<PAGE>
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of the Securities
Exchange Act of 1934 (Amendment No. _____)
Check the appropriate box:
[x] Preliminary Information Statement
[ ] Confidential, for use of the Commission Only (as permitted by
Rule 14c-5(d)(2))
[ ] Definitive Information Statement
SECTOR COMMUNICATIONS, INC.
----------------------------------------
Name of Registrant as Specified In Its Charter
Payment of Filing Fee (Check the appropriate box):
[x] $ 125 per Exchange Act Rules 0-11(c)(1)(ii), 14c-5(g).
[ ] Fee Computed on table below per Exchange Act Rules 14c-5(g)
and 0-11.
(1) Title of each class of securities to which transaction applies:
---------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
---------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11:_____________________________
(4) Proposed maximum aggregate value of transaction:________________
(5) Total fee paid:_________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any of the fee is offset as provided by Exchange Act Rule 0-
11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or Form or Schedule and the date of its filing.
(1) Amount Previously Paid:_________________________________________
(2) Form, Schedule or Registration Statement No.:___________________
(3) Filing Party:___________________________________________________
(4) Date Filed:____________________________________________________
<PAGE>
SECTOR COMMUNICATIONS, INC.
INFORMATION STATEMENT
JULY 26, 1996
THIS INFORMATION STATEMENT IS BEING PROVIDED TO STOCKHOLDERS TO INFORM THEM OF
ACTIONS TAKEN BY CONSENT OF A MAJORITY OF STOCKHOLDERS.
SECTOR COMMUNICATIONS, INC. IS NOT ASKING FOR A PROXY AND YOU ARE REQUESTED NOT
TO SEND A PROXY.
<PAGE>
[LETTERHEAD OF SECTOR COMMUNICATIONS, INC. APPEARS HERE]
June 26, 1996
Dear Stockholder:
This is to inform you that Sector Communications, Inc. (formerly Aurtex, Inc.)
has adopted a resolution amending its Articles of Incorporation to effect a
5.909635 to 1 reverse stock split of the Company's outstanding common stock and
has changed its name from Aurtex to "Sector Communications, Inc."
By resolution dated May 15, 1996, the Amendment was approved by the Board of
Directors and adopted by written consent of the holders of a majority of the
outstanding shares of the Company's common stock. The Amendment became effective
on June 18, 1996, the date on which the Company filed the Amendment with the
Nevada Secretary of State.
The Board of Directors also adopted a resolution approving a stock dividend of
the Company's common stock on the basis of 1.25 shares of common stock of the
Company for one share of outstanding common stock immediately after the reverse
stock split described above. The ultimate effect of the reverse stock split and
the stock dividend would mean that each shareholder will own 381 shares of
Company common stock for each 1,000 shares of Aurtex common stock previously
owned.
The reverse stock split and the stock dividend reduced the number of shares of
the Company's outstanding common stock on June 18, 1996 to approximately
9,761,468 shares.
Please note that you are not being asked to send a proxy and you are requested
not to send one.
This notice is not the notice of Aurtex's 1996 Annual Meeting of Stockholders,
which will be sent to you separately.
Sincerely,
/s/ Theodore J. Georgelas
Theodore J. Georgelas
Chairman of the Board, President
and Chief Executive Officer
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- Intentionally Left Blank -
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INFORMATION STATEMENT
SECTOR COMMUNICATIONS, INC.
Common Stock
(Par Value $.001 per share)
INFORMATION STATEMENT FOR ACTIONS TAKEN BY CONSENT OF A MAJORITY OF
STOCKHOLDERS. WE ARE NOT ASKING FOR A PROXY AND YOU ARE REQUESTED
NOT TO SEND A PROXY.
The Board of Directors of Sector Communications, Inc. (the "Company") formerly
Aurtex, Inc. adopted a resolution authorizing amendments (the "Amendment") to
the Company's Amended and Restated Articles of Incorporation approving a reverse
split of the Company's outstanding Common Stock, par value $0.001 per share
("Common Stock") on the basis of one new share of Common Stock for each 5.909635
shares of presently outstanding Common Stock (the "Reverse Stock Split") and to
change the name of Aurtex to Sector Communications, Inc. The Amendment to the
Amended and Restated Articles of Incorporation became effective on June 18, 1996
when the Company filed a Certificate of Amendment to the Amended and Restated
Articles of Incorporation with the Secretary of State of Nevada. The Company
obtained the written consent of a majority of the shares of outstanding common
stock on May 15, 1996. Approval of the Amendment by the stockholders was
obtained by written consent in lieu of a special meeting of stockholders.
