPONSIBILITY
4.1 Project Manager
Contractor will designate a Project Manager (with deputies for project
sub-elements, as appropriate) with overall responsibility for the day
to day conduct of the project. The Project Manager's responsibilities
and authority will be provided in writing. Contractor will not reassign
this responsibility without notifying the Owner. The Project Manager
will be replaced upon the Owner's request where such request
demonstrates due cause (including chronic delays, missed project
milestones, failure to be fully informed of project activities, and
failure to properly conduct progress meetings or provide agreed upon
project reports) for that replacement.
4.2 Project Schedule
Contractor shall supply to the Owner for information purposes only,
within fifteen (15) calendar days of contract signing, a preliminary
calendar of the Project and within forty-five (45) days a digitized
copy of the Project Schedule in a format compatible with Microsoft
Project, and a hard, paper copy of the Project Schedule GANTT chart.
4.3 Installation plan and technical content
Parties agree that the planning and completion of the Project shall be
performed in accordance with an installation plan reviewed by the
Owner. Contractor shall inform Owner in writing of the technical
content of the Project no later than forty-five (45) days from the
coming into force of the Contract. In case Contractor changes the
content of the documents on which information was given to Owner,
Contractor shall inform Owner on such changes in writing within five
(5) days.
4.4 Subcontracting
The Contractor may subcontract portions of the work to qualified
subcontractors. Use of Sub-Contractors does not relieve Contractor of
overall responsibility for the quality and timeliness of project
activities. Contractor shall be responsible for the subcontracted work
as if Contractor would have performed it.
4.5 Products and Services of Hungarian Origin
4.5.1 The Contractor will use best effort to ensure that not less
than 30% of the total value of products purchased and services
provided for the purposes of the Project shall be fulfilled
with products and services of Hungarian origin.
4.5.2 Contractor shall provide a certificate describing the actual
percentage of Goods and Services of Hungarian origin prior to
System Acceptance. Such certificate can be adjusted by
Contractor no later than 28 February 1997. In the absence of
an adjusted certificate, the one provided by Contractor shall
be deemed final.
4.5.3 A product shall be deemed to be of Hungarian origin if, (i)
either 25% of the total value thereof was produced in Hungary,
or, (ii) proof can be given that due to the manufacturing
process having been carried out in Hungary, the added value of
such product increased by 25%.
4.5.4 The Contractor acknowledges that an inspection may be carried
out by the Ministry of Transportation, Telecommunication and
Water Management (the "Ministry") or by a competent agency at
any time to ensure compliance with such provision and
undertakes to fully cooperate with the Ministry or the
competent agency during such an inspection.
4.6 Test Procedures
As set forth in detail in Attachment VI hereto, Contractor shall carry
out formal Tests of all implemented Goods, where applicable. The
manufacturers' testing instructions for installation for the
implemented equipment and system shall be made available for Owner in
advance. Contractor shall invite Owner to these Tests in writing at
least five (5) days earlier unless the Test concerned was duly
indicated in the Project Schedule including its objective, exact time,
date and location. Owner shall have the right to participate in the
Tests and make comments on the test procedure and the results. Any
objection of the Owner must be recorded in the relevant Test protocol
(record) or attached thereto. All Test protocols shall be furnished to
Owner regardless of Owner's participation at the Test.
4.7 Insurance
4.7.1 Property
The Contractor and any associated subcontractors shall be
covered by insurance for the joint benefit of the Owner and
the Contractor in respect of the Project (including for the
purpose of this clause any unfixed materials or other
equipment delivered to the Site for incorporation therein) to
their full value against all loss or damage arising from any
cause for which the Contractor is responsible under the terms
of the Contract.
4.7.2 Liability
The Contractor shall throughout the execution of the Project
maintain insurance against damage, loss, or injury for which
the Contractor is liable. The terms of such insurance shall
include a provision whereby in the event of any claim, being
brought or made against the Owner, for which the Contractor is
entitled to receive indemnity under the policy, the insurer
will indemnify the Owner against any such claims and any
costs, charges, and expenses in respect thereof. The liability
insurance of Contractor shall also cover the Warranty Period.
4.7.3 Term
Insurance shall be effected in such a manner that the Owner
and the Contractor are covered for the entire period of this
Contract.
4.7.4 Evidence of coverage
The Contractor shall comply with the terms of any policy
issued in connection with the Contract and shall, whenever
required, produce to the Owner the policy or policies of
insurance and notification of any changes to such policies.
4.8 Contractor Employee Conduct
The Contractor must take the expected and reasonable precautions at any
time, to forestall illegalities or any other kind of untolerated
misconduct on the part of the employee, and to avoid any kind of damage
to the property or to personal safety, during the process of
implementation of the project.
4.9 Indemnification
The Contractor shall indemnify and hold the Owner harmless against all
losses and claims for injury or damage to any person or property
whatsoever which may arise out of or in consequence of the Contractor's
action or inaction. The Contractor shall also indemnify the Owner
against all claims, demands, proceedings, damages, costs, charges, and
expenses whatsoever in respect thereof or in relation thereto.
4.10 Training
Contractor agrees to provide training to the extent needed for Owner's
employees to enable them to operate the system in accordance with a
separate agreement which the Parties shall make within 30 days after
the execution of the Contract.
4.11 Additional Orders of Owner
In case Owner, beyond the scope of this Contract and subject to one or
more separate contracts, engages Contractor in deliveries and services
in addition to this Project provided that Owner's order for additional
lines will be made no later than 30 June, 1997, Contractor undertakes
to satisfy such order(s) for a line price not exceeding the limits set
forth below:
10-20 thousand Ordered Linesfor USD 1,175/line
20-30 thousand Ordered Linesfor USD 1,100/line
30-40 thousand Ordered Linesfor USD 1,050/line
40-50 thousand Ordered Linesfor USD 1,000/line
50-60 thousand Ordered Linesfor USD 975/line
4.12 Safety Management
The Contractor will provide to the Owner, within thirty (30) days after
execution of the Contract, a Safety Management program which is
designed to protect employees, the Owner, the general public,
subscribers, and public and private property from hazards which will
cause injury or damage. The program will be based on the following:
-national and local regulations -hazardous materials, including
disposition -additional site precautions
4.13 Construction Book
The construction book is a basic document for the implementation of the
Contract. It shall be maintained on the site by the Contractor, and
shall be available any time for review by Owner's representative. The
book shall contain three copies for each page and only a representative
of the Contractor or the Owner are entitled to make entries. One copy
belongs to the Contractor and the other copy to the Owner: the original
copy shall be kept on the site. Contractor shall deliver the Owner copy
to the Owner each week.
4.14 Customer Service Agreement
Parties agree that a Customer Services Agreement, for value added
services provided by the Contractor, may be signed within ninety (90)
days following the execution of the Contract.
4.15 System documentation
Contractor shall provide to the Owner three copies of all installation,
maintenance, and operations documentation for all network components
necessary for Owner to manage and maintain the commercial operation of
the Project as implemented in accordance with the Contract.
4.16 Rejected Lines
Contractor shall use best efforts to connect all Ordered Lines to
subscribers. Where Contractor cannot have access to a subscriber's
premises upon a notice sent to the subscriber, Contractor shall mail a
second notice to same. Both notices shall be sent by registered mail
with a return receipt. If the subscriber fails to permit access to
Contractor upon such second notice, the line concerned shall be deemed
as a Rejected Line provided that Contractor provides evidence of both
notices sent. Upon request of Contractor, Owner may approve different
methods of evidencing a Rejected Line. However, Contractor shall notice
Owner on any of such failure of access and in case Owner subsequently
reports that Owner's representatives succeeded to secure access to said
subscriber's premises in five (5) days, Contractor shall complete the
subscriber line concerned.
4.17 Corporate Guarantee
Contractor will provide a Corporate Guarantee, as defined in Attachment
IV, issued by the Ericsson parent company which is binding and
enforceable according to Hungarian and/or the law of the seat of
guarantor company of Ericsson under which the guarantor undertakes to
guarantee the Owner complete fulfillment of Contractor's obligations
under this Contract and such Corporate Guarantee shall be valid from
the date of coming into force of this Contract until the complete
fulfillment of such obligation and be released upon System Acceptance .
The language of the Corporate Guarantee is attached hereto as
Attachment IV.
4.18 Permits and licenses
4.18.1 Government Permits and licenses
Contractor is responsible for obtaining the Construction
Permit and other permissions and/or licenses related to the
Project, including but not limited to microwave radio
frequency licenses, RLL frequency licenses, and the Project
commissioning license (in Hungarian: hasznalatbaveteli and/or
rendszeresitesi engedely) in the name of Owner to be issued by
Government Authorities including the approvals of the
Telecommunication Authority of Hungary where needed for
construction, right of way, and system operation of the
Project for commencing commercial traffic. The costs related
to this responsibility of the Contractor shall be borne by the
Contractor with the exceptions of the commissioning license
fees required by government agencies for the commercial
operation of the network which will be directly paid by the
Owner, and the documented Contractor costs related to the
commissioning licenses.
4.18.2 Third Party Permits
The Contractor is obliged to apply for and obtain the Permits
of third parties not mentioned above (e.g. owners of affected
real properties). All compensations to be paid directly to
such third parties shall be borne by Owner. The Contractor in
consultation with the Owner shall identify third party-owned
real properties and leaseholds including their owners and
holders which are affected by the project during the designing
period. The process for third party approvals is as follows:
4.18.2.1 Contractor is responsible for third party approvals;
4.18.2.2 Contractor will optimize network locations for both
PRTN and Contractor;
4.18.2.3 Contractor will take into
account the availability of free real
estate, provided either by Owner or local
municipalities, during equipment site
selection;
4.18.2.4 Owner will approve or disapprove the Contractor
proposed solution 4.18.2.5 If Owner disapproves, Contractor
may proceed of its own accord
4.18.2.6 Owner has 15 days to prove
that Contractor site was more expensive
while no less beneficial to the Contractor
than an alternate, suitable site identified
by Owner
4.18.2.7 If Owner meets the
requirements of 4.18.2.6, Contractor will
compensate the Owner in an amount equal to
the difference between the two sites.
Compensation to be in kind or performance at
Contractor's resolution.
4.19 Handing over/taking over
The Contractor, at completion of the Project, but prior to System
Acceptance, shall deliver to Owner all related documents including but
not limited to:
-Statement of the Contractor,
-high quality of completion of implementation,
-conformance to applicable standards and related requirements,
-delivery of a complete, detailed, and revised documentation in
three (3) copies of the Project as completed,
-final test measurement records and documents,
-geodetic survey documentation in three (3) copies (if applicable),
4.20 Change Order
The Contractor may initiate a change in the value, schedule, or design
of the Contract via Change Order subject to the approval of Owner.
Owner's approval shall not be unreasonably withheld.
5 OWNER'S RIGHTS AND OBLIGATIONS
5.1 Owner's Representatives
The Owner will assign a Project Executive, Project Manager, Engineering
Manager, and such supporting staff as appropriate to maintain liaison
with the Contractor during the course of the project. Written
designation of such persons and their responsibility and authority
shall be provided within 15 days after the signing of the Contract. The
Project Manager shall be located at the project site and will provide
daily inspections of the work site, contract performance, and contract
compliance.
5.2 Information to be Provided
Owner shall provide necessary information as requested by the
Contractor for the successful design and installation of the Project as
set forth in Attachment V and agrees to provide further information
reasonably requested by the Contractor. Owner shall provide to
Contractor within five (5) days or earlier of coming into force of the
Contract the current waiting list and CB/LB subscribers with names,
addresses and type of service residential or business.
5.3 Access
Unless specially requested, Owner premises will be available only
during normal business hours. In the case of work requiring Contractor
access beyond such hours, access will be requested no less than 24
hours prior to expected use. Contractor staff working on Owner premises
will be supervised, carry appropriate identification, and conform with
the dress and demeanor of Owner staff at that activity. Owner is
obliged to issue and/or obtain all permits for Contractor and/or its
Subcontractors to enter the premises owned and/or directed by Owner so
that their contractual obligations can be performed. The above permit
shall enable Contractor's or its Sub-contractor's authorized personnel
to enter the premises when necessary.
5.4 Owner Review and Approval
The Owner is responsible for the timely review and approval of
documents submitted by the Contractor, at its discretion, in accordance
with this Contract. Owner's approvals or the reason if one or any of
them is being withheld, if any, shall be passed to Contractor within 5
business days from the date of the confirmed receipt, as defined under
Article 12.8 Notification, of application for approval.
5.5 Owner delay (other than financial)
Owner shall meet obligations under this Contract for only those
requirements specified in this Contract or in the latest version of the
Project Schedule received at least 15 days in advance of scheduled
obligations so that Contractor is able to follow and keep the timing.
In case of delay of Owner relating only to those requirements specified
in this Contract or in the Project Schedule, Contractor shall be
entitled to a reasonable extension of the performance deadline which
cannot exceed twice the duration of the Owner's delay. Contractor shall
be entitled to request an extension of the affected Contractor deadline
only within five (5) days of Owner's delay provided that such delay
affects Contractor's deadlines.
5.6 Authorization
After the Contract has come into force, Owner shall issue an
authorization for Contractor within fifteen (15) days. This
authorization shall entitle Contractor to act on Owner's behalf for
obtaining Permits and licenses.
5.7 Payment obligation
Owner shall be responsible for all the payments to be settled to
Contractor in accordance with Article 6 of this Contract.
5.8 Purchase of imports
The Owner hereby declares that the equipment to be supplied by the
Contractor will serve for investment purposes in the meaning according
to the Hungarian regulation. The Owner upon the request of the
Contractor shall provide the Contractor with a written declaration of
the above in the form required by the Contractor.
5.9 System Acceptance
The Owner will provide to the Contractor a written notice of System
Acceptance upon compliance with the terms and conditions of this
Contract including but not limited to receipt of all deliverables
including documentation, test records, or other requirements of Article
3.2 herein.
5.10 Change Order
The Owner may initiate a change in the value, schedule, or design of
the Contract via Change Order subject to the approval of Contractor.
Contractor's approval shall not be unreasonably withheld.
6 FINANCIAL TERMS
6.1 Contract Price
The Owner shall pay as compensation to the Contractor the Contract
Price of
USD 9,750,000
which is the Line Price of USD 1,300 multiplied by 7,500 Ordered Lines.
The final Contract Price will be adjusted according to the number of
the Ordered Lines as their price will be adjusted pursuant to this
Article. If the Contractor implements less than 80% RLL technology, the
line price will be equal to USD 1,000 per line for those lines between
the actual number of RLL lines and 80% of Ordered Lines.
6.2 Advance Payment
Advance Payment will be fifteen (15) percent of the calculated Contract
value i.e. USD 1,462,500 that is
One-million-four-hundred-sixty-two-thousand-five-hundred US dollars net
shall be paid against Contractor's invoice at the execution of this
Contract.
6.3 Invoicing
The Price for Ordered Lines, Ordered Spare Lines, and accepted Change
Orders for Connected Lines shall be computed and invoiced weekly as the
payable amount was adjusted pursuant to Article 6.5 and then the actual
amount payable reduced in proportion to the Advance Payment (in
accordance with Article 6.2 which is 15 %).
6.4 Invoice attachment
6.4.1 The Parties agree that the following documents shall be,
without exception, attached to the invoices:
(i) Line Connection Certificates for
each Connected Line,
(ii) Contractor statements and
supporting documents as set
forth in Article 4.16 pertaining to
Rejected Lines;
(iii) Contractor's statement pertaining
to Ordered Spare Lines stating
appropriate implementation;
(iv) Test documents and Contractor's
statement evidencing and stating
complete and proper delivery of
Goods and/or provision of
Services furnished upon an accepted
Change Order in accordance with (i),
(ii) or (iii) above, as applicable.
6.4.2 Contractor acknowledges that no payment (save the
Advance Payment) will be made by Owner without the foregoing
documents.
6.5 Price adjustment
Prices shall be applied only as adjustment in the following cases:
(i) Change Orders shall be priced on the basis of the Unit
Price List, which needs to be approved by the Owner to become
applicable within fifteen (15) days of the Contract coming
into force, or the per Line Price for additional Ordered
Lines. (ii) Ordered Spare Lines shall be paid by Owner in
accordance with the Line Price less the price of house wiring
and FAU/SRT. Owner will order FAU/SRT's for Ordered Spare
Lines at Owner's discretion. (iii) Rejected Lines shall be
priced as Connected Lines less the Unit Price of house wiring;
Contractor will deliver and Owner will accept the FAU/SRT's as
spare parts.
6.6 Currency of invoice
Invoices shall be issued in Hungarian Forint (HUF). Therefore, the
invoiced HUF amount will be adjusted to the current USD/HUF foreign
exchange (in Hungarian:"deviza") middle rate valid on the date of issue
but not later than the Friday following the previous Sunday closing
date for billing of Connected Lines as evidenced by the latest date of
the Line Connection Certificate included in the supporting
documentation forwarded to Owner with the invoice. Notwithstanding the
foregoing, if a turn of calendar months occurs on such a Friday, the
exchange rate of the preceding Thursday i.e. the last day of the
preceding month shall apply. For the current rate of exchange the rate
defined by Hungarian Foreign Trade Bank (Magyar Kulkereskedelmi Bank)
shall be taken.
6.7 Payment deadline
Payments shall be effected against Contractor's invoice within five (5)
banking days upon receipt of an invoice. Any overdue payment shall
carry double (200 percent) the Hungarian National Bank base interest
rate for the actual period of delayed payment.
6.8 Payment Guarantee
Owner shall deposit as security USD 3,000,000 i.e. three million US
dollars into an escrow account. The escrow account will be used for
approved payments pursuant to Article 6.3. Whenever the balance in the
escrow account reaches USD 750,000 or less the Owner shall deposit
within five (5) banking days an amount of the USD equivalent to the
value of the amount necessary to restore the funds to the original
amount or the calculated balance of the Contract whichever is the
lesser.
6.9 Suspension of work
Contractor may suspend further performance on or after the eighth day
subsequent to a Payment Notice if Owner failed to settle the invoice
concerned. Contractor shall restart work no later than the third
business day after Owner's effecting payment of the invoice concerned,
but affected deadlines will be considered as extended by the duration
of such suspension.
6.10 Retention
6.10.1 Retention Guarantee
Contractor shall provide, upon final deposit of Owner to the
escrow account as defined in Article 6.8, an unconditional,
irrevocable bank guarantee (the Retention Guarantee") as set
out in Attachment II in an amount not greater than five (5)
percent of the Contract Price as defined in Article 6.1
i.e.USD 487,500 payable upon first demand, for retention
against uncorrected deficiencies including but not limited to
documentation to be provided to Owner, installation, waste
removal, restoration, or other deliverables including the
costs of the obtaining of license, and excluding Government
fees. Contractor and Corporate Guarantor shall, within fifteen
(15) days Notice given respectively by Owner correct all
Project with the exception of non-service affecting or
hazardous deficiencies which shall be corrected immediately
upon notice to the Contractor. Failure to correct said
deficiencies shall entitle the Owner to correct such
deficiencies and draw against the Retention Guarantee for all
associated costs. The Retention Guarantee shall be released
upon System Acceptance.
6.10.2 Failure to provide Retention Guarantee
Parties agree that should Contractor fail to provide the
Retention Guarantee as provided for in 6.10.1, upon final
deposit of Owner to escrow account as defined in Article 6.8,
Owner shall have the right to withhold as retention an amount
equal to USD 487,500 from any and all invoices payable to
Contractor.
6.11 Owner performed work
Owner reserves the right to complete the house wiring and SRT/FAU
installation. Owner shall notify Contractor of the intention to perform
such work within thirty (30) days of the Contract coming into force.
Those portions of the work completed by the Owner shall be deducted
from the Line Price as defined in 6.1 herein according to the Unit
Prices set in Attachment I.
6.12 Value Added Tax
The Contract Prices and the Advance Payment given above do not include
Value Added Tax, therefore, the percentage as applicable from time to
time, as currently twenty-five (25) percent shall be added to all
prices and will be given to all invoices. However, VAT shall be paid
separately by Owner to Contractor thus that Contractor's bank account
shall be credited with the relevant amount no later than the day
preceding the statutory due date by which Contractor must pay such VAT.
6.13 Other payments
All costs, compensations, prices etc. related to real estate purchases,
rents, claims, and disputes of or with owners of real properties
affected by the Project shall be paid or otherwise borne by the Owner,
provided that Owner was duly advised in advance by Contractor and
approved such costs, compensations and prices against Third Parties'
invoices or other documents.
6.14 Taxes and Duties
The Contractor is responsible for all applicable taxes, official and
stamp duties, and authorization fees connected to the Contract and is
obliged to pay them. The Owner shall pay the government fee for the
commissioning license as it is not included in the Contract Price.
6.15 Transfer of Ownership Title
6.15.1 Ownership title of Ordered Lines, which have been paid for by
Owner, shall be deemed as transferred to Owner on the date of
deposit into the escrow account of the last amount required in
accordance with Article 6.8 of the Contract or in case of the
Parties' failure to comply with the Contract due to Force
Majeure or Owner's termination of the Contract.
6.15.2 In case the Contractor terminates the Contract for any reason,
the full ownership title over the assets created by the
implementation of the Project shall be deemed as transferred
to the Owner. However, Contractor shall have the right to
repurchase these assets for a repurchase price equal to the
amount paid by the Owner less the amount of costs determined
by an arbitration award which is rendered pursuant to Article
11.4 herein provided that the same arbitration award declares
the cause for Contractor's termination of the Contract
justified on the grounds of Owner's material breach of the
Contract as provided for in Article 10.2 herein.
7 DEADLINES
7.1 Implemented infrastructure
Contractor shall implement all Goods and render all Services other than
those needed for the final line connection of subscribers as soon as
possible but no later than twenty (20) weeks after the coming into
force of this Contract.
7.2 Line connections
Contractor shall complete at least ninety (90) percent the
implementation of the Ordered Lines that is the subscriber line
connections as soon as possible but no later than twenty-six (26) weeks
after the coming into force of this Contract. The remaining Ordered
Lines shall be completed within four (4) weeks.
7.3 System Acceptance Documents
Contractor shall provide to Owner within sixty (60) days of the
completion of Project in accordance with Article 7.2 all documentation
and deliverables as provided for in Article 4.19 and the commissioning
license.
7.4 Delay notification
Contractor shall provide at least thirty (30) days advance notification
of the potential failure to meet the deadlines for performances defined
in Article 7. Owner's claims related to Contractor's failure to meet
the deadlines will be determined pursuant to Article 7.4 hereof.
7.5 Liquidated damages
Contractor is obliged to pay liquidated damages to the Owner if - due
to any reason for which the Contractor or any of the Sub-contractors
are responsible - the relevant contractual obligations of the
Contractor are not fulfilled according to the deadlines for
performances as defined under Articles 7.1 and 7.2, even if no damage
or loss occurred to Owner.
7.5.1 Amount of liquidated damages
The liquidated damages shall be HUF One-hundred (100) per day
to a maximum amount of ten per cent (10%) of the original
contract value plus the value for each Ordered Line ordered
via Change Order which Contractor failed to implement as would
have been required in Article 7.2 or as agreed in a Change
Order.
7.5.2 Payment of liquidated damages
The payment or set off of liquidated damages from any sums due
or becoming due to Contractor shall not relieve Contractor
from the obligation to finish the work and/or from other
obligations under this Contract. In case of Contractor delay,
liquidated damages shall be the exclusive remedying available
for Owners.
8 CONTRACTOR'S WARRANTIES
8.1 Warranty Period
The warranty period, shall be twelve (12) months for the Goods
commencing on the date when ninety (90) percent of the Line Connection
Certificates for Ordered Lines have been received by Owner.
8.2 Reliability
The network will provide the traffic performance and grade of service
as outlined in Article 3.3 herein.
8.3 Warranty claim
During the warranty period, Owner will inform Contractor in written
form and without delay regarding any problems which may require action
by Contractor.
8.4 Warranty response time constraint
During the warranty period, any fault occurring in case of proper use
of the equipment implemented in the frame of this Contract shall be
repaired by the Contractor free of charge for Goods and Services within
the time constraints set out in Attachment VII hereof. Contractor shall
be liable for damages certified by the Owner including the lost revenue
of Owner in case of a failure to meet the correction deadlines referred
to in the previous sentence for the period starting on the next day of
a missed deadline and lasting until the default is actually repaired.
8.5 Warranty exemptions
8.5.1 Extension of network
The warranty shall not apply to the part of the Project where
Owner or its Representatives executed extension, changes or
corrections, except the case of subscriber's connections,
outside the scope of the Contract during the warranty period.
If Owner notifies Contractor about these works previously, the
Parties shall define the network or system boundary from which
the warranty obligations of Contractor will remain valid.
8.5.2 Owner negligence
Contractor's liability does not cover damages caused by
Owner's failure to follow the technical standards regarding
the operation and maintenance of the Goods as defined in the
Technical Documentation.
8.6 Type Approval
Contractor shall replace any Goods supplied for the Project free
of charge if a competent authority rejects to provide final type
approval or withdraws a relevant type approval previously issued.
This provision shall survive the Warranty Period.
9. INTELLECTUAL PROPERTY
9.1 Contractor's Authorization
Contractor is the owner of the intellectual property rights in and to
all relevant Goods delivered by him under this Contract, or it is duly
authorized by the original owner of the said rights to grant any right
explained below to Owner.
9.1.1 Patent Rights and Trade Secrets Rights
Contractor shall grant to Owner an irrevocable, non-exclusive,
non-transferable license to use any invention incorporated in
any of the Goods, covered by patent(s). Such license shall be
deemed fully paid up for the purposes of use of the Goods
delivered under this Contract.
9.1.2 Terms of Use
Any other provisions of the Contract notwithstanding, with
respect to any inventions, including patented inventions, that
any person or entity is authorized by the Contract to use or
practice only under certain conditions or limitations, such
use or practice shall be:
9.1.2.1 free, unconditional and unlimited
from and after the time that the rights in inventions
come into the public domain, or
9.1.2.2 at the sole discretion of such
person or entity, on other terms from and after the
time that such rights in inventions become otherwise
lawfully available to such person or entity on such
other terms.
9.1.3 Unaffected Rights and Obligations
This Article shall not be construed as limiting any rights of Owner or
obligations of Contractor under this Contract, including specifically
the right of Owner for no additional compensation to Contractor, to
use, have used, deliver, lease sell or otherwise dispose of, the Goods
or any part thereof, required to be delivered under this Contract.
9.2 Copyright
9.2.1 Ownership and Copyright
The ownership and copyrights in and to any Software, the
associated documentation or the documentation of the Hardware
shall remain with their original owners and/or any other
entities duly authorized by the former.
9.2.2 Use of Copyrighted Software
With the Software packages and documentation, protected by
others' copyright rights under the Hungarian copyright law
and/or international treaty, Owner, by virtue of this
Contract, is allowed to:
9.2.2.1 make copies solely for routine replacement and
back-up purposes, or
9.2.2.2 transfer the Software to a single hard disk, provided
that the Owner keeps the original solely for back-up and
archival purposes. In addition, Owner shall be granted, via
Contractor, by the original copyright owners an irrevocable,
non-exclusive, non-transferable license to use such
copyrighted materials.
9.3 Copyright Restrictions
The copyright includes, among others, the prohibition of any
modification, alteration, de-compilation, disassembling, reverse
engineering, or making any derivative work such as translation,
recasting, transformation or adaptation.
9.4 Intellectual Property, Patent, and Copyright Indemnity
Contractor shall defend at its expense, suits against Owner upon claim
that the Goods, including the latest unmodified release of Software
supplied under this Contract, infringe property rights granted or
registered in Hungary, provided that
9.4.1 Notification of lawsuit
Owner promptly notifies Contractor in writing on the suit,
9.4.1.1 Contractor has sole control of the
defence and related settlement
negotiations, and
9.4.1.2 Owner gives Contractor information
and assistance for the defence all
at Contractor's expense.
9.4.2 Indemnity
Contractor shall indemnify and hold Owner harmless from all
payments which by final judgments in such suits may be
assessed against Owner on account of such infringement and
shall pay resulting settlements, costs and damages finally
awarded against Owner by a court of law.
9.4.3 Remedy
Owner agrees that if the use, sale or distribution of the
Goods prohibited as a result of such suit, or in Contractor's
option are likely to be prohibited, Owner will permit
Contractor, at his option and expense, either to procure the
right for Owner to continue using such Goods or to replace or
modify same so that they become non-infringing.
10 TERMINATION
10.1 Termination on default
This Contract may be terminated by either Party in the event of default
by the other Party. In either event the Party initiating termination is
required to give the other party fifteen (15) calendar days advance
notice. In the event of termination for default, the initiating Party
agrees that the default notification will be rescinded if, within eight
(8) calendar days of notification, the defaulting Party corrects, to
the notifying Party's satisfaction, the material basis for default.
10.2 Grounds for termination
10.2.1 Owner's Right
Owner may justify Contractor's default on the basis of the
following cases:
10.2.1.1 the Contractor fails to commence
the work over a period of
one (1) month,
10.2.1.2 the Contractor disrupted
the performance of its contractual
obligations without justified reasons and
does not continue the work within thirty
(30) days,
10.2.1.3. the Contractor gives
the whole Project to sub-contracting,
10.2.1.4 material failure to
adequately carry out Contractor's
responsibilities. Such failures include, but
are not limited to: persistently failing to
supply enough properly skilled workers or
proper materials; persistently disregarding
laws or ordinances; or substantial breach of
the provisions of this Contract,
10.2.1.5 before terminating the
Contract pursuant to the foregoing clauses,
Owner shall request the Ericsson parent
company, providing the Corporate Guarantee,
to perform all outstanding Contractor duties
and obligations in accordance with the
Contract.
10.2.2 Contractor's Rights
The Contractor may justify Owner's default on the
basis of the following cases:
10.2.2.1 Owner fails to provide
the Advance Payment and
open or refund the escrow
account pursuant to
Articles 6.2 and 6.8
herein,
10.2.2.2 the Owner fails to provide
or otherwise ensure the Site(s)
or to meet the requirements as set
forth in Article 4 over a period of
one (1) month,
10.2.2.3 the Owner's delay in
payment exceeds thirty-five (35) days
provided that Contractor sent a notice
("Payment Notice") not earlier than the
fifth day after the due date of an invoice
which was not fully paid by Owner.
10.3 Compensation in Case of Termination
10.3.1 Termination by Owner
Owner will compensate Contractor on the basis of the Unit
Price List for delivered Goods and Contractor's work product
which Owner chooses to keep. Such compensation, however, must
not exceed that calculated on the grounds of the Line Price
set forth herein as it would have been required to be adjusted
under this Contract. Any payment to Contractor under this
Article shall be subject to Owner's claim for damages and/or
lost revenue.
10.3.2 Termination by Contractor
In accordance with the Unit Prices and the Line Price, Owner
will reimburse Contractor for the implemented portion of the
Project, Goods delivered, Services rendered, and expenses
incurred before the date of Contractor's termination and also
for tasks properly performed after the date of termination of
the Contract and those arising from obligations relating to
the Contract if undertaken bona fide. From the above amount
all sums shall be deducted which Contractor is obliged to pay
to and/or which Contractor owes Owner including the amounts
previously paid by Owner. Contractor shall be entitled to
claim damages.
11 GOVERNING LAW AND DISPUTE RESOLUTION
11.1 Governing Law
This Contract shall be governed by Hungarian law. For issues not
expressly provided for by the Parties hereof the provisions of the
Hungarian Civil Code (Act No. IV of 1959 as amended) shall apply.
11.2 Amicable dispute resolution
If a dispute of any kind whatsoever arises between the Owner and the
Contractor, in connection with, or arising out of this Contract,
whether during the execution of the Project or after completion and
whether before or after repudiation or other termination of the
Contract, including any dispute as to any opinion, instruction,
determination, certificate or valuation, the Owner and the Contractor
shall, in the first place, seek to resolve the dispute amicably between
them.
11.3 Effect on the project
Unless the Contract has already been repudiated or terminated, the
Contractor shall, in every case, continue to proceed with the Project
with all due diligence and the Contractor and the Owner shall give
effect forthwith to every decision they take to resolve their dispute.
11.4 Arbitration
11.4.1 Notices of arbitration
If no amicable settlement is possible, then either the Owner
or the Contractor may give notice to the other party, of
intention to commence arbitration, as hereinafter provided, as
to the matter in dispute. Such notice shall establish the
entitlement of the party giving the same to commence
arbitration. Unless the parties otherwise agree, arbitration
may be commenced on or after the twentieth calendar day after
the day on which notice of intention to commence arbitration
of such dispute was given, even if no attempt at amicable
settlement thereof has been made.
11.4.2 Arbitration procedure
Any dispute in respect of which amicable settlement has not
been reached shall be finally settled, unless otherwise
specified in the Contract, under Hungarian law and in
accordance with the Rules of Conciliation and Arbitration of
the Hungarian Chamber of Industry and Trade by one or more
arbitrators in Hungary appointed under such Rules. The place
of arbitration shall be Hungary and the language of the
arbitration shall be English. The said arbitrator(s) shall
have full power to open up, review and revise any decision,
opinion, instruction, determination, certificate or valuation
related to the dispute.
12 MISCELLANEOUS TERMS AND CONDITIONS
12.1 Assignment
This Contract or any of its provisions or any receipt of payment shall
not be assigned by either Party without the prior written consent of
the other.
12.2 Force Majeure
Neither party shall be considered in default in the performance of its
obligations under this Contract to the extent that the performance of
such obligation is prevented or delayed by any cause, existing or
future, which is beyond the reasonable control of such party. 12.2.1
Notices
Should any Party be affected by Force Majeure, such Party
shall notify the other Party in a written form within seven
(7) days from the occurrence of the Force Majeure. The
notification shall include details constituting the Force
Majeure as well as the positive evidences which prove that the
case was unavoidable and that it delays the fulfillment of the
contractual obligation of the Party. In the above
notification, the estimated duration of the Force Majeure
shall be included as well as a statement declaring the
inability of the effected Party to perform the concerned
obligation(s) as long as the case of Force Majeure
exists/remains.
12.2.2 Effect on Contract
Should the duration of Force Majeure exceed the period of five
(5) days, Parties shall negotiate the reasonable modification
of the Contract and equitable compensation for Contractor in
respect of work performed but not tested, if applicable, due
to Force Majeure. If Parties cannot come to an agreement
within the above period, they can submit the dispute to be
resolved pursuant to Article 11 herein.
12.2.3 Limitation
The Contractor is not entitled to rely on any event otherwise
qualifying as Force Majeure if the scheduled deadline of the
Project was due before such event.
12.3 Data Ownership and Confidentiality
Any information or data, in the form of specifications, drawings,
technical data or other information, not a work product of this
Contract, furnished by the Owner or Contractor to the other party shall
remain the property of the furnishing party. Work product of this
Contract shall become the property of the Owner under the conditions
stipulated herein. All work product and information marked as
Proprietary by either party prior to transfer to the other party shall
be kept confidential by the receiving party and receive the same degree
of care in handling and retention as that party applies to its own
proprietary information. The party receiving such proprietary
information shall not disclose, without the furnishing party's written
permission, such information to any other person or use such
information itself for any purpose other than the performance of this
Contract. The obligations under this paragraph shall survive the
termination of this Contract for a period of five (5) years.
12.4 Effect of Waiver
Owner's waiver of any Article of this Contract shall have no effect on
the Contract.
12.5 Severability
If any provision hereof, or the application of any such provision to
any person or circumstance, shall be held invalid or unenforceable by
an arbitration tribunal of competent jurisdiction, then the remainder
of this Contract, or the application of such provision to persons or
circumstances other than those as to which it is held invalid, shall
not be affected thereby and such invalid provisions shall be replaced
by a valid provision (and for this purpose the arbitrator(s) may act as
amiable compositor/s) which most closely gives effect to the intent and
purpose of the parties hereto and the allocation of risks and benefits
reflected in such provision.
12.6 Contract Amendment
Any contract terms can only be amended in written form duly signed by
both Parties.
12.7 Copies
The Contract was prepared in English language and was signed in four
(4) original copies of which each Party keeps two (2).
12.8 Notification
Notices or communications required or permitted to be given under this
Contract will be deemed to be given; a) when delivered by hand, b) when
transmitted by facsimile and confirmed by returned facsimile, c) five
(5)calendar days after being sent by certified mail, in each case, to
the address or facsimile number following:
HUNGAROTEL Rt.
James Morrison, Chairman
1126 Budapest, Kiralyhago u. 2.
Tel.: 212-1100
Fax: 202-2974
ERICSSON Kft.
Fodor Istvan, President
1146 Budapest, Hungaria krt. 162.
Tel: 265-7100
Fax: 265-7373
12.9 Coming into Force
The Contract comes into force on the date when duly signed by the
authorized representatives of the both Parties but not before the
Corporate Guarantee, the advanced payment and the financial security
provided for in Articles 4.17, 6.2 and 6.8 are in place.
Parties have both read this Contract and mutually agreed and understood its
contents.
Budapest, May 17, 1996
Exhibit 10.76
PAPATEL TAVKOZLESI RESZVENYTARSASAG
ERICSSON KORLATOLT FELELOSSEGU TARSASAG
TURN-KEY CONTRACT
Dated as of
May 31, 1996
<PAGE>
1INTRODUCTION
1.1 Purpose
This document constitutes the agreement between Papatel Rt. and
Ericsson Kft., governing the latter's provision, on a Turn-key basis,
of 2500 Radio in the Local Loop (RLL) telephone lines for the Papatel
Primary Region.
1.2 Parties declare they have all the necessary authorizations to
conclude the present Contract.
2 DEFINITIONS
"Building(s)" means the premises as described in Attachment V used for
technical purposes which are necessary and suitable for the
accommodation of the telecommunication equipment and system included in
the Contract. The building can be ordinary construction or container.
"Change Order" means the process to handle the changes requested by
Owner or Contractor that will affect the value, schedule, or design of
the Contract.
"Connected Capacity/Connected Lines" means those Ordered Lines where
the connection to particular subscribers actually occurred and by
connecting a telephone set to it voice grade telephone calls can be
originated and terminated.
"Contract" means this Contract concluded between Owner and Contractor,
including all the documents being referred there as well as the
mutually accepted modifications and/or alterations.
"Contractor" means Ericsson Kft and includes its successors.
Customer Premise Equipment" (CPE) means the subscriber telephone
instrument.
"Day" means calendar day unless stated otherwise.
"Goods" means all the equipment, material, components, software, or any
other component, which must be fully or provisionally type approved in
Hungary, where applicable, to be supplied by Contractor to Owner in
accordance with the Contract necessary for the normal, commercial
operation of the lines ordered for this Contract.
"Installation". An all inclusive term referring to the placement
of equipment and material and encompassing all related general
(e.g. construction, erection) and specific (e.g.splicing, connecting,
and testing) terms employed to describe such activities.
"Line Connection Certificate" means the form statement as defined as
Attachment VI/11 duly signed by the subscriber upon installation and
testing, as described in Attachment VI of a Connected Line which will
certify the full capability of the connection and for normal commercial
operation of the Connected Line.
Line Price" means the fixed price of USD 1,300 and 1,175 per Ordered
Line.
"Ordered Capacity/ Ordered Lines" mean any and all particular telephone
lines which Owner requested Contractor to build under the Contract
including those requested via Change Orders; the term comprises
Connected Lines and Rejected Lines.
"Ordered Spare Capacity/Ordered Spare Lines" means prospective
telephone lines which Owner requested Contractor to build under the
Contract where it is not required to implement the subscriber premises
radio equipment (FAU/SRT).
"Owner" means Papatel Rt. and includes its successors.
"Parties" mean the Owner and the Contractor together.
"Permit" means all official documents necessary for the implementation
and turning into commercial operation of the Project with special
regard to network and building construction, access to public
utilities, type approval if applicable, of all the Goods, radio
licenses for all relevant Goods required by law, or other access from
all government agencies or third parties.
"Project" means all Goods and Services to be delivered and performed
for the PRTN
"Project Manager" means the authorized representative of Owner and
Contractor being entitled to control all the activities to be performed
by Owner and Contractor as well as to give instructions and/or
approvals, including the express authority to hand over/take over of
completed work products of Contractor, which are necessary regarding
the daily completion of the Contract.
"Project Executive" means the authorized officers of both parties
having full authority to execute the Project.
"Project Schedule" A comprehensive, computer based schedule employing
Critical Path methodology, which identifies relationships between
project tasks and, based on the quantity of work required, resources
assigned, and expected productivity, predicts the achievement of key
project milestones.
"PRTN" Primary Region Telephone Network, ( Papatel Primary Region)
including the telephone infrastructure to be provided under this
Contract.
"Rejected Lines" mean those Ordered Lines where Contractor was unable
to connect a subscriber even after Contactor's best effort, the minimum
of which is provided for in the Contract; the Rejected Lines shall in
effect be considered as additional Ordered Spare Capacity/Ordered Spare
Lines.
"Services" mean all the activities which appear in non-objectified form
(therefore are not "Goods") but form an integral, inseparable part of
the Project, assembly, commissioning, design, installation,
commissioning, and project management necessary to put the Ordered
Lines into commercial operation.
"Site" means locations, building and other places where the
implementation work will take place.
"Sub-Contractor" means those corporate bodies or entrepreneurs licensed
or qualified to perform activities on the commission of Contractor and
with the full and unlimited responsibility of the Contractor to fulfill
the Project.
"System Acceptance" Owners statement declaring that all contractual
obligations of the Contractor, except where explicitly provided
otherwise are fulfilled.
"System Integration" means those activities of Contractor which are
necessary for the connection and communication of the existing and the
new telephone system to be implemented by Contractor in the PRTN on the
level of the existing host exchange.
"Technical Documentation" means all the technical documents for all
components and the network installed in accordance with the Contract
that Contractor has to deliver to Owner for the normal commercial
operation of the Project as required by law.
Telecommunications Authority of Hungary" (HIF) means a government
agency authorized to issue telecommunication-related licenses and/or
related permits.
"Test" means the procedures and other measurements carried out by
Contractor on units of the Project according to the manufacturers'
instructions and the internal proceedings and practices of Contractor
and applicable Hungarian rules and regulations aimed to check the
compliance with the relevant technical and functional parameters for
the commercial operation of the Project delivered to the Owner in a
format approved in the Contract.
"Technological Spare Capacity" means an excess number of prospective
telephone lines which were not ordered by Owner but instead arise from
technological circumstances and are therefore neither chargeable
against nor useable by Owner.
"Turn-key Project" The delivery of a complete and functioning Radio in
the Local Loop telephone system which provides normal commercial
telephone services for the Primary Region ( Papatel) capable of
commercial operation for public telephone services by Owner's employees
capable of operation for the purpose intended by Owners and in
compliance with the technical documentation of this Contract. This
includes Engineering, Furnishing, Installing and Testing (EFIT) of all
system equipment and components excluding Customer Premise Equipment,
with the exception of installation and testing.
"Unit Price" means the price of goods and services listed in Attachment
I. Should the need of any unit price not listed in the Attachment I
mentioned above arise during implementation, Contractor shall define an
appropriate unit as approved by Owner.
3 SCOPE OF WORK
3.1 General
Contractor shall provide Goods and Services to be supplied in a
Turn-key Project for the development of a fully functional Radio in the
Local Loop telephone system of 2500 new subscriber lines as described
in Attachment III hereof. Ordered Lines shall be connected to
subscribers selected from the waitlisted and CB/LB subscribers, taking
into account the technical conditions and subscriber ranking as defined
in Attachment V in the settlements within the areas defined for RLL
implementation in Attachment III hereof. The Project shall be
implemented such that 100% of the implemented Ordered Lines shall be
Radio in the Local Loop (RLL) technology comprising the Connected Lines
and the Ordered Spare Capacity in accordance with the requirements of
Owner as set forth in Attachment V hereof. Furthermore, the Project
shall satisfy the System Integration requirement as defined herein as
well as the satisfaction of Change Orders which are accepted pursuant
to the Contract. These activities and responsibilities of Contractor
include without limitation, regarding the content of this contract, the
design, engineering, manufacturing, supply, installation, obtaining of
all relevant permits and licenses, commissioning, testing, delivery of
technical documentation, and warranty of the following:
3.1.1 Switching - AXE
3.1.2 Wired and Optical Transmission Equipment
3.1.3 RAS 1000 Radio Access System
3.1.4 DRA 1900 DECT/RLL 3.1.5 Microwave Transmission 3.1.6 Power Supply
to the Equipment 3.1.7 Digital Distribution Frame (DDF) 3.1.9
Connection to the backbone network 3.1.10 Pay phones and booths
3.1.11 Buildings and environmental systems 3.1.12 Structures 3.1.13
Copper based network.
3.2 Network boundaries
3.2.1 On one side the connection to the DDF of the transmission
facility at the remote locations of Lovaszpatona and
Papateszer and on the other side the wall socket of the
Customer Premise Equipment including testing and installation
of the CPE if provided by the Owner.
3.2.2 The transmission facility with 2 Mb/s access between the
host and the remote locations shall be provided by Owner.
3.2.3 Regarding the subscribers within Papa, the network boundary is
the wall socket of the CPE, and on the other side, the
extension of the existing AXE exchange to the necessary extent
required by the scope of the Contract.
3.2.4 Extension of the existing AXE host exchange in Papa (to the
necessary extent required by the newly implemented RLL
network) to the DDF of the transmission facility at host
exchange location.
3.3 Grade of service for the Project
The Grade of Service for the RLL system shall be P. 01 and the
traffic performance shall be .05 Erlang per subscriber.
3.4 Attachments
The following Attachments are considered, read and interpreted as
inseparable part of the Contract:
3.4.1 I Unit Prices
3.4.2 II Ericsson Retention Guarantee
3.4.3 III Network and RLL Map and Optical Transmission Schedule 3.4.4
IV Text of Corporate Guarantee 3.4.5 V Owner Information 3.4.6 VI
Technical Appendices (specifications and descriptions), Tests
Procedures 3.4.6.1 VI/1 Switching 3.4.6.2 VI/2 Wired Transmission (PDH)
3.4.6.3 VI/3 Microwave Transmission (MINILINK) 3.4.6.4 VI/4 Power
Supply 3.4.6.5 VI/5 Main Distribution Frame (MDF) 3.4.6.6 VI/6 Digital
Distribution Frame (DDF) 3.4.6.7 VI/7 Network Management (XMATE) -
optional 3.4.6.8 VI/8 RAS 1000 RLL 3.4.6.9 VI/9 DRA 1900 (DECT) RLL
3.4.6.10 VI/10 Network Construction 3.4.6.11 VI/11 Training 3.4.6.12
VI/12 Line Connection Certificate 3.4.6.13 VI/13 Pay phones and booths
3.4.6.14 VI/14 General notes 3.4.7 VII Warranty Response Obligations
3.4.8 VIII Change Order Form
4. CONTRACTOR'S OBLIGATIONS AND RESPONSIBILITY
4.1 Project Manager
Contractor will designate a Project Manager (with deputies for project
sub-elements, as appropriate) with overall responsibility for the day
to day conduct of the project. The Project Manager's responsibilities
and authority will be provided in writing. Contractor will not reassign
this responsibility without notifying the Owner. The Project Manager
will be replaced upon the Owner's request where such request
demonstrates due cause (including chronic delays, missed project
milestones, failure to be fully informed of project activities, and
failure to properly conduct progress meetings or provide agreed upon
project reports) for that replacement.
4.2 Project Schedule
Contractor shall supply to the Owner for information purposes only,
within fifteen (15) calendar days of contract signing, a preliminary
calendar of the Project and within forty-five (45) days a digitized
copy of the Project Schedule in a format compatible with Microsoft
Project, and a hard, paper copy of the Project Schedule GANTT chart.
4.3 Installation plan and technical content
Parties agree that the planning and completion of the Project shall be
performed in accordance with an installation plan reviewed by the
Owner. Contractor shall inform Owner in writing of the technical
content of the Project no later than forty-five (45) days from the
coming into force of the Contract. In case Contractor changes the
content of the documents on which information was given to Owner,
Contractor shall inform Owner on such changes in writing within five
(5) days.
4.4 Subcontracting
The Contractor may subcontract portions of the work to qualified
subcontractors. Use of Sub-Contractors does not relieve Contractor of
overall responsibility for the quality and timeliness of project
activities. Contractor shall be responsible for the subcontracted work
as if Contractor would have performed it.
4.5 Products and Services of Hungarian Origin
4.5.1 The Contractor will use best effort to ensure that not less
than 30% of the total value of products purchased and services
provided for the purposes of the Project shall be fulfilled
with products and services of Hungarian origin.
4.5.2 Contractor shall provide a certificate describing the
actual percentage of Goods and Services
of Hungarian origin prior to System Acceptance. Such
certificate can be adjusted by Contractor no later than 28
February 1997. In the absence of an adjusted certificate,
the one provided by Contractor shall be deemed final.
4.5.3 A product shall be deemed to be of Hungarian
origin if, (i) either 25% of the total value thereof was
produced in Hungary, or, (ii) proof can be given that
due to the manufacturing process having been carried out
in Hungary, the added value of such product increased by 25%.
4.5.4 The Contractor acknowledges that an inspection may be carried
out by the Ministry of Transportation, Telecommunication and
Water Management (the "Ministry") or by a competent agency at
any time to ensure compliance with such provision and
undertakes to fully cooperate with the Ministry or the
competent agency during such an inspection.
4.6 Test Procedures
As set forth in detail in Attachment VI hereto, Contractor shall carry
out formal Tests of all implemented Goods, where applicable. The
manufacturers' testing instructions for installation for the
implemented equipment and system shall be made available for Owner in
advance. Contractor shall invite Owner to these Tests in writing at
least five (5) days earlier unless the Test concerned was duly
indicated in the Project Schedule including its objective, exact time,
date and location. Owner shall have the right to participate in the
Tests and make comments on the test procedure and the results. Any
objection of the Owner must be recorded in the relevant Test protocol
(record) or attached thereto. All Test protocols shall be furnished to
Owner regardless of Owner's participation at the Test.
4.7 Insurance
4.7.1 Property
The Contractor and any associated subcontractors
shall be covered by insurance for the joint benefit of the
Owner and the Contractor in respect of the Project (including
for the purpose of this clause any unfixed materials or other
equipment delivered to the Site for incorporation therein) to
their full value against all loss or damage arising from any
cause for which the Contractor is responsible under the terms
of the Contract.
4.7.2 Liability
The Contractor shall throughout the execution of the Project
maintain insurance against damage, loss, or injury for which
the Contractor is liable. The terms of such insurance shall
include a provision whereby in the event of any claim, being
brought or made against the Owner, for which the Contractor is
entitled to receive indemnity under the policy, the insurer
will indemnify the Owner against any such claims and any
costs, charges, and expenses in respect thereof. The liability
insurance of Contractor shall also cover the Warranty Period.
4.7.3 Term
Insurance shall be effected in such a manner that the Owner
and the Contractor are covered for the entire period of this
Contract.
4.7.4 Evidence of coverage
The Contractor shall comply with the terms of any policy
issued in connection with the Contract and shall, whenever
required, produce to the Owner the policy or policies of
insurance and notification of any changes to such policies.
4.8 Contractor Employee Conduct
The Contractor must take the expected and reasonable precautions at any
time, to forestall illegalities or any other kind of untolerated
misconduct on the part of the employee, and to avoid any kind of damage
to the property or to personal safety, during the process of
implementation of the project.
4.9 Indemnification
The Contractor shall indemnify and hold the Owner harmless against all
losses and claims for injury or damage to any person or property
whatsoever which may arise out of or in consequence of the Contractor's
action or inaction. The Contractor shall also indemnify the Owner
against all claims, demands, proceedings, damages, costs, charges, and
expenses whatsoever in respect thereof or in relation thereto.
4.10 Training
Contractor agrees to provide training to the extent needed for Owner's
employees to enable them to operate the system in accordance with a
separate agreement which the Parties shall make within 30 days after
the execution of the Contract.
4.11 Additional Orders of Owner
In case Owner, beyond the scope of this Contract and subject to one or
more separate contracts, engages Contractor in deliveries and services
in addition to this Project provided that Owner's order for additional
lines will be made no later than 30 June, 1997, Contractor undertakes
to satisfy such order(s) for a line price not exceeding the limits set
forth below: 10-20 thousand Ordered Linesfor USD 1,175/line 20-30
thousand Ordered Linesfor USD 1,100/line 30-40 thousand Ordered
Linesfor USD 1,050/line 40-50 thousand Ordered Linesfor USD 1,000/line
50-60 thousand Ordered Linesfor USD 975/line
4.12 Safety Management
The Contractor will provide to the Owner, within thirty (30) days after
execution of the Contract, a Safety Management program which is
designed to protect employees, the Owner, the general public,
subscribers, and public and private property from hazards which will
cause injury or damage. The program will be based on the following:
-national and local regulations
-hazardous materials, including disposition
-additional site precautions
4.13 Construction Book
The construction book is a basic document for the implementation of the
Contract. It shall be maintained on the site by the Contractor, and
shall be available any time for review by Owner's representative. The
book shall contain three copies for each page and only a representative
of the Contractor or the Owner are entitled to make entries. One copy
belongs to the Contractor and the other copy to the Owner: the original
copy shall be kept on the site. Contractor shall deliver the Owner copy
to the Owner each week.
4.14 Customer Service Agreement
Parties agree that a Customer Services Agreement, for value added
services provided by the Contractor, may be signed within ninety (90)
days following the execution of the Contract.
4.15 System documentation
Contractor shall provide to the Owner three copies of all installation,
maintenance, and operations documentation for all network components
necessary for Owner to manage and maintain the commercial operation of
the Project as implemented in accordance with the Contract.
4.16 Rejected Lines
Contractor shall use best efforts to connect all Ordered Lines to
subscribers. Where Contractor cannot have access to a subscriber's
premises upon a notice sent to the subscriber, Contractor shall mail a
second notice to same. Both notices shall be sent by registered mail
with a return receipt. If the subscriber fails to permit access to
Contractor upon such second notice, the line concerned shall be deemed
as a Rejected Line provided that Contractor provides evidence of both
notices sent. Upon request of Contractor, Owner may approve different
methods of evidencing a Rejected Line. However, Contractor shall notice
Owner on any of such failure of access and in case Owner subsequently
reports that Owner's representatives succeeded to secure access to said
subscriber's premises in five (5) days, Contractor shall complete the
subscriber line concerned.
4.17 Corporate Guarantee
Contractor will provide a Corporate Guarantee, as defined in Attachment
IV, issued by the Ericsson parent company which is binding and
enforceable according to Hungarian and/or the law of the seat of
guarantor company of Ericsson under which the guarantor undertakes to
guarantee the Owner complete fulfillment of Contractor's obligations
under this Contract and such Corporate Guarantee shall be valid from
the date of coming into force of this Contract until the complete
fulfillment of such obligation and be released upon System Acceptance .
The language of the Corporate Guarantee is attached hereto as
Attachment IV.
4.18 Permits and licenses
4.18.1 Government Permits and licenses
Contractor is responsible for obtaining the
Construction Permit and other permissions and/or licenses
related to the Project, including but not limited to microwave
radio frequency licenses, RLL frequency licenses, and the
Project commissioning license (in Hungarian: hasznalatbaveteli
and/or rendszeresitesi engedely) in the name of Owner to be
issued by Government Authorities including the approvals of
the Telecommunication Authority of Hungary where needed for
construction, right of way, and system operation of the
Project for commencing commercial traffic. The costs related
to this responsibility of the Contractor shall be borne by the
Contractor with the exceptions of the commissioning license
fees required by government agencies for the commercial
operation of the network which will be directly paid by the
Owner, and the documented Contractor costs related to the
commissioning licenses.
4.18.2 Third Party Permits
The Contractor is obliged to apply for and obtain the Permits
of third parties not mentioned above (e.g. owners of affected
real properties). All compensations to be paid directly to
such third parties shall be borne by Owner. The Contractor in
consultation with the Owner shall identify third party-owned
real properties and leaseholds including their owners and
holders which are affected by the project during the designing
period. The process for third party approvals is as follows:
4.18.2.1 Contractor is responsible for third party approvals;
4.18.2.2 Contractor will optimize network locations for both
PRTN and Contractor;
4.18.2.3 Contractor will take into account the
availability of free real estate, provided either
by Owner or local municipalities, during
equipment site selection;
4.18.2.4 Owner will approve or disapprove the Contractor
proposed solution 4.18.2.5 If Owner disapproves, Contractor
may proceed of its own accord 4.18.2.6 Owner has 15 days to
prove that Contractor site was more expensive while no
less beneficial to the Contractor than an alternate,
suitable site identified by Owner
4.18.2.7 If Owner meets the requirements of 4.18.2.6,
Contractor will compensate the Owner in an
amount equal to the difference between the
two sites. Compensation to be in kind or
performance at Contractor's resolution.
4.19 Handing over/taking over
The Contractor, at completion of the Project, but prior to System
Acceptance, shall deliver to Owner all related documents including but
not limited to:
-Statement of the Contractor,
-high quality of completion of implementation,
-conformance to applicable standards and related requirements,
-delivery of a complete, detailed, and revised documentation in
three (3) copies of the Project as completed,
-final test measurement records and documents,
-geodetic survey documentation in three (3) copies (if applicable),
4.20 Change Order
The Contractor may initiate a change in the value, schedule, or design
of the Contract via Change Order subject to the approval of Owner.
Owner's approval shall not be unreasonably withheld.
5 OWNER'S RIGHTS AND OBLIGATIONS
5.1 Owner's Representatives
The Owner will assign a Project Executive, Project Manager, Engineering
Manager, and such supporting staff as appropriate to maintain liaison
with the Contractor during the course of the project. Written
designation of such persons and their responsibility and authority
shall be provided within 15 days after the signing of the Contract. The
Project Manager shall be located at the project site and will provide
daily inspections of the work site, contract performance, and contract
compliance.
5.2 Information to be Provided
Owner shall provide necessary information as requested by the
Contractor for the successful design and installation of the Project as
set forth in Attachment V and agrees to provide further information
reasonably requested by the Contractor. Owner shall provide to
Contractor within five (5) days or earlier of coming into force of the
Contract the current waiting list and CB/LB subscribers with names,
addresses and type of service residential or business.
5.3 Access
Unless specially requested, Owner premises will be available only
during normal business hours. In the case of work requiring Contractor
access beyond such hours, access will be requested no less than 24
hours prior to expected use. Contractor staff working on Owner premises
will be supervised, carry appropriate identification, and conform with
the dress and demeanor of Owner staff at that activity. Owner is
obliged to issue and/or obtain all permits for Contractor and/or its
Subcontractors to enter the premises owned and/or directed by Owner so
that their contractual obligations can be performed. The above permit
shall enable Contractor's or its Sub-contractor's authorized personnel
to enter the premises when necessary.
5.4 Owner Review and Approval
The Owner is responsible for the timely review and approval of
documents submitted by the Contractor, at its discretion, in accordance
with this Contract. Owner's approvals or the reason if one or any of
them is being withheld, if any, shall be passed to Contractor within 5
business days from the date of the confirmed receipt, as defined under
Article 12.8 Notification, of application for approval.
5.5 Owner delay (other than financial)
5.5.1 Owner shall meet obligations under this Contract for only
those requirements specified in this Contract or in the
latest version of the Project Schedule received at least 15
days in advance of scheduled obligations so that Contractor
is able to follow and keep the timing. In case of delay of
Owner relating only to those requirements specified in this
Contract or in the Project Schedule, Contractor shall be
entitled to a reasonable extension of the performance
deadline which cannot exceed twice the duration of the
Owner's delay. Contractor shall be entitled to request an
extension of the affected Contractor deadline only within
five (5) days of Owner's delay provided that such delay
affects Contractor's deadlines.
5.5.2 If Owner does not meet any of the deadlines as set forth in
Article 5.11 in this Contract due to any reasons except for
those which contractor is liable and the delay exceeds thirty
(30) days, the lack of the relevant transmission facility, and
consequently, the fact that the connection between the host
exchange and the remote location cannot be proved, will not
affect Contractor's right to invoice the payable amounts for
the implemented lines as Connected Lines according to Article
6. In the above case the Line Connection Certificate shall
contain a remark as follows: A helyi ellenorzo hivas nem
tortent (No local test call was performed)".
5.6 Authorization
After the Contract has come into force, Owner shall issue an
authorization for Contractor within fifteen (15) days. This
authorization shall entitle Contractor to act on Owner's behalf for
obtaining Permits and licenses.
5.7 Payment obligation
Owner shall be responsible for all the payments to be settled to
Contractor in accordance with Article 6 of this Contract.
5.8 Purchase of imports
The Owner hereby declares that the equipment to be supplied by the
Contractor will serve for investment purposes in the meaning according
to the Hungarian regulation. The Owner upon the request of the
Contractor shall provide the Contractor with a written declaration of
the above in the form required by the Contractor.
5.9 System Acceptance
The Owner will provide to the Contractor a written notice of System
Acceptance upon compliance with the terms and conditions of this
Contract including but not limited to receipt of all deliverables
including documentation, test records, or other requirements of Article
3.2 herein.
5.10 Change Order
The Owner may initiate a change in the value, schedule, or design of
the Contract via Change Order subject to the approval of Contractor.
Contractor's approval shall not be unreasonably withheld.
5.11 Owner shall provide 2 Mb/s transmission facility from the AXE host
location to the DDF of the existing remote location in Lovaszpatona no
later than September 01, 1996 and to the DDF of the existing remote
location in Papateszer no later than October 15, 1996.
6 FINANCIAL TERMS
6.1 Contract Price
The Owner shall pay as compensation to the Contractor the Contract
Price of
USD 2,937,500
which is the Line Price of USD 1,175 multiplied by 2,500 Ordered Lines.
The final Contract Price will be adjusted according to the number of
the Ordered Lines as their price will be adjusted pursuant to this
Article. If the Contractor implements less than 100% RLL technology,
the line price will be equal to USD 1,000 per line for those lines
between the actual number of RLL lines and 100% of Ordered Lines.
6.2 Advance Payment
Advance Payment will be fifteen (15) percent of the calculated Contract
value i.e. USD 440,625 that is Four hundred-forty thousand-six
hundred-twenty-five US dollars net shall be paid against Contractor's
invoice at the execution of this Contract.
6.3 Invoicing
The Price for Ordered Lines, Ordered Spare Lines, and accepted Change
Orders for Connected Lines shall be computed and invoiced weekly as the
payable amount was adjusted pursuant to Article 6.5 and then the actual
amount payable reduced in proportion to the Advance Payment (in
accordance with Article 6.2 which is 15 %).
6.4 Invoice attachment
6.4.1 The Parties agree that the following documents shall be,
without exception, attached to the invoices:
(i) Line Connection Certificates for each
Connected Line,
(ii) Contractor statements and supporting documents
as set forth in Article 4.16 pertaining to Rejected
Lines; (iii) Contractor's statement pertaining to
Ordered Spare Lines stating appropriate
implementation; (iv) Test documents and Contractor's
statement evidencing and stating complete and proper
delivery of Goods and/or provision of Services
furnished upon an accepted Change Order in accordance
with (i), (ii) or (iii) above, as applicable.
6.4.2 Contractor acknowledges that no payment (save the Advance
Payment) will be made by Owner without the foregoing
documents.
6.5 Price adjustment
Prices shall be applied only as adjustment in the following cases:
(i) Change Orders shall be priced on the basis of the Unit Price
List, or the per Line Price for additional Ordered Lines.
(ii) Ordered Spare Lines shall be paid by Owner in accordance with
the Line Price less the price of house wiring and FAU/SRT.
Owner will order FAU/SRT's for Ordered Spare Lines at Owner's
discretion.
(iii) Rejected Lines shall be priced as Connected Lines less the
Unit Price of house wiring; Contractor will deliver and Owner
will accept the FAU/SRT's as spare parts.
6.6 Currency of invoice
Invoices shall be issued in Hungarian Forint (HUF). Therefore, the
invoiced HUF amount will be adjusted to the current USD/HUF foreign
exchange (in Hungarian:"deviza") middle rate valid on the date of issue
but not later than the Friday following the previous Sunday closing
date for billing of Connected Lines as evidenced by the latest date of
the Line Connection Certificate included in the supporting
documentation forwarded to Owner with the invoice. Notwithstanding the
foregoing, if a turn of calendar months occurs on such a Friday, the
exchange rate of the preceding Thursday i.e. the last day of the
preceding month shall apply. For the current rate of exchange the rate
defined by Hungarian Foreign Trade Bank (Magyar Kulkereskedelmi Bank)
shall be taken.
6.7 Payment deadline
Payments shall be effected against Contractor's invoice within five (5)
banking days upon receipt of an invoice. Any overdue payment shall
carry double (200 percent) the Hungarian National Bank base interest
rate for the actual period of delayed payment.
6.8 Payment Guarantee
Owner shall deposit as security USD 900,000 i.e. Nine hundred thousand
US dollars into an escrow account. The escrow account will be used for
approved payments pursuant to Article 6.3. Whenever the balance in the
escrow account reaches USD 150,000 or less the Owner shall deposit
within five (5) banking days an amount of the USD equivalent to the
value of the amount necessary to restore the funds to the original
amount or the calculated balance of the Contract whichever is the
lesser.
6.9 Suspension of work
Contractor may suspend further performance on or after the eighth day
subsequent to a Payment Notice if Owner failed to settle the invoice
concerned. Contractor shall restart work no later than the third
business day after Owner's effecting payment of the invoice concerned,
but affected deadlines will be considered as extended by the duration
of such suspension.
6.10 Retention
6.10.1 Retention Guarantee
Contractor shall provide, upon final deposit of Owner to the
escrow account as defined in Article 6.8, an unconditional,
irrevocable bank guarantee (the Retention Guarantee") as set
out in Attachment II in an amount not greater than five (5)
percent of the Contract Price as defined in Article 6.1
i.e.USD 146,875 payable upon first demand, for retention
against uncorrected deficiencies including but not limited to
documentation to be provided to Owner, installation, waste
removal, restoration, or other deliverables including the
costs of the obtaining of license, and excluding Government
fees. Contractor and Corporate Guarantor shall, within fifteen
(15) days Notice given respectively by Owner correct all
Project with the exception of non-service affecting or
hazardous deficiencies which shall be corrected immediately
upon notice to the Contractor. Failure to correct said
deficiencies shall entitle the Owner to correct such
deficiencies and draw against the Retention Guarantee for all
associated costs. The Retention Guarantee shall be released
upon System Acceptance.
6.10.2 Failure to provide Retention Guarantee
Parties agree that should Contractor fail to provide the
Retention Guarantee as provided for in 6.10.1, upon final
deposit of Owner to escrow account as defined in Article 6.8,
Owner shall have the right to withhold as retention an amount
equal to USD 146,875 from any and all invoices payable to
Contractor.
6.11 Owner performed work
Owner reserves the right to complete the house wiring and SRT/FAU
installation. Owner shall notify Contractor of the intention to perform
such work within thirty (30) days of the Contract coming into force.
Those portions of the work completed by the Owner shall be deducted
from the Line Price as defined in 6.1 herein according to the Unit
Prices set in Attachment I.
6.12 Value Added Tax
The Contract Prices and the Advance Payment given above do not include
Value Added Tax, therefore, the percentage as applicable from time to
time, as currently twenty-five (25) percent shall be added to all
prices and will be given to all invoices. However, VAT shall be paid
separately by Owner to Contractor thus that Contractor's bank account
shall be credited with the relevant amount no later than the day
preceding the statutory due date by which Contractor must pay such VAT.
6.13 Other payments
All costs, compensations, prices etc. related to real estate purchases,
rents, claims, and disputes of or with owners of real properties
affected by the Project shall be paid or otherwise borne by the Owner,
provided that Owner was duly advised in advance by Contractor and
approved such costs, compensations and prices against Third Parties'
invoices or other documents.
6.14 Taxes and Duties
The Contractor is responsible for all applicable taxes, official and
stamp duties, and authorization fees connected to the Contract and is
obliged to pay them. The Owner shall pay the government fee for the
commissioning license as it is not included in the Contract Price.
6.15 Transfer of Ownership Title
6.15.1 Ownership title of Ordered Lines, which have been paid for by
Owner, shall be deemed as transferred to Owner on the date of
deposit into the escrow account of the last amount required in
accordance with Article 6.8 of the Contract or in case of the
Parties' failure to comply with the Contract due to Force
Majeure or Owner's termination of the Contract.
6.15.2 In case the Contractor terminates the Contract for any reason,
the full ownership title over the assets created by the
implementation of the Project shall be deemed as transferred
to the Owner. However, Contractor shall have the right to
repurchase these assets for a repurchase price equal to the
amount paid by the Owner less the amount of costs determined
by an arbitration award which is rendered pursuant to Article
11.4 herein provided that the same arbitration award declares
the cause for Contractor's termination of the Contract
justified on the grounds of Owner's material breach of the
Contract as provided for in Article 10.2 herein.
7 DEADLINES
7.1 Implemented infrastructure
Contractor shall implement all Goods and render all Services other than
those needed for the final line connection of subscribers within 20
weeks after the coming into force of this Contract.
7.2 Line connections
Contractor shall complete at least sixty ( 90) percent the
implementation of the Ordered Lines that is the subscriber line
connections as soon as possible but no later than within 24 weeks after
the coming into force of this Contract. The remaining Ordered Lines
shall be completed within four (4) weeks.
7.3 System Acceptance Documents
Contractor shall provide to Owner within sixty (60) days of the
completion of Project in accordance with Article 7.2 all documentation
and deliverables as provided for in Article 4.19 and the commissioning
license.
7.4 Delay notification
Contractor shall provide at least thirty (30) days advance notification
of the potential failure to meet the deadlines for performances defined
in Article 7. Owner's claims related to Contractor's failure to meet
the deadlines will be determined pursuant to Article 7.4 hereof.
7.5 Liquidated damages
Contractor is obliged to pay liquidated damages to the Owner if - due
to any reason for which the Contractor or any of the Sub-contractors
are responsible - the relevant contractual obligations of the
Contractor are not fulfilled according to the deadlines for
performances as defined under Articles 7.1 and 7.2, even if no damage
or loss occurred to Owner.
7.5.1 Amount of liquidated damages
The liquidated damages shall be HUF One-hundred (100)
per day to a maximum amount of ten per cent (10%) of the
original contract value plus the value for each Ordered Line
ordered via Change Order which Contractor failed to implement
as would have been required in Article 7.2 or as agreed in a
Change Order.
7.5.2 Payment of liquidated damages
The payment or set off of liquidated damages from any sums due
or becoming due to Contractor shall not relieve Contractor
from the obligation to finish the work and/or from other
obligations under this Contract. In case of Contractor delay,
liquidated damages shall be the exclusive remedying available
for Owners.
8 CONTRACTOR'S WARRANTIES
8.1 Warranty Period
The warranty period, shall be twelve (12) months for the Goods
commencing on the date when ninety (90) percent of the Line Connection
Certificates for Ordered Lines have been received by Owner.