The Amendment was approved in accordance with Nevada General Corporation Law
(the "Nevada Law") which provides that the written consent of the holders of
outstanding shares of voting capital stock, having not less than the minimum
number of votes which would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted, may
be substituted for such a special meeting. Pursuant to Nevada Law, a majority
of the outstanding shares of voting capital stock entitled to vote thereon is
required in order to amend the Company's Amended and Restated Articles of
Incorporation. In order to eliminate the costs and management time involved in
holding a special meeting and in order to effect the Amendment as early as
possible in order to accomplish the purposes of the Company as hereafter
described, the Board of Directors of the Company voted to utilize the written
consent of the holders of a majority in interest of the voting capital stock of
the Company. As discussed hereafter, the Board of Directors approved the
Amendment in order to permit the closing of the Stock Purchase and Exchange
Agreement with Global Communications Group, Inc., which could not have been
closed based on authorized capitalization of the Company prior to the Reverse
Stock Split.
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At the close of business on May 15, 1996, there were outstanding 23,638,540
shares of Common Stock, the only shares of the Company entitled to vote. The
Amendment was approved by the written consent, dated May 15, 1996, of the
holders of approximately 52.4% of the outstanding shares of Common Stock as
follows.
Written consent of 8,466,250 shares of pre-split Common Stock representing
approximately 35.8% of shares outstanding was given by Mr. S. Allan Kline, a
current director of the Company. Of these shares 8,010,000 shares are held of
record by Biomyne North Company, an Idaho limited partner who's general partner
is Biomyne, Inc., a Deleware corporation. Mr. Kline is the President of Biomyne
Inc. Mr. Kline held 456,250 pre-split shares directly on May 15, 1996.
Written consent of 3,915,684 shares of Common Stock, representing approximately
16.6% of shares outstanding was given by an individual under general powers of
attorney previously granted to him by five stockholders of the Company.
This information statement is being furnished in connection with the taking of
action by the written consent of a majority of stockholders (the "Written
Consent") of the Company described above.
This Information Statement is not to be regarded as proxy solicitation material.
The approximate date on which this Information Statement is first sent to
stockholders is on or about July 26, 1996.
The Company will pay the costs of preparing, assembling and mailing this
Information Statement and the material enclosed herewith. In addition, the
Company will reimburse banks and brokers for their reasonable out-of-pocket
expenses incurred in connection with the distribution of the Information
Statement.
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SECURITY OWNERSHIP AND CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the Common Stock ownership information as of the
dates shown, and is adjusted for the reverse stock split and stock dividend
described in this Information Statement, with respect to (i) each person known
to the Company to be the beneficial owner of more than 5% of the Company's
Common Stock; (ii) each director of the Company; and (iii) all directors,
executive officers and designated stockholders of the Company as a group. This
information as to beneficial ownership was furnished to the Company by or on
behalf of the persons named. Unless otherwise indicated, each has sole voting
and investment power with respect to the shares beneficially owned.
<TABLE>
<CAPTION>
Shares of Company Common Stock Beneficially Owned
--------------------------------------------------------
May 15, 1996 June 18, 1996
------------ -------------
Number Percent Number Percent
------------- -------- -------------- --------------
<S> <C> <C> <C> <C>
Telecom Partners Ltd 0 * 16,125,000 (1) 72.96%
1350 Beverly Road, #115-339
McLean, Va. 22102
S. Allan Kline 3,223,391 (2) 35.82% 3,390,057 (2) 12.08%
1415 Bay Laurel Drive
Menlo Park, Ca.
Biomyne North Company 3,049,681 (3) 33.89% 3,049,681 (3) 10.87%
c/o S. Allan Kline
1415 Bay Laurel Drive
Menlo Park, Ca.
Theodore Georgelas 0 * 500,000 (4) 1.78%
7601 Lewinsville Road
Suite 200
McLean, Va. 22102
Jeff L. Shear 5,771 (5) * 172,377 (5) *
1421 Wildhorse Parkway
Chesterfield, Mo. 63005
Roger Hedin 0 * 166,666 (6) *
Ess Puet Son Pieras
Calvia, Mallorca, Spain
All Officers and 2,685,154 12.15% 4,229,100 15.07%
Directors as a group
(4 persons) (2,3,4,5,6)
</TABLE>
* - represents less than 1%.