8.2 Reliability
The network will provide the traffic performance and grade of service
as outlined in Article 3.3 herein.
8.3 Warranty claim
During the warranty period, Owner will inform Contractor in written
form and without delay regarding any problems which may require action
by Contractor.
8.4 Warranty response time constraint
During the warranty period, any fault occurring in case of proper use
of the equipment implemented in the frame of this Contract shall be
repaired by the Contractor free of charge for Goods and Services within
the time constraints set out in Attachment VII hereof. Contractor shall
be liable for damages certified by the Owner including the lost revenue
of Owner in case of a failure to meet the correction deadlines referred
to in the previous sentence for the period starting on the next day of
a missed deadline and lasting until the default is actually repaired.
8.5 Warranty exemptions
8.5.1 Extension of network
The warranty shall not apply to the part of the
Project where Owner or its Representatives executed extension,
changes or corrections, except the case of subscriber's
connections, outside the scope of the Contract during the
warranty period. If Owner notifies Contractor about these
works previously, the Parties shall define the network or
system boundary from which the warranty obligations of
Contractor will remain valid.
8.5.2 Owner negligence
Contractor's liability does not cover damages caused by
Owner's failure to follow the technical standards regarding
the operation and maintenance of the Goods as defined in the
Technical Documentation.
8.6 Type Approval
Contractor shall replace any Goods supplied for the Project free
of charge if a competent authority rejects to provide final type
approval or withdraws a relevant type approval previously issued.
This provision shall survive the Warranty Period.
9. INTELLECTUAL PROPERTY
9.1 Contractor's Authorization.
Contractor is the owner of the intellectual property rights in and to
all relevant Goods delivered by him under this Contract, or it is duly
authorized by the original owner of the said rights to grant any right
explained below to Owner.
9.1.1 Patent Rights and Trade Secrets Rights
Contractor shall grant to Owner an irrevocable, non-exclusive,
non-transferable license to use any invention incorporated in
any of the Goods, covered by patent(s). Such license shall be
deemed fully paid up for the purposes of use of the Goods
delivered under this Contract.
9.1.2 Terms of Use
Any other provisions of the Contract notwithstanding, with
respect to any inventions, including patented inventions, that
any person or entity is authorized by the Contract to use or
practice only under certain conditions or limitations, such
use or practice shall be:
9.1.2.1 free, unconditional and unlimited from and
after the time that the rights in inventions come
into the public domain, or
9.1.2.2 at the sole discretion of such person or
entity, on other terms from and after the time that
such rights in inventions become otherwise lawfully
available to such person or entity on such other
terms.
9.1.3 Unaffected Rights and Obligations
This Article shall not be construed as limiting any rights of
Owner or obligations of Contractor under this Contract,
including specifically the right of Owner for no additional
compensation to Contractor, to use, have used, deliver, lease
sell or otherwise dispose of, the Goods or any part thereof,
required to be delivered under this Contract.
9.2 Copyright
9.2.1 Ownership and Copyright
The ownership and copyrights in and to any Software, the
associated documentation or the documentation of the Hardware
shall remain with their original owners and/or any other
entities duly authorized by the former.
9.2.2 Use of Copyrighted Software
With the Software packages and documentation, protected by
others' copyright rights under the Hungarian copyright law
and/or international treaty, Owner, by virtue of this
Contract, is allowed to:
9.2.2.1 make copies solely for routine
replacement and back-up purposes, or
9.2.2.2 transfer the Software to a single hard disk,
provided that the Owner keeps the
original solely for back-up and archival
purposes. In addition, Owner shall be
granted, via Contractor, by the original
copyright owners an irrevocable, non-
exclusive, non-transferable license to use
such copyrighted materials.
9.3 Copyright Restrictions
The copyright includes, among others, the prohibition of any
modification, alteration, de-compilation, disassembling, reverse
engineering, or making any derivative work such as translation,
recasting, transformation or adaptation.
9.4 Intellectual Property, Patent, and Copyright Indemnity
Contractor shall defend at its expense, suits against Owner upon claim
that the Goods, including the latest unmodified release of Software
supplied under this Contract, infringe property rights granted or
registered in Hungary, provided that 9.4.1 Notification of lawsuit
Owner promptly notifies Contractor in writing on the suit,
9.4.1.1 Contractor has sole control of the defence
and related settlement negotiations, and
9.4.1.2 Owner gives Contractor information and assistance
for the defence all at Contractor's expense.
9.4.2 Indemnity
Contractor shall indemnify and hold Owner harmless
from all payments which by final judgments in such suits may
be assessed against Owner on account of such infringement and
shall pay resulting settlements, costs and damages finally
awarded against Owner by a court of law.
9.4.3 Remedy
Owner agrees that if the use, sale or distribution of the
Goods prohibited as a result of such suit, or in Contractor's
option are likely to be prohibited, Owner will permit
Contractor, at his option and expense, either to procure the
right for Owner to continue using such Goods or to replace or
modify same so that they become non-infringing.
10 TERMINATION
10.1 Termination on default
This Contract may be terminated by either Party in the event of default
by the other Party. In either event the Party initiating termination is
required to give the other party fifteen (15) calendar days advance
notice. In the event of termination for default, the initiating Party
agrees that the default notification will be rescinded if, within eight
(8) calendar days of notification, the defaulting Party corrects, to
the notifying Party's satisfaction, the material basis for default.
10.2 Grounds for termination
10.2.1 Owner's Right
Owner may justify Contractor's default on the basis
of the following cases:
10.2.1.1 the Contractor fails to commence the
work over a period of one (1)month,
10.2.1.2 the Contractor disrupted the performance
of its contractual obligations without
justified reasons and does not continue
the work within thirty (30)days,
10.2.1.3. the Contractor gives the whole Project to
sub-contracting,
10.2.1.4 material failure to adequately carry out
Contractor's responsibilities. Such
failures include, but are not limited
to: persistently failing to supply
enough properly skilled workers or proper
materials; persistently disregarding
laws or ordinances; or substantial breach of
the provisions of this Contract,
10.2.1.5 before terminating the Contract pursuant to
the foregoing clauses, Owner shall request
the Ericsson parent company, providing the
Corporate Guarantee, to perform all
outstanding Contractor duties and
obligations in accordance with the Contract.
10.2.2 Contractor's Rights
The Contractor may justify Owner's default on the basis of the
following cases:
10.2.2.1 Owner fails to provide the Advance
Payment and open or refund the escrow
account pursuant to Articles 6.2 and 6.8
herein,
10.2.2.2 the Owner fails to provide or otherwise
ensure the Site(s) or to meet the
requirements as set forth in Article 4 over
a period of one (1) month, 10.2.2.3 the
Owner's delay in payment exceeds thirty-
five (35) days provided that Contractor
sent a notice ("Payment Notice")not
earlier than the fifth day after the due
date of an invoice which was not fully paid
by Owner.
10.3 Compensation in Case of Termination
10.3.1 Termination by Owner
Owner will compensate Contractor on the basis of the
Unit Price List for delivered Goods and Contractor's work
product which Owner chooses to keep. Such compensation,
however, must not exceed that calculated on the grounds of the
Line Price set forth herein as it would have been required to
be adjusted under this Contract. Any payment to Contractor
under this Article shall be subject to Owner's claim for
damages and/or lost revenue.
10.3.2 Termination by Contractor
In accordance with the Unit Prices and the Line Price, Owner
will reimburse Contractor for the implemented portion of the
Project, Goods delivered, Services rendered, and expenses
incurred before the date of Contractor's termination and also
for tasks properly performed after the date of termination of
the Contract and those arising from obligations relating to
the Contract if undertaken bona fide. From the above amount
all sums shall be deducted which Contractor is obliged to pay
to and/or which Contractor owes Owner including the amounts
previously paid by Owner. Contractor shall be entitled to
claim damages.
11 GOVERNING LAW AND DISPUTE RESOLUTION
11.1 Governing Law
This Contract shall be governed by Hungarian law. For issues not
expressly provided for by the Parties hereof the provisions of the
Hungarian Civil Code (Act No. IV of 1959 as amended) shall apply.
11.2 Amicable dispute resolution
If a dispute of any kind whatsoever arises between the Owner and the
Contractor, in connection with, or arising out of this Contract,
whether during the execution of the Project or after completion and
whether before or after repudiation or other termination of the
Contract, including any dispute as to any opinion, instruction,
determination, certificate or valuation, the Owner and the Contractor
shall, in the first place, seek to resolve the dispute amicably between
them.
11.3 Effect on the project
Unless the Contract has already been repudiated or terminated, the
Contractor shall, in every case, continue to proceed with the Project
with all due diligence and the Contractor and the Owner shall give
effect forthwith to every decision they take to resolve their dispute.
11.4 Arbitration
11.4.1 Notices of arbitration
If no amicable settlement is possible, then either the Owner
or the Contractor may give notice to the other party, of
intention to commence arbitration, as hereinafter provided, as
to the matter in dispute. Such notice shall establish the
entitlement of the party giving the same to commence
arbitration. Unless the parties otherwise agree, arbitration
may be commenced on or after the twentieth calendar day after
the day on which notice of intention to commence arbitration
of such dispute was given, even if no attempt at amicable
settlement thereof has been made.
11.4.2 Arbitration procedure
Any dispute in respect of which amicable settlement has not
been reached shall be finally settled, unless otherwise
specified in the Contract, under Hungarian law and in
accordance with the Rules of Conciliation and Arbitration of
the Hungarian Chamber of Industry and Trade by one or more
arbitrators in Hungary appointed under such Rules. The place
of arbitration shall be Hungary and the language of the
arbitration shall be English. The said arbitrator(s) shall
have full power to open up, review and revise any decision,
opinion, instruction, determination, certificate or valuation
related to the dispute.
12 MISCELLANEOUS TERMS AND CONDITIONS
12.1 Assignment
This Contract or any of its provisions or any receipt of payment shall
not be assigned by either Party without the prior written consent of
the other.
12.2 Force Majeure
Neither party shall be considered in default in the performance of its
obligations under this Contract to the extent that the performance of
such obligation is prevented or delayed by any cause, existing or
future, which is beyond the reasonable control of such party. 12.2.1
Notices
Should any Party be affected by Force Majeure, such Party
shall notify the other Party in a written form within seven
(7) days from the occurrence of the Force Majeure. The
notification shall include details constituting the Force
Majeure as well as the positive evidences which prove that the
case was unavoidable and that it delays the fulfillment of the
contractual obligation of the Party. In the above
notification, the estimated duration of the Force Majeure
shall be included as well as a statement declaring the
inability of the effected Party to perform the concerned
obligation(s) as long as the case of Force Majeure
exists/remains.
12.2.2 Effect on Contract
Should the duration of Force Majeure exceed the period of five
(5) days, Parties shall negotiate the reasonable modification
of the Contract and equitable compensation for Contractor in
respect of work performed but not tested, if applicable, due
to Force Majeure. If Parties cannot come to an agreement
within the above period, they can submit the dispute to be
resolved pursuant to Article 11 herein.
12.2.3 Limitation
The Contractor is not entitled to rely on any event otherwise
qualifying as Force Majeure if the scheduled deadline of the
Project was due before such event.
12.3 Data Ownership and Confidentiality
Any information or data, in the form of specifications, drawings,
technical data or other information, not a work product of this
Contract, furnished by the Owner or Contractor to the other party shall
remain the property of the furnishing party. Work product of this
Contract shall become the property of the Owner under the conditions
stipulated herein. All work product and information marked as
Proprietary by either party prior to transfer to the other party shall
be kept confidential by the receiving party and receive the same degree
of care in handling and retention as that party applies to its own
proprietary information. The party receiving such proprietary
information shall not disclose, without the furnishing party's written
permission, such information to any other person or use such
information itself for any purpose other than the performance of this
Contract. The obligations under this paragraph shall survive the
termination of this Contract for a period of five (5) years.
12.4 Effect of Waiver
Owner's waiver of any Article of this Contract shall have no effect on
the Contract.
12.5 Severability
If any provision hereof, or the application of any such provision to
any person or circumstance, shall be held invalid or unenforceable by
an arbitration tribunal of competent jurisdiction, then the remainder
of this Contract, or the application of such provision to persons or
circumstances other than those as to which it is held invalid, shall
not be affected thereby and such invalid provisions shall be replaced
by a valid provision (and for this purpose the arbitrator(s) may act as
amiable compositor/s) which most closely gives effect to the intent and
purpose of the parties hereto and the allocation of risks and benefits
reflected in such provision.
12.6 Contract Amendment
Any contract terms can only be amended in written form duly signed by
both Parties.
12.7 Copies
The Contract was prepared in English language and was signed in four
(4) original copies of which each Party keeps two (2).
12.8 Notification
Notices or communications required or permitted to be given under this
Contract will be deemed to be given; a) when delivered by hand, b) when
transmitted by facsimile and confirmed by returned facsimile, c) five
(5)calendar days after being sent by certified mail, in each case, to
the address or facsimile number following:
Papatel Rt.
James Morrison, Chairman
1126 Budapest, Kiralyhago u. 2.
Tel.: 212-1100
Fax: 202-2974
ERICSSON Kft.
Fodor Istvan, President
1146 Budapest, Hungaria krt. 162.
Tel: 265-7100
Fax: 265-7373
12.9 Coming into Force
The Contract comes into force on the date when duly signed by the
authorized representatives of the both Parties but not before the
Corporate Guarantee, the advanced payment and the financial security
provided for in Articles 4.17, 6.2 and 6.8 are in place.
Parties have both read this Contract and mutually agreed and understood its
contents. Budapest May 31, 1996
43029
Exhibit 10.77
HUNGAROTEL TAVKOZLESI RESZVENYTARSASAG
FAZIS TAVKOZLESI HALOZATTERVEZO ES KIVITELEZO RESZVENYTARSASAG
TURN-KEY CONTRACT
Dated as of
June 28, 1996
<PAGE>
1 INTRODUCTION
1.1 Purpose
This document constitutes the agreement between Hungarotel Rt. and
Fazis Rt. governing the latter's provision, on a turn-key basis, of
telephone facilities employing new digital switching technology capable
of connecting 40,000 subscribers which shall include all wait listed
and common battery/local battery subscribers through the end of the
TURN-KEY Contract in the Bekescsaba Primary Region with the optimal and
free of charge use of existing telecommunication facilities.
1.2 Condition precedent
Any and all obligations of the Owner regulated in this TURN-KEY
CONTRACT shall be subject to issuance and effect of a letter of
confirmation by Postabank in a form as annexed Attachment X to this
TURN-KEY CONTRACT which confirms that Postabank shall provide up to
hundred (100) % financing to Contractor for Contractor's financing of
one hundred (100) % financing of this TURN-KEY CONTRACT (up to a HUF
equivalent of USD 45,000,000.) - according to the terms and conditions
contained in Article 6 herein.
2 DEFINITIONS
"Building(s)" means the premises used for technical purposes which are
necessary and suitable for the accommodation of the telecommunication
equipment and system included in the Contract. The building can be
ordinary construction or container.
"Change Order" means the process to handle the changes requested by
Owner or Contractor that will affect the value, schedule, or design of
the Contract.
"Connected Lines" means those Lines where the connection to particular
subscribers actually occurred and by connecting a telephone set a voice
grade telephone call can be originated and terminated.
"Contract" means this Contract concluded between Owner and Contractor,
including all the documents being referred there as well as the
mutually accepted modifications and/or alterations.
"Contractor" means Fazis Rt. and includes its successors.
Customer Premise Equipment" (CPE) means the subscriber telephone
instrument.
"Day" means calendar day unless stated otherwise.
"Goods" means, with the exception of CPE, all the equipment, material,
components, software, or any other component, which must be fully or
provisionally type approved in Hungary, where applicable, to be
supplied by Contractor to Owner in accordance with the Contract
necessary for the normal, commercial operation of the lines ordered for
this Contract.
"Installation". An all inclusive term referring to the placement
of equipment and material and encompassing all related general
(e.g. construction, erection) and specific (e.g. splicing,
connecting, and testing) terms employed to describe such activities.
"Line Connection Certificate" means the form statement as defined as
Attachment VI/12 duly signed by the subscriber upon installation and
testing, as described in Attachment VI of a Connected Line which will
certify the full capability of the connection and for normal commercial
operation of the Connected Line.
"Owner" means Hungarotel Rt. and includes its successors.
"Parties" mean the Owner and the Contractor together.
"Permit" means all official documents necessary for the implementation
and turning into commercial operation of the Project with special
regard to network and building construction, access to public
utilities, type approval if applicable, of all the Goods, radio
licenses for all relevant Goods required by law, or other access from
all government agencies or third parties.
"Postabank" means Postabank es Takarekpenztar Rt. and its legal
successor.
Project" means all Goods and Services to be delivered and performed
for the PARTN
"Project Manager" means the authorized representative of Owner and
Contractor being entitled to control all the activities to be performed
by Owner and Contractor as well as to give instructions and/or
approvals, including the express authority to hand over/take over of
completed work products of Contractor, which are necessary regarding
the daily completion of the Contract.
"Project Executive" means the authorized officers of both parties
having full authority to execute the Project.
"Project Schedule" A comprehensive, computer based schedule employing
Critical Path methodology, which identifies relationships between
project tasks and, based on the quantity of work required, resources
assigned, and expected productivity, predicts the achievement of key
project milestones. "PRTN" Primary Region Telephone Network,
(Bekescsaba Primary Region) including the telephone infrastructure to
be provided under this Contract.
"RLL Technological Spare Capacity" means an excess number of
prospective RLL telephone lines which are ready for connection but were
not ordered by Owner but instead arise from technological circumstances
and are therefore not chargeable against the Owner, provided that the
supplier agree to this terms.
"Services" mean all the activities which appear in non-objectified form
(therefore are not "Goods") but form an integral, inseparable part of
the Project including assembly, design, installation, commissioning,
and project management necessary to put the Ordered Lines into
commercial operation.
"Site" means locations, building and other places where the
implementation work will take place.
"Sub-Contractor" means those corporate bodies or entrepreneurs licensed
or qualified to perform activities on the commission of Contractor and
with the full and unlimited responsibility of the Contractor to fulfill
the Project.
Subscriber Network Connection Point" means the point where the
subscriber connection meets the telephone network. In the case of cable
network the nearest distribution point to the subscriber, and for RLL
the radio base station.
"System Acceptance" Owners statement declaring that all contractual
obligations of the Contractor, except where explicitly provided
otherwise are fulfilled.
"System Integration" means those activities of Contractor which are
necessary for the connection and communication of the existing and the
new telephone system to be implemented by Contractor in the PRTN on the
level of the newly implemented exchange(s) and the existing ARF
Exchanges located in Bekescsaba Primary Region.
"Technical Documentation" means all the technical documents for all
components and the network installed in accordance with the Contract
that Contractor has to deliver to Owner for the normal commercial
operation of the Project as required by law.
Telecommunications Authority of Hungary" (HIF) means a government
agency authorized to issue telecommunication-related licenses and/or
related permits.
"Test" means the procedures and other measurements carried out by
Contractor on units of the Project according to the manufacturers'
instructions and the internal proceedings and practices of Contractor
and applicable Hungarian rules and regulations aimed to check the
compliance with the relevant technical and functional parameters for
the commercial operation of the Project delivered to the Owner in a
format approved in the Contract.
"Turn-key Project" The delivery of a complete and functioning telephone
system which provides normal commercial telephone services for the
Primary Region (Bekescsaba) capable of commercial operation for public
telephone services by Owner's employees capable of operation for the
purpose intended by Owners and in compliance with the technical
documentation of this Contract. This includes Engineering, Furnishing,
Installing and Testing (EFIT) of all system equipment and components
required to build the network and connect Owner designated subscribers,
excluding Customer Premise Equipment with the exception of installation
and testing.
"Unit Price" means the price of goods and services listed in Attachment
4. Should the need of any unit price not listed in the Attachment IV
mentioned above arise during implementation, Contractor and Owner shall
jointly approve an appropriate unit.
3 SCOPE OF WORK
3.1 General
Contractor shall engineer, furnish, install, and test Goods and
Services to be supplied in a Turn-key Project for the development and
putting into operation of fully functional telephone network employing
new digital switching technology capable of connecting 40,000
subscribers which shall include all wait listed and common
battery/local battery subscribers through the deadline of December 31,
1997 for putting the network into operation in the Bekescsaba Primary
Region including the installation of 2 booths and pay telephones in
eleven towns/villages and installation of 14,000 Lines capable for
connection including seven settlements, namely Gyula, Bekes,
Mezobereny, Tarhos, Kamut, Murony and Belmegyer, no later than December
31, 1996. The Contractor shall have the right to use existing spare
network and infrastructure capacity free of charge except that where
Contractor chooses to extend lead sheath cable Contractor will replace
the lead cable with QV cable within the scope of this TURN-KEY
CONTRACT.
3.2 RLL technology
The Project shall be implemented such that 10,000 of the implemented
network capacity shall be Radio in the Local Loop (RLL) technology.
3.3 System Integration
The Project shall satisfy the System Integration requirement as defined
herein.
3.4 Satisfaction of Change Orders
The Project shall satisfy the Change Orders which are accepted pursuant
to the Contract.
3.5 Required Contractor activities
These aforementioned activities and responsibilities of Contractor
include without limitation, regarding the content of this Contract, the
design, engineering, manufacturing, supply, installation, obtaining of
all relevant permits and licenses, commissioning, testing, delivery of
technical documentation, and warranty of the following:
Switching - EWSD
Wired and Optical Transmission Equipment Analog Radio Access System DECT Radio
Access System Microwave Transmission Main Distribution Frame (MDF) Power Supply
to the Equipment Digital Distribution Frame (DDF) Trunk Network Connection to
the backbone network Pay phones and booths Buildings and environmental systems
Structures Copper based network.
3.6 Network boundaries
On one side the connection of the newly implemented exchange(s) or
expanded host exchange DDF, and on the other side the wall socket of
the Customer Premise Equipment (CPE) including testing and installation
of the type approved CPE.
3.7 Grade of service for the Project
The Grade of Service shall be P. 01 and the traffic performance shall
be .05 Erlang per subscriber.
3.8 Attachments
The following Attachments -- with the exception of Attachment VI which
shall be submitted to the Owner during the design phase but no later
than ninety (90) days after the coming into force of the Contract --
are considered, read and interpreted as inseparable part of the
Contract:
3.8.1 I Scope of Work
3.8.2 II Engineering and Design Standards
3.8.3 III Installation Practices
3.8.4 IV Unit Prices
3.8.5 V Wait List
3.8.6 VI Technical Appendices (specifications and descriptions), Test
Procedures 3.8.6.1 VI/1 Switching 3.8.6.2 VI/2 Wired Transmission (PDH)
3.8.6.3 VI/3 Microwave Transmission 3.8.6.4 VI/4 Power Supply 3.8.6.5
VI/5 Main Distribution Frame (MDF) 3.8.6.6 VI/6 Digital Distribution
Frame (DDF) 3.8.6.7 VI/7 Network Management 3.8.6.8 VI/8 Analog RLL
3.8.6.9 VI/9 DECT RLL 3.8.6.10 VI/10 Cable Network Construction
3.8.6.11 VI/11 Training 3.8.6.12 VI/12 Line Connection Certificate
3.8.6.13 VI/13 Pay phones and booths 3.8.6.14 VI/14 General notes 3.8.7
VII Warranty Response 3.8.8 VIII Change Order Form 3.8.9 IX
Construction and Financial Schedule 3.8.10 X Postabank Guarantee 3.8.11
XI HTCC US Guarantees
4 CONTRACTOR'S OBLIGATIONS AND RESPONSIBILITY
4.1 The overall responsibilities of the Contractor
The Contractor must implement the Project under the conditions outlined
in Attachments I-XI hereof using the necessary care and effort toward
its completion. The whole workforce including supervisors, the
materials, the tools, and any other temporary or lasting things
regardless of whether or not mentioned in the Contract or in its
Attachments which are necessary for the implementation of the Project
must be provided by the Contractor. The Contractor has full
responsibility for the suitability, the stability and the security of
the work and construction methods done on the Site.
4.2 Purchases of certain Siemens materials
Contactor shall purchase any and all equipment or material if
reasonably priced - from among those which will not be used for the
completion of the KNC project by Siemens - necessary for the
implementation of the TURN-KEY CONTRACT for Hungarotel (Bekescsaba
Primary Region), or any other construction project contracted between
HTCC and its affiliate companies and Fazis, only from Siemens in a form
of taking over of the obligation of HUNGAROTEL/KNC/HTCC set out in
Clause 2 of the Agreement dated May 30, 1996 between HUNGAROTEL/KNC/
represented by HTCC and Siemens to purchase the assets and equipment
stored or ordered by May 24, 1996 for the KNC project for the same unit
prices to be paid by HUNGAROTEL/KNC/HTCC to Siemens. Notwithstanding
the above mentioned, the Contractor shall purchase all switching
equipments from SIEMENS necessary for the completion of the Project.
4.3 The employees of the Contractor
The Contractor can employ only those people who have the necessary
skills and experience for the job, or people, who are capable and
qualified to perform their parts. The Contractor must provide the
employees continuous education, concerning especially the skills, and
also provide the employees with the necessary designs, drawings and
standards.
4.4 Care during job performance
The Contractor is fully responsible for maintaining the project in a
safe condition from the beginning of the work until final acceptance.
If, for any reason, the project or a part of it suffers damage or loss
of any kind during that period, when the Contractor is responsible for
it, the Contractor shall be obligated to repair or reconstruct it at
his own expense, and the project must be in perfect condition when
completed and the state of the project meets all the requirements of
the Contract. The Contractor is also responsible for the damage of the
project which is caused by him during completion of any outstanding
portion of work. Parties agree that the Contractor shall be responsible
for the performance and damage caused by Sub-Contractors engaged by the
Contractor in the same manner as if it was done or caused by the
Contractor.
4.5 Objects found in the ground
The finds (coins, valuable objects, antiquities, buildings, as well as
objects, remains with geological or archaeological value, etc.) found
on the location of the work, must be given to the Owner, as its
exclusive property.
The Contractor must take reasonably necessary precautions against
damaging or stealing of these objects by its employees or anybody else.
In addition to this, the Contractor must notify the Owner about the
find, right after the excavation, but before the removal, and must
follow its instructions about the find, at the expenses of the Owner.
4.6 Usage of the public property and easements
Any kind of work, necessary for the implementation of the project must
be done in a way, such that it does not cause needless or senseless
inconvenience for the public, or does not block the approach, use or
occupancy of public or private roads, which serve buildings, owned by
the Owner or by anyone else in case a claim, proceeding, obligation
entailed by the damage, or expenses of any kind arise, resulted from
failure to observe the above specified rules, the Contractor - if it is
its responsibility, and it could obtain the same results by another way
as well - is obligated to release the Owner form the responsibility for
them.
4.7 Location maintenance
The Contractor must keep the site clean and free of debris or wastes
during the process of implementation. The location must be free from
unnecessary obstacles. The waste and debris, as well as the temporary
buildings that are no longer required must be removed by the
Contractor.
After the implementation of the Project the Contractor must remove all
the equipment, left over or waste material, or any kind of temporary
construction and leave the entire Site and the Project in a clean and
proper condition, acceptable to the Owner.
4.8 Plan of work and behavioral norms
4.8.1 The Contractor is obligated to take all the necessary action
to give its employees work continuously and to meet the
commitments undertaken by itself in the contract for
employment.
4.8.2 In case of an epidemic like outbreak of an epidemic illness,
the Contractor must observe and enforce the provisions,
ordered by the Government of the local Health Department to
combat it.
4.8.3 The Contractor must take the expected and reasonable
precautions at any time, to forestall illegalities or any
other kind of untolerated misconduct on the part of the
employee, and to avoid any kind of damage to the property or
to personal safety, during the process of implementation of
the Project.
4.8.4 The Contractor can work by its own plan, but it must notify
the Owner about any kind of deviation from an ordinary work
plan. The work, that is performed during the afternoon,
evening or night shifts, or on weekends or holidays, cannot be
noisy, smelly, or disturb the peace of the surroundings.
4.8.5 It is the responsibility of the Contractor to require the
Sub-Contractors and their employees to observe the above
mentioned regulations, and hold true for them too. The
sanitary, and the accident precautionary regulations also must
be observed on the fields of work or in the transport.
4.8.6 The Contractor must take on any kind of financial and legal
consequences resulting from any violation of the above
specified regulations. In addition, the Contractor must fully
indemnify the Owner for any legal claim that may arise against
the Owner.
4.8.7 Parties agree that the Owner shall have no labor law-based
responsibility for the employees of the Contractor.
4.9 Lighting and security of the location
Regarding the work process, the Contractor must provide and maintain at
its own expense any kind of lighting, security or fence.
4.10 Control and corrections
In compliance with the order of the Owner representative, the
Contractor is obligated to dismantle any part of the project and then
reconstruct it if it is found to be in violation of the installation
standards governing this Contract.
If any of the above mentioned parts of the project are covered, and/or
become invisible after the Contractor fulfilled the above requirements,
and it is established that these parts of the project are implemented
in accordance with the requirements of the Contract, the costs of
discovering, restoring and cleaning up the relevant site shall be borne
by the Owner. In any other case such costs shall be borne by the
Contractor.
4.11 Take-over protocol
4.11.1 Take-over procedure
Five days before a part of the Project is scheduled for completion the
Contractor must so advise Owner in writing. The Owner shall set a date
and time for the hand-over of the implemented part of the project for
no later than 15 days after the planned completion. The Parties shall
attend the hand-over procedure. Owner and Contractor shall jointly make
a protocol regarding the delivery. Owner can refuse the delivery only
if the network is not ready for operation. The discovered
insufficiencies which do not affect the operation the Contractor shall
correct in 30 days following the technical delivery. In case the
Contractor fails to correct the insufficiencies concerned, the Owner
can deduct the sum of the next invoice by the amount needed to correct
the defect. If Owner fails to attend the hand-over procedure, the
Contractor can complete the procedure alone and in finding it suitable
can submit the invoice to the Owner.
4.11.2 Conditions of delivery
The conditions of delivery of the project are made
according to the requirements of the Contract and
must include the following:
-Statement of the Contractor,
-high quality of completion of implementation,
-conformance to applicable standards and related
requirements,
-delivery of a complete, detailed, and revised
documentation in three
(3) copies of the Project as completed,
-final test measurement records and documents,
-geodetic survey documentation in three (3) copies
(if applicable),
-the original construction plan media (digital,
vellum, or mylar).
-digital registration book for fiber optic cable
installation.
-line connection certificate
If the system is suitable for operation the Owner is
obliged to accept it or it is equal to acceptance if
the Owner puts it into operation.
4.12 Project Manager
Contractor will designate a Project Manager (with deputies for project
sub-elements, as appropriate) with overall responsibility for the day
to day conduct of the project. The Project Manager's responsibilities
and authority will be provided in writing. Contractor will not reassign
this responsibility without notifying the Owner. The Project Manager
will be replaced upon the Owner's request where such request
demonstrates due cause (including chronic delays, missed project
milestones, failure to be fully informed of project activities, and
failure to properly conduct progress meetings or provide agreed upon
project reports) for that replacement.
4.13 Project Schedule
Contractor shall supply to the Owner, for the first phase (31 December,
1996 completion) fifteen (15) calendar days of contract signing, a
preliminary calendar of the Project and within thirty (30) days a
digitized copy of the Project Schedule in a format compatible with
Microsoft Project, and a hard, paper copy of the Project Schedule GANTT
chart. Sixty (60) days prior to start of the second phase (December 31,
1997 completion) the Contractor shall provide a digitized copy of the
Project Schedule in a format compatible with Microsoft Project, and a
hard, paper copy of the Project Schedule GANTT chart.
4.14 Installation plan and technical content
Parties agree that the planning and completion of the Project shall be
performed in accordance with an installation plan approved by the Owner
and appropriate Hungarian authorities. Contractor shall inform Owner in
writing, as set forth in Attachment VI, of the technical content of the
Project no later than ninety (90) days from the coming into force of
the Contract. In case Contractor changes the content of the documents
on which information was given to Owner, Contractor shall inform Owner
on such changes in writing within five (5) days.
4.15 Design
The Contractor shall have the necessary design work finished. The
Designer will send invitations for an opening meeting on the design to
the interested Parties eight (8) days before the event. The Owner at
this opening meeting must represent itself by representatives
authorized to take a position. The Designer has to have the design
previously checked by the Telecommunication Inspectorate at Szeged. The
Designer will bring the design before a Special Design Confirmation
Committee only in case of preapproval of the inspectorate, or
correction of the errors found by them in the design. The Special
Design Confirmation Committee must complete the examination of the
design in eight (8) business days after it has been submitted, and must
notify the Contractor about the results in writing.
The Owner can refuse the approval of the design only in that case, when
it fails to comply with the requirements, or if it is inadequate for
implementation.
4.16 Construction
Construction work can be done only according to approved plans and
building permits. The Contractor may deviate from this provision at his
own risk. The Owner has a right to supervise the construction work as
well as place the errors on record in the construction book, and the
Contractor must correct them in 14 days. If authority's approval is
needed for correcting the errors the 14 days shall be calculated from
when the approval date comes into force.
4.17 Selection of supplier
The equipment, products, materials etc. to be used for the Project
shall meet the requirement set out by the Chief Telecommunications
Inspectorate. However the Contractor is fully responsible for selecting
the suppliers of equipment, products, materials etc. other then
switching. Optical cable and transmission equipment requires the
approval of the Owner. In this case, the Contractor is obliged to
notify the Owner in writing eight (8) working days prior to the
purchasing of the above selected materials. Owner is obliged to respond
by approving or not approving within three (3) working days following
the receipt of the notification. The Owner shall approve the identity
of the vendor selected by the Contractor provided that the equipment
offered by this vendor meets the requirements set forth in Attachment
VI hereof.
4.18 Subcontracting
The Contractor may subcontract portions of the work to qualified
subcontractors. Use of Sub-Contractors does not relieve Contractor of
overall responsibility for the quality and timeliness of project
activities. Contractor shall be responsible for the subcontracted work
as if Contractor would have performed it.
4.19 Products and Services of Hungarian Origin
4.19.1 The Contractor will use best effort to ensure that not less
than 30% of the total value of products purchased and services
provided for the purposes of the Project shall be fulfilled
with products and services of Hungarian origin.
4.19.2 Contractor shall provide a certificate describing the actual
percentage of Goods and Services of Hungarian origin prior to
System Acceptance.
4.19.3 A product shall be deemed to be of Hungarian origin if,
(I) either 25% of the total value thereof was produced in
Hungary, or, (ii) proof can be given that due to the
manufacturing process having been carried out in Hungary, the
added value of such product increased by 25%.
4.19.4 The Contractor acknowledges that an inspection may be carried
out by the Ministry of Transportation, Telecommunication and
Water Management (the "Ministry") or by a competent agency at
any time to ensure compliance with such provision and
undertakes to fully cooperate with the Ministry or the
competent agency during such an inspection.
4.20 Test procedures
Contractor shall provide, as set forth in Attachment VI hereto, formal
Test Acceptance procedures of all implemented Goods, where applicable.
The manufacturers' testing instructions for installation for the
implemented equipment and system shall be included in Attachment VI
hereof. Contractor shall invite Owner to these Tests in writing at
least five (5) days earlier unless the Test concerned was duly
indicated in the Project Schedule including its objective, exact time,
date and location. Owner shall have the right to participate in the
Tests and make comments on the test procedure and the results. Any
objection of the Owner must be recorded in the relevant Test protocol
(record) or attached thereto. All Test protocols shall be furnished to
Owner regardless of Owner's participation at the Test.
4.21 Indemnification
The Contractor shall indemnify and hold the Owner harmless against all
losses and claims for injury or damage to any person or property
whatsoever which may arise out of or in consequence of the Contractor's
action or inaction. The Contractor shall also indemnify the Owner
against all claims, demands, proceedings, damages, costs, charges, and
expenses whatsoever in respect thereof or in relation thereto.
4.22 Training
Contractor agrees to provide training as part of this Contract, to
enable Owner's employees to operate and maintain the newly installed
network, which shall be agreed in detail within 60 days.
4.23 Safety Management
The Contractor will provide to the Owner, within thirty (30) days after
execution of the Contract, a Safety Management program which is
designed to protect employees, the Owner, the general public,
subscribers, and public and private property from hazards which will
cause injury or damage. The program will be based on the following:
-national and local regulations -hazardous materials, including
disposition -additional site precautions
4.24 Construction book
The construction book is a basic document for the implementation of the
Contract. It shall be maintained on the site by the Contractor, and
shall be available any time for review by Owner's representative. The
book shall contain three copies for each page and only a representative
of the Contractor or the Owner are entitled to make entries. One copy
belongs to the Contractor and the other copy to the Owner: the original
copy shall be kept on the site. Contractor shall deliver the Owner copy
to the Owner each week.
4.25 System documentation
Contractor shall provide to the Owner three copies of all installation,
maintenance, and operations documentation for all network components
necessary for Owner to manage and maintain the commercial operation of
the Project as implemented in accordance with the Contract.
4.26 Permits and licenses
4.26.1 Government Permits and licenses
Contractor is responsible for obtaining the
Construction Permit and other permissions and/or
licenses related to the Project (with the exception
of the DECT license which the Owner has obtained),
including but not limited to microwave radio
frequency licenses, RLL frequency licenses, and the
Project commissioning license (in Hungarian:
hasznalatbaveteli and/or rendszeresitesi engedely) in
the name of Owner to be issued by Government
Authorities including the approvals of the
Telecommunication Authority of Hungary where needed
for construction, right of way, and system operation
of the Project for commencing commercial traffic. The
costs related to this responsibility shall be borne
by the Contractor.
4.26.2 Third Party Permits
The Contractor is obliged to apply for and obtain the
Permits of third parties not mentioned above (e.g.
owners of affected real properties). All
compensations to be paid directly to such third
parties shall be borne by Owner. The Contractor in
consultation with the Owner shall identify third
party-owned real properties and leaseholds including
their owners and holders which are affected by the
project during the designing period. The process for
third party approvals is as follows:
4.26.2.1 Contractor is responsible for third party
approvals;
4.26.2.2 Contractor will optimize network locations
for both PRTN and Contractor;
4.26.2.3 Contractor will take into account
the availability of free real
estate, provided either by Owner or
local municipalities, during
equipment site selection;
4.26.2.4 Owner cannot refuse the acceptance of
Contractor's proposed solution
without reasonable cause.
4.27 Postabank assurance
Postabank shall provide assurance in the form Attachment X hereof, in
which Postabank confirms its support for the Contractor concerning the
terms and conditions of the Contract.
4.28 Change Order
The Contractor may initiate a change in the value, schedule, or design
of the Contract via Change Order subject to the approval of Owner.
Owner's approval shall not be unreasonably withheld.
5 OWNER'S RIGHTS AND OBLIGATIONS
5.1 Owner's Representatives
The Owner will assign a Project Executive, Project Manager, Engineering
Manager, and such supporting staff as appropriate to maintain liaison
with the Contractor during the course of the project. Written
designation of such persons and their responsibility and authority
shall be provided within fifteen (15) days after the signing of the
Contract. The Project Manager shall be located at the project site and
will provide daily inspections of the work site, contract performance,
and contract compliance.
5.2 Information to be Provided
Owner shall provide necessary information as requested by the
Contractor for the successful design and installation of the Project,
and agrees to provide further information reasonably requested by the
Contractor. Owner shall provide to Contractor within ten (10) days or
earlier of coming into force of the Contract the current waiting list
and CB/LB subscribers with names, addresses and type of service
residential or business. The Owner shall provide weekly updates of the
waiting list to the Contractor during the course of the Project.
5.3 Access
Unless specially requested, Owner premises will be available only
during normal business hours. In the case of work requiring Contractor
access beyond such hours, access will be requested no less than 24
hours prior to expected use. Contractor staff working on Owner premises
will be supervised, carry appropriate identification, and conform with
the dress and demeanor of Owner staff at that activity. Owner is
obliged to issue and/or obtain all permits for Contractor and/or its
Subcontractors to enter the premises owned and/or directed by Owner so
that their contractual obligations can be performed. The above permit
shall enable Contractor's or its Sub-Contractor's authorized personnel
to enter the premises when necessary.
5.4 Supplying data
The Owner undertakes to continuously hand over the data he possesses
and especially the data of the already existing subscribers and the
data of the subscribers on the waiting list within fifteen (15) working
days following the coming into force of this Contract. If the owner
fails to provide the aforementioned data in a timely manner, the Owner
shall take into account this delay when he permits a deadline extension
for the Contractor.
5.5 Owner Review and Approval
The Owner is responsible for the timely review and approval of
documents submitted by the Contractor in accordance with this Contract.
Owner's approvals or the reason if one or any of them is being
withheld, if any, shall be passed to Contractor within five (5)
business days from the date of the confirmed receipt, as defined under
Article 12.7 Notification, of application for approval.
5.6 Owner delay (other than financial)
Owner shall meet obligations under this Contract for only those
requirements specified in this Contract or in the latest version of the
Project Schedule received at least fifteen (15) days in advance of
scheduled obligations so that Contractor is able to follow and keep the
timing. In case of delay of Owner relating only to those requirements
specified in this Contract or in the Project Schedule, Contractor shall
be entitled to a reasonable extension of the performance deadline which
cannot exceed twice the duration of the Owner's delay. Contractor shall
be entitled to request an extension of the affected Contractor deadline
only within five (5) days of Owner's delay provided that such delay
affects Contractor's deadlines.
5.7 Authorization
After the Contract has come into force, Owner shall issue an
authorization for Contractor within fifteen (15) days. This
authorization shall entitle Contractor to act on Owner's behalf for
obtaining Permits and licenses.
5.8 Payment obligation
Owner shall be responsible for all the payments to be settled to
Contractor in accordance with Article 6 of this Contract.
5.9 Purchase of imports
The Owner hereby declares that the equipment to be supplied by the
Contractor will serve for investment purposes in the meaning according
to the Hungarian regulation. The Owner upon the request of the
Contractor shall provide the Contractor with a written declaration of
the above in the form required by the Contractor.
5.10 System Acceptance
The Owner will provide to the Contractor a written notice of System
Acceptance upon compliance with the terms and conditions of this
Contract including but not limited to receipt of all deliverables
including documentation, test records, or other requirements of point
4.11 herein.
5.11 HTCC Guarantees
As set forth in Attachment XI hereof, HTCC US provides surety to the
Contractor and Postabank on behalf of the Owner under which HTCC US
shall meet the Owner's payment obligations if the Owner fails to
fulfill any of those under the Contract.
6 FINANCIAL TERMS
6.1 Contract price
Parties agree that the fixed price of this Contract shall be
HUF 6,902,550,000
i.e. Six-billion-nine-hundred-two-million five-hundred and fifty-thousand
forints
(excluding interest due for the deferred payment), which amount equals
40,000 subscriber telephone lines times USD 1,125 per capable
subscriber line which equals USD 45,000,000 as calculated at the June
27, 1996 HUF/USD exchange rate (i.e. USD 1= HUF 153.39) plus VAT as
applicable from time to time (currently 25%) payable upon invoices
issued in accordance with the contractual schedule in Attachment IX,
which contract price is subject to the currency exchange adjustment
according to Clause 6.3. of this TURN-KEY CONTRACT. This fixed price
shall be reduced by the Unit Price for non-installed components from
the Subscriber Network Connection Point. Parties agree that this fixed
price contains the total compensation for all duties of the Contractor
as specified in Article 4 of this Contract, except the amount of the
currency exchange rate adjustment and the amount of the total
obligation of Owner relating to the deferred payment.
6.2 Change of the price
Parties agree that the fixed price of this Contract as defined in
Articles 6.1 herein may only be changed with the prior written
agreement of the Owner in the form of a Change Order. Change Orders
will be calculated in accordance with Attachment IV Unit Price List"
which Owner accepted.
6.3 Currency exchange rate adjustment
Parties agree that the amount of invoices (partial or final) specified
in the detailed construction and financial schedules as set out in
Attachment IX and the HUF fixed price of this Contract will be modified
when invoiced in accordance with any change in the middle currency
exchange rate of HUF/USD published by the National Bank Hungary Rt.
between the date of signing of the Contract and the date of issuance of
the invoice for the instalment payment. Parties agree that if the
Contractor is delayed with his performance as scheduled in Attachment
IX the actual invoiced amount shall be calculated using the currency
exchange rate that would have been applicable if the performance would
have been completed according to Attachment IX. In order to avoid any
misunderstanding, the Parties agree, that the previously invoiced
amounts shall be not affected by subsequent changes in the exchange
rates.
6.4 Financing by Contractor
Parties agree, that Contractor shall provide deferred payment to Owner
for paying the Contract price.
6.4.1 Terms and conditions of the deferred payment
6.4.1.1 The amount of the deferred payment
is equal to the net value of the Turn-Key Contract
which is the HUF equivalent of a total of USD
45,000,000. plus the amount of the capitalized
interest according to the provisions of this
Contract.
6.4.1.2 The maturity of the deferred payment
The final maturity date of the deferred
payment is December 31, 2002. The Parties
agree that upon the reasonable request of
the Owner this date may be accelerated or
extended subject to their future agreement.
6.4.1.3 Repayment of the financing
The payment of the invoices, as part of the
deferred payment, shall be due in quarterly
instalments between March 31, 1998 to
December 31, 2002. Parties agree, that at
Owner's option, the amounts of the first
eight (8) repayments can be decreased by a
maximum of 20 %, provided that the further
repayments shall be increased pro rata for
the amount of deduction and related
interest, over the balance of the term of
the repayment period.
6.4.1.4 Interest
The interest rate of the financing provided
in HUF shall be equal to the weighted
mathematical average of the interest of the
six (6) and twelve (12) months discounted
bills (T Bills) of the previous quarter plus
two point five (2.5) percent. The Contractor
shall not charge any additional fees for
providing the deferred payment.
6.4.1.5 Interest payments
The Owner shall pay interest quarterly on
the last day of the given quarter or the
first business day of the next quarter.
Until the date of the completion of the
construction (December 31, 1997) the charged
interest shall be capitalized quarterly
increasing the amount of the deferred
payment (defined in Clause 1 of this
document) except that the Owner may pay the
due interest at the end of the interest
period (quarters).
Owner shall pay any connection fee paid by
subscribers for the payment of the due
interest.
6.4.1.6 Security of the deferred payment
-the pledge of the Project completed from the
deferred payment;
-the technical separation of the Project;
-a prompt incasso in favour of the Contractor in
the case of failure
to satisfy the payment deadlines;
-the guarantee of HTCC USA for the deferred
payment as set forth in Attachment XI hereof;
-the Owner shall effect all financial
transactions of the Bekescsaba Primary
Region through the bank account to be opened
within 10 banking days at Postabank.
6.5 Advance payment
Parties agree that the Contractor will issue, within 1 banking day form
the date of the delivery of the Postabank confirmation letter contained
in Attachment X of the TURN-KEY CONTRACT to Owner, an advance payment
invoice for an amount of HUF 1,725,637,500 including 25% VAT,
exclusively for the completion of this TURN-KEY CONTRACT. The terms and
conditions of the deferred payment shall be applied for the advance
payment invoice accordingly, and the interest shall start for the net
amount of the invoice form the date of the issuance of the invoice, and
for the amount of VAT, from the 19th of the following month of the
issue of the invoice.
6.6 Payment schedule
Parties agree that the schedule for the issuance of invoices, other
than the advance payment invoice specified in Article 6.5 herein, shall
be contained in Attachment IX Installation and Invoicing Schedule"
hereof.
6.7 The issuance of invoice
Parties agree that the scheduled invoices may be issued if the
preliminary take-over (i.e. settlement or fiber construction segment
completed and tested but cannot carry commercial traffic) according to
the take-over protocol of the scheduled part of the work as defined in
Attachment IX hereof is fulfilled. Placing into operation (i.e. network
connection of subscribers -- save for subscribers who fail to provide
access to Contractor despite Contractor's best efforts -- and of the
transport of commercial traffic) which meets all applicable standards
and technical requirements set out in Attachment II, II and VI hereof
is deemed equal to final take-over. Contractor shall notice Owner on
cases without delay where his access to subscriber premises was not
made possible. The Parties agree that the Contractor is entitled to
issue an invoice for ninety per cent (90%) of the gross amount as set
out in Attachment IX at the Preliminary Take-over of a scheduled part
of the work. The preconditions of the final takeover are obtaining all
necessary government permits and approvals, the operational license
among them. The invoice shall be approved within five (5) business days
in the absence of a justified query. The interest shall accrue from the
date of the approval of the invoice. The Contractor is hereby
authorized to issue an invoice for the remaining ten (10) % within
three (3) banking days following the final take-over of the relevant
portion of the Project. Parties agree, that the portion of work
corresponding to those set out in Attachment IX hereof shall be deemed
transferred into possession of the Owner for commercial operation upon
the issuance of the relevant invoice. The interest shall start for the
net amount of the invoice form the date of the approval of the invoice,
and for the amount of VAT, from the 19th of the following month of the
issue of the invoice.
6.8 Payment delay
In case of late financial performance, the Contractor is entitled to a
monthly 2.5% penalty interest based on the duration of the late payment
pro rated on a daily basis.
6.9 Assignment of the payment
The Contractor shall not assign to a third party any receivables under
this Contract without the prior written approval of the Owner.
Notwithstanding the foregoing any duty of the Owner which a third party
may claim pursuant to an assignment of Contractor must not be more
burdensome for the Owner in any respect and the third party assignee
must expressly acknowledge that the assignment must not affect the
defences, counterclaims, etc. of the Owner against the Contractor, and
the approval of the Owner shall not be interpreted as a waiver of any
claim or right of the Owner against the Contractor and it shall not
change the obligations of the Contractor under the Contract.
If the foregoing conditions are met or if the assignee is Postabank,
Rt., Owner will not unreasonably withhold the approval.
6.10 Connection between Contractor financing and Owner payments
The Contractor acknowledges that it is authorized to issue an invoice
only with deferred payment and the Owner shall not be obliged to
provide any funds for the Project before the due date of the first
instalment except as provided in Clause 6.4.1.5.
6.11 Confirmation of debt
Parties agree, that the acceptance of the invoices by the Owner shall
mean the confirmation of the debt by the Owner, and the payment
obligation under this TURN- KEY CONTRACT, and it undertakes its
repayment by deadline. Parties agree, that the invoices can be
delivered only to the Project Manager of Owner.
7 DEADLINES
7.1 Implemented infrastructure and line connections
The final deadline for the completion of the TURN-KEY CONTRACT shall be
no later then December 31, 1996 for a total of 14,000 lines and for the
balance of 26,000 subscriber lines the final deadline of the completion
of the TURN-KEY CONTRACT by Contractor shall be December 31, 1997.
7.2 System Acceptance Documents
The Contractor shall provide to Owner within sixty (60) days, with the
exception of the digital registration book, (which shall be provided
within six (6) months) of the completion of the Project in accordance
with Article 4.11.2 all documentation and deliverables as provided for
in Article 4.26 and the commissioning license.
7.3 Delay notification
Contractor shall provide at least thirty (30) days advance notification
of the potential failure to meet the deadlines for performances defined
in Article 7. Owner's claims related to Contractor's failure to meet
the deadlines will be determined pursuant to Article 7.4 hereof.
7.4 Liquidated damages
7.4.1 The Owner shall be entitled to claim liquidated damages from
the Contractor if the Contractorfails to meet any of the
relevant deadlines set out in Point 7.1 herein for any
reason. The amount of the liquidated damages shall be the
amount of penalty to be paid to the Ministry of
Transportation, Telecommunication, and Water Management
according to the Concession Contract of the Owner, which
total amount can be deducted from the Contract Price by
Owner. The penalty is to be calculated based on the
aggregate values set out in Attachment I of this TURN-KEY
CONTRACT for the technical units which have been not
delivered or put into operation by the deadlines referred
in Clause 7.1. Further sub-deadlines are not subject to
penalty for delay.
The payment or set off of liquidated damages from any sum due
or becoming due to the Contractor shall not relieve the
Contractor from the obligation to finish the Project.
7.4.2 Parties agree that Clause 7.4.1 shall not be applied for
delays caused by failure of the manufacturers of switching or
RLL technologies to deliver the equipment according to
schedule if delay is caused by circumstances not the
responsibility of the Contractor.
8 CONTRACTOR'S WARRANTIES
8.1 Period of warranty
Upon the technical delivery of the technical projects, the Contractor
will undertake a warranty for twelve (12) months commencing on the
actual date of System Acceptance. In case the Owner wants a replacement
under warranty, the warranty time applicable to that part of the
project automatically starts again.
8.2 Reliability
The Contractor guarantees the quality and accuracy, within the
boundaries determined by the authorized standards, total conformity
with the requirements of the Contract, the required high quality
indexes, as well as the completeness and technical feasibility of the
construction design and all of the documentation made by him. The
Contractor must guarantee that the whole project or any of its parts
has the quality, that is based on the usually expected technical
experience described in the Contract, and, fulfills the requirements of
the established standards of the technology.
8.3 Warranty claim
The written statement of the Owner representative on the same subject
is qualified as a warranty claim. The Contractor must notify the Owner
representative about the expected length and the conditions of the
repair. Regarding this, the Owner representative has a supervision and
approval right.
8.4 Warranty response time constraint
The defects subject to the warranty which occurred during the warranty
period must be eliminated free of charge in accordance with the
response time defined in Attachment VII.
8.5 Type approval
Contractor shall replace any Goods supplied for the Project free
of charge if a competent authority rejects to provide final type
approval or withdraws a relevant type approval previously issued.
This provision shall survive the Warranty Period.
9 INTELLECTUAL PROPERTY
9.1 Contractor's Authorization
Contractor is duly authorized by the owners of the intellectual
property, which is necessary for the implementation of the Project and
the subsequent commercial operation of the newly implemented network by
the Owner, to grant the use of those to Owner and the payment of the
Contract Price is deemed compensation for such use. This provision does
not apply to any MATAV standards referred to in this TURN-KEY CONTRACT
and/or its attachments.
10 TERMINATION
10.1 Termination on default
10.1.1 This Contract may be terminated by either Party in the event
of default by the other Party. In either event the Party
initiating termination is required to give the other party
sixty (60) calendar days advance notice. In the event of
termination for default, the initiating Party agrees that the
default notification will be rescinded if, within eight (8)
calendar days of notification, the defaulting Party corrects,
to the notifying Party's satisfaction, the material basis for
default.
10.1.2 The Contractor may terminate this TURN-KEY CONTRACT for the
cause of the Owner's delay in repayment of financing and the
payment of the interest, if the delay exceeds thirty-five (35)
days provided that Contractor sent a notice ("Payment Notice")
not earlier than the fifth day after the due date of an
invoice which was not fully paid by Owner.
10.2 Legal consequences of Termination
10.2.1 Termination by Owner on default
Owner will compensate Contractor on the
basis of the Unit Price List and of the Line price
for constructed lines, for the work completed but not
delivered by the date of the termination, the values
of the proved stocks, plans purchased, ordered
materials and equipment. The Owner shall pay to
Contractor at the termination the actual drawn down
financing and related interest at the time of the
final payment in full, and 10 % of contractual value
for the work not performed by the relevant deadline.
10.2.2 Termination by Contractor on default
In accordance with the Unit Prices and the
Line Price for the already constructed lines, Owner
will reimburse Contractor for the implemented portion
of the Project, Goods materials, plans, Goods
delivered, Services rendered, and expenses incurred
before the date of Contractor's termination and also
for tasks properly performed after the date of
termination of the Contract and those arising from
obligations relating to the Contract if undertaken
bona fide. From the above amount all sums shall be
deducted which Contractor is obliged to pay to and/or
which Contractor owes Owner including the amounts
previously paid by Owner. Contractor shall be
entitled to claim damages.
11 GOVERNING LAW AND DISPUTE RESOLUTION
11.1 Governing law
This Contract shall be governed by Hungarian law. For issues not
expressly provided for by the Parties hereof the provisions of the
Hungarian Civil Code (Act No. IV of 1959 as amended) shall apply.
11.2 Amicable dispute resolution
If a dispute of any kind whatsoever arises between the Owner and the
Contractor, in connection with, or arising out of this Contract, the
Owner and the Contractor shall, in the first place, seek to resolve the
dispute amicably between them.
11.3 Effect on the Project
Unless the Contract has already been repudiated or terminated, the
Contractor shall, in every case, continue to proceed with the Project
with all due diligence and the Contractor and the Owner shall give
effect forthwith to every decision they take to resolve their dispute.
11.4 Arbitration
11.4.1 Notices of arbitration
If no amicable settlement is possible, then
either the Owner or the Contractor may give notice to
the other party, of intention to commence
arbitration, as hereinafter provided, as to the
matter in dispute. Such notice shall establish the
entitlement of the party giving the same to commence
arbitration. Unless the parties otherwise agree,
arbitration may be commenced on or after the
twentieth calendar day after the day on which notice
of intention to commence arbitration of such dispute
was given, even if no attempt at amicable settlement
thereof has been made.
11.4.2 Arbitration procedure
Any dispute in respect of which amicable settlement
has not been reached shall be finally settled, unless
otherwise specified in the Contract, under Hungarian
law and in accordance with the Rules of Conciliation
and Arbitration of the Hungarian Chamber of Industry
and Trade by one or more arbitrators in Hungary
appointed under such Rules. The place of arbitration
shall be Hungary and the language of the arbitration
shall be English. The said arbitrator(s) shall have
full power to open up, review and revise any
decision, opinion, instruction, determination,
certificate or valuation related to the dispute.
12 MISCELLANEOUS TERMS AND CONDITIONS
12.1 Assignment
This Contract or any of its provisions or any receipt of payment shall
not be assigned by either Party without the prior written consent of
the other except in cases defined in clause 6.10.
12.2 Force Majeure
Neither party shall be considered in default in the performance of its
obligations under this Contract to the extent that the performance of
such obligation is prevented or delayed by any cause, existing or
future, which is beyond the reasonable control of such party.
12.2.1 Notices
Should any Party be affected by Force
Majeure, such Party shall notify the other Party in a
written form within seven (7) days from the
occurrence of the Force Majeure. The notification
shall include details constituting the Force Majeure
as well as the positive evidences which prove that
the case was unavoidable and that it delays the
fulfillment of the contractual obligation of the
Party. In the above notification, the estimated
duration of the Force Majeure shall be included as
well as a statement declaring the inability of the
effected Party to perform the concerned obligation(s)
as long as the case of Force Majeure exists/remains.
12.2.2 Effect on Contract
Should the duration of Force Majeure exceed
the period of five (5) days, Parties shall negotiate
the reasonable modification of the Contract and
equitable compensation for Contractor in respect of
work performed but not tested, if applicable, due to
Force Majeure. If Parties cannot come to an agreement
within the above period, they can submit the dispute
to be resolved pursuant to Article 11 herein.
12.2.3 Limitation
The Contractor is not entitled to rely on
any event otherwise qualifying as Force Majeure if
the scheduled deadline of the Project was due before
such event.
12.3 Data Ownership and Confidentiality
Any information or data, in the form of specifications, drawings,
technical data or other information, not a work product of this
Contract, furnished by the Owner or Contractor to the other party shall
remain the property of the furnishing party. Work product of this
Contract shall become the property of the Owner under the conditions
stipulated herein. All work product and information marked as
Proprietary by either party prior to transfer to the other party shall
be kept confidential by the receiving party and receive the same degree
of care in handling and retention as that party applies to its own
proprietary information. The party receiving such proprietary
information shall not disclose, without the furnishing party's written
permission, such information to any other person or use such
information itself for any purpose other than the performance of this
Contract. The obligations under this paragraph shall survive the
termination of this Contract for a period of five (5) years.
12.4 Severability
If any provision hereof, or the application of any such provision to
any person or circumstance, shall be held invalid or unenforceable by
an arbitration tribunal of competent jurisdiction, then the remainder
of this Contract, or the application of such provision to persons or
circumstances other than those as to which it is held invalid, shall
not be affected thereby and such invalid provisions shall be replaced
by a valid provision (and for this purpose the arbitrator(s) may act as
amiable compositor/s) which most closely gives effect to the intent and
purpose of the parties hereto and the allocation of risks and benefits
reflected in such provision.
12.5 Contract Amendment
Any contract terms can only be amended in written form duly signed by
both Parties.
12.6 Copies
The Contract was prepared in English and Hungarian languages and was
signed in four (4) original copies of which each Party keeps two (2).
12.7 Representatives of the Parties and Notices
12.7.1 Parties agree that in the course of the performance of this
Contract, a declaration, specifically making a confirmation of
the technical performance on behalf of the Owner can be made
exclusively by a representative appointed by Mr. Les Bender,
Mr. James Morrison, or Andrew Nicholson in writing and
exclusively in the English language. Any other declaration
made on behalf of the Owner will have no legal effect.
12.7.2 Parties agree that in the course of the execution of the
Contract, technical questions may be addressed by the Owner
directly to Don McCann, Project Manager of the Bekescsaba
Primary Region; however, this provision does not effect the
provision set out in 12.7.1 related to the legal effect.
12.7.3 Parties agree that in the course of the performance of the
Contract, the following persons can make declarations having
legal effect on behalf of the Contractor:
-In all aspects of the Contract: Zold Gyula,
-In respect of project implementation, technical
content, scheduling and care of the project, etc.
the designated Project Manager shall be Mihaly
Siristye.
12.7.4 The Parties agree that any Change Order can be authorized only
by James Morrison and Gyula Zols or their appointed
representatives.
12.7.5 Any kind of notice that applies, according to the Contract,
either to the Owner or the Contractor, must be mailed or
delivered to their correct addresses determined for this
purpose in this Article.
12.7.6 If either Party changes its address given below, it must
notify in advance the other party in writing.
12.7.7 The addresses below are given by the Parties of the Contract:
Contractor:
Mr. Gyula Zold
FAZIS TAVKOZLESI HALOZATTERVEZO ES KIVITELEZO RT.
(1026 Budapest, Tomorkeny u. 3/A)
Phone: 275-1663
Fax: 275-1994
Owner:
James Morrison
Hungarotel Tavkozlesi Reszvenytarsasag
(1126 Budapest, Kiralyhago u. 2.)
Phone: 212-1100
Fax: 202-4778
12.8 Coming into Force
The Contract comes into force on the date when duly signed by the
authorized representatives of the both Parties with the Attachments
(except for Attachment VI). Owner is authorized to terminate this
TURN-KEY CONTRACT if Contractor fails to provide within 15 bank days
the confirmation letter issued by Postabank according to Clause 1.2. as
Attachment X of this TURN-KEY CONTRACT. In the latter case none of the
Parties shall be obliged to bear or pay to the other Party any legal
consequences, payment obligation, or damages.
Parties have both read this Contract and mutually agreed and understood
its contents.
Budapest, June 28, 1996
43034
EXHIBIT 10.78
AMENDED AND RESTATED CONCESSION CONTRACT
For providing local public telephone services in the
Papa prime area of the Republic of Hungary
This CONCESSION CONTRACT (the "Contract") is made on 6 May 1994 and amended and
restated as of June 3, 1996 by and between the MINISTER for TRANSPORTATION,
TELECOMMUNICATIONS and WATER MANAGEMENT (the "Minister") acting for and on
behalf of the Republic of Hungary and Papa es Tersege Telefon Concession (8500
Papa, Major u. 2.) as LOCAL CONCESSION COMPANY (the "Concession Company" or
"Papatel") upon the terms and conditions herein provided.
PREAMBLE
Pursuant to Act No. LXXII of 1992 on Telecommunication (the "Telecommunications
Act"), Act No. XVI of 1991 on Concessions ("the Concessions Act") and Act No.
LXII of 1993 (the "Frequency Management Act") the Minister was authorized to
enter into concession contracts.
The Concession Company was established pursuant to Act No. VI of 1988 as a joint
stock company, in which the Hungarian ownership is in excess of 25% + 1 of the
shares.
The winner of the concession tender issued by the Minister for the Papa prime
area was Papa and its Region Telephone Company Limited (8500 Papa, Major u. 2.).
Having won the Tender Papa and its Region Telephone Company Limited has obtained
the right to provide local public telephone services in the Papa prime area.
This fact has been set out by the "Agreement" between the Minister and the
Winner of the Tender dated February 8, 1994 (attached hereto as Schedule "A").
All rights and obligations set out by the "Agreement" have been undertaken by
the Concession Company.
Following the execution hereof the Concession Company shall be entitled to
provide local public telephone services in the Papa prime area upon the terms
and conditions herein determined.
<PAGE>
- 1 -
CHAPTER 1.
Interpretation
Words and phrases used herein shall have the following meaning:
"Basic Technical Plans" means all the plans described by Decree No.
23/1993. (IX.9.) of the Minister for Transportation, Telecommunications and
Water Management and in other rules connected therewith;
"Business regulations" means the publicly available regulations of the
Concession Company, which are provided to the customers before entering into the
Subscriber's Contract, and which contain the general terms and conditions of the
proceedings and the contractual procedure of the Concession Company in addition
to conditions provided by legislation but not contradictory thereto;
"Completion Date" means the day of commencing local public telephone
services, i.e., January 1, 1996;
"Decree on charges" means the Decree No. 30/1993. (IX.23.) of the Minister
for Transportation, Telecommunications and Water Management on the fees and
charges payable for public telephone services;
"Effective date" means 6 May 1994 when rights and obligations under this
Contract come into force;
"Financial year" shall correspond to the calendar year. The first financial
year of the Concession Company shall commence on 1 January 1995;
"Gross returns (income)" means the pre-tax profit (excluding VAT) after
distribution of fees (settlement of the connection charges, subject to traffic)
of the Concession Company, originating from the telephone service in the Papa
prime area, which is subject to the concession;
"Hired line" means the total of electric circuit sections connecting domestic,
or international and domestic service access points (telecommunication
apparatus), which only includes transmission paths, access points (interface)
and the monitoring access points and which establishes connection without
directing signals (see Telecommunications Act, Schedule, point 3);
"Hired line service" means the telecommunications service through which the
operator passes on to another person the electric circuit sections connecting
service access points for the purpose of telecommunications activity in return
for a fee (see Telecommunications Act, Schedule, point 4);
"Local Concession" means the concession granted by the Minister, pursuant to the
provisions of which local public telephone services can be carried on in the
Papa prime area of the Republic of Hungary for a period of twenty-five (25)
years in such a manner, that for the first eight (8) years of such period the
Minister shall grant an exclusive service right to the supplier (Section 4,
sub-section 3 and Section 39, sub-section 2 of the Telecommunications Act);
"Main line" means all lines in the public telecommunications network, including
lines established via radio, cable and fibre optics, which connect service
access points to subscribers' terminals or to local switchboards (centres)
generating profit thereby for the supplier. (For the purposes hereof "Main line"
shall not include the service and other, non-profitable lines.) Lines used at
the public telephone stations are considered as main lines;
"Minister" means the Minister appointed in accordance with the constitutional
order of the Republic of Hungary having been authorized by Act No. LXXII or an
amendment thereof or an amendment replacing it, to publish the Concession
Tender, to grant the Concessions and to exercise rights connected therewith;
"Ministry" or "KHVM" means the Ministry of Transportation,
Telecommunications and Water Management;
"Network connection decree" means the Government Decree No. 158/1993. (XI.11.)
on the connection of telecommunication networks, on the approval of co-operation
of such networks and on the network agreements; "Prime area" means part of the
public telecommunications network within which the use of the basic network is
not necessary for the service provided in the framework of the subscriber's
contract for establishing connection between two service access points (see
Telecommunications Act, Schedule, point 16.);
"Public Telecommunications Network" means the entirety of service access points,
transmission paths and switching devices performing the connection of such
networks, making it possible for anyone, under the same conditions, wishing to
use it, to make a sound connection, or to make any other information
transmission with identical characteristics through a terminal equipment
connected to a service access point, with the user of a terminal equipment
connected to another service access point (see Telecommunications Act, Schedule,
point 8.);
"Public Telephone Service" means that the provider of service ensures, in return
for a fee, the transmission of human speech for the users through a public
telecommunication network. In the framework of a public telephone service, the
provider of the service may provide local, domestic and international telephone
service:
a) local telephone service is a telecommunications service subject to a
concession contract, in which the provider of service enters into a
subscriber's contract with the user, for the local network or the
primary area. The concession company entitled to provide local
telephone service must enter - reasonably - into a network contract
for the services specified in paragraphs b) and c) as well;
b) domestic long-distance telephone service is a telecommunications
service subject to a concession contract, in which the provider of
service, in accordance with the network contract entered into with the
user, reaches an agreement on the connection or attachment to the
basic network;
c) international telephone service is a telecommunications service
subject to a concession contract, in which the provider ensures
connection to an international service access point;
"Telecommunications Fund" means the state fund described in Section 36 of the
Telecommunications Act, which is operated pursuant to Act XXI. of 1995 on the
Telecommunication Fund and any government subsidy source which may substitute
the forgoing;
"Telecommunications service" means a business activity whereby the supplier
carries on additional public telephone service (subject to concession) or other
additional telecommunications service falling within the scope of competition
for another person in return for a fee, or transfers its network to another
person for this purpose (see Telecommunications Act, Schedule, point 25.);
"Telecommunications Chief Inspectorate or "HFF" means the
Telecommunications Chief Inspectorate (or, as the text may indicate, the
regional bodies thereof) the duties and competence of which are regulated
by Government Decree No. 142/1993. (X.13.);
"Telecommunications supplier" means a legal entity, or an economic association
without legal personality or a private entrepreneur which/who is entitled to
provide telecommunications services for anybody (another supplier, user or
subscriber),(see Telecommunications Act, Schedule, point 26.);
"Term of exclusivity" means the time period provided by 5.01 hereof (including
the possibility of its adjustment as set out in 15.05 hereof), during which the
Concession Company shall enjoy an exclusive right to provide local public
telephone services in the given prime area;
"Unified subscriber's registration" means the alphabetical list of legal
entities and private individuals in the given prime area having entered into
subscriber's contracts with the Concession Company, a list which - subject to
the customer's approval - may contain the telephone number, the address, the
profession (scope of activities) of the customer, the publication thereof must
not infringe the customer's personal rights, and such list provides for access
to other customers' similar details. In all other matters the Company shall
comply with the relevant provisions of any future legislation.
Words and phrases not defined herein shall be governed by the
Telecommunications Act and the relevant legal rules. CHAPTER 2.
The General purpose of this Contract
The general purpose hereof is to entitle the Concession Company to (i) provide
public telephone services falling under the Local Concession and (ii) to provide
additional services in connection therewith in accordance with the provisions of
the Telecommunications Act and the rules of execution thereof. The Concession
Company shall comply with the provisions herein provided.
CHAPTER 3.