(1) Shares received, effective June 18, 1996 in exchange for 100% of the
capital stock interest in Global Communications Group, Inc. acquired by
the Company on that date.
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(2) Consists of 173,710 shares of Common Stock held directly by Mr. Kline and
3,049,681 shares of Common Stock held by Biomyne North Company on May 15,
1996. Biomyne Technology Company, of which Mr. Kline is a general partner,
is the sole shareholder of Biomyne, Inc. Biomyne Inc. is the general
partner of Biomyne North Company. Mr. Kline is the president and a
director of Biomyne, Inc. Mr. Kline received 166,666 shares of Common
Stock on June 18, 1996, increasing the number of shares of Common stock
held directly by him on that date to 340,376 shares.
(3) Biomyne North Company, a limited partnership, holds 3,049,681 shares of
Common Stock received as part consideration for the transfer of its mining
claims to the Company on August 9, 1991.
(4) Consists of 500,000 shares of Common Stock received by Mr. Georgelas on
June 18, 1996 and held directly by him.
(5) Consists of 166,666 shares of Common Stock received by Mr. Shear on June
18, 1996 held directly by him and the right to purchase of 5,711 shares
issuable on the exercise of a presently exercisable warrant.
(6) Consists of 166,666 shares of Common Stock received by Mr. Hedin on June
18, 1996 and held directly by him.
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AMENDMENT TO THE ARTICLES OF INCORPORATION
REVERSE STOCK SPLIT OF SHARES OF COMMON STOCK
GENERAL
The Board of Directors of the Company adopted a resolution authorizing an
amendment (the "Amendment") to the Company's Amended and Restated Articles of
Incorporation to effect a reverse stock split of the Company's Common Stock,
$0.001 par value, so that every 5.909635 shares of Company Common Stock will be
converted into one share of Company Common Stock. No fractional shares of stock
shall be issued in connection with the Reverse Stock Split, but in lieu thereof,
each holder of Common Stock who would otherwise be entitled to receive a
fraction of a share of Common Stock shall have the number of shares rounded up
or down to the closest number of whole shares of Common Stock.
Approval of the Amendment by the stockholders was obtained by written consents
in lieu of a meeting, dated May 15, 1996, of the holders of a majority of the
voting power of the outstanding shares of the Company's Common Stock.
PRINCIPAL EFFECT
The Company is currently authorized to issue 50,000,000 shares of Common Stock.
The number of authorized shares of the Company's Common Stock was not changed by
the Amendment and, consequently, the Company is be able to issue a substantial
number of additional shares of Common Stock without further stockholder
approval.
The par value of the post-split Common Stock remained $0.001 per share upon
effectiveness of the Amendment. At the close of business on June 17, 1996,
there were 25,638,540 shares of Common Stock outstanding. The impact on the
capitalization of the Company of the Reverse Stock Split and a stock dividend
(the "Stock Dividend"), described in the Other Matters section of this
Information Statement, decreased the number of outstanding shares of Common
Stock by approximately 62%, to 9,761,468 shares of Common Stock, with such
numbers increased or reduced by the effect of rounding of the shares of Common
Stock in lieu of issuing fractional shares. The Reverse Stock Split and Stock
Dividend would not affect any stockholder's proportionate equity interest in the
Company, except to the extent that any fractional shares are rounded up to the
next whole number. Upon effectiveness of the Amendment, all outstanding warrants
to acquire Common Stock were adjusted automatically to entitle the holders
thereof to purchase proportionately fewer shares of Common Stock at a
proportionately higher exercise price. The Amendment became effective on June
18, 1996, the date that the Amendment was filed with the Secretary of State of
Nevada (the "Effective Date").
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REASONS FOR THE REVERSE STOCK SPLIT AND CHANGE IN AUTHORIZED SHARES
The primary purpose for the Reverse Stock Split was to provide adequate shares
of Common Stock to complete the Stock Purchase and Exchange Agreement
(the "Agreement") that the Company entered into on April 19, 1996 with Global
Communications Group, Inc. ("Global"). The Agreement calls for, among other
things, the issuance of 17,000,000 shares Common Stock in exchange for 100% of
the issued and outstanding capital stock of Global.
Immediately following the Effective Date, the Board of Directors issued
17,000,000 post-split shares of Common Stock to the shareholders of Global in
exchange for 100% of the outstanding capital stock of Global and the option to
purchase the assets and liabilities of Global Communications Technologies, Inc.
for $1.00. The Board of Directors also approved, as of the Effective Date, the
issuance of 500,000 shares of post-split Common Stock to Theodore Georgelas
pursuant to his employment agreement, 150,000 shares of post-split Common Stock
and the grant of options for the purchase of 150,000 shares of post-split Common
Stock, issued under the Company's 1994 Stock Plan, exercisable at the closing
market price on the date of grant, expiring ten years from the date of grant, to
each of James Stanker and Anthony Georgelas pursuant to Employment Agreements,
and 166,666 shares of post-split Common Stock to each of Roger Hedin, Jeff Shear
and S. Allan Kline, all current directors of the Company. All these shares, with
the exception of those issued to Mr. Stanker and Mr. Anthony Georgelas were
fully vested upon issuance. Mr. Stanker and Mr. Anthony Georgelas' shares and
options vest 50,000 shares on the date of grant, and 50,000 shares on each of
April 15, 1997 and 1998.
None of the above shares of Company Common Stock have been registered by the
Company. However, in connection with the issuance of the 17,000,000 shares of
Common Stock to Global, the Company has entered into a Registration Rights
Agreement with Global allowing for, under certain circumstances, the demand
registration of these shares by Global and/or for piggyback registrations. The
shares of Common Stock issued to Messrs. Georgelas, Stanker, Georgelas, Hedin,
Shear and Kline provide for piggyback registration rights.
There can be no assurance that the market price of the Common Stock will
increase after the effectiveness of the Reverse Stock Split and Stock Dividend
in an amount proportionate to the decrease in the number of outstanding shares,
that the Reverse Stock Split and Stock Dividend will result in a price level for
the Company's Common Stock, that will comply with listing requirements of the
SmallCap tier of the Nasdaq Stock Market, or increase investor interest or
enhance the interest of brokerage firms in trading the Company's stock.
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The Company is currently authorized to issue 50,000,000 shares of Common Stock.
The number of authorized shares of the Company's Common Stock was not changed by
the Amendment, and consequently the Company can issue a substantial number of
additional shares of Common Stock without further shareholder approval. The
issuance of additional shares of post-split Common Stock will have a dilutive
effect on earnings per share and on the equity of present holders of Common
Stock and their voting rights.
The Board of Directors believes it is desirable for the Company to have
additional authorized but unissued Common Stock to provide flexibility to act
promptly with respect to acquisitions, public and private financings and for
other appropriate purposes. Such availability will eliminate the delays and
expense which otherwise might be incurred if stockholder approval were required
for certain transactions involving the issuance of securities. Furthermore, in
the event of a proposed merger, tender offer or other attempt to gain control of
the Company of which the Board of Directors did not approve, it would be
possible for the Board of Directors to authorize the issuance of a substantial
block of Common Stock, without obtaining stockholder approval, as part of an
alternative business combination or a recapitalization which stockholders might
find more attractive. However, additional authorized Common Stock could also be
issued to one or more persons who might thereby obtain sufficient voting power
to ensure that any proposal to remove directors, to accomplish certain business
combinations opposed by the Board of Directors, or to alter, amend or repeal any
provisions of the Company's Amended and Restated Articles of Incorporation or
By-Laws, would be defeated. An effect of the increase in the number of
authorized shares available for issuance following the Reverse Stock Split,
therefore, may be to deter a future takeover attempt which holders of Common
Stock may deem to be in their best interests or in which holders of Common Stock
may receive a premium for their shares over the market price. However, the
Board of Directors believes that the benefits of providing it with the
flexibility to issue shares without delay for any business purpose, including as
an alternative to an unsolicited takeover attempt opposed by the Board, outweigh
the possible disadvantages of dilution and discouraging such unsolicited
takeover proposals and that it is prudent and in the best interests of the
stockholders to provide the advantage of greater flexibility which will result
from the Reverse Stock Split.
Consummation of the Reverse Stock Split will not result in a change in the
relating equity position or voting power of the holders of Common Stock. As
described above, the Company issued, immediately following the Effective Date,
17,000,000 shares of Common Stock to acquire Global and 1,299,998 shares of
Common Stock to officers, directors and certain employees. The equity position
and voting power of the current shareholders was substantially diluted following
these transactions.