The Local Concession
3.01 The scope of the Local Concession
In accordance with this Contract, the Concession Company is entitled to
provide telecommunications services falling under Local Concession in
the Papa prime area. Such services shall be further detailed in
sections 3.05 and 3.06 below.
3.02 Uninterrupted service
The Concession Company shall provide local public telephone services in
the Papa prime area under at least the same conditions as at the time
of commencing the service.
3.03 The term of the Local Concession
The term of the Local Concession shall be twenty-five (25) years,
expiring at 12.00 pm on 1 May 2019.
3.04 Extension of the term of the Local Concession
The Minister may, without further tendering, extend the term of the
Local Concession and the term hereof by an additional twelve and a half
(12,5) years, provided the Concession Company submits a written
proposal for such extension not later than eighteen (18) months before
the expiry of the initial term. Prior to coming to a decision on such
extension, the Minister shall require that professional and customers'
interest protection bodies, as well as the relevant local
municipalities, submit their proposals in accordance with Section 4,
sub-section 5 of the Telecommunications Act. The Minister shall come to
a decision on the extension not later than nine (9) months before
expiry of the initial term of the Local Concession. Such decision of
the Minister shall not be subject to the settlement procedure provided
for by section 18.02 hereof.
In its proposal, the Concession Company shall undertake the payment of
a further concession fee announced by the Minister in advance, in
relation to the extension of the term of the Local Concession.
When determining the concession fee for the extended term, the Minister
shall consider:
- the changes that having taken place;
- the rate of inflation;
- the amount of the initial concession fee; and
- whether the Concession Company has applied to the
Telecommunications Fund for financial support, and if so,
whether it has actually been granted any support.
When granting new concessions following termination of the Concession
Contract, the Concession Company shall enjoy preferential treatment,
provided the other bidders offer equal conditions.
3.05 Additional services not relating to the concession
Pursuant to the provisions of the Telecommunications Act and subject to
the approval of the Minister under Section 5 sub-section 4 and section
20 sub-section 1 thereof, the Concession Company shall be entitled to
carry on the following non concession-related activities:
a) other telecommunications services;
b) marketing, sale, maintenance and repair of products for
telecommunications and information technology;
c) computer application services;
d) assessment and safety services;
e) general technical development activities;
f) telecommunications research and experimental development;
g) arranging investments and building maintenance, management
and main contracting; and
h) telecommunications training courses and other educational
activities.
3.06 Pursuant to section 3.05/a above, the Concession Company hereby
declares that, in accordance with and based on Section 3, sub-section 2
of the Telecommunications Act, it intends to carry on the following non
concession-related, other telecommunications activities:
- SZJ 09521 Telegraph and data transmitting
- SZJ 095211 Forwarding telegraphs
- SZJ 095212 Forwarding telexes
- SZJ 095213 Data transmission
- SZJ 095214 Telecopying (Telefaxes)
- SZJ 09522 Telephone services
- SZJ 095221 Managing telephone communications
- SZJ 095222 Sub-operator services
- SZJ 095223 Special purpose telephone services
- SZJ 095224 Mobile telecommunications services (other than
national public mobile radio telephone services).
According to Section 20, sub-section 1 of the Telecommunications Act,
the Concession Company may commence the above listed activities from
the day of execution hereof. (The Concession Company shall obtain
further licenses as required by Section 19, sub-section 4 of the
Telecommunications Act.) The terms of such licenses shall be determined
therein and the withdrawal or cancellation of such licenses shall not -
necessarily - be subject to the existence of the concession rights.
Should the Concession Company intend to provide program distribution
via a cable television network, it shall obtain all the necessary
licenses (operational and technical) accordingly. The technical
provisions of the activities shall be contained by Schedule "E" hereof.
The Minister has authorized HFF to supervise the compliance with the
terms and conditions of all licenses.
CHAPTER 4.
The Concession fee
4.01 The Concession fee
The Concession fee shall comprise:
(a) The one time concession fee shall be the sum of HUF
123,750,000, which sum has been paid by the Concession Company
on November 8, 1995.
(b) A concession fee payable annually; the basis of
calculation of which shall be the gross income of a given year
of the Papa prime area realized by the Concession Company. The
Concession Company shall annually pay 2.3% of its gross annual
income.
The annual concession fee shall be paid by the Concession Company on
the basis of the "Declaration" taken thereby and in the manner
described in section 2.02 of the Concession Agreement (Schedule "A"
hereto).
CHAPTER 5.
Exclusive right to provide local public telephone services
5.01 The extent and term of the Concession Company's exclusive right to
supply
Pursuant to the provisions hereof the Concession Company shall be
granted an exclusive right to carry on providing local public telephone
services falling under the Local Concession for eight (8) years from
the Completion Date, but not later than 12.00 pm on 1 November 2002.
5.02 Shortening the term of exclusivity
The Minister may shorten the term of the exclusivity of the Local
Concession only pursuant to section 15.05 hereof.
CHAPTER 6.
Obligations of the Concession Company originating
in its concessions right to provide local telephone services
6.01 Rules of public telephone services
The Concession Company shall provide public telephone services in
accordance herewith, and in accordance with the provisions of the
Telecommunications Act and the decrees of execution thereof. Unless
there is a legislation to the contrary, the Concession Company shall
provide for equal treatment to customers in equal positions, it shall
not discriminate either for or against anybody in relation to the
conditions and the fees for providing public telephone services.
6.02 Requirements of annual development
The Concession Company shall comply with the annual service development
requirements set out in Schedule "C" hereto, provided there is
satisfactory solvent customers' demand for new lines. Should the
Concession Company fail to comply with the development requirements in
any calendar year despite the existence of solvent customers' demand,
the Concession Company shall pay a penalty payment in the manner set
out in Schedule "D" hereto, to the Telecommunications Fund. The basis
of the development requirements shall be the coverage (4.8/100 persons)
existing on 31 December 1993 according to Schedule "B" hereto. If the
coverage of the given prime area is less than the national coverage
(being 14.57 lines for 100 persons on 31 December 1993), the Concession
Company shall achieve by 31 December 1997 the national coverage and the
annual development of 15.5% based on the national coverage (provided
there is a solvent demand for such development) and the data included
in Annex "C" shall be amended according to these rules. Following 31
December 1997 the Concession Company shall maintain the normal annual
development requirements (being an annual 15,5%), provided there is
solvent demand. Should the coverage of the given prime area be in
excess of the national coverage, the development obligation of the
Concession Company shall be an annual 15,5% in the first 6 years set
out in the Tender Documentation, provided there is solvent demand in
connection therewith.
6.03 Fulfillment of customers' demand
In addition to achieving the development requirements set out in
section 6.2 above, the Concession Company shall, in prime areas covered
by the Local Concession, fulfil 90% of the total customers' demand
within 6 months from the application therefore after 30 June 1998 and
an additional 8% of the total customers' demand within 12 months from
the application.
For the purposes of calculation of the percentage contained herein, if
a customer enters into a preliminary Subscriber's Contract with the
Concession Company, it shall be deemed to be a customers' demand.
The Concession Company shall provide for the latest technology covering
its whole service area.
6.04 Provisions for prohibited activities
The Concession Company shall not be obliged to provide any services if
it can be proven that such provision would contradict or infringe the
provisions of the Telecommunications Act, the decrees for the execution
thereof or any authorizations or licenses necessary for providing any
telecommunications services.
6.05 Temporary suspension of the service
The public telephone service (save for the events of force majeure) may
only be temporarily suspended with the prior written consent of the
Minister and the prior written notification to the customers in due
course; such suspension shall not include the term of any, otherwise
non-recoverable, technical problems or maintenance; the length of such
technical problems or maintenance which shall not exceed 72 hours. The
service may, temporarily be suspended or restricted in a manner
specified in laws, for the purposes of protection of national defence,
economic and public safety (including anti-terrorism and
drug-trafficking) of the Republic of Hungary.
6.06 Co-operation in the state of national emergency
The Concession Company shall, in accordance with the laws, participate
in the preparation and implementation of the action plan governing the
procedure for national emergencies under the instructions of the
Minister and other relevant ministers, and it shall co-operate with
other telecommunications suppliers and network operators. In the event
of a national emergency, or war, and in the interest of protecting
public safety, the Concession Company shall act in accordance with the
laws and under the instructions of the Minister and the Government.
Should the Concession Company suffer significant damage or loss as a
consequence of such action, it may, within one (1) year of suffering
such damage or loss, request indemnification in writing from the
Minister. The Minister shall reasonably appraise the indemnification
application of the Concession Company within 30 days.
Enforcement of interests of national defence and national safety
a) The Concession Company shall provide for the protection of
interests of national defence, national safety and the
Government in its service area in accordance with the relevant
laws, Government and ministerial decrees via closed circuit
networks and by enabling the telecommunications to be used for
the purposes of national defence. The duties of the Concession
Company relating thereto shall be set out in its Business
Regulations.
b) The Concession Company's participation in the preparation of
certain duties of national defence shall be governed by the
Act on National Defence and by contracts entered into by the
Concession Company with the Minister and other relevant
authorities respectively.
c) The Concession Company may only change the ownership structure
and interconnection services of the closed circuit networks
operating in its service area with the consent of the owner of
the network.
d) The Concession Company shall comply with the laws governing
national defence and safety when carrying on its registration
and data processing duties.
e) The Concession Company agrees that it shall provide the
technical conditions for competent authorities to control,
within the framework of relevant laws (as from time to time in
force), the sound or other communications of certain
customers. The possibility of control shall cover the whole
service area determined hereby, it shall also cover each
subscriber category and each type of service provided by the
Concession Company. Detailed regulation of such control shall
be governed by an agreement.
f) The Concession Company agrees that it shall carry on certain
part of its activities in accordance with a separate
ministerial decree regulating the operation of closed circuit
networks, normally on a contractual basis.
g) For services provided in accordance with the laws regulating
the protection of international and national defence
interests, the Concession Company may apply for reimbursement
of the actual costs of such activities from the Minister; such
application shall be decided upon within 30 days.
6.07 The Subscriber's Contract and connection of the terminal equipment
Pursuant to provisions of Government decrees and the Business
Regulations of the Concession Company as approved by HFF, the
Concession Company shall enter into individual Subscriber's Contracts,
on the basis of which it shall provide the subscribers with access
points suitable for connection to the public telephone network. In the
circumstances set out by the Telecommunications Act and the decrees for
the execution thereof, the Concession Company may refuse to enter into
or may terminate the Subscriber's Contract. The Concession Company
shall enable customers to connect their terminal equipment (the type of
which is subject to HFF's approval) to the access points of the public
telephone network.
6.08 Service quality requirements
The Concession Company shall fulfil the minimal quality requirements as
set out by Schedule "H" hereto according to the action plan. If, due to
certain events which could not have been envisaged or avoided by the
Concession Company, it fails to fulfil its contractual quality
obligations, the Concession Company shall follow the procedure set out
by Schedule "D" hereto.
6.09 Co-operation with other telecommunications suppliers
In order that the public telephone network operates effectively and in
order to ensure connectability to other networks and services, the
Concession Company shall co-operate with the National Concession
Company upon conditions provided by law and shall, following the expiry
of the exclusivity period, co-operate with other telecommunications
suppliers, provided they are not connected via the network of the
National Concession Company. Such co-operation shall be governed by
Sections 16 to 18 of the Telecommunications Act and by the provisions
of Government Decree No. 158/1993. (XI.11.) on the connection of
telecommunications networks and on the licensing of the co-operation
thereof.
6.10 General requirements of customers' supply
a) General requirements
Pursuant to the provisions of the laws, the Basic Technical
Plans and the Business Regulations, the Concession Company
shall establish and operate an effective customers' enquiries
service enabling customers, users and subscribers to enquire
in relation to application, instalment, services, billing,
telephone registers, complains and other similar matters. The
Concession Company shall not, unlawfully or unreasonably
differentiate for or against any group of subscribers or users
in connection with the customers' enquiries activity.
The Concession Company shall connect via an interface
(Telecommunications Act, Sections 16 to 18) to:
- the National Operation Supporting System ("OSS");
- the supervision of networks;
- the National System Supporting Centre ("NRK")
- the National Enquiries; and
- the telephone card coding and distribution system.
During preparation of its technical development plans, the Concession
Company shall only apply standards approved in Europe or in Hungary.
b) Minimum requirements
During the term of exclusivity determined in Chapter
5 hereof, in the prime areas covered by the Local Concession,
the Concession Company shall fulfil the following minimum
requirements:
(i) To ensure the availability of local help-lines -
with one and the same connection number as elsewhere
in the country - from all subscribers' and public
telephone stations, free of charge. This service
shall be established within eight months of the
Completion Date, but at the latest by 1 September
1996.
(ii) To issue a printed telephone directory in the
prime area covered by the Local Concession,
containing the name of each subscriber in the area,
save those expressly requesting not to be listed. In
its standard form the directory shall contain at
least the name, address, connection number of each
subscriber of the area; furthermore the dialling code
of the countries and the regions. The directories of
the Concession Company may also contain
advertisements. The Concession Company shall not
charge subscribers for publishing their details in
the standard form directory. A reasonable price for
the telephone directory may be charged to
subscribers. In order to set up a unified system of
customers' details registration, the Concession
Company shall co-operate with the National and other
Local Concession Companies. In addition to a unified
registration of customers in its own prime area, the
Concession Company may issue its own telephone
directory.
(iii) To set up an enquiries service whereby
information can be obtained on the telephone numbers
of subscribers of the area. The Concession Company
may charge a reasonable fee for the enquiries service
subject to the Minister's approval.
(iv) To set up other - domestic or
international - enquiries service for the operators
of other telecommunications networks for a reasonable
fee, in accordance with relevant legislation.
6.11 Public telephone stations
The Concession Company undertakes:
- to instal one public telephone station for each 250 people
in a manner, that it shall instal at least one public
telephone station in each of the villages of the prime area;
- to instal 50% of the public telephone stations in a way that
it is suitable for hearing-impaired persons;
- to provide for text service for hearing-impaired people;
- to instal 2% of the public telephone stations in a manner that
is suitable for disabled people; and
- that not less than 1 out of 4 installed public telephone stations
shall operate with phonecards.
6.12 Confidentiality of information on subscribers
The Concession Company shall prepare a procedure for effective
protection of maintaining both the business secrets obtained during its
activity, and the personal data of subscribers and it shall comply with
such procedure in relation to any information obtained. As to data
protection and maintaining information, the Concession Company shall
act in accordance with Section 24, sub-section 5 of the
Telecommunications Act.
6.13 Requirements of registration and providing information
The Concession Company shall (i) maintain a registration suitable for
controlling compliance herewith, with the Telecommunications Act and
other laws; (ii) be prepared for reasonable investigations; and (iii)
provide information in accordance with the Minister's instructions on
such activities. Unless the Minister otherwise requires within the
framework of legislation, data provided by the Concession Company save
for confidential information, (eg. relating to the business or to the
ownership structure and commercial information), should be publicly
available.
6.14 Accounting requirements
Following the execution of the first amendment, but no later than 31
December 1996, the Concession Company shall, in accordance with the
Hungarian accounting principles, prepare and submit to the Minister its
accounting principles for accounting for the investments, costs and
revenues. The accounting principles shall be prepared in such a way
that details of investments, costs and revenues of the public telephone
service and other activities of the Concession Company, i.e., product
manufacturing, marketing and the trade of equipment can be registered
separately. The Minister shall issue its opinion on the proposed
accounting principles within three (3) months of submission. Should the
Minister refuse to accept the submitted proposal, it may require the
Concession Company to submit an acceptable proposal for its accounting
principles within twelve (12) months from the effective date of the
first amendment to the Concession Contract, at the latest. However, the
one (1) year deadline provided for herein shall not mean deviation from
the deadlines provided for by the Accounting Act; the provisions herein
contained shall be complied with in addition to those of the Accounting
Act.
6.15 Obligation to enter into an agreement for handing over existing
networks of assets
By December 31, 1995 the Concession Company shall enter into an
agreement with the National Concession Company (predecessor of which
was: MATAV) on handing over the material tangible and intangible assets
(hereinafter: "the local assets") necessary for providing local public
telephone services in a given prime area. Upon handing over (putting
into use, proprietorship or ownership) - declared by the Minister as
being a generally applicable principle - the local assets, neither
party shall realize any profit. The parties shall, upon handing over
the local assets, determine the prices and/or values thereof
reasonably. The Concession Company shall deem the value published in
the Tender to be the basis for evaluation. It is the Concession Company
that shall decide as to what assets it finds necessary from the offered
assets for providing public telephone services. The agreement entered
between the Parties shall contain a provision according to which the
Concession Company shall offer employment for (appr.) 62 persons
previously employed in the Papa prime area by the National Concession
Company. If the Concession Company and the National Concession Company
fail to achieve an agreement within three (3) months of the Effective
Date hereof in relation to the value of the local assets and the
employees to be transferred, the Concession Company shall submit to the
decision of an independent appraisal expert company. Unless the parties
agree on the appraiser within two (2) weeks, the appraisal shall be
appointed by the Minister. The opinion of the appraiser - provided
within 10 weeks - on the price of handing over the local assets or on
the value thereof shall be accepted to be binding by the Concession
Company. The Minister undertakes that the concession contract entered
with the National Concession Company duly contains the provisions
regulating the procedure by the appraisal including, unless there is an
agreement between the parties, a provision that the National Concession
Company shall accept the appraisal's opinion as binding.
6.16 Business regulations
The Concession Company shall prepare and submit to HFF for approval its
Business Regulations not later than 60 days prior to commencing the
service at the latest.
6.17 If, on the basis of proper authorizations and approved plans there was
an investment made or started on the establishment of a public local
telephone network in the given prime area, the Concession Company under
an agreement to be made pursuant to point 6.15 above - shall take over
each and every cost, prepayment of credits and interest, provided the
agreement requires it to do so.
CHAPTER 7.
Interconnection
7.01 Cost of the connection interface and instalment of equipment relating
thereto
In this respect the provisions of Government Decree No. 158/1993.
(XI.11.) on the connection of telecommunications networks, the
licensing of co-operation thereof and on the network contracts shall
apply.
7.02 Information obligation relating the technical details of the network
The Concession Company shall provide technical information to HFF on
its public telephone network relevant for the purposes of
interconnection, in accordance with legal requirements.
7.03 The Concession Company's right to connect to the networks of other
public telecommunications suppliers
During the (8 year) term of the Concession Company's exclusive service
right, it may only use the basic telecommunications network of the
National Concession Company in order to connect to other prime areas.
7.04 Requirement of unification of telephone-centres
The Concession Company shall submit to the Minister its reasonable and
feasible action plan for the necessary development of the already
existing telephone switchboards (centres) and it shall ensure that such
development be suitable for the settlement between suppliers of public
telephone services. The Minister shall, towards all other suppliers of
public telephone services - including, following the expiry of the
exclusive supply, any other suppliers having been granted a concession
- achieve the minimum requirement of the concession companies of using
switchboards suitable for accounting settlement of suppliers
immediately in the case of a newly obtained switchboard, and within
eighteen (18) months from the Completion Date hereof in the case of the
already existing switchboards (centres). If the data necessary for the
precise determination of income-distribution as required by the Decree
on Prices is not available, the Concession Company shall agree to such
data being determined by way of reasonable estimation. The Minister
declared in the Concession Contract concluded with the National
Concession Company that in respect of the revenue sharing it obliges
the National Concession Company to the same procedure and to the
conclusion of an agreement, based on this procedure. The Concession
Company agrees that, during the eight (8) year term of exclusivity, it
may connect to other suppliers only through the network of the National
Concession Company.
In addition to the obligations contained by section 6.2 hereof, the
Concession Company shall prepare a 3 year development plan for
switchboards; such plan shall be forwarded to the Minister by 31 July
1996. From then on the Concession Company shall submit an annual
development plan in this respect.
7.05 Provision of a suitable basic network
The Concession Company shall be provided with a suitable basic network
pursuant to relevant legislation, i.e., Government Decree No. 158/1993.
(XI. 11.) and Sections 7 and 16 to 18 of Act No. LXXII of 1992.
CHAPTER 8.
Special provisions
8.01 The prohibition of abusing the monopoly position
The Concession Company shall not use its position obtained in the Papa
prime area for providing public telephone services to achieve unfair
advantages in the market for telecommunications, the non
telecommunications-related market and on product-marketing.
Anti-competitive pricing (eg. dumping prices) is prohibited.
8.02 The prohibition of cross-financing
The Concession Company shall not use income generated by its public
telephone services to support its non concession-related activities,
nor its computing technology and product marketing activities.
The prohibition of cross-financing, however, shall not apply if the
same bidder is granted the concession in more prime areas for which it
establishes one Concession Company. In this case and in relation to
public telephone services the Concession Company may use income
generated by public telephone services in one prime area to finance the
public telephone service of the other area. This point 8.2 shall not
prevent the Concession Company from using its after- tax profit from
public telephone services to improve its non concession-related
telecommunications services.
8.03 The obligation of equal treatment
The Concession Company shall not discriminate between, and cannot
provide unfair advantages for, any authorized operator of networks,
telecommunications suppliers or subscribers, including companies in its
partial ownership or in which it has any other interest.
8.04 Prohibition of tying arrangements upon trading the terminal equipment
The Concession Company may only sell terminal equipment to its
subscribers if (a) it does not tie the purchase or lease of the
terminal equipment with the provision of public telephone services and
(b) the price of such equipment is not included in the charge for any
public telephone services.
8.05 Implementation of anti-monopoly rules for other concession companies
The Minister undertakes that it shall impose anti-monopoly rules
identical to those contained herein to all other suppliers providing
public local telephone services under a concession.
8.06 The requirement of equal conditions
Following the expiry of the term of exclusivity, the Concession Company
shall not discriminate between nor shall it provide unfair advantages
for any other authorized network operator, telecommunications supplier
or subscriber, including companies in which the Concession Company has
a participation or other interest.
8.07 The Concession Company shall consider that in its area there might be
existing closed circuit networks or parts thereof. The duties in
relation therewith shall be subject to agreement with the owners of
such networks.
CHAPTER 9.
Rights and obligations of the Minister
9.01 Exclusive right to supply
During the term set out in Chapter 5 hereof (and save for those
described in section 15.5) the Minister shall not, without the consent
of the Concession Company, grant a concession-related services right in
respect of the area and the services covered by the Local Concession.
9.02 Fair and impartial treatment
The Minister undertakes that it shall provide a treatment towards the
Concession Company as fair and equal as towards other
telecommunications suppliers and network operators; furthermore, should
the need arise, the Minister shall make the concession contracts
entered with the National Concession Company and/or other suppliers of
telecommunication services available to the Concession Company. The
Concession Company shall submit to these provisions should the need
arise.
9.03 Requirement of procedures to be clear and easily understood
The Minister undertakes that, in its legislative and administrative
procedures in relation to the rights, obligations and activities of the
Concession Company hereunder, as well as in the procedures in
connection herewith and in the procedures of KHVM and HFF, the
principle that procedures be clear and easily understood shall apply
and that all such procedures shall be fair and impartial.
9.04 Granting authorizations/licenses
The Minister undertakes that, it shall support the Concession Company
in order that it be given all licenses, consents and authorizations
necessary for the fulfillment of its obligations hereunder within the
shortest possible period of time.
9.05 Significant amendment of decrees regulating the concession-related
activities
The Minister endeavors not to amend the provisions (having a
significant impact for the activity of the Concession Company) of the
Decree on Prices, the Decree on connecting networks and other
telecommunications decrees within eight (8) years from the Effective
Date hereof in a manner that they would cause a significantly adverse
change in the position of the Concession Company. Such decrees shall
not impose disproportional obligations on the supplier and the proposed
amendments shall be made available to the supplier by the Minister in
due course. The time period prior to a proposed amendment coming into
force shall be long enough for the supplier to make the preparatory
arrangements in time.
CHAPTER 10.
Approval of fees
The provisions of the Decree No. 30/1993. (XI. 23.) of the Minister for
Transportation, Telecommunications and Water Management shall be governing in
this respect.
The Concession Company shall publish charges not determined by legislation
in its Business Regulations.
CHAPTER 11.
Use of radio frequencies
The frequencies and frequency zones necessary for the public telephone services
to be provided by the Concession Company shall be provided by HFF pursuant to
the provisions of Act No. LXII of 1993 on Frequency Management.
CHAPTER 12.
Authorizations and licenses
The Concession Company shall obtain the licenses necessary for its operation
(i.e., radio-license, construction-license, equipment-license etc.) in
accordance with the Telecommunications Act and other relevant laws.
CHAPTER 13.
The use of Hungarian products and services
13.01 Requirements in respect of Hungarian products and services
The Concession Company shall, for the purpose of providing public
telephone services, use products and services of Hungarian origin when
such Hungarian products and services are relatively equal available as
non-Hungarian products and services in regard to quality, technical
capability, price and delivery The Concession Company undertakes that
from the date of the first amendment to the Concession Contract, not
less than 25% of the total value of products purchased and services
provided for the purposes of the public telephone service, and
following 1 January 1998, not less than 50% of the products and
services shall be fulfilled with products and services of Hungarian
origin, if such products and services of Hungarian origin have at least
the same technical capability and price, as those of non-Hungarian
origin.
A product shall be deemed to be of Hungarian origin if (i) either 25%
of the total value thereof was produced in Hungary or (ii) proof can be
given that due to the manufacturing process having been carried out in
Hungary, the added value of such product increased by 25%; inspection
by HFF on behalf of the Minister to ensure compliance with such
provision may be carried out at any time.
The Minister undertakes that it shall impose the obligations contained
herein in relation to the use of Hungarian products and services on all
other suppliers of public telephone services.
The Parties agree that they will apply the provisions of the Act No XL
of 1995 on Public Procurements only in case of utilizing/recording
state subsidies in accordance with the basic principles of the above
mentioned Act on using budget sources.
13.02 Obligation of penalty payment
The Concession Company shall, by 31 March of each calendar year,
prepare a report on the previous calendar year providing detailed
information on the compliance with the obligations under 13.1 hereof in
the given calendar year by the Concession Company. Should the
Concession Company, fail to comply with its obligations under 13.1
hereof in any calendar year, it shall pay a penalty payment to the
Telecommunications Fund equal to 0,1% of its annual investments of the
given year for each percentage point by which it failed to fulfil its
obligation.
CHAPTER 14.
The prohibition on transfer of the concession right and change
in the ownership structure
14.01 The prohibition of transfer of the concession right
Without the prior written consent of the Minister, the Concession
Company shall not assign and transfer its concession right to provide
local public telephone services, nor shall it establish any mortgage on
the same or allow any other encumbrances to be established thereon and
it shall not contribute it into any other company's assets.
14.02 Restrictions of the transfer of and the encumbrances on the assets of
the Concession Company When transferring any of its assets or
permitting encumbrances thereon, or by any other contractual
obligations, the Concession Company shall not put itself in a position
whereby it becomes unable to fulfil its obligations under the Local
Concession.
14.03 Change in the ownership structure of the Concession Company
Pursuant to the provisions hereof, the substantial shareholders of the
Concession Company at the time of the execution of the first amendment
to the Concession Contract or the control over such shareholding shall
not be changed by transferring shares without the prior written consent
of the Minister.
The change in the ownership structure shall be deemed to have been
significant if it concerns more than 10% of the shares of the
Concession Company; such restrictions shall also apply if the transfers
of shares following one another reaches the extent of 10%. The Minister
may only refuse to consent to the change in the ownership structure
(i.e., transfer of shares) if it has concluded that as a result of such
change, the Concession Company will become unable to fulfil its
obligations under the Local Concession either financially, legally or
professionally.
The Parties hereto hereby note that the Winner of the Tender has
complied with the above provisions in the Deed of Foundation of the
Concession Company being a party hereto.
The restrictions herein contained shall not apply if the shares of the
Concession Company are transferred into a creditor's ownership as
security for a credit (loan) agreement provided by a lender (bank,
financial institution) for financing a project or a bond issue arranged
by a bank (financial institution). Following such transactions the
restrictions herein contained shall be binding upon the new owners
(lender, creditor). Should the Concession Company obtain a credit in
the above manner, it shall report it to the Minister within five (5)
working days.
The above restrictions shall also apply if the total value of
individual transfers is in excess of the above limit. If at least 15%
of the shares of the Concession Company have been transferred, the
Minister may execute an amendment hereof. The restrictions shall also
apply if the total value of individual transfers is in excess of 15%.
14.04 Control of the Hungarian participation
The Concession Company shall continuously control whether its ownership
structure is in compliance with the provisions of the Tender. Should
the Concession Company become aware of any change in the ownership, it
shall notify the Ministry. On the basis of an authorization by the
Minister, HFF shall, at all times, be entitled to inspect the ownership
structure. Should either the Concession Company or the
Telecommunication Chief Inspectorate become aware of a change in the
ownership as a result of which the Concession Company will no longer
comply with the conditions of Hungarian ownership provided in Clause
14.05 of the Concession Contract, the Minister shall, with a 3 month
deadline period, demand that the Concession Company restore its
ownership structure as set out in Clause 14.05. If the Concession
Company is late with such notice, the period of such delay shall be
included in the 3 month period by the Minister. Non-compliance with the
Minister's demand within the deadline provided shall give grounds to
the Minister for termination of the Contract. (The tender documentation
shall be an integral part hereof.)
14.05 Without any prior consent of the Minister the shareholdings owned by
the Hungarian shareholders of the Company may be as follows:
a) for the three month period from taking over the service,
0%, which means that during this period of time the foreign
shareholding can be 100%;
b) for a seven year period from the effective date of the
first amendment to the present Contract, the Hungarian
ownership may be reduced to 10% provided that the Deed of
Foundation of the Company is changed to the effect that when
the Company Act requires the affirmative vote of seventy-five
percent (75%) of the outstanding shares of the Concession
Company to approve action proposed to be taken by the
Concession Company, then for so long as the Hungarian
ownership of shares of the Company is between ten percent
(10%) and twenty-five percent (25%) of the outstanding shares
of the Concession Company, the affirmative vote of such number
of the outstanding shares of the Concession Company as may
equal one hundred percent (100%) less such Hungarian ownership
percentage, plus one share shall be required to approve the
action proposed to be taken by the Concession Company;
c) for a seven year period from the effective date of the
first amendment of the present Contract, Hungarian ownership
may be reduced to 0.79% provided that within two years
from such reduction of Hungarian ownership, the Hungarian
ownership provided in Clause 14.05 b) is restored.
After the expiry of the seven year period of time detailed in
subclauses b) and c) the 25%+1 share Hungarian ownership must be
restored, or until this time 25%+1 share of the capital should be
issued on the Budapest Stock Exchange as registered voting shares by
the way of public offering. A failure to meet any of these requirements
constitutes a major breach of the Concession Contract except if the
Concession Company proves that despite its acting in a reasonable
manner the restoration of Hungarian ownership or the issuing was not
successful. If so, the Concession Company is obliged to submit a
proposal to the Minister and initiate a solution. The Minister shall
not refuse such an initiation.
Two out of every five members of the Board of Directors must be
Hungarian citizens; if there are only three members of the Board of
Directors, then only one member must be a Hungarian citizen. One-half
of the members of the Supervisory Board must be Hungarian citizens; if
there are only three members of the Supervisory Board, then only one
member must be a Hungarian citizen.
CHAPTER 15.
Amendment and termination of this Contract
15.01 Amendment of this Contract with the Parties' agreement
In accordance with legal requirements the Parties may, by a written
agreement, amend this Contract.
15.02 One-sided amendment hereof by the Minister
The Parties may amend this Contract subject to the other party's
consent. The Minister shall be entitled to one-sided amendment hereof
for the purposes of consumer protection or in accordance with its
international obligations undertaken in the meantime, in accordance
with Section 14 of the Concession Act and complying with the settlement
procedure provided for by section 18.2 hereof. This right of the
Minister, however, shall not impose disproportional obligations on the
supplier. The supplier shall be informed of any proposed amendment in
due course by the Minister. The time period prior to an amendment
coming into force shall be long enough for the supplier to make
preparatory arrangements and such amendments cannot cause an adverse
financial change in the position of the concession's beneficiary (see
Section 14 of Act No. XVI of 1991.).
15.03 Termination
Upon expiry of the initial and the extended term set out in Chapter 3
hereof, this Contract shall automatically terminate. The Parties may,
with mutual consent, terminate this Contract at any time. The
termination hereof shall mean the termination of the concession right
accordingly.
15.04 Termination of the Local Concession
Possessing conclusive evidence - determined by the minutes of the
settlement procedure provided for by section 18.2 hereof - the Minister
may terminate the Local Concession in respect of all services or of a
given geographic area or in respect of a given service and of a
geographic area in any of the following cases:
a) the Concession Company abuses, customarily and deliberately, the
provisions hereof including rules set out by Chapter 8 hereto
relating the abuse/misuse of monopoly position and fails to
comply with the Minister's notice within a reasonable deadline;
b) the bankruptcy procedure of the Concession Company has been
initiated;
c) a procedure has started for the liquidation of the
Concession Company or the Concession Company makes a general
assignment for the benefit of creditors.
15.05 Shortening the term of exclusive service rights
If the Concession Company fails to fulfil the annual development
requirements set out in section 6.2 hereof, in addition to the penalty
payment provided for by section 6.2 and Schedule "C" hereto, and
following the settlement procedure according to section 18.2 hereof,
the Minister may shorten the term of exclusive service right by twenty
(20) days for each percentage point by which the Concession Company is
behind the annual development requirement concerning the main lines. If
the Concession Company is behind the annual development requirements by
less than 1%, the term of the exclusive service rights shall be
shortened proportionally to this extent.
15.06 Rules of distribution of assets
Should the Local Concession be terminated for whatever reason and
thereby the Concession Company is no longer be authorized or licensed
to provide local public telephone services under concession, the
shareholders of the Concession Company shall terminate the Concession
Company in accordance with the provisions on the final settlement of
Act No. VI of 1988 on economic associations.
15.07 Termination of radio-licenses
Should any of the services provided by radio telecommunication
equipment described herein terminate for whatever reason, the
authorization in relation to radio licenses - granted for the purposes
of the concession activities - shall automatically terminate.
15.08 Obligation to provide service following termination
The Concession Company shall provide the services determined herein for
twelve (12) months following termination hereof or - if a new
concession is granted earlier - until the date of granting new
concessions. The Parties shall enter into a separate agreement to
regulate the conditions of providing such services.
The obligation to supply shall cease on the day when the new supplier
commences to provide local public telephone services.
CHAPTER 16.
Force majeure
In the case of failure by the Concession Company to comply with its obligations
hereunder, the Concession Company shall not be liable to the extent and for a
period of war initiated with or without an ultimatum; a civilian uprising;
terrorists' acts; strikes; natural catastrophes; a fire, an explosion or state
of emergency or any other facts of similar nature which, under the Civil Code
make it impossible - and NOT being due to the failure by the Concession Company
- - to fulfil such obligations or prevent/obstruct the fulfillment. Should such
events cause damage to the telecommunications network operated by the Concession
Company, it shall arrange for the network to be repaired and re-installed in
accordance with the action plan approved by the Minister. Such obligations,
however, shall only bind the Concession Company if it is granted direct state
support or if it may implement reasonable changes in its billing/charging rates.
CHAPTER 17.
The collective employment agreement and
other contracts relevant to the employees' employment
The Concession Company shall comply with the terms and conditions of the
collective employment agreement and other relevant employment contracts entered
into by the predecessor of the National Concession Company with the employees of
the given prime area. For a period of eight (8) years following the coming into
force of the Agreement the Concession Company shall not propose any amendment of
such contracts which would adversely affect the employees' rights.