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FEDERAL INCOME TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT
The federal income tax consequences of the Reverse Stock Split component of the
Amendment are as follows: (i) the Reverse Stock Split should not result in the
recognition of gain or loss by the Company or any of its stockholders; (ii) a
Common stockholder's total basis in shares of post-split Common Stock received
from the Company will be the same as the existing basis in the shares of Common
Stock previously held; and (iii) a Common stockholder's holding period or
periods for shares of post-split Common Stock will include the holding period or
periods of a proportionate number of shares of the stockholder's Common Stock.
The foregoing information is based upon existing law which is subject to change
by legislation, administrative action and judicial decision and is necessarily
general. The preceding paragraph is a general description of the federal income
tax consequences of the Reverse Stock Split. It does not take into account
state, local or foreign tax consequences and does not take into account special
rules that may apply to a stockholder's individual tax circumstances.
Therefore, stockholders are advised to consult with their own tax advisor for
more detailed information relating to their individual tax circumstances.
EXCHANGE OF STOCK CERTIFICATES
As soon as practicable after the Effective Date, transmittal letters will be
mailed to each holder of record of the Company's Common Stock on the date of
such effectiveness to be used in forwarding their certificates for surrender and
exchange for certificates representing the number of shares of Common Stock such
stockholders are entitled to receive as a result of the Reverse Stock Split.
After receipt of such transmittal letter, each such stockholder should
surrender, using the transmittal letter, the stock certificates issued prior to
the Reverse Stock Split, and such stockholder shall receive in exchange therefor
certificates representing the whole number of shares of Common Stock to which he
is entitled as a result of the Reverse Stock Split. STOCKHOLDERS SHOULD NOT
SEND THEIR CERTIFICATES UNTIL THEY RECEIVE A TRANSMITTAL LETTER.
After the Effective Date, each certificate representing shares of Common Stock
will, until surrendered and exchanged as provided above, be deemed, for all
corporate purposes, to evidence ownership of the whole number of shares of
Common Stock into which the shares evidenced by such certificates have been
converted. No service charge will be payable by stockholders in connection with
the exchange of certificates, and the costs will be borne and paid by the
Company.
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Idata, Inc., The Company's current transfer agent, located in Dallas, Texas has
been appointed to act as exchange agent (the "Exchange Agent") for the
stockholders in effecting the exchange of their certificates.
CHANGE OF THE NAME OF THE COMPANY
The Board of Directors of the Company also adopted a resolution authorizing an
amendment to the Company's Amended and Restated Articles of Incorporation to
change the name from Aurtex, Inc. to Sector Communications, Inc. Approval of
the Amendment by the stockholders was obtained by written consents in lieu of a
meeting, dated May 15, 1996, of the holders of a majority of the voting power of
the outstanding shares of the Company's Common Stock.
Consistent with its new corporate strategy, the Company, on the Effective Date,
closed its definitive agreement with the shareholders of Global Communications
Group, Inc., a company involved in the telecommunications business described
more fully below. The Company has also entered into a definitive agreement for
the acquisition of up to 100% of dbe Software, Inc. and a letter of intent for
the acquisition of up to 80% of HIS Technologies AG, both software companies.
The Company adopted the name Aurtex, Inc. when it was engaged in the business of
mineral exploration and developing its Gold Assay System. The Company will no
longer be primarily involved in that business and the Board of Directors feels
that it would be more appropriate for the Company to adopt a corporate name
which relates to its future business.
The Company filed the Amendment with the Secretary of State of Nevada prior to
the Record Date and the Amendment became effective on June 18, 1996.
OTHER MATTERS
STOCK DIVIDEND
As described in the principal effects section of this Information Statement, the
Board of Directors adopted a resolution approving a Stock Dividend of the
Company's Common Stock on the basis of 1.25 shares of Company Common Stock for
each share of presently outstanding Common Stock immediately after to the
Reverse Stock Split and prior to the issuance of 17,000,000 shares of Company
Common Stock to the shareholders of Global and 1,299,998 shares of Common Stock
to officers, directors and certain employees of the Company. No fractional
shares of stock shall be issued in connection with the Stock Dividend, but in
lieu thereof, each holder of Common Stock who would otherwise be entitled to
receive a fraction of a share of Common Stock shall have the number of shares
rounded up or down to the closest number of whole shares of Company Common
Stock.
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EXECUTIVE OFFICES
The Company's principal executive offices have been moved to 7601 Lewinsville
Road, Suite 200, Mclean, Virginia, 22102. The Company's telephone number is
(703) 761-1500.
COSTS OF DISTRIBUTION
The Company will pay the cost of distributing this Information Statement,
including the cost of assembling and mailing it. The Company will reimburse
brokerage firms and other custodians, nominees and fiduciaries for reasonable
expenses incurred by them in sending this Information Statement to the
beneficial owners of the Company's Common Stock.
BY ORDER OF THE BOARD OF DIRECTORS
JEFF SHEAR
Secretary
McLean, Virginia
June 26, 1996
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INFORMATION CONCERNING GLOBAL COMMUNICATIONS GROUP, INC.
THE TRANSACTION
On April 19, 1996, the Company entered into a Stock Purchase and Exchange
Agreement (The "Agreement") with Global Communications Group, Inc. ("Global").
The Agreement calls for, among other things, a Reverse Stock Split, a Stock
Dividend and the issuance of 17,000,000 shares Company Common Stock in exchange
for 100% of the issued and outstanding capital stock of Global. As a part of
this transaction, the Company also received an option to purchase the assets and
liabilities of Global Communications Technologies, Inc. for $1.00.
THE COMPANY
GENERAL
Global was incorporated in the state of Texas in 1993 and was subsequently
registered as a branch in the Republic of Bulgaria. Global currently provides
automatic international dialing to hotels in Bulgaria by a closed overlay
network (the Network") as a first step in a series of related telecommunications
development projects. Global has executed a Joint Activity Agreement ("JAA")
with the Bulgarian Telecommunications Company, Ltd. (the "BTC"), the government
owned state telecommunications monopoly. To facilitate the development of the
Network, Global has elected, under a separate annex of the JAA to install and
operate optical fiber cables as a substantial upgrade of the local loop to its
individual customers.
SERVICES PROVIDED, MARKETS AND OVERALL STRATEGY
The Company currently operates solely in the Republic of Bulgaria, a country
with a population of approximately 8,775,000 and a total land area of 110,910
square kilometers (slightly larger than the state of Tennessee). Bulgaria's
domestic and international telecommunications infrastructure is technologically-
outdated and falls substantially short of providing adequate capacity and level
of voice, facsimile and data services.
The predominant part of the central offices are electromechanical Strowger-type
systems that are technically obsolete, ill maintained and worn out. The local
loop is in no better condition. Long distance transmission is analog, based on
antiquated twisted pair and co-axial cable FDM multiplex systems and microwave
relays. The most widely spread telephone set remains the ubiquitous rotary-dial
instrument. The 1995 CIA World Factbook reported that Bulgaria's telephone
system consists of approximately 2,600,000 telephones or 29 phones per 100
persons (1992); consists of an extensive but antiquated transmission system of
coaxial cable and microwave radio relays; has direct dialing to 71 countries;
that telephone service is
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available to most villages; that almost two thirds of the lines are residential;
and that 67% of the city of Sophia households have telephones. These
ostensibly attractive statistics disguise the severe problems of Bulgaria's
antiquated telecommunications system. The waiting list for telephone service in
the bigger cities is hopelessly long, most users are unable to dial long
distance directly, and only 25 percent of call get through to their desired
destination.
The growth and socioeconomic change that has come about in Bulgaria in the
aftermath of the end of the communist regime with its attendant new and
increased demands upon Bulgaria's inadequate telecommunications infrastructure
is placing additional stress on the Bulgarian PTT's ability to supply its users
with the additional required capacity, causing the users to operate in an
environment lacking critical communications capabilities. This situation is
further exacerbated by the poor financial health of Bulgaria's balance of
payments and hard currency reserves which are inadequate to invest in and
modernize such important areas as its telecommunications infrastructure.
A typical example is the Digital Overlay Network (DON) project of the BTC. Its
major goal is to significantly upgrade the national long distance network by
creating a digital transmission and switching overlay of the existing analog
environment thus creating the backbone of further network upgrades.
Even with the completion of the DON, compared to western standards, Bulgaria
lags considerably behind. For Bulgaria's most visible and demanding users, such
as international four and five star rated hotels, large sea and mountain resorts
with traditional international business and tourist flow, foreign and domestic
companies, embassies, and trading houses, requiring constant and efficient
access to international and long distance communications, the inability to offer
sufficient quality in all segments of the connection, be it switched-voice,
facsimile or data, mean a potential loss of business revenue, inability to
obtain timely critical business and other information, and a frustrated user
population.