Upon transfer of employees the Parties shall act in accordance with the rules of
the settlement procedure as set out in section 6.15 hereof.
For the purposes of employment issues the Concession Company shall be the legal
successor of the predecessor of National Concession Company (MATAV Rt.). On the
basis thereof the Concession Company shall undertake, for at least 12 months, to
comply with:
- the program indicating the improvement of employment - efficiency
as worked out by MATAV Rt. and its trade union (Matasz);
- the existing network of social benefits;
- the long-term support of employees' insurance under a contract
between MATAV and the Social Insurance Fund of Telecommunications
employees;
- earlier employment contracts; and
- until the execution of a new collective employment agreement, but
in any case, for not less than 12 months, the terms of the
currently existing MATAV Collective Employment Agreement.
CHAPTER 18.
Settlement of disputes and interests
18.01 Settlement
The Parties shall settle all disputes and claims arising out of or in
connection with this Contract by direct negotiations.
18.02 The right to settlement
The Minister shall carry on with the settlement procedure described
herein prior to any action relating to a change in the fees/charges,
the termination or amendment hereof, the fixing of penalty payments and
any payments payable to the customers or any other action which would
adversely affect the position of the Concession Company. In this
procedure the Minister shall notify the Concession Company in writing
(a) of the reasons of any proposed action and the claimed material
breach hereof; (b) of the evidence at the Minister's disposal -
providing grounds for the proposed action - together with any other
statements establishing the fact of a material breach hereof.
Thereafter the Concession Company shall be given the opportunity to
make a statement either in writing or by a verbal declaration, it may
provide additional proof and may review and comments on the arguments
and evidence brought against it. The Minister shall proceed with the
settlement procedure promptly and - unless extraordinary circumstances
occur - come to a decision within six (6) months of delivery of its
written notice thereof. In the case of an extraordinarily comprehensive
matter the Minister may extend the procedure by a further three (3)
months. The Minister undertakes that is shall justify such a decision.
CHAPTER 19.
Specific obligations of the Concession Company
19.01 The Concession Company undertakes:
- to pay HUF 123,750,000 as a concession fee payable once, pursuant
to section 4.1 of this Concession Contract;
- to pay 2.3% of its gross annual income as an annually payable
concession fee pursuant to section 4.1 of this Concession
Contract;
- to take over the local public telephone services in the Papa
prime area from MATAV Rt. by December 31, 1995;
- to further employ the employees of MATAV Rt. in the Papa prime
area with the same conditions for 8 years from the date of taking
over the service;
- to charge subscribers the maximum amount allowed by the laws in
effect from time to time, which amount will consist of the
investment contribution as determined by law, from time to time
in force and a charge payable pursuant to the civil law agreement
entered into with subscribers however all the contributions paid
by subscribers by 31 August 1995 shall not be changed, and it
shall have no further claim in this regard;
- the Hungarian ownership shall conform to the relevant laws and
the text of the first amendment to the Concession Contract and
the Minister's special requirements;
- not to charge the monthly subscribers' fee for local
municipalities in the Papa prime area, and to provide each local
municipality with 2 terminal equipments free of charge;
- to fulfill the demands of the waiting list by 30 June 1998;
- to provide a total sum of HUF 2,000,000 annually (such sum to be
increased by the official inflation rate) for the local
municipalities in the Papa prime area;
- to install one public telephone station for each 250 people in a
manner, that it shall instal at least one public telephone
station in each of the villages of the prime area;
- to install 50% of the public telephone stations in a way that it
is suitable for hearing-impaired persons;
- to provide for text service for hearing-impaired people;
- to install 2% of the public telephone stations in a manner that
it is suitable for disabled people; and
- that 1 out of 4 installed public telephone stations shall operate
with phonecards.
The Parties hereby agree that obligations of the Bid Winner and of the
Concession Company herein not detailed shall be governed by the
proposed bid for the Concession of the Winner of the Tender, with the
condition that, following the logic of the first amendment of this
Concession contract, the deadlines and certain other terms will be
changed.
In order to secure the payment obligation detailed in the first indent
of this Clause, the Company shall provide an unconditional bank
guarantee for the stated amount at the latest by 18 September 1995, and
a failure to provide the security will entitle the Minister to
terminate the Concession contract and the first amendment in full with
immediate effect.
In order to secure the undertakings in the third and ninth indent of
this Clause, the Concession Company shall provide good performance
guarantees (bank guarantee) by 1 December 1995 in the amount of HUF
25,000,000 each, and a failure in the performance of the underlying
obligation will entitle the Ministry to this amount as penalty payment.
If the service is taken over by 1 December 1995 or before, no bank
guarantee securing the obligation detailed in the third indent has to
be provided.
19.02 The Concession Company undertakes that if it stops providing local
public telephone services thereby breaching this Contract during the
term hereof, it shall pay, as a penalty payment, the costs of the
temporary maintenance of the service and the costs of a new tendering
process; such penalty payment has been guaranteed by the winner of the
Concession Tender in a manner provided for by Concession Agreement
(attached hereto as Schedule "A").
CHAPTER 20.
Miscellaneous
20.01 Governing law
This Contract shall be implemented under and governed by the laws of
the Republic of Hungary.
20.02 Partial invalidity
This Contract shall be considered to be invalid only to the extent of
any invalid provisions, all other provisions hereof shall remain in
force unchanged.
20.03 Language of this Contract
This Contract is made and executed by the Parties in the Hungarian
language. Any versions hereof prepared in another language shall serve
exclusively for information purposes for foreign investors.
20.04 Schedules to this Contract
- Schedule "A":the Concession Agreement entered into between the
Winner of the Tender and the Minister;
- Schedule "B":the table containing the details of specific
coverage of the Papa prime area;
- Schedule "C":Service development requirements;
- Schedule "D":Penalty payments payable upon non-compliance with
the service quality requirements;
- Schedule "E":Technical conditions of providing non
concession-related other telecommunications services;
- Schedule "F":the winning Bid submitted by the Winner of the
Tender;
- Schedule "G":the "Declaration" of the Concession Company;
- Schedule "H":Service quality requirements; and
- Schedule "I":The laws of specific importance for the purposes
hereof.
20.05 Notices
All notices and other communications made or forwarded hereunder shall
be made by letter, telefax or telex and - unless otherwise indicated by
the Parties in writing - shall be sent to the respective addresses of
the Parties stated herein or to such other address or person as the
Parties may state in writing. All notices and other communications
hereunder shall be made in the Hungarian language.
Such notices shall be sent to the following addresses:
For the Minister or KHVM
Kozlekedesi, Hirkozlesi es Vizugyi Miniszterium
1077 Budapest
Dob u. 75-81.
For the attention of: [ ]
Telefax: [ ]
Telex: [ ]
For the Concession Company
[address ]
For the attention of: [ ]
Telefax: [ ]
Telex: [ ]
[SIGNATURE LINES]
[END OF CONTRACT]
43130
EXHIBIT 10.79
AMENDED AND RESTATED CONCESSION CONTRACT
For providing local public telephone services in the Oroshaza prime area
of the Republic of Hungary
This CONCESSION CONTRACT (the "Contract") is made on 6 May 1994 and amended and
restated as of June 3, 1996, by and between the MINISTER For TRANSPORTATION,
TELECOMMUNICATIONS and WATER MANAGEMENT (the "Minister") acting for and on
behalf of the Republic of Hungary and HUNGAROTEL TAVKOZLESI RT. (1126 Budapest,
Kiralyhago u. 2.) as LOCAL CONCESSION COMPANY (the "Concession Company" or
"Hungarotel") upon the terms and conditions herein provided.
PREAMBLE
Pursuant to Act No. LXXII of 1992 on Telecommunication (the "Telecommunications
Act"), Act No. XVI of 1991 on Concessions ("the Concessions Act") and Act No.
LXII of 1993 (the "Frequency Management Act") the Minister has been authorized
to enter into concession contracts.
The Concession Company was established pursuant to Act No. VI of 1988 as a joint
stock company, in which the Hungarian ownership is in excess of 25% + 1 of the
shares.
The founders of the Concession Company are the Winners of the Tender issued by
the Minister for the Oroshaza prime area. Having won the Tender, HUNGAROTEL has
obtained the right to provide local public telephone services in the Oroshaza
prime area. This fact has been set out by the "Agreement" between the Minister
and the Winner of the Tender dated February 8, 1994 (attached hereto as Schedule
"A"). All rights and obligations set out by the "Agreement" have been assigned
and transferred by the bidder to the Concession Company having had been
established in the meantime.
Following the execution hereof the Concession Company shall be entitled to
provide local public telephone services in the Oroshaza prime area upon the
terms and conditions herein determined.
<PAGE>
CHAPTER 1.
Interpretation
Words and phrases used herein shall have the following meaning:
"Basic Technical Plans" means all the plans described by Decree No.
23/1993. (IX.9.) of the Minister for
Transportation, Telecommunications and Water Management and in other rules
connected therewith;
"Business regulations" means the publicly available regulations of the
Concession Company, which are provided to the customers before entering into the
Subscriber's Contract, and which contain the general terms and conditions of the
proceedings and the contractual procedure of the Concession Company;
"Completion Date" means the day of commencing local public telephone services,
i.e. January 1, 1996;
"Decree on charges" means the Decree No. 30/1993. (IX.23.) of the
Minister for Transportation,
Telecommunications and Water Management on the fees and charges payable for
public telephone services;
"Effective date" means 6 May 1994 when rights and obligations under this
Contract come into force;
"Financial year" shall correspond to the calendar year. The first
financial year of the Concession Company
shall commence on 1 January 1995;
"Gross returns (income)" means the pre-tax profit (excluding VAT) after
distribution of fees (settlement of the connection charges, subject to traffic)
of the Concession Company, originating from the telephone service in the
Oroshaza prime area, which is subject to the concession;
"Hired line" means the total of electric circuit sections connecting domestic,
or international and domestic service access points (telecommunication
apparatus), which only includes transmission paths, access points (interface)
and the monitoring access points and which establishes connection without
directing signals (see Telecommunications Act, Schedule, point 3);
"Hired line service" means the telecommunications service through which the
operator passes on to another person the electric circuit sections connecting
service access points for the purpose of telecommunications activity in return
for a fee (see Telecommunications Act, Schedule, point 4);
"Local Concession" means the concession granted by the Minister, pursuant to the
provisions of which local public telephone services can be carried on in the
Oroshaza prime area of the Republic of Hungary for a period of twenty-five (25)
years in such a manner, that for the first eight (8) years of such period the
Minister shall grant an exclusive service right to the supplier (Section 4,
sub-section 3 and Section 39, sub-section 2 of the Telecommunications Act);
"Minister" means the Minister appointed in accordance with the constitutional
order of the Republic of Hungary having been authorized by Act No. LXXII or an
amendment thereof or an amendment replacing it, to publish the Concession
Tender, to grant the Concessions and to exercise rights connected therewith;
"Ministry" or "KHVM" means the Ministry of Transportation, Telecommunications
and Water Management;
"Network connection decree" means the Government Decree No. 158/1993.
(XI.11.) on the connection of
telecommunication networks, on the approval of co-operation of such networks and
on the subscribers' contracts;
"Prime area" means part of the public telecommunications network within which
the use of the basic network is not necessary for the service provided in the
framework of the subscriber's contract for establishing connection between two
service access points (see Telecommunications Act, Schedule, point 16.);
"Public Telecommunications Network" means the entirety of service access points,
transmission paths and switching devices performing the connection of such
networks, making it possible for anyone, under the same conditions, wishing to
use it, to make a sound connection, or to make any other information
transmission with identical characteristics through a terminal equipment
connected to a service access point, with the user of a terminal equipment
connected to another service access point (see Telecommunications Act, Schedule,
point 8.);
"Public Telephone Service" means that the provider of service ensures, in return
for a fee, the transmission of human speech for the users through a public
telecommunication network. In the framework of a public telephone service, the
provider of the service may provide international, domestic and local telephone
service:
a) local telephone service is a telecommunications
service subject to a concession contract, in which
the provider of service enters into a subscriber's
contract with the user, for the local network or the
primary area. The concession company entitled to
provide local telephone service must enter - reasonably -
into a network contract for the services specified
in paragraphs b) and c) as well;
b) domestic long-distance telephone service is a
telecommunications service subject to a concession
contract, in which the provider of service, in
accordance with the network contract entered into
with the user, reaches an agreement on the connection
or attachment to the basic network;
c) international telephone service is a
telecommunications service subject to a concession
contract, in which the provider ensures connection to
an international service access point;
"Telecommunications Fund" means the state fund described in Section 36 of the
Telecommunications Act, which is operated pursuant to Act XXI. of 1995 on the
Telecommunication Fund and any government subsidy source which may substitute
the forgoing.
"Telecommunications service" means a business activity whereby the supplier
carries on additional public telephone service (subject to concession) or other
additional telecommunications service falling within the scope of competition
for another person in return for a fee, or transfers its network to another
person for this purpose (see Telecommunications Act, Schedule, point 25.);
"Telecommunications Chief Inspectorate "HFF" means the Telecommunications
Chief Inspectorate (or, as the text may indicate, the regional bodies
thereof) the duties and competence of which are regulated by Government Decree
No. 142/1993. (X.13.);
"Telecommunications supplier" means a legal entity, or an economic association
without legal personality or a private entrepreneur which/who is entitled to
provide telecommunications services for anybody (another supplier, user or
subscriber),(see Telecommunications Act, Schedule, point 26.);
"Term of exclusivity" means the time period provided by 5.1 hereof (including
the possibility of its adjustment as set out in 15.5 hereof), during which the
Concession Company shall enjoy an exclusive right to provide local public
telephone services in the given prime area;
"Unified subscriber's registration" means the alphabetical list of legal
entities and private individuals in the given prime area having entered into
subscriber's contracts with the Concession Company, a list which - subject to
the customer's approval - may contain the telephone number, the address, the
profession (scope of activities) of the customer, the publication thereof must
not infringe the customer's personal rights, and such list provides for access
to other customers' similar details. In all other matters the Company shall
comply with the relevant provisions of any future legislation.
Words and phrases not defined herein shall be governed by the Telecommunications
Act and the relevant legal rules.
CHAPTER 2.
The General purpose of this Contract
The general purpose hereof is to entitle the Concession Company to (i) provide
public telephone services falling under the Local Concession and (ii) to
provide additional services in connection therewith in accordance with the
provisions of the Telecommunications Act and the rules of execution thereof.
The Concession Company shall comply
with the provisions herein provided.
CHAPTER 3.
The Local Concession
3.01 The scope of the Local Concession
In accordance with this Contract and pursuant to the Local Concession,
the Concession Company is entitled to provide telecommunications
services in the Oroshaza prime area. Such services shall be further
detailed in sections 3.5 and 3.6 below.
3.02 Uninterrupted service
The Concession Company shall provide local public telephone services in
the Oroshaza prime area under at least the same conditions as at the
time of commencing the service.
3.03 The term of the Local Concession
The term of the Local Concession shall be twenty-five (25) years,
expiring at 12.00 pm on 1 May 2019.
3.04 Extension of the term of the Local Concession
The Minister may, without further tendering, extend the term of the
Local Concession and the term hereof by an additional twelve and a half
(12.5) years, provided the Concession Company submits a written
proposal for such extension not later than eighteen (18) months before
the expiry of the initial term.
Prior to coming to a decision on such extension, the Minister shall
require that professional and customers' interest protection bodies, as
well as the relevant local municipalities, submit their proposals in
accordance with Section 4, sub-section 5 of the Telecommunications Act.
The Minister shall come to a decision on the extension not later than
nine (9) months before expiry of the initial term of the Local
Concession. Such decision of the Minister shall not be subject to the
settlement procedure provided for by section 18.2 hereof.
In its proposal, the Concession Company shall undertake the payment of
a further concession fee announced by the Minister in advance, in
relation to the extension of the term of the Local Concession.
When determining the concession fee for the extended term, the Minister
shall consider:
- the changes that having taken place recently;
- the rate of inflation;
- the amount of the initial concession fee; and
- whether the Concession Company has applied to the
Telecommunications Fund for financial support, and if so,
whether it has actually been granted any support.
When granting new concessions following termination of the Concession
Contract, the Concession Company shall enjoy preferential treatment,
provided the other bidders offer equal conditions.
3.05 Additional services not relating to the concession
Pursuant to the provisions of the Telecommunications Act and subject to
the approval of the Minister under Section 5 sub-section 4 and section
20 sub-section 1 thereof, the Concession Company shall be entitled to
carry on the following non concession-related activities:
a) other telecommunications services;
b) marketing, sale, maintenance and repair of products for
telecommunications and information technology;
c) computer application services;
d) assessment and safety services;
e) general engineering development activities;
f) telecommunications research and experimental development;
g) arranging investments and building maintenance, management and
main contracting; and
h) telecommunications training courses and other educational
activities.
3.06 Pursuant to section 3.5/a above, the Concession Company hereby declares
that, in accordance with and based on Section 3, sub-section 2 of the
Telecommunications Act, it intends to carry on the following non
concession-related, other telecommunications activities:
- SZJ 09521 Telegraph and data transmitting
- SZJ 095211 Forwarding telegraphs
- SZJ 095212 Forwarding telexes
- SZJ 095213 Data transmission
- SZJ 095214 Telecopying (Telefaxes)
- SZJ 09522 Telephone services
- SZJ 095221 Managing telephone communications
- SZJ 095222 Sub-operator services
- SZJ 095223 Special purpose telephone services
- SZJ 095224 Mobile telecommunications
services (other than national public
mobile radio telephone services).
According to Section 20, sub-section 1 of the Telecommunications Act,
the Concession Company may commence the above listed activities from
the day of execution hereof. (The Concession Company shall obtain
further licenses as required by Section 19, sub-section 4 of the
Telecommunications Act.) The terms of such licenses shall be determined
therein and the withdrawal or cancellation of such licenses shall not -
necessarily - be subject to the existence of the concession rights.
Should the Concession Company intend to provide program distribution
via cable network, it shall obtain all the necessary licenses
(operational and technical) accordingly.
The technical provisions of the activities shall be contained by
Schedule "E" hereof. The Minister shall authorize HFF to supervise the
compliance with the terms and conditions of all licenses.
CHAPTER 4.
The Concession fee
4.01 The Concession fee
The Concession fee shall comprise:
(a) The one time concession fee, shall be the sum of HUF
58,500,000 which has been paid by the Concession Company on
November 8, 1995.
(b) A concession fee payable annually; the basis of
calculation of which shall be the gross income of a given year
of the Oroshaza prime area realized by the Concession Company.
The Concession Company shall pay 0.3% of its gross annual
income.
The annual concession fee shall be paid by the Concession Company on
the basis of the Assignment and Transfer Agreement in the manner
described in section 2.2 of the Concession Agreement (Schedule "A"
hereto).
CHAPTER 5.
Exclusive right to provide local public telephone services
5.01 The extent and term of the Concession Company's exclusive right to
supply
Pursuant to the provisions hereof the Concession Company shall be
granted an exclusive right to carry on providing local public telephone
services falling under the Local Concession for eight (8) years from
the Completion Date, but not later than 12.00 pm on 1 November 2002.
5.02 Shortening the term of exclusivity
The Minister may shorten the term of the exclusivity of the Local
Concession only pursuant to section 15.5 hereof.
CHAPTER 6.
Obligations of the Concession Company originating in its concessions right
to provide local telephone services
6.01 Rules of public telephone services
The Concession Company shall provide public telephone services in
accordance herewith, and in accordance with the provisions of the
Telecommunications Act and the decrees of execution thereof. Unless
there is a legislation to the contrary, the Concession Company shall
provide for equal treatment to the customers in equal positions, it
shall not discriminate either for or against anybody in relation to the
conditions and the fees for providing public telephone services.
6.02 Requirements of annual development
The Concession Company shall comply with the annual service development
requirements set out in Schedule "C" hereto, provided there is
satisfactory solvent customers' demand for new lines. Should the
Concession Company fail to comply with the development requirements in
any calendar year despite of solvent customers' demand, the Concession
Company shall pay a penalty payment in the manner set out in Schedule
"D" hereto, to the Telecommunications Fund.
The basis of the development requirements shall be the coverage
(8.1/100 persons) existing on 31 December 1993.
If the coverage of the given prime area is less than the national
coverage (being 14.57 lines for 100 persons on 31 December 1993), the
Concession Company shall achieve by 31 December 1997 the national
coverage and the annual development of 15.5% based on the national
coverage (provided there is a solvent customers' demand for such
development) and the data included in Annex 'C' shall be amended
according to these rules. Following 31 December 1997 the Concession
Company shall maintain the normal annual development requirements
(being an annual 15,5%), provided there is solvent customers' demand.
Should the coverage of the given prime area be in excess of the
national coverage, the development obligation of the Concession Company
shall be an annual 15,5% in the first 6 years set out in the Tender
Documentation, provided there is solvent customers' demand in
connection therewith.
6.03 Fulfillment of customers' demand
In addition to achieving the development requirements set out in
section 6.2 above, the Concession Company shall, in prime areas covered
by the Local Concession, fulfill 90% of the total customers' demand
within 6 months from the application therefore after 30 June 1998 and
an additional 8% of the total customers' demand within 12 months from
the application.
For the purposes of calculation of the percentage contained herein, if
a customer enters into a preliminary Subscriber's Contract with the
Concession Company, it shall be deemed as a customers' demand.
The Concession Company shall provide for the latest technology covering
its whole service area.
6.04 Provisions for prohibited activities
The Concession Company shall not be obliged to provide any services if
it can be proven that such provision would contradict or infringe the
provisions of the Telecommunications Act, the decrees for the execution
thereof or any authorizations or licenses necessary for providing any
telecommunications services.
6.05 Temporary suspension of the service
The public telephone service (save for the events of force majeure) may
only be temporarily suspended with the prior written consent of the
Minister and the prior written notification to the customers in due
course; such suspension shall not include the term of any, otherwise
non-recoverable, technical problems or maintenance; the length of such
temporary suspension which shall not exceed 72 hours. The service may,
temporarily be suspended or restricted in a manner specified in laws,
for the purposes of protection of national defence, economic and public
safety (including anti-terrorism and drug-trafficking) of the Republic
of Hungary.
6.06 Co-operation in the state of national emergency
The Concession Company shall, in accordance with the laws, participate
in the preparation and implementation of the action plan governing the
procedure for national emergencies under the instructions of the
Minister and other relevant ministers, and it shall co-operate with
other telecommunications suppliers and network operators. In the event
of a national emergency, or war, and in the interest of protecting
public safety, the Concession Company shall act in accordance with the
laws and under the instructions of the Minister and the Government.
Should the Concession Company suffer significant damage or loss as a
consequence of such action, it may, within one (1) year of suffering
such damage or loss, request indemnification in writing from the
Minister. The Minister shall reasonably appraise the indemnification
application of the Concession Company within 30 days.
Enforcement of interests of national defence and national safety
a) The Concession Company shall provide for the protection of
interests of national defence, national safety and the
Government in its service area in accordance with the relevant
laws, Government and ministerial decrees via closed circuit
networks and by enabling the telecommunications to be used for
the purposes of national defence. The duties of the Concession
Company relating thereto shall be set out in its Business
Regulations.
b) The Concession Company's participation in the preparation
of certain duties of national defence shall be governed by the
Act on National Defence and by contracts entered into by the
Concession Company with the Minister and other relevant
authorities respectively.
c) The Concession Company may only change the ownership
structure and interconnection services of the closed circuit
networks operating in its service area with the consent of the
owner of the network.
d) The Concession Company shall comply with the laws governing
national defence and safety when carrying on its registration
and data processing duties.
e) The Concession Company agrees that it shall provide the
technical conditions for competent authorities to control,
within the framework of relevant laws (as from time to time in
force), the sound or other communications of certain
customers. The possibility of control shall cover the whole
service area determined hereby, it shall also cover each
subscriber category and each type of service provided by the
Concession Company. Detailed regulation of such control shall
be governed by an agreement.
f) The Concession Company agrees that it shall carry on
certain part of its activities in accordance with a separate
ministerial decree regulating the operation of closed circuit
networks, normally on a contractual basis.
g) For services provided in accordance with the laws
regulating the protection of international and national
defence interests, the Concession Company may apply for
reimbursement of the actual costs of such activities from the
Minister; such application shall be decided upon within 30
days.
6.07 The Subscriber's Contract and connection of the terminal equipment
Pursuant to provisions of Government decrees and the Business
Regulations of the Concession Company as approved by HFF, the
Concession Company shall enter into individual Subscriber's Contracts,
on the basis of which it shall provide access points suitable for
connection to the public telephone network. In the circumstances set
out by the Telecommunications Act and the decrees for the execution
thereof, the Concession Company may refuse to enter into or may
terminate the Subscriber's Contract. The Concession Company shall
enable customers to connect their terminal equipment (the type of which
is subject to HFF's approval) to the access points of the public
telephone network.
6.08 Service quality requirements
The Concession Company shall fulfil the minimal quality requirements as
set out by Schedule "H" hereto according to the action plan. If, due to
certain events which could not have been envisaged or avoided by the
Concession Company, it fails to fulfil its contractual quality
obligations, the Concession Company shall follow the procedure set out
by Schedule "D" hereto.
6.09 Co-operation with other telecommunications suppliers
In order that the public telephone network operates effectively and in
order to ensure connectability of other networks and services, the
Concession Company shall co-operate with the National Concession
Company upon conditions provided by law and shall, following the expiry
of the exclusivity period, co-operate with other telecommunications
suppliers, provided they are not connected via the network of the
National Concession Company. Such co-operation shall be governed by
Sections 16 to 18 of the Telecommunications Act and by the provisions
of Government Decree No. 158/1993. (XI.11.) on the connection of
telecommunications networks and on the licensing of the co-operation
thereof.
6.10 General requirements of customers' supply
a) General requirements
Pursuant to the provisions of the laws, the Basic Technical
Plans and the Business Regulations, the Concession Company shall
establish and operate an effective customers' enquiries service
enabling customers, users and subscribers to enquire in relation to
application, instalment, services, billing, telephone registers and
other similar matters. The Concession Company shall not, unlawfully or
unreasonably differentiate for or against any group of subscribers or
users in connection with the customers' enquiries activity.
The Concession Company shall connect via an interface
(Telecommunications Act, Sections 16 to 18) to:
-the National Operation Supporting System ("OSS"); -the
supervision of networks; -the National System Supporting
Centre ("NRK") -the National Enquiries; and -the telephone
card coding and distribution system.
During preparation of its technical development plans, the
Concession Company shall only apply standards approved in Europe or in
Hungary.
b) Minimum requirements
During the term of exclusivity determined in Chapter 5 hereof,
in the prime areas covered by the Local Concession, the Concession
Company shall fulfil the following minimum requirements:
(i) To ensure the availability of local help-lines -
with one and the same connection number as elsewhere
in the country - from all subscribers' and public
telephone stations, free of charge. This service
shall be established within eight months of the
Completion Date but at the latest by 1 September
1996.
(ii) To issue a printed telephone directory
in the prime area covered by the Local Concession,
containing the name of each subscriber in the area,
save those expressly requesting not to be listed. In
its standard form the directory shall contain at
least the name, address, connection number of each
subscriber of the area; furthermore the dialling code
of the countries and the regions. The directories of
the Concession Company may also contain
advertisements. The Concession Company shall not
charge subscribers for publishing their details in
the standard form directory. A reasonable price for
the telephone directory may be charged to
subscribers. In order to set up a unified system of
customers' details registration, the Concession
Company shall co-operate with the National and other
Local Concession Companies. In addition to a unified
registration of customers in its own prime area, the
Concession Company may issue its own telephone
directory.
(iii) To set up an enquiries service whereby
information can be obtained on the telephone numbers
of subscribers of the area, the Concession Company
may charge a reasonable fee for the enquiries service
subject to the Minister's approval.
(iv) To set up other - domestic or
international - enquiries service for the operators
of other telecommunications networks for a reasonable
fee, in accordance with relevant legislation.
6.11 Public telephone stations
The Concession Company undertakes:
- to instal one public telephone station for each 250 people
in a manner, that it shall instal at least one public
telephone station in each of the villages of the prime area;
- to instal 50% of the public telephone stations
in a way that it is suitable for hearing-
impaired persons;
- to provide for text service for hearing-impaired
people;
- to instal 2% of the public telephone stations
in a manner that is suitable for disabled
people; and
- that at least 1 out of 4 installed public
telephone stations shall operate with
phonecards.
6.12 Confidentiality of information on subscribers
The Concession Company shall prepare a procedure for effective
protection of maintaining both the business secrets obtained during its
activity, and the personal data of subscribers and it shall comply with
such procedure in relation to any information obtained. As to data
protection and maintaining information, the Concession Company shall
act in accordance with Section 24, sub-section 5 of the
Telecommunications Act.
6.13 Requirements of registration and providing information
The Concession Company shall (i) maintain a registration suitable for
controlling compliance herewith, with the Telecommunications Act and
other laws; (ii) be prepared for reasonable investigations; and (iii)
provide information in accordance with the Minister's instructions on
such activities. Unless the Minister otherwise requires within the
framework of legislation, data provided by the Concession Company, save
for confidential information, (eg. relating to the business or to the
ownership structure and commercial information), should be publicly
available.
6.14 Accounting requirements
Following the execution of the first amendment, but no later than 31
December 1996, the Concession Company shall, in accordance with the
Hungarian accounting principles, prepare and submit to the Minister its
accounting principles for accounting for the investments, costs and
revenues. The accounting principles shall be prepared in such a way
that details of investments, costs and revenues of the public telephone
service and other activities of the Concession Company, ie. product
manufacturing, marketing and the trade of equipment can be registered
separately. The Minister shall issue its opinion on the proposed
accounting principles within three (3) months of submission. Should the
Minister refuse to accept the submitted proposal, it may require the
Concession Company to submit an acceptable proposal for its accounting
principles within twelve (12) months from the date of the first
amendment to the Concession Contract at the latest. However, the one
(1) year deadline provided for herein shall not mean deviation from the
deadlines provided for by the Accounting Act; the provisions herein
contained shall be complied with in addition to those of the Accounting
Act.
6.15 Obligation to enter into an agreement for handing over existing
networks of assets
By December 31, 1995, the Concession Company shall enter into an
agreement with the National Concession Company (predecessor of which
was: MATAV) on handing over the material tangible and intangible assets
(hereinafter: "the local assets") necessary for providing local public
telephone services in a given prime area. Upon handing over (putting
into use, proprietorship or ownership ) - as the Minister has declared
it as being a generally applicable principle - the local assets,
neither party shall realize any profit. The parties shall, upon handing
over the local assets, determine the prices and/or values thereof
reasonably. The Concession Company shall deem the value published in
the Tender to be the basis for evaluation. It is the Concession Company
that shall decide as to what assets it finds necessary from the offered
assets for providing public telephone services. The agreement entered
between the Parties shall contain a provision according to which the
Concession Company shall offer employment for (appr.) 62 persons
previously employed in the Oroshaza prime area by the National
Concession Company. If the Concession Company and the National
Concession Company fail to achieve an agreement within three (3) months
of the Effective Date hereof in relation to the value of the local
assets and the employees to be transferred, the Concession Company
shall submit to the decision of an independent appraisal expert
company. Unless the parties agree on the appraisal within two (2)
weeks, the appraiser shall be appointed by the Minister. The opinion of
the appraiser - provided within 10 weeks - on the price of handing over
the local assets or on the value thereof shall be accepted to be
binding by the Concession Company. The Minister undertakes that the
concession contract entered with the National Concession Company duly
contains the provisions regulating the procedure by the appraisal
including, unless there is an agreement between the parties, a
provision that the National Concession Company shall accept the
appraisal's opinion as binding.
6.16 Business regulations
The Concession Company shall prepare and submit to HFF for approval its
Business Regulations no later than 60 days prior to commencing the
service at the latest.
6.17 If, on the basis of proper authorizations and approved plans there was
an investment made or started on the establishment of a public local
telephone network in the given prime area, the Concession Company under
an agreement to be made pursuant to point 6.15 above - shall take over
each and every cost, prepayment of credits and interest, provided the
agreement requires it to do so.
CHAPTER 7.
Interconnection
7.01 Cost of the connection interface and instalment of equipment relating
thereto
In this respect the provisions of Government Decree No.
158/1993. (XI.11.) on the connection of telecommunications
networks, the licensing of co-operation thereof and on the network
contracts shall apply.
7.02 Information obligation relating the technical details of the network
The Concession Company shall provide technical information to HFF on
its public telephone network relevant for the purposes of
interconnection, in accordance with legal requirements.
7.03 The Concession Company's right to connect to the networks of other
public telecommunications suppliers
During the (8 year) term of the Concession Company's exclusive service
right, it may only use the basic telecommunications network of the
National Concession Company in order to connect to other prime areas.
7.04 Requirement of unification of telephone-centres
The Concession Company shall submit to the Minister its action plan for
the necessary development of the already existing telephone
switchboards (centres) and it shall ensure that such development be
suitable for the settlement of suppliers of public telephone services.
The Minister shall, towards all other suppliers of public telephone
services - including, following the expiry of the exclusive supply, any
other suppliers having been granted a concession - achieve the minimum
requirement of the concession companies of using switchboards suitable
for accounting settlement of suppliers immediately in the case of a
newly obtained switchboard, and within eighteen (18) months from the
Completion Date hereof in the case of the already existing
switchboards. If the data necessary for the precise determination of
income-distribution as required by the Decree on Prices is not
available, the Concession Company shall agree to such data being
determined by way of reasonable estimation. The Minister declared in
the Concession Contract concluded with the National Concession Company
that in respect of the revenue sharing it obliges the National
Concession Company to the same procedure and to the conclusion of an
agreement based on this procedure. The Concession Company agrees that,
during the eight (8) year term of exclusivity, it may connect to other
suppliers only through the network of the National Concession Company.
In addition to the obligations contained by section 6.2 hereof, the
Concession Company shall prepare a 3 year development plan for
switchboards; such plan shall be forwarded to the Minister by 31 July
1996. From then on the Concession Company shall submit an annual
development plan in this respect.
7.05 Provision of a suitable basic network
The Concession Company shall be provided with a suitable basic network
pursuant to relevant legislation, ie. Government Decree No.
158/1993. (XI. 11.) and Sections 7 and 16 to 18 of Act No.
LXXII of 1992.
CHAPTER 8.
Special provisions
8.01 The prohibition of abusing the monopoly position
The Concession Company shall not use its position obtained in the
Oroshaza prime area for providing public telephone services to achieve
unfair advantages in the market for telecommunications, the non
telecommunications-related market and on product-marketing.
Anti-competitive pricing (eg. dumping prices) is prohibited.
8.02 The prohibition of cross-financing
The Concession Company shall not use income generated by its public
telephone services to support its non concession-related activities,
nor its computing technology and product marketing activities.
The prohibition of cross-financing, however, shall not apply if the
same bidder is granted the concession in more prime areas for which it
establishes one Concession Company. In this case and in relation to
public telephone services the Concession Company may use income
generated by public telephone services in one prime area to finance the
public telephone service of the other area. This point 8.2 shall not
prevent the Concession Company from using its after tax profit from
public telephone services to improve its non concession-related
telecommunications services.
8.03 The obligation of equal treatment
The Concession Company shall not discriminate between, and cannot
provide unfair advantages for, any authorized operator of networks,
telecommunications suppliers or subscribers, including companies in its
partial ownership or which it has any other interest.
8.04 Prohibition of tying arrangements upon trading the terminal equipment
The Concession Company may only sell terminal equipment to its
subscribers if (a) it does not tie the purchase or lease of the
terminal equipment with the provision of public telephone services and
(b) the price of such equipment is not included in the charge from any
public telephone services.