Global currently has contracts to provide services to eleven hotels in the
Bulgarian capital of Sofia and the second largest city and traditional fair and
exhibition center - Plovdiv. Global has constructed five optical fiber cable
routes in the city of Sofia with a total length of 18 kilometers (6 fibers),
creating an infrastructure for future cost effective connection of additional
customers and further expansion.
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Global offers to its customers the following basic services:
o Upgrading of the local loop to optical and direct connection to the
international gateway switch through the Global operated private network.
o World wide dialing access.
o Complete telecommunication equipment upgrade in the customer's premises
including, installation of new state of the art PBX(s), a call accounting
system, new telephone sets, and other services.
Global's strategy is to provide its private switched voice international long
distance direct dialing service to additional hotels and resorts, businesses,
banks and embassies in the cities of Sofia and Plovdiv, and to expand these
services to the major Black Sea resort areas clustered around the cities of
Varna and Bourgas, and to the well known Bulgarian mountain resorts of Borovetz
and Pamporovo. Global provides private switched voice international long
distance direct dialing services to what it believes is the most lucrative
market segments, the hotel and resort industry and business customers, for such
services in Bulgaria. Global bills its customers for such services in US
dollars and collect the payments in local currency at the conversion rate on the
day payment is due in order to minimize currency-translation and devaluation
risk.
SOURCES AND AVAILABILITY OF MATERIALS
The materials and vendors necessary for the Company to continue operations are
available from many sources. The Company foresees no shortage of supplies or
difficulties in acquiring materials and vendors necessary to conduct its
business as presently conducted.
Under an annex to its JAA to install, operate and provide access to a local
fiber optic network in Sofia, Global agreed to use Cable Express, a private
Bulgarian company as its subcontractor for the route survey and coordination
with the BTC and local authorities, construction and the laying of the fiber
cable, testing, acceptance and documentation.
Global's believes that its relationship with Cable Express is good. Should it be
necessary to obtain a new or additional subcontractors, Global believes there
are other qualified subcontractors available.
DESCRIPTION OF THE NETWORK
Global has installed five Mitel SX 2000 Light PBX's in five hotels in the cities
of Sofia and Plodiv and has expanded or upgraded most of the remaining PBX's in
the remaining hotels to which Global provides service. Call logging and
accounting equipment and interfaces to the
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<PAGE>
hotel information systems are provided to every customer. Five PBX's, four
Mitel SX 2000 and one Northern Telecom Meridian 1, are connected via optical
fiber directly to Global's Concentrator Tandem in Sofia. The remaining hotel
customers are temporarily connected by leased local lines awaiting the
construction of the optical cable route. Currently, all Global's hotel
customers PBX's retain their traditional interface to the PSTN for local, long
distance and incoming international calls.
As the DON project progresses, the analog leased circuit is going to be upgraded
to a digital E1 link.
Global supports a remote control and customer service center in its office and
switch room in Sofia. It assists its hotel customers administration in
resolving any dialing and billing problems of its guests. Emergency services to
its customers is provided on a 24 hour basis.
A centralized billing system issued monthly bills to the customers that are
matched to the records of the hotel call logger.
OPERATING AGREEMENTS
On September 21, 1993, Global executed a Memorandum of Understanding with the
BTC to provide a closed, private, long distance traffic network for the hotel
and resort industry in the Republic of Bulgaria. On January 26, 1994, Global
and BTC executed a JAA which enables Global to provide end-to-end international
carrier switched service to terminate all switched voice traffic from the hotels
in Bulgaria.
In addition to the JAA, Annex's allow Global to :
o Install, operate and manage fiber optic local access services, thereby
creating a high capacity metropolitan digital network in Sofia. Right-of-
way licenses remain with the BTC, but allow Global to create a private
digital overlay network to BTC's metallic analog metropolitan network;
o Allow Global to provide international incoming calling to the Global
subscriber universe, connected via fiber and through Global's front-end
switching operation for analog connection, and;
o Allow Global to further expand its Network via, in general, optic fiber to
the banking industry and foreign embassies within Bulgaria. Global has
obtained permission from the Ministry of Finance to offer voice, data and
packet-switching service upgrades to the banks.