8.05 Implementation of anti-monopoly rules for other concession companies
The Minister undertakes that it shall impose anti-monopoly rules
identical to those contained herein to all other suppliers providing
public local telephone services under a concession.
8.06 The requirement of equal conditions
Following the expiry of the term of exclusivity, the Concession Company
shall not discriminate between nor shall it provide unfair advantages
for any other authorized network operator, telecommunications supplier
or subscriber, including companies in which the Concession Company has
a participation or other interest.
8.07 The Concession Company shall consider that in its area there might be
existing closed circuit networks or parts thereof. The duties in
relation therewith shall be subject to agreement with the owners of
such networks.
CHAPTER 9.
Rights and obligations of the Minister
9.01 Exclusive right to supply
During the term set out in Chapter 5 hereof (and save for those
described in section 15.5) the Minister shall not, without the consent
of the Concession Company, grant a concession-related services right in
respect of the area and the services covered by the Local Concession.
9.02 Fair and impartial treatment
The Minister undertakes that it shall provide a treatment towards the
Concession Company as fair and equal as towards other
telecommunications suppliers and network operators; furthermore, should
the need arise, the Minister shall make the concession contracts
entered with the National Concession Company and/or other suppliers of
telecommunication services available to the Concession Company. The
Concession Company shall submit to these provisions if there is a need
for that.
9.03 Requirement of procedures to be clear and easily understood
The Minister undertakes that, in its legislative and administrative
procedures in relation to the rights, obligations and activities of the
Concession Company hereunder, as well as in the procedures in
connection herewith and in the procedures of KHVM and HFF, the
principle that procedures be clear and easily understood shall apply
and that all such procedures shall be fair and impartial.
9.04 Granting authorizations/licenses
The Minister undertakes that, it shall support the Concession Company
in order that it be given all licenses, consents and authorizations
necessary for the fulfillment of its obligations hereunder within the
shortest possible period of time.
9.05 Significant amendment of decrees regulating the concession-related
activities
The Minister endeavors not to amend the provisions (having a
significant impact for the activity of the Concession Company) of the
Decree on Prices, the Decree on connecting networks and other
telecommunications decrees within eight (8) years from the Effective
Date hereof in a manner that would cause a significantly adverse change
in the position of the Concession Company. Such decrees shall not
impose disproportional obligations on the supplier and the proposed
amendments shall be made available to the supplier by the Minister in
due course. The time period prior to a proposed amendment coming into
force shall be long enough for the supplier to make the preparatory
arrangements in time.
CHAPTER 10.
Approval of fees
The provisions of the Decree No. 30/1993. (XI. 23.) of the Minister for
Transportation, Telecommunications and Water Management shall be governing in
this respect.
The Concession Company shall publish charges not determined by legislation in
its Business Regulations.
CHAPTER 11.
Use of radio frequencies
The frequencies and frequency zones necessary for the public telephone services
to be provided by the Concession Company shall be provided by HFF pursuant to
the provisions of Act No. LXII of 1993 on Frequency Management.
CHAPTER 12.
Authorizations and licenses
The Concession Company shall obtain the licenses necessary for its
operation (i.e. radio-license, construction-license, equipment-license
etc.) in accordance with the Telecommunications Act and other relevant
laws.
CHAPTER 13.
The use of Hungarian products and services
13.01 Requirements in respect of Hungarian products and services
The Concession Company shall, for the purpose of providing public
telephone services, use products and services of Hungarian origin when
such Hungarian products or services are relatively equally available as
non-Hungarian products or services in regard to quality, technical
capability, price and delivery. The Concession Company undertakes that
from the date of the first amendment to the Concession Contract, not
less than 25% of the total value of products purchased and services
provided for the purposes of the public telephone service, and
following 1 January 1998 not less than 50% of the products and services
shall be fulfilled with products and services of Hungarian origin, if
such products and services of Hungarian origin have at least the same
technical capability and price as those of non-Hungarian origin .
A product shall be deemed to be of Hungarian origin if (i) either 25%
of the total value thereof was produced in Hungary or (ii) proof can be
given that due to the manufacturing process having been carried out in
Hungary, the added value of such product increased by 25%; an
inspection by HFF, on behalf of the Minister, to ensure compliance with
such provision may be carried out at any time.
The Minister undertakes that it shall impose the obligations contained
herein in relation to the use of Hungarian products and services on all
other suppliers of public telephone services.
The Parties agree that they will apply the provisions of the Act No XL
of 1995 on Public Procurements only in case of utilizing/recorsing
state subsidies in accordance with the basic principles of the above
mentioned Act on using budget sources.
13.02 Obligation of penalty payment
The Concession Company shall, by 31 March of each calendar year,
prepare a report on the previous calendar year providing detailed
information on the compliance with the obligations under 13.1 hereof in
the given calendar year by the Concession Company. Should the
Concession Company, fail to comply with its obligations under 13.1
hereof in any calendar year, it shall pay a penalty payment to the
Telecommunications Fund equal to 0,1% of its annual investments of the
given year for each percentage point which it failed to fulfil its
obligation.
CHAPTER 14.
The prohibition on transfer of the concession right and change in
the ownership structure
14.01 The prohibition of transfer of the concession right
Without the prior written consent of the Minister, the Concession
Company shall not assign and transfer its concession right to provide
local public telephone services, nor shall it establish any mortgage on
the same or allow any other encumbrances to be established thereon and
it shall not contribute it into another company's assets.
14.02 Restrictions of the transfer of and the encumbrances on the assets of
the Concession Company
When transferring any of its assets or permitting encumbrances thereon,
or by any other contractual obligations, the Concession Company shall
not put itself in a position whereby it becomes unable to fulfill its
obligations under the Local Concession.
14.03 Change in the ownership structure of the Concession Company
Pursuant to the provisions hereof, the substantial shareholders of the
Concession Company at the time of the execution of the first amendment
to the Concession Contract or the control over such shareholding shall
not be changed by transferring shares without the prior written consent
of the Minister.
The change in the ownership structure shall be deemed to have been
significant if it concerns more than 10% of the shares of the
Concession Company; such restrictions shall also apply if the transfers
of shares following one another reaches 10%. The Minister may only
refuse to consent to the change in the ownership structure (ie.
transfer of shares) if it has concluded that as a result of such
change, the Concession Company will become unable to fulfill its
obligations under the Local Concession either financially, legally or
professionally.
The parties hereby note that the Winner of the Tender has complied with
the above provisions in the Deed of Foundation of the Concession
Company being a party hereto.
The restrictions herein contained shall not apply if the shares of the
Concession Company are transferred into a creditor's ownership as
security for a credit (loan) agreement provided by a lender (bank,
financial institution) for financing a project or a bond issue arranged
by a bank (financial institution). Following such transactions the
restrictions herein contained shall be binding upon the new owners
(lender, creditor). Should the Concession Company obtain a credit in
the above manner, it shall report it to the Minister within five (5)
working days.
The above restrictions shall also apply if the total value of
individual transfers is in excess of 10%. If at least 15% of the shares
of the Concession Company have been transferred, the Minister may
execute an amendment hereof. The restrictions shall also apply if the
total value of individual transfers is in excess of 15%.
14.04 Control of the Hungarian participation
The Concession Company shall continuously control whether its ownership
structure is in compliance with the provisions of the Tender. Should
the Concession Company become aware of any change in the ownership, it
shall notify the Ministry. On the basis of an authorization by the
Minister, HFF shall be, at all times, entitled to inspect the ownership
structure. Should either the Concession Company or the
Telecommunication Chief Inspectorate become aware of a change in the
ownership as a result of which the Concession Company will no longer
comply with the conditions of Hungarian ownership provided in clause
14.05 of the Concession Contract, the Minister shall, with a 3 month
deadline period, demand that the Concession Company restore its
ownership structure as set out in clause 14.05. If the Concession
Company is late with such notice, the period of such delay shall be
included in the 3 month period by the Minister. Non-compliance with the
Minister's demand within the deadline provided shall give grounds to
the Minister for termination of the Contract. (The tender documentation
shall be an integral part hereof.)
14.05 Without any prior consent of the Minister, the shareholdings owned by
the Hungarian shareholders of the Company may be as follows:
a) for the three month period from taking over the
service, 0%, which means that during this period
of time the foreign shareholding can be 100%;
b) for a seven year period from the effective date of the
first amendment to the present Contract, the Hungarian
ownership may be reduced to 10% provided that the Deed of
Foundation of the Company is changed to the effect that when
the Company Act requires the affirmative vote of seventy-five
percent (75%) of the outstanding shares of the Concession
Company to approve action proposed to be taken by the
Concession Company, then for so long as the Hungarian
ownership of shares of the Company is between ten percent
(10%) and twenty-five percent (25%) of the outstanding shares
of the Concession Company, the affirmative vote of such number
of the outstanding shares of the Concession Company as may
equal one hundred percent (100%) less such Hungarian ownership
percentage, plus one share shall be required to approve the
action proposed to be taken by the Concession Company;
c)for a seven year period from the effective date of the
first amendment of the present Contract, Hungarian
ownership may be reduced to 1% provided that within two
years from such reduction of Hungarian ownership, the
Hungarian ownership provided in Clause 14.05 b) is
restored.
After the expiry of the seven year period of time detailed in
subclauses b) and c) the 25%+1 share Hungarian ownership must be
restored, or until this time 25%+1 share of the capital should be
issued on the Budapest Stock Exchange as registered voting shares by
the way of public offering. A failure to meet any of these requirements
constitutes a major breach of the Concession Contract except if the
Concession Company proves that despite its acting in a reasonable
manner the restoration of Hungarian ownership or the issuing was not
successful. If so, the Concession Company is obliged to submit a
proposal to the Minister and initiate a solution. The Minister shall
not refuse such an initiation.
Two out of every five members of the Board of Directors must be
Hungarian citizens; if there are only three members of the Board of
Directors, then only one member must be a Hungarian citizen. One-half
of the members of the Supervisory Board must be Hungarian citizens; if
there are only three members of the Supervisory Board, then only one
member must be a Hungarian citizen."
CHAPTER 15.
Amendment and termination of this Contract
15.01 Amendment of this Contract with the Parties' agreement
In accordance with legal requirements the Parties may, by a written
agreement, amend this Contract.
15.02 One-sided amendment hereof by the Minister
The Parties may amend this Contract subject to the other party's
consent. The Minister shall be entitled to one-sided amendment hereof
for the purposes of consumer protection or in accordance with its
international obligations undertake in the meantime, in accordance with
Section 14 of the Concession Act and complying with the settlement
procedure provided for by section 18.2 hereof. This right of the
Minister, however, shall not impose disproportional obligations on the
supplier. The supplier shall be informed of any proposed amendment in
due course by the Minister. The time period prior to an amendment
coming into force shall be long enough for the supplier to make
preparatory arrangements and such amendments cannot cause an adverse
financial change in the position of the concession's beneficiary (see
Section 14 of Act No. XVI of 1991.).
15.03 Termination
Upon expiry of the initial and the extended term set out in Chapter 3
hereof, this Contract shall automatically terminate. The Parties may,
with mutual consent, terminate this Contract at any time. The
termination hereof shall mean the termination of the concession right
as well.
15.04 Termination of the Local Concession
Possessing conclusive evidence - determined by the minutes of the
settlement procedure provided for by section 18.2 hereof - the Minister
may terminate the Local Concession in respect of all services or of a
given geographic area or in respect of a given service and of a
geographic area in any of the following cases:
a) the Concession Company abuses, customarily and
deliberately, the provisions hereof including rules
set out by Chapter 8 hereto - relating the abuse/
misuse of monopoly position - and fails to
comply with the Minister's notice within a reasonable
deadline;
b) the bankruptcy procedure of the Concession Company
has been initiated;
c) a procedure has started for the liquidation of
the Concession Company or the Concession Company
makes a general assignment for the benefit of
creditors.
15.05 Shortening the term of exclusive service rights
If the Concession Company fails to fulfill the annual development
requirements set out in section 6.2 hereof, in addition to the penalty
payment provided for by section 6.2 and Schedule "C" hereto, and
following the settlement procedure according to section 18.2 hereof,
the Minister may shorten the term of exclusive service right by twenty
(20) days for each percentage point by which the Concession Company is
behind the annual development requirement concerning the main lines. If
the Concession Company is behind the annual development requirements by
less than 1%, the term of the exclusive service rights shall be
shortened proportionally to this extent.
15.06 Rules of distribution of assets
Should the Local Concession be terminated for whatever reason and
thereby the Concession Company is no longer be authorized or licensed
to provide local public telephone services under concession, the
shareholders of the Concession Company shall terminate the Concession
Company in accordance with the provisions on the final settlement of
Act No. VI of 1988 on economic associations.
15.07 Termination of radio-licenses
Should any of the services provided by radio telecommunication
equipment described herein terminate for whatever reason, the
authorization in relation to radio licenses - granted for the purposes
of the concession activities - shall automatically terminate.
15.08 Obligation to provide service following termination
The Concession Company shall provide the services determined herein for
twelve (12) months following termination hereof or - if a new
concession is granted earlier - until the date of granting new
concessions. The Parties shall enter into a separate agreement to
regulate the conditions of providing such services.
The obligation to supply shall cease on the day when the new supplier
commences to provide local public telephone services.
CHAPTER 16.
Force majeure
In the case of failure by the Concession Company to comply with its obligations
hereunder, the Concession Company shall not be liable to the extent and for a
period of war initiated with or without an ultimatum; a civilian uprising;
terrorists' acts; strikes; natural catastrophes; a fire, an explosion or state
of emergency or any other facts of similar nature which, under the Civil Code
make it impossible - and NOT due to the failure by the Concession Company - to
fulfill such obligations or prevent/obstruct the fulfillment. Should such events
cause damage to the telecommunications network to be operated by the Concession
Company, it shall arrange for the network to be repaired and re-installed in
accordance with the action plan approved by the Minister. Such obligations,
however, shall only bind the Concession Company if it is granted direct state
support or if it may implement reasonable changes in its billing/charging rates.
CHAPTER 17.
The collective employment agreement and other contracts
relevant to the employees' employment
The Concession Company shall comply with the terms and conditions of the
collective employment agreement and other relevant employment contracts entered
into by the predecessor of the National Concession Company with the employees of
the given prime area. For a period of eight (8) years following the coming into
force of the Agreement the Concession Company shall not propose any amendment of
such contracts which would adversely affect the employees' rights.
Upon transfer of employees the Parties shall act in accordance with the rules of
the settlement procedure as set out in section 6.15 hereof.
For the purposes of employment issues the Concession Company shall be the legal
successor of the predecessor of National Concession Company (MATAV Rt.). On the
basis thereof the Concession Company shall undertake, for at least 12 months to
comply with:
- the programme indicating the improvement of employment - efficiency
as worked out by MATAV Rt. and its
trade union (Matasz);
- the existing network of social benefits;
- the long-term support of employees' insurance under a contract
between MATAV and the Social Insurance
Fund of Telecommunications employees;
- earlier employment contracts; and
- until the execution of a new collective employment agreement,
but in any case, for not less than 12 months, the terms of the
currently existing MATAV Collective Employment Agreement.
CHAPTER 18.
Settlement of disputes and interests
18.01 Settlement
The Parties shall settle all disputes and claims arising out of or in
connection with this Contract by direct negotiations.
18.02 The right to settlement
The Minister shall carry on with the settlement procedure described
herein prior to any action relating to a change in the fees/charges,
the termination or amendment hereof, the fixing of penalty payments and
any payments payable to the customers or any other action which would
adversely affect the position of the Concession Company. In this
procedure the Minister shall notify the Concession Company in writing
(a) of the reasons of any proposed action and the claimed material
breach hereof; (b) of the evidence at the Minister's disposal -
providing grounds for the proposed action - together with any other
statements establishing the fact of a material breach hereof.
Thereafter the Concession Company shall be given the opportunity to
make a statement either in writing or by a verbal declaration, it may
provide additional proof and may review and comment on the arguments
and evidence brought against it. The Minister shall proceed with the
settlement procedure promptly and - unless extraordinary circumstances
occur - come to a decision within six (6) months of delivery of its
written notice thereof. In the case of an extraordinarily comprehensive
matter the Minister may extend the procedure by a further three (3)
months. The Minister undertakes that is shall justify such a decision.
CHAPTER 19.
Specific obligations of the Concession Company
19.01 The Concession Company undertakes:
- to pay HUF 58,500,000 as a concession fee payable once,
pursuant to section 4.1 of this Concession Contract; - to pay
0.3% of its gross annual income as an annually payable
concession fee pursuant to section 4.1 of this Concession
Contract; - to take over the local public telephone services
in the Oroshaza prime area from MATAV Rt. by 31 December 1995;
- to further employ the employees of MATAV Rt. in the Oroshaza
prime area with the same conditions for 8 years from the date
of taking over the service; - to charge subscribers the
maximum amount allowed by the laws, in effect from time to
time, which amount will consist of the entrance fee as
determined by law, from time to time in force and a charge
payable pursuant to the civil law agreement entered into with
subscribers, however all the contributions paid by the
subscribers by 31 August 1995 shall not be charged and it
shall have no further claim in this regard; - that Hungarian
ownership shall conform to the relevant laws the text of the
first amendment to the Concession Contract and the Minister's
special requirements; - not to charge the monthly subscribers'
fee for local municipalities in the Oroshaza prime area, and
to provide each local municipality with 2 terminal equipments
free of charge; - to pay a sum equal to 10 times the local
occupational excise tax pursuant to the laws regulating local
taxation; - to fulfill the demands of the waiting list by 30
June, 1998; - to instal one public telephone station for each
250 people in a manner, that it shall instal at least one
public telephone station in each of the villages of the prime
area; - to instal 50% of the public telephone stations in a
way that it is suitable for hearing-impaired persons; - to
provide for text service for hearing-impaired people; - that 1
out of every 4 public telephones installed in one place shall
be a texttelephone (hospitals, schools, museums, etc.); - to
instal 2% of the public telephone stations in a manner that it
is suitable for disabled people; - that 1 out of 4 installed
public telephone stations shall operate with phonecards; - it
shall ensure a control of 3% of the telephones installed for
local municipalities, ie. the municipalities may decide which
telephones should be installed by the Concession Company free
of connection charge.
The Parties hereby agree that obligations of the Bid Winner and of the
Concession Company herein not detailed shall be governed by the bid for
the Concession of the Winner of the Tender, with the condition that,
following the logic of the first amendment of this Concession Contract,
the deadlines and certain other terms will be changed.
In order to secure the payment obligation detailed in the first indent
of this Clause, the Company shall provide an unconditional bank
guarantee for the stated amount by 18 September 1995, and a failure to
provide the security will entitle the Minister to terminate the
Concession Contract and the first amendment in full with immediate
effect. In order to secure the undertakings in the third and ninth
indent of this Clause, the Concession Company shall provide good
performance guarantees (bank guarantee) by 1 December 1995 in the
amount of HUF 25,000,000 each, and a failure in the performance of the
underlying obligation will entitle the Ministry to this amount as
penalty payment. If the service is taken over by 1 December 1995 or
before, no bank guarantee securing the obligation detailed in the third
indent has to be provided.
19.02 The Concession Company undertakes that if it stops providing local
public telephone services thereby breaching this Contract during the
term hereof, it shall pay, as a penalty payment, the costs of the
temporary maintenance of the service and the costs of a new tendering
process; such penalty payment has been guaranteed by the winner of the
Concession Tender in the Concession Agreement (attached hereto as
Schedule "A").
CHAPTER 20.
Miscellaneous
20.01 Governing law
This Contract shall be implemented under and governed by the laws of
the Republic of Hungary.
20.02 Partial invalidity
This Contract shall be considered to be invalid only to the extent of
any invalid provisions, all other provisions hereof shall remain in
force unchanged.
20.03 Language of this Contract
This Contract is made and executed by the Parties in the Hungarian
language. Any versions hereof prepared in another language shall serve
exclusively for information purposes for foreign investors.
20.04 Schedules to this Contract
- Schedule "A":the Concession Agreement entered into between
the Winner of the Tender and the Minister; - Schedule "B":the
table containing the details of specific coverage of the
Oroshaza prime area; - Schedule "C":Service development
requirements; - Schedule "D":Penalty payments payable upon
non-compliance with the service quality requirements; -
Schedule "E":Technical conditions of providing non
concession-related other telecommunications services; -
Schedule "F":the winning Bid submitted by the Winner of the
Tender; - Schedule "G":Assignment and Transfer Agreement; -
Schedule "H":Service quality requirements; and - Schedule
"I":The laws of specific importance for the purposes hereof.
20.05 Notices
All notices and other communications made or forwarded hereunder shall
be made by letter, telefax or telex and - unless otherwise indicated by
the Parties in writing - shall be sent to the respective addresses of
the Parties stated herein or to such other address or person as the
Parties may state in writing. All notices and other communications
hereunder shall be made in the Hungarian language.
Such notices shall be sent to the following addresses:
For the Minister or KHVM
Kozlekedesi, Hirkozlesi es Vizugyi Miniszterium
1077 Budapest
Dob u. 75-81.
For the attention of: [ ]
Telefax: [ ]
Telex: [ ]
For the Concession Company
[address ]
For the attention of: [ ]
Telefax: [ ]
Telex: [ ]
[SIGNATURE LINES]
[END OF CONTRACT]
43153
EXHIBIT 10.80
AMENDED AND RESTATED CONCESSION CONTRACT
For providing local public telephone services in the Bekescsaba
prime area of the Republic of Hungary
This CONCESSION CONTRACT (the "Contract") is made on 6 May 1994 and amended and
restated as of June 3, 1996 by and between the MINISTER For TRANSPORTATION,
TELECOMMUNICATIONS and WATER MANAGEMENT (the "Minister") acting for and on
behalf of the Republic of Hungary and HUNGAROTEL TAVKOZLESI RT. (1126 Budapest,
Kiralyhago u2.) as LOCAL CONCESSION COMPANY (the "Concession Company or
Hungarotel") upon the terms and conditions herein provided.
PREAMBLE
Pursuant to Act No. LXXII of 1992 on Telecommunication (the "Telecommunications
Act"), Act No. XVI of 1991 on Concessions ("the Concessions Act") and Act No.
LXII of 1993 (the "Frequency Management Act") the Minister has been authorized
The Concession Company was established pursuant to Act No. VI of 1988 as a joint
stock company, in which the Hungarian ownership was in excess of 25% + 1 of
shares upon establishment.
The founders of the Concession Company are the Winners of the Tender issued by
the Minister for the Bekescsaba prime area Having won the Tender, HUNGAROTEL has
obtained the right to provide local public telephone services in the Bekescsaba
prime area This fact has been set out by the "Agreement" between the Minister
and the Winner of the Tender dated February 8, 1994 (attached hereto as Schedule
"A") All rights and obligations set out by the "Agreement" have been assigned
and transferred by the bidder to the Concession Company having been established
in the meantime.
Following the execution hereof the Concession Company shall be entitled to
provide local public telephone services in the Bekescsaba prime area upon the
terms and conditions herein determined.
<PAGE>
- 1 -
CHAPTER 1.
Interpretation
Words and phrases used herein shall have the following meaning:
"Basic Technical Plans" means all the plans described by Decree
No. 23/1993(IX. 9.) of the Minister for Transportation, Telecommunications
and Water Management and in other rules connected therewith;
"Business regulations" means the publicly available regulations of the
Concession Company, which are provided to customers before entering into the
subscriber's contract, and which contain the general terms and conditions of the
proceedings and the contractual procedure of the Concession Company;
"Completion Date" means the day of commencing local public telephone services,
i.e. January 1, 1996;
"Decree on charges" means the Decree No. 30/1993(IX.23.) of the Minister for
Transportation, Telecommunications and Water Management on the fees and
charges payable for public telephone services;
"Effective date" means 6 May 1994 when rights and obligations under this
Contract come into force;
"Financial year" shall correspond to the calendar year The first financial year
of the Concession Company shall commence on 1 January 1995;
"Gross returns (income)" means the pre-tax profit (excluding VAT) after
distribution of fees (settlement of the connection charges, subject to traffic)
of the Concession Company, originating from the telephone service in the
Bekescsaba prime area, which is subject to the concession;
"Hired line" means the total of electric circuit sections connecting domestic,
or international and domestic service access points (telecommunication
apparatus), which only includes transmission paths, access points (interface)
and the monitoring access points and which establishes connection without
directing signals (see Telecommunications Act, Schedule, point 3);
"Hired line service" means the telecommunications service through which the
operator passes on to another person the electric circuit sections connecting
service access points for the purpose of telecommunications activity in return
for a fee (see Telecommunications Act, Schedule, point 4);
"Local Concession" means the concession granted by the Minister, pursuant to the
provisions of which local public telephone services can be carried on in the
Bekescsaba prime area of the Republic of Hungary for a period of twenty-five
(25) years in such a manner, that for the first eight (8) years of such period
the Minister shall grant an exclusive service right to the supplier (Section 4,
sub-section 3 and Section 39, sub-section 2 of the Telecommunications Act);
"Main line" means all lines in the public telecommunications network, including
lines established via radio, cable and fibre optics, which connect service
access points to subscribers' terminals or to local switchboards (centres)
generating profit thereby for the supplier (For the purposes hereof "Main line"
shall not include the service and other, non-profitable lines.) Lines used at
the public telephone stations are considered as main lines;
"Minister" means the Minister appointed in accordance with the constitutional
order of the Republic of Hungary having been authorized by Act No. LXXII or an
amendment thereof or an amendment replacing it, to publish the Concession
Tender, to grant the Concessions and to exercise rights connected therewith;
"Ministry" or "KHVM" means the Ministry of Transportation, Telecommunications
and Water Management;
"Network connection decree" means the Government Decree No.
158/1993(XI.11.)on the connection of telecommunication networks,on the approval
of co-operation of such networks and on the subscribers' contracts;
"Prime area" means part of the public telecommunications network within which
the use of the basic network is not necessary for the service provided in the
framework of the subscriber's contract for establishing connection between two
service access points (see Telecommunications Act, Schedule, point 16.);
"Public Telecommunications Network" means the entirety of service access points,
transmission paths and switching devices performing the connection of such
networks, making it possible for anyone, under the same conditions, wishing to
use it, to make a sound connection, or to make any other information
transmission with identical characteristics through a terminal equipment
connected to a service access point, with the user of a terminal equipment
connected to another service access point (see Telecommunications Act, Schedule,
point 8.);
"Public Telephone Service" means that the provider of service ensures, in return
for a fee, the transmission of human speech for the users through a public
telecommunication network In the framework of a public telephone service, the
provider of the service may provide international, domestic and local telephone
service:
a) local telephone service is a telecommunications service subject to a
concession contract, in which the provider of service enters into a subscriber's
contract with the user, for the local network or the primary area The concession
company entitled to provide local telephone service must enter - reasonably -
into a network contract for the services specified in paragraphs b) and c) as
well;
b) domestic long-distance telephone service is a telecommunications service
subject to a concession contract, in which the provider of service, in
accordance with the network contract entered into with the user, reaches an
agreement on the connection or attachment to the basic network;
c) international telephone service is a telecommunications service subject
to a concession contract, in which the provider ensures connection to an
international service access point;
"Telecommunications Fund" means the state fund regulated in Section 36 of the
Telecommunications Act, which is operated pursuant to Act XXI. of 1995 on the
Telecommunication Fund and any government subsidy source which may substitute
the forgoing;
"Telecommunications service" means a business activity whereby the supplier
carries on additional public telephone service (subject to concession) or other
additional telecommunications service falling within the scope of competition
for another person in return for a fee, or transfers its network to another
person for this purpose (see Telecommunications Act, Schedule, point 25.);
"Telecommunications Chief Inspectorate "HFF" means the Telecommunications Chief
Inspectorate (or,as the text may indicate, the regional bodies thereof) the
duties and competence of which are regulated by Government Decree No.
142/1993(X. 13.);
"Telecommunications supplier" means a legal entity, or an economic association
without legal personality or a private entrepreneur which/who is entitled to
provide telecommunications services for anybody (another supplier, user or
subscriber),(see Telecommunications Act, Schedule, point 26.);
"Term of exclusivity" means the time period provided by 5.1 hereof (including
the possibility of its adjustment as set out in 15.5 hereof), during which the
Concession Company shall enjoy an exclusive right to provide local public
telephone services in the given prime area;
"Unified subscriber's registration" means the alphabetical list of legal
entities and private individuals in the given prime area having entered into
subscriber's contracts with the Concession Company, a list which - subject to
the customer's approval - may contain the telephone number, the address, the
profession (scope of activities) of the customer, the publication thereof must
not infringe the customer's personal rights, and such list provides for access
to other customers' similar details. In all other matters the Company shall
comply with the relevant provisions of any future legislation.
Words and phrases not defined herein shall be governed by the Telecommunications
Act and the relevant legal rules.
CHAPTER 2.
The General purpose of this Contract
The general purpose hereof is to entitle the Concession Company to (i) provide
public telephone services falling under the Local Concession and (ii) to provide
additional services in connection therewith in accordance with the provisions of
the Telecommunications Act and the rules of execution thereof The Concession
Company shall comply with the provisions herein provided.
CHAPTER 3.
The Local Concession
3.01 The scope of the Local Concession
In accordance with this Contract and pursuant to the Local Concession,
the Concession Company is entitled to provide telecommunications
services in the Bekescsaba prime area Such services shall be further
detailed in sections 3.5 and 3.6 below.
3.02 Uninterrupted service
The Concession Company shall provide local public telephone services in
the Bekescsaba prime area under at least the same conditions as at the
time of commencing the service.
3.03 The term of the Local Concession
The term of the Local Concession shall be twenty-five (25) years,
expiring at 12.00 pm on 1 May 2019.
3.04 Extension of the term of the Local Concession
The Minister may, without further tendering, extend the term of the
Local Concession and the term hereof by an additional twelve and a half
(12,5) years, provided the Concession Company submits a written
proposal for such extension not later than eighteen (18) months before
the expiry of the initial term
Prior to coming to a decision on such extension, the Minister shall
require that professional and customers' interest protection bodies, as
well as the relevant local municipalities, submit their proposals in
accordance with Section 4, sub-section 5 of the Telecommunications Act
The Minister shall come to a decision on the extension not later than
nine (9) months before expiry of the initial term of the Local
Concession Such decision of the Minister shall not be subject to the
settlement procedure provided for by section 18.2 hereof.
In its proposal, the Concession Company shall undertake the payment of
a further concession fee announced by the Minister in advance, in
relation to the extension of the term of the Local Concession.
When determining the concession fee for the extended term, the Minister
shall consider:
-the changes that having taken place recently;
-the rate of inflation;
-the amount of the initial concession fee; and
-whether the Concession Company has applied to the
Telecommunications Fund for financial support, and if so,
whether it has actually been granted any support.
When granting new concessions following termination of the
Concession Contract, the Concession Company shall enjoy preferential
treatment, provided the other bidders offer equal conditions.
3.05 Additional services not relating to the concession
Pursuant to the provisions of the Telecommunications Act and subject to
the approval of the Minister under Section 5 sub-section 4 and section
20 sub-section 1 thereof, the Concession Company shall be entitled to
carry on the following non concession-related activities:
a) other telecommunications services;
b) marketing, sale, maintenance and repair of products
for telecommunications and information technology;
c) computer application services;
d) assessment and safety services;
e) general engineering development activities;
f) telecommunications research and experimental
development;
g) arranging investments and building maintenance,
management and main contracting; and
h) telecommunications training courses and other
educational activities.
3.06 Pursuant to section 3.5/a above, the Concession Company hereby declares
that, in accordance with and based on Section 3, sub-section 2 of the
Telecommunications Act, it intends to carry on the following non
concession-related, other telecommunications activities:
-SZJ 09521 Telegraph and data transmitting
-SZJ 095211 Forwarding telegraphs
-SZJ 095212 Forwarding telexes
-SZJ 095213 Data transmission
-SZJ 095214 Telecopying (Telefaxes)
-SZJ 09522 Telephone services
-SZJ 095221 Managing telephone communications
-SZJ 095222 Sub-operator services
-SZJ 095223 Special purpose telephone services
-SZJ 095224 Mobile telecommunications services (other
than national public mobile radio telephone services).
According to Section 20, sub-section 1 of the
Telecommunications Act, the Concession Company may commence the above
listed activities from the day of execution hereof (The Concession
Company shall obtain further licenses as required by Section 19,
sub-section 4 of the Telecommunications Act.) The terms of such
licenses shall be determined therein and the withdrawal or cancellation
of such licenses shall not - necessarily - be subject to the existence
of the concession rights.
Should the Concession Company intend to provide program distribution
via cable network, it shall obtain all the necessary licenses
(operational and technical) accordingly.
The technical provisions of the activities shall be contained by
Schedule "E" hereof.The Minister shall authorize HFF to supervise the
compliance with the terms and conditions of all licenses.
CHAPTER 4.
The Concession fee
4.01 The Concession fee
The Concession fee shall comprise:
(a) The one time concession fee shall be the sum of HUF
756,000,000, which has been paid by the Concession Company on
November 8, 1995. (b) A concession fee payable annually; the
basis of calculation of which shall be the gross income of a
given year of the Bekescsaba prime area realized by the
Concession Company The Concession Company shall pay 2.3% of
its gross annual income.
The annual concession fee shall be paid by the Concession
Company on the basis of the Assignment and Transfer Agreement in the
manner described in section 2.2 of the Concession Agreement (Schedule
"A" hereto).
CHAPTER 5.
Exclusive right to provide local public telephone services
5.01 The extent and term of the Concession Company's exclusive right to
supply
Pursuant to the provisions hereof the Concession Company shall be
granted an exclusive right to carry on providing local public telephone
services falling under the Local Concession for eight (8) years from
the Completion Date, but not later than 12.00 pm on 1 November 2002.
5.02 Shortening the term of exclusivity
The Minister may shorten the term of the exclusivity of the Local
Concession only pursuant to section 15.5 hereof.
CHAPTER 6.
Obligations of the Concession Company originating in its concessions right
to provide local telephone services
6.01 Rules of public telephone services
The Concession Company shall provide public telephone services in
accordance herewith, and in accordance with the provisions of the
Telecommunications Act and the decrees of execution thereof Unless
there is legislation to the contrary, the Concession Company shall
provide for equal treatment to customers in equal positions, it shall
not discriminate either for or against anybody in relation to the
conditions and the fees for providing public telephone services.
6.02 Requirements of annual development
The Concession Company shall comply with the annual service development
requirements set out in Schedule "C" hereto, provided there is
satisfactory solvent customers' demand for new lines Should the
Concession Company fail to comply with the development requirements in
any calendar year despite the existence of solvent customers' demand,
the Concession Company shall pay a penalty payment in the manner set
out in Schedule "D" hereto, to the Telecommunications Fund The basis of
the development requirements shall be the coverage (10.3/100 persons)
existing on 31 December 1993 If the coverage of the given prime area is
less than the national coverage (being 14.57 lines for 100 persons on
31 December 1993), the Concession Company shall achieve by 31 December
1998 the national coverage and the annual development of 15.5% based on
the national coverage (provided there is a solvent customers' demand
for such development) and the data included in Annex "C" shall be
amended according to these rules Following 31 December 1998 the
Concession Company shall maintain the normal annual development
requirements (being an annual 15,5%), provided there is solvent
customers' demand Should the coverage of the given prime area be in
excess of the national coverage, the development obligation of the
Concession Company shall be an annual 15,5% in the first 6 years set
out in the Tender Documentation, provided there is solvent customers'
demand in connection therewith.
6.03 Fulfillment of customers' demand
In addition to achieving the development requirements set out in
section 6.2 above, the Concession Company shall, in prime areas covered
by the Local Concession, fulfil 90% of the total customers' demand
within 6 months from the application therefore after 30 June 1998 and
an additional 8% of the total customers' demand within 12 months from
the application.
For the purposes of calculation of the percentage contained herein, if
a customer enters into a preliminary Subscriber's Contract with the
Concession Company, it shall be deemed as customers' demand.
The Concession Company shall provide for the latest technology covering
its whole service area.
6.04 Provisions for prohibited activities
The Concession Company shall not be obliged to provide any services if
it can be proven that such provision would contradict or infringe the
provisions of the Telecommunications Act, the decrees for the execution
thereof or any authorizations or licenses necessary for providing any
telecommunications services.
6.05 Temporary suspension of the service
The public telephone service (save for the events of force majeure) may
only be temporarily suspended with the prior written consent of the
Minister and the prior written notification to the customers in due
course; such suspension shall not include the term of any, otherwise
non-recoverable, technical problems or maintenance; the length of such
temporary suspension which shall not exceed 72 hours The service may,
temporarily, be suspended or restricted in a manner specified in laws,
for the purposes of protection of national defence, economic and public
safety (including anti-terrorism and drug-trafficking) of the Republic
of Hungary.
6.06 Co-operation in the state of national emergency
The Concession Company shall, in accordance with the laws, participate
in the preparation and implementation of the action plan governing the
procedure for national emergencies under the instructions of the
Minister and other relevant ministers, and it shall co-operate with
other telecommunications suppliers and network operators In the event
of a national emergency or war, and in the interest of protecting
public safety, the Concession Company shall act in accordance with the
laws and under the instructions of the Minister and the Government
Should the Concession Company suffer significant damage or loss as a
consequence of such action, it may, within one (1) year of suffering
such damage or loss, request indemnification in writing from the
Minister The Minister shall reasonably appraise the indemnification
application of the Concession Company within 30 days.
Enforcement of interests of national defence and national safety
a) The Concession Company shall provide for the protection of
interests of national defence, national safety and the
Government in its service area in accordance with the relevant
laws, Government and ministerial decrees via closed circuit
networks and by enabling the telecommunications to be used for
the purposes of national defence The duties of the Concession
Company relating thereto shall be set out in its Business
Regulations.
b) The Concession Company's participation in the preparation
of certain duties of national defence shall be governed by the
Act on National Defence and by contracts entered into by the
Concession Company with the Minister and other relevant
authorities respectively.
c) The Concession Company may only change the ownership
structure and interconnection services of the closed circuit
networks operating in its service area with the consent of the
owner of the network.
d) The Concession Company shall comply with the laws governing
national defence and safety when carrying on its registration
and data processing duties.
e) The Concession Company agrees that it shall provide the
technical conditions for competent authorities to control,
within the framework of relevant laws (as from time to time in
force), the sound or other communications of certain customers
The possibility of control shall cover the whole service area
determined hereby, it shall also cover each subscriber
category and each type of service provided by the Concession
Company Detailed regulation of such control shall be governed
by an agreement.
f) The Concession Company agrees that it shall carry on
certain part of its activities in accordance with a separate
ministerial decree regulating the operation of closed circuit
networks, normally on a contractual basis.
g) For services provided in accordance with the laws
regulating the protection of international and national
defence interests, the Concession Company may apply for
reimbursement of the actual costs of such activities from the
Minister; such application shall be decided upon within 30
days.
6.07 The Subscriber's Contract and connection of the terminal equipment
Pursuant to provisions of Government decrees and the Business
Regulations of the Concession Company as approved by HFF, the
Concession Company shall enter into individual Subscriber's Contracts,
on the basis of which it shall provide access points suitable for
connection to the public telephone network In the circumstances set out
by the Telecommunications Act and the decrees for the execution
thereof, the Concession Company may refuse to enter into or may
terminate the Subscriber's Contract The Concession Company shall enable
customers to connect their terminal equipment (the type of which is
subject to HFF's approval) to the access points of the public telephone
network.
6.08 Service quality requirements
The Concession Company shall fulfil the minimal quality requirements as
set out by Schedule "H" hereto according to the action plan If, due to
certain events which could not have been envisaged or avoided by the
Concession Company, it fails to fulfil its contractual quality
obligations, the Concession Company shall follow the procedure set out
by Schedule "D" hereto.
6.09 Co-operation with other telecommunications suppliers
In order that the public telephone network operates effectively and in
order to ensure connectability of other networks and services, the
Concession Company shall co-operate with the National Concession
Company upon conditions provided by law and shall, following the expiry
of the exclusivity period, co-operate with other telecommunications
suppliers, provided they are not connected via the network of the
National Concession Company Such co-operation shall be governed by
Sections 16 to 18 of the Telecommunications Act and by the provisions
of Government Decree No. 158/1993(XI. 11.) on the connection of
telecommunications networks and on the licensing of the co-operation
thereof.
6.10 General requirements of customers' supply
a) General requirements
Pursuant to the provisions of the laws, the Basic Technical
Plans and the Business Regulations, the Concession Company shall
establish and operate an effective customers' enquiries service
enabling customers, users and subscribers to enquire in relation to
application, instalment, services, billing, telephone registers and
other similar matters The Concession Company shall not, unlawfully or
unreasonably differentiate for or against any group of subscribers or
users in connection with the customers' enquiries activity.
The Concession Company shall connect via an interface
(Telecommunications Act, Sections 16 to 18) to:
-the National Operation Supporting System ("OSS"); -the supervision of
networks; -the National System Supporting Centre ("NRK") -the National
Enquiries; and -the telephone card coding and distribution system.
During preparation of its technical development plans, the
Concession Company shall only apply standards approved in Europe or in
Hungary.
b) Minimum requirements
During the term of exclusivity determined in Chapter 5 hereof,
in the prime areas covered by the Local Concession, the Concession
Company shall fulfil the following minimum requirements:
(i) To ensure the availability of local
help-lines - with one and the same connection number
as elsewhere in the country - from all subscribers'
and public telephone stations, free of charge This
service shall be established within eight months of
the Completion Date but at latest by 1 September
1996.
(ii) To issue a printed telephone directory
in the prime area covered by the Local Concession,
containing the name of each subscriber in the area,
save those expressly requesting not to be listed In
its standard form the directory shall contain at
least the name, address, connection number of each
subscriber of the area; furthermore the dialling code
of the countries and the regions The directories of
the Concession Company may also contain
advertisements The Concession Company shall not
charge subscribers for publishing their details in
the standard form directory A reasonable price for
the telephone directory may be charged to subscribers
In order to set up a unified system of customers'
details registration, the Concession Company shall
co-operate with the National and other Local
Concession Companies In addition to a unified
registration of customers in its own prime area, the
Concession Company may issue its own telephone
directory.
(iii) To set up an enquiries service whereby
information can be obtained on the telephone numbers
of subscribers of the area, the Concession Company
may charge a reasonable fee for the enquiries service
subject to the Minister's approval.
(iv) To set up other - domestic or
international - enquiries service for the operators
of other telecommunications networks for a reasonable
fee, in accordance with relevant legislation.
6.11 Public telephone stations
The Concession Company undertakes:
-to instal one public telephone station for each 250 people in a
manner, that it shall instal at least one public telephone station in
each of the villages of the prime area; -to instal 50% of the public
telephone stations in a way that it is suitable for hearing-impaired
persons; -to provide for text service for hearing-impaired people; -to
instal 2% of the public telephone stations in a manner that is suitable
for disabled people; and -that at least 1 out of 4 installed public
telephone stations shall operate with phonecards.
6.12 Confidentiality of information on subscribers
The Concession Company shall prepare a procedure for effective
protection of maintaining both the business secrets obtained during its
activity, and the personal data of subscribers and it shall comply with
such procedure in relation to any information obtained As to data
protection and maintaining information, the Concession Company shall
act in accordance with Section 24, sub-section 5 of the
Telecommunications Act.
6.13 Requirements of registration and providing information
The Concession Company shall (i) maintain a registration suitable for
controlling compliance herewith, with the Telecommunications Act and
other laws; (ii) be prepared for reasonable investigations; and (iii)
provide information in accordance with the Minister's instructions on
such activities Unless the Minister otherwise requires within the
framework of legislation , data provided by the Concession Company save
for confidential information, (eg. relating to the business or to the
ownership structure and commercial information), should be publicly
available.
6.14 Accounting requirements
By 31 December 1996, the Concession Company shall, in accordance with
the Hungarian accounting principles, prepare and submit to the Minister
its accounting principles for accounting for the investments, costs and
revenues The accounting principles shall be prepared in such a way that
details of investments, costs and revenues of the public telephone
service and other activities of the Concession Company, i.e. product
manufacturing, marketing and the trade of equipment can be registered
separately The Minister shall issue its opinion on the proposed
accounting principles within three (3) months of submission Should the
Minister refuse to accept the submitted proposal, it may require the
Concession Company to submit an acceptable proposal for its accounting
principles within twelve (12) months from the effective date of the
first amendment to the Concession Contract. However, the one (1) year
deadline provided for herein shall not mean deviation from the
deadlines provided for by the Accounting Act; the provisions herein
contained shall be complied with in addition to those of the Accounting
Act.
6.15 Obligation to enter into an agreement for handing over existing
networks of assets
By December 31, 1995, the Concession Company shall enter into an
agreement with the National Concession Company (predecessor of which
was: MATAV) on handing over the material tangible and intangible assets
(hereinafter: "the local assets") necessary for providing local public
telephone services in a given prime area Upon handing over (putting
into use, proprietorship or ownership), as the Minister has declared it
as being a generally applicable principle - the local assets, neither
party shall realize any profit The parties shall, upon handing over the
local assets, determine the prices and/or values thereof reasonably The
Concession Company shall deem the value published in the Tender to be
the basis for evaluation It is the Concession Company that shall decide
as to what assets it finds necessary from the offered assets for
providing public telephone services The agreement entered between the
Parties shall contain a provision according to which the Concession
Company shall offer employment for (appr.) 62 persons previously
employed in the Bekescsaba prime area by the National Concession
Company If the Concession Company and the National Concession Company
fail to achieve an agreement within three (3) months of the Effective
Date hereof in relation to the value of the local assets and the
employees to be transferred, the Concession Company shall submit to the
decision of an independent appraisal expert company Unless the parties
agree on the appraisal within two (2) weeks, the appraiser shall be
appointed by the Minister The opinion of the appraiser - provided
within 10 weeks - on the price of handing over the local assets or on
the value thereof shall be accepted to be binding by the Concession
Company The Minister undertakes that the concession contract entered
with the National Concession Company duly contains the provisions
regulating the procedure by the appraisal including, unless there is an
agreement between the parties, a provision that the National Concession
Company shall accept the appraisal's opinion as binding.
6.16 Business regulations
The Concession Company shall prepare and submit to HFF for approval its
Business Regulations no later than 60 days prior to commencing the
service.
6.17 If, on the basis of proper authorizations and approved plans, there was
an investment made or commenced on the establishment of a public local
telephone network in the given prime area, the Concession Company -
under an agreement to be made pursuant to point 6.15 above - shall take
over each and every cost, prepayment of credits and interest, provided
the agreement requires it to do so.
CHAPTER 7.
Interconnection
7.01 Cost of the connection interface and instalment of equipment relating
thereto
In this respect the provisions of Government Decree No.158/1993
(XI.11.) on the connection of telecommunications networks, the
licensing of co-operation thereof and on the network contracts shall
apply.
7.02 Information obligation relating the technical details of the network
The Concession Company shall provide technical information to HFF on
its public telephone network relevant for the purposes of
interconnection, in accordance with legal requirements.
7.03 The Concession Company's right to connect to the networks of other
public telecommunications suppliers
During the initial (8 year) term of the Concession Company's exclusive
service right, it may only use the basic telecommunications network of
the National Concession Company in order to connect to other prime
areas.
7.04 Requirement of unification of telephone-centres
The Concession Company shall submit to the Minister its action plan for
the necessary development of the already existing telephone
switchboards (centres) and it shall ensure that such development be
suitable for the settlement of suppliers of public telephone services
The Minister shall, towards all other suppliers of public telephone
services - including, following the expiry of the exclusive supply, any
other suppliers having been granted a concession - achieve the minimum
requirement of the concession companies of using switchboards suitable
for accounting settlement of suppliers immediately in the case of a
newly obtained switchboard, and within eighteen (18) months from the
Completion Date hereof in the case of the already existing
switchboards. If the data necessary for the precise determination of
income-distribution as required by the Decree on Prices is not
available, the Concession Company shall agree to such data being
determined by way of reasonable estimation The Minister declared in the
Concession Contract concluded with the National Concession Company that
in respect of the revenue sharing it obliges the National Concession
Company to the same procedure and to the conclusion of an agreement
based on this procedure The Concession Company agrees that, during the
eight (8) year term of exclusivity, it may connect to other suppliers
only through the network of the National Concession Company
In addition to the obligations contained by section 6.02 hereof, the
Concession Company shall prepare a 3 year development plan for
switchboards; such plan shall be forwarded to the Minister by 31 July
1996. From then on the Concession Company shall submit an annual
development plan in this respect.
7.05 Provision of a suitable basic network
The Concession Company shall be provided with a suitable basic network
pursuant to relevant legislation, i.e. Government Decree No.158/1993
(XI11.) and Sections 7 and 16 to 18 of Act No. LXXII of 1992.
CHAPTER 8.
Special provisions
8.01 The prohibition of abusing the monopoly position
The Concession Company shall not use its position obtained in the
Bekescsaba prime area for providing public telephone services to
achieve unfair advantages in the market for telecommunications, non
telecommunications-related market and on product-marketing
Anti-competitive pricing (eg. dumping prices) is prohibited.
8.02 The prohibition of cross-financing
The Concession Company shall not use income generated by its public
telephone services to support its non concession-related activities,
nor its computing technology and product marketing activities.
The prohibition of cross-financing, however, shall not apply if the
same bidder is granted the concession in more prime areas for which it
establishes one Concession Company In this case and in relation to
public telephone services the Concession Company may use income
generated by public telephone services in one prime area to finance the
public telephone service of the other area This point 8.2 shall not
prevent the Concession Company from using its after-tax profit from
public telephone services to improve its non concession-related
telecommunications services.
8.03 The obligation of equal treatment
The Concession Company shall not discriminate between, and cannot
provide unfair advantages for, any authorized operator of networks,
telecommunications suppliers or subscribers, including companies in its
partial ownership or in which it has any other interest.
8.04 Prohibition of tying arrangements upon trading the terminal equipment
The Concession Company may only sell terminal equipment to its
subscribers if (a) it does not tie the purchase or lease of the
terminal equipment with the provision of public telephone services and
(b) the price of such equipment is not included in the charge for any
public telephone services.
8.05 Implementation of anti-monopoly rules for other concession companies
The Minister undertakes that it shall impose anti-monopoly rules
identical to those contained herein to all other suppliers providing
public local telephone services under a concession.
8.06 The requirement of equal conditions
Following the expiry of the term of exclusivity, the Concession Company
shall not discriminate between nor shall it provide unfair advantages
for any other authorized network operator, telecommunications supplier
or subscriber, including companies in which the Concession Company has
a participation or other interest.
8.07 The Concession Company shall consider that in its area there might be
existing closed circuit networks or parts thereof The duties in
relation therewith shall be subject to agreement with the owners of
such networks.
CHAPTER 9.
Rights and obligations of the Minister
9.01 Exclusive right to supply
During the term set out in Chapter 5 hereof (and save for those
described in section 15.5) the Minister shall not, without the consent
of the Concession Company, grant a concession-related services right in
respect of the area and the services covered by the Local Concession.
9.02 Fair and impartial treatment
The Minister undertakes that it shall provide a treatment towards the
Concession Company as fair and equal as towards other
telecommunications suppliers and network operators; furthermore, should
the need arise, the Minister shall make the concession contracts
entered with the National Concession Company and/or other suppliers of
telecommunication services available to the Concession Company The
Concession Company shall submit to these provisions should the need
arise.
9.03 Requirement of procedures to be clear and easily understood
The Minister undertakes that, in its legislative and administrative
procedures in relation to the rights, obligations and activities of the
Concession Company hereunder, as well as in the procedures in
connection herewith and in the procedures of KHVM and HFF, the
principle that procedures be clear and easily understood shall apply
and that all such procedures shall be fair and impartial.
9.04 Granting authorizations/licenses
The Minister undertakes that, it shall support the Concession Company
in order that it be given all licenses, consents and authorizations
necessary for the fulfillment of its obligations hereunder within the
shortest possible period of time.
9.05 Significant amendment of decrees regulating the concession-related
activities
The Minister endeavors not to amend the provisions (having a
significant impact for the activity of the Concession Company) of the
Decree on Prices, the Decree on connecting networks and other
telecommunications decrees within eight (8) years from the Effective
Date hereof in a manner that would cause a significantly adverse change
in the position of the Concession Company Such decrees shall not impose
disproportional obligations on the supplier and the proposed amendments
shall be made available to the supplier by the Minister in due course
The time period prior to a proposed amendment coming into force shall
be long enough for the supplier to make the preparatory arrangements in
time.
CHAPTER 10.
Approval of fees
The provisions of the Decree No. 30/1993(XI23.) of the Minister of
Transportation, Telecommunications and Water Management shall be governing
in this respect.
The Concession Company shall publish charges not determined by legislation in
its Business Regulations.
CHAPTER 11.
Use of radio frequencies
The frequencies and frequency zones necessary for the public telephone services
to be provided by the Concession Company shall be provided by HFF pursuant to
the provisions of Act No. LXII of 1993 on Frequency Management.
CHAPTER 12.
Authorizations and licenses
The Concession Company shall obtain the licenses necessary for its operation
(i.e.radio-license, construction-license, equipment-license etc.) in accordance
with the Telecommunications Act and other relevant laws.
CHAPTER 13.
The use of Hungarian products and services
13.01 Requirements in respect of Hungarian products and services
The Concession Company shall, for the purpose of providing public
telephone services, use products and services of Hungarian origin when
such Hungarian products or services are relatively equally available to
non-Hungarian products or services in regard to quality, technical
capability, price and delivery The Concession Company undertakes that
from the effective date of the first amendment to the Concession
Contract, not less than 25% of the total value of products purchased
and services provided for the purposes of the public telephone service,
and following 1 January 1998, not less than 50% of the products and
services shall be fulfilled with products and services of Hungarian
origin, if such products and services of Hungarian origin have at least
the same technical capability and price, as those of non-Hungarian
origin.
A product shall be deemed to be of Hungarian origin if (i) either 25%
of the total value thereof was produced in Hungary or (ii) proof can be
given that due to the manufacturing process having been carried out in
Hungary, the added value of such product increased by 25%; inspection
by HFF on behalf of the Minister to ensure compliance with such
provision may be carried out at any time.
The Minister undertakes that it shall impose the obligations contained
herein in relation to the use of Hungarian products and services on all
other suppliers of public telephone services. The Parties agree that
they will apply the provisions of the Act No. XL of 1995 on Public
Procurements only in case of utilizing/recorsing state subsidies in
accordance with the basic principles of the above mentioned Act on
using budget sources.
13.02 Obligation of penalty payment
The Concession Company shall, by 31 March of each calendar year prepare
a report on the previous calendar year providing detailed information
on the compliance with the obligations under 13.1 hereof in the given
calendar year by the Concession Company Should the Concession Company
fail to comply with its obligations under 13.1 hereof in any calendar
year, it shall pay a penalty payment to the Telecommunications Fund
equal to 0,1% of its annual investments of the given year for each
percentage point by which it failed to fulfil its obligation.
CHAPTER 14.
The prohibition on transfer of the concession right and change in the
ownership structure
14.01 The prohibition of transfer of the concession right
Without the prior written consent of the Minister, the Concession
Company shall not assign and transfer its concession right to provide
local public telephone services, nor shall it establish any mortgage on
the same or allow any other encumbrances to be established thereon and
it shall not contribute it into another company's assets.
14.02 Restrictions of the transfer of and the encumbrances on the assets of
the Concession Company
When transferring any of its assets or permitting encumbrances thereon,
or by any other contractual obligations, the Concession Company shall
not put itself in a position whereby it becomes unable to fulfil its
obligations under the Local Concession.
14.03 Change in the ownership structure of the Concession Company
Pursuant to the provisions hereof, the substantial shareholders of the
Concession Company at the time of the execution of the first amendment
to the Concession Contract or the control over such shareholding shall
not be changed by share transfer without the prior written consent of
the Minister.
The change in the ownership structure shall be deemed to have been
significant if it concerns more than 10% of the shares of the
Concession Company; such restrictions shall also apply if the transfers
of shares following one another reaches 10% The Minister may only
refuse to consent to the change in the ownership structure (i.e.
transfer of shares) if it has concluded that as a result of such
change, the Concession Company will become unable to fulfil its
obligations under the Local Concession either financially, legally or
professionally.
The parties hereby note that the Winner of the Tender has complied with
the above provisions in the Deed of Foundation of the Concession
Company being a party hereto.
The restrictions herein contained shall not apply if the shares of the
Concession Company are transferred into a creditor's ownership as
security for a credit (loan) agreement provided by a lender (bank,
financial institution) for financing a project or a bond issue arranged
by a bank (financial institution) Following such transactions the
restrictions herein contained shall be binding upon the new owners
(lender, creditor) Should the Concession Company obtain a credit in the
above manner, it shall report it to the Minister within five (5)
working days.
The above restrictions shall also apply if the total value of
individual transfers is in excess of 10% If at least 15% of the shares
of the Concession Company have been transferred, the Minister may
execute an amendment hereof The restrictions shall also apply if the
total value of individual transfers is in excess of 15%.
14.04 Control of the Hungarian participation
The Concession Company shall continuously control whether its ownership
structure is in compliance with the provisions of the Tender Should the
Concession Company become aware of any change in the ownership, it
shall notify the Ministry On the basis of an authorization by the
Minister, HFF shall be, at all times, entitled to inspect the ownership
structure Should either the Concession Company or the Telecommunication
Chief Inspectorate become aware of a change in the ownership as a
result of which the Concession Company will no longer comply with the
conditions of Hungarian ownership provided in clause 14.05 of the
Concession Contract, the Minister shall, with a 3 month deadline
period, demand that the Concession Company restore its ownership
structure as set out in clause 14.05 If the Concession Company is late
with such notice, the period of such delay shall be included in the 3
month period by the Minister Non- compliance with the Minister's demand
within the deadline provided shall give grounds to the Minister for
termination of the Contract (The tender documentation shall be an
integral part hereof.)
14.05 Without any prior consent of the Minister, the shareholdings owned by
the Hungarian shareholders of the Company may be as follows:
a) for the three month period from taking over the
service, 0%, which means that during this period of time
the foreign shareholding can be 100%;
b) for a seven year period from the effective date of the
first amendment to the present Contract, the Hungarian
ownership may be reduced to 10% provided that the Deed of
Foundation of the Company is changed to the effect that when
the Company Act requires the affirmative vote of seventy-five
percent (75%) of the outstanding shares of the Concession
Company to approve action proposed to be taken by the
Concession Company, then for so long as the Hungarian
ownership of shares of the Company is between ten percent
(10%) and twenty-five percent (25%) of the outstanding shares
of the Concession Company, the affirmative vote of such number
of the outstanding shares of the Concession Company as may
equal one hundred percent (100%) less such Hungarian ownership
percentage, plus one share shall be required to approve the
action proposed to be taken by the Concession Company; c) for
a seven year period from the effective date of the first
amendment of the present Contract, Hungarian ownership may be
reduced to 1% provided that within two years from such
reduction of Hungarian ownership, the Hungarian ownership
provided in Clause 14.05 b) is restored.
After the expiry of the seven year period of time detailed in
subclauses b) and c) the 25%+1 share Hungarian ownership must be
restored, or until this time 25%+1 share of the capital should be
issued on the Budapest Stock Exchange as registered voting shares by
the way of public offering A failure to meet any of these requirements
constitutes a major breach of the Concession Contract except if the
Concession Company proves that despite its acting in a reasonable
manner the restoration of Hungarian ownership or the issuing was not
successful If so, the Concession Company is obliged to submit a
proposal to the Minister and initiate a solution The Minister shall not
refuse such an initiation.
Two out of every five members of the Board of Directors must
be Hungarian citizens; if there are only three members of the Board of
Directors, then only one member must be a Hungarian citizen One-half of
the members of the Supervisory Board must be Hungarian citizens; if
there are only three members of the Supervisory Board, then only one
member must be a Hungarian citizen."
CHAPTER 15.
Amendment and termination of this Contract
15.01 Amendment of this Contract with the Parties' agreement
In accordance with legal requirements the Parties may, by written
agreement, amend this Contract.
15.02 One-sided amendment hereof by the Minister
The Parties may amend this Contract subject to the other party's
consent The Minister shall be entitled to one-sided amendment hereof
for the purposes of consumer protection or in accordance with its
international obligations undertaken in the meantime, in accordance
with Section 14 of the Concession Act and complying with the settlement
procedure provided for by section 18.2 hereof This right of the
Minister, however, shall not impose disproportional obligations on the
supplier The supplier shall be informed of any proposed amendment in
due course by the Minister The time period prior to an amendment coming
into force shall be long enough for the supplier to make preparatory
arrangements and such amendments cannot cause an adverse financial
change in the position of the concession's beneficiary (see Section 14
of Act No. XVI of 1991.).
15.03 Termination
Upon expiry of the initial term and any extended term set out in
Chapter 3 hereof, this Contract shall automatically terminate The
Parties may, with mutual consent, terminate this Contract at any time
The termination hereof shall mean the termination of the concession
right as well.
15.04 Termination of the Local Concession
Possessing conclusive evidence - determined by the minutes of the
settlement procedure provided for by section 18.2 hereof - the Minister
may terminate the Local Concession in respect of all services or of a
given geographic area or in respect of a given service and of a
geographic area in any of the following cases:
a) the Concession Company abuses, customarily and deliberately
the provisions hereof including rules set out by Chapter 8 hereto
- relating the abuse/misuse of monopoly position - and fails to
comply with the Minister's notice within a reasonable deadline;
b) the bankruptcy procedure of the Concession Company has been
initiated;
c) a procedure has begun for the liquidation of the Concession
Company or the Concession Company makes a general assignment for the
benefit of creditors.
15.05 Shortening the term of exclusive service rights
If the Concession Company fails to fulfil the annual development
requirements set out in section 6.2 hereof, in addition to the penalty
payment provided for by section 6.2 and Schedule "C" hereto, and
following the settlement procedure according to section 18.2 hereof,
the Minister may shorten the term of exclusive service right by twenty
(20) days for each percentage point by which the Concession Company is
behind the annual development requirement concerning the main lines. If
the Concession Company is behind the annual development requirements by
less than 1%, the term of the exclusive service rights shall be
shortened proportionally to this extent.
15.06 Rules of distribution of assets
Should the Local Concession be terminated for whatever reason and
thereby the Concession Company is no longer authorized or licensed to
provided local public telephone services under concession, the
shareholders of the Concession Company shall terminate the Concession
Company in accordance with the provisions on the final settlement of
Act No. VI of 1988 on economic associations.
15.07 Termination of radio-licenses
Should any of the services provided by radio telecommunication
equipment described herein terminate for whatever reason, the
authorization in relation to radio licenses - granted for the purposes
of the concession activities - shall automatically terminate.
15.08 Obligation to provide service following termination
The Concession Company shall provide the services determined herein for
twelve (12) months following termination hereof or - if a new
concession is granted earlier - until the date of granting new
concessions The Parties shall enter into a separate agreement to
regulate the conditions of providing such services.
The obligation to supply shall cease on the day when the new supplier
commences to provide local public telephone services.
CHAPTER 16.
Force majeure
In the case of failure by the Concession Company to comply with its obligations
hereunder, the Concession Company shall not be liable to the extent and for a
period of war initiated with or without an ultimatum; a civilian uprising;
terrorists' acts; strikes; natural catastrophes; a fire, an explosion or state
of emergency or any other facts of similar nature which, under the Civil Code
make it impossible - and NOT being due to the failure by the Concession Company
- - to fulfil such obligations or prevent/obstruct the fulfillment Should such
events cause damage to the telecommunications network operated by the Concession
Company, it shall arrange for the network to be repaired and re-installed in
accordance with the action plan approved by the Minister Such obligations,
however, shall only bind the Concession Company if it is granted direct state
support or if it may implement reasonable changes in its billing/charging rates.
CHAPTER 17.
The collective employment agreement and other contracts relevant to
the employees' employment
The Concession Company shall comply with the terms and conditions of the
collective employment agreement and other relevant employment contracts entered
into by the predecessor of the National Concession Company with the employees of
the given prime area For a period of eight (8) years following the coming into
force of the Agreement the Concession Company shall not propose any amendment of
such contracts which would adversely affect the employees' rights.
Upon transfer of employees the Parties shall act in accordance with the rules of
the settlement procedure as set out in section 6.15 hereof.
For the purposes of employment issues the Concession Company shall be the legal
successor of the predecessor of National Concession Company (MATAV Rt.) On the
basis thereof the Concession Company shall undertake, for at least 12 months, to
comply with:
- the programme indicating the improvement of employment -
efficiency as worked out by MATAV Rt. and its trade union (Matasz);
- the existing network of social benefits;
- the long-term support of employees'insurance under a contract
between MATAV and the Social Insurance Fund of Telecommunications
employees;
- earlier employment contracts; and
- until the execution of a new collective employment
agreement, but in any case, for not less than 12 months, with
the terms of the currently existing MATAV Collective
Employment Agreement.
CHAPTER 18.
Settlement of disputes and interests
18.01 Settlement
The Parties shall settle all disputes and claims arising out of or in
connection with this Contract by direct negotiations.
18.02 The right to settlement
The Minister shall carry on with the settlement procedure described
herein prior to any action relating to a change in the fees/charges,
the termination or amendment hereof, the fixing of penalty payments and
any payments payable to the customers or any other action which would
adversely affect the position of the Concession Company In this
procedure the Minister shall notify the Concession Company in writing
(a) of the reasons of any proposed action and the claimed material
breach hereof; (b) of the evidence at the Minister's disposal -
providing grounds for the proposed action - together with any other
statements establishing the fact of a material breach hereof Thereafter
the Concession Company shall be given the opportunity to make a
statement either in writing or by a verbal declaration, it may provide
additional proof and may review and comment on the arguments and
evidence brought against it The Minister shall proceed with the
settlement procedure promptly and - unless extraordinary circumstances
occur - come to a decision within six (6) months of delivery of its
written notice thereof In the case of an extraordinarily comprehensive
matter the Minister may extend the procedure by a further three (3)
months The Minister undertakes that is shall justify such a decision.
CHAPTER 19.
Specific obligations of the Concession Company
19.01 The Concession Company undertakes:
-to pay HUF 756,000,000 one time concession fee, pursuant to section
4.1 of this Concession Contract; -to pay 2.3% of its gross annual
income as an annually payable concession fee pursuant to section 4.1 of
this Concession Contract; -to take over the local public telephone
services in the Bekescsaba prime area from MATAV Rt. by December 31,
1995. -to further employ the employees of MATAV Rt. in the Bekescsaba
prime area with the same conditions for 8 years from the date of taking
over the service; -to charge subscribers a maximum amount, allowed by
the laws in effect from time to time, which amount will consist of the
entrance fee as determined by law from time to time in force and a
charge payable pursuant to the civil law agreement entered into with
subscribers, however all the contributions paid by subscribers by 31
August 1995 shall not be changed and it shall have no further claim in
this regard; -that Hungarian ownership shall conform to the relevant
laws and the text of the first amendment to the Concession Contract and
Minister's special requirements; -not to charge the monthly
subscribers' fee for local municipalities in the Bekescsaba prime area,
and to provide each local municipality with 2 terminal equipments free
of charge; -to pay a sum equal to 10 times the local occupational
excise tax pursuant to the laws regulating local taxation; -to fulfil
the demands of the waiting list by 30 June 1998; -to install one public
telephone station for each 250 people in a manner, that it shall instal
at least one public telephone station in each of the villages of the
prime area; -to instal 50% of the public telephone stations in a way
that it is suitable for hearing-impaired persons (having loudspeakers);
-to provide for text service for hearing-impaired people; -that 1 out
of every 4 public telephones installed in one place shall be a text-
telephone (hospitals, schools, museums, etc.); -to instal 2% of the
public telephone stations in a manner that it is suitable for disabled
people; -that 1 out of 4 installed public telephone stations shall
operate with phonecards; -it shall ensure a control of 3% of the
telephones installed for local municipalities, i.e. the municipalities
may decide which telephones should be installed by the Concession
Company free of connection charge.
The Parties hereby agree that obligations of the Bid Winner
and of the Concession Company herein not detailed shall be governed by
the proposed bid for the Concession of the Winner of the Tender with
the condition that, following the logic of the first amendment of this
Concession Contract, the deadlines and certain other terms will be
changed.
In order to secure the payment obligation detailed in the
first indent of this Clause, the Company shall provide an unconditional
bank guarantee for the stated amount by 18 September 1995, and a
failure to provide the security will entitle the Minister to terminate
the Concession Contract and the first amendment in full with immediate
effect.
In order to secure the undertakings in the third and ninth
indent of this Clause, the Concession company shall provide good
performance guarantees (bank guarantee) by 1 December 1995 in the
amount of HUF 25,000,000 each, and a failure in the performance of the
underlying obligation will entitle the Ministry to this amount as
penalty payment If the service is taken over by 1 December 1995 or
before, no bank guarantee securing the obligation detailed in the third
indent has to be provided.
19.02 The Concession Company undertakes that if it stops providing local
public telephone services thereby breaching this Contract during the
term hereof, it shall pay, as a penalty payment, the costs of the
temporary maintenance of the service and the costs of a new tendering
process; such penalty payment has been guaranteed by the winner of the
Concession Tender in the Concession Agreement (attached hereto as
Schedule "A").
CHAPTER 20.
Miscellaneous
20.01 Governing law
This Contract shall be implemented under and governed by the laws of
the Republic of Hungary.
20.02 Partial invalidity
This Contract shall be considered to be invalid only to the extent of
any invalid provisions, all other provisions hereof shall remain in
force unchanged.
20.03 Language of this Contract
This Contract is made and executed by the Parties in the Hungarian
language Any versions hereof prepared in another language shall serve
exclusively for information purposes for foreign investors.
20.04 Schedules to this Contract
-Schedule "A":the Concession Agreement entered into between the
Winner of the Tender and the Minister;
-Schedule "B":the table containing the details of specific
coverage of the Bekescsaba prime area;
-Schedule "C":Service development requirements;
-Schedule "D":Penalty payments payable upon non-compliance with the
service quality requirements;
-Schedule "E":Technical conditions of providing non concession-related
other telecommunications services;
-Schedule "F":the winning Bid submitted by the Winner of the Tender;
-Schedule "G":Assignment and Transfer Agreement;
-Schedule "H":Service quality requirements; and
-Schedule "I":The laws of specific importance for the purposes hereof.
20.05 Notices
All notices and other communications made or forwarded hereunder shall
be made by letter, telefax or telex and - unless otherwise indicated by
the Parties in writing - shall be sent to the respective addresses of
the Parties stated herein or to such other address or person as the
Parties may state in writing All notices and other communications
hereunder shall be made in the Hungarian language
Such notices shall be sent to the following addresses:
[SIGNATURE LINES]
[END OF CONTRACT]
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