16
<PAGE>
The JAA has been signed for a period of five years and its term may be extended
for the same length of time that the BTC's operating permits and authority are
extended by the Committee of Posts and Telecommunications (the "CPT"). The
right of way licenses remain with the BTC, but allow Global to operate within
these licenses.
The JAA is currently being updated with the BTC to reflect the latest changes in
the PSTN -- the installation of a state of the art international gateway switch,
which allows the termination with the BTC of all international traffic with
sufficient quality rather than leasing special circuits and terminating it to
other private operators. Global will continue to develop the fiber optic loop
and act as an agent of its customers in their relations with the BTC to deliver
traditional and future telecommunications services to them.
TARIFFS
The tariff structure of the BTC's slowly undergoing changes that are trying to
reflect the transition to a market economy while still providing social credit
to subscribers with poor financial status, which constitutes the majority of the
telecom users in Bulgaria. Tariffs, both international and domestic are approved
by the government and are defined in the local currency -- the Bulgarian Leva.
Global's current practice of charging its customers in U.S dollars allows Global
to recognize increased profit margins due to the inflationary environment
surrounding the Leva, and to realize tariff conservatism due to the social
pressure of the low standard of living in Bulgaria.
Effective July 1, 1996, the BTC introduced a new tariff structure. Global's
average blended carrier revenue and expense rates are $2.058 and $1.438,
respectively, leaving a $0.62 gross profit. These amounts are calculated based
on a Leva to US dollar exchange rate of 156 Leva for each US dollar. If the
Leva continues its devaluation against the US dollar, see Risk Factors, Currency
Risks, there will be a corresponding increase in gross profit to Global.
EMPLOYEES
At December 31, 1995, Global had 12 full time employees in Bulgaria. The
technical staff consists of three highly qualified system engineers that perform
the network planning and engineering, as well as the maintenance functions of
Global's Network facilities and the five Mitel SX 2000 light hotel PBX's.
Global uses independent contractors for cable construction, call logger
installation and for other functions as necessary. Two employees are
responsible for customer billing and accounting. The remainder of the employees
perform administrative and logistical tasks.
17
<PAGE>
RISK FACTORS
Stockholders of the Company should be aware that the ownership of Company Common
Stock involves certain risk factors, including those described below, which
could adversely affect the value of their holdings. Neither the Global nor the
Company makes, nor is any other person authorized to make, any representations
as to the future market value of the the Company Common Stock. Any forward-
looking statements contained in this Information Statement should not be relied
upon as predictions of future events. Such statements are necessarily dependant
on assumptions, data or methods that may be incorrect or imprecise and that may
be incapable of being realized.
GENERAL RISKS RELATING TO BULGARIA
Political Risks In 1989, Bulgaria performed an unprecedented peaceful
- ---------------
transition from autocratic communist rule to a democratic system. During the
communist era, Bulgaria acquired the reputation of being the most loyal allay of
the former Soviet Union, imitating Soviet collectivization and industrialization
policies. The removal from office of longtime leader Todor Zhovkov in November
of 1989 began the current era of political and economic transition. Due to
Bulgaria recent emergence from communist rule, its politics can be characterized
by considerably instability and uncertainty. While the process of
democratization is currently being carried out in a stable political
environment, and the Bulgarian Parliament has adopted a number of laws since
1989 that provide the conditions for a developing market economy, the
institutions of government and the relations between them, and governmental
policies and the political leaders who formulate and administer them, are
subject to rapid and not necessarily peaceful change. While the current
political situation in Bulgaria is relatively stable with respect to the
operations of the Company, no assurance can be given that this situation will
not change or that any such change would not have a material adverse effect on
the Company.
Economic Risks Bulgaria is a moderately developed European nation undergoing
- --------------
profound political and economic changes from a totalitarian state to a
parliamentary democracy, and from centralized command to a market society.
After five years of reforms, the country is now being ruled by a socialist, ex-
communist, government, and has found itself in one of the greatest economic
crisis since the beginning of the transition period.
Indicators of this economic crisis are the rapid devaluation of the Leva and the
uncontrolled rise of the U.S. dollar exchange rate, the rapid growth of
inflation and the increase in unemployment. The only methods of economic
control applied during this period have been monetary and have reduced the state
hard currency to a level that is not sufficient to support the payments of its
foreign debt.
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<PAGE>
Currency Risks The value of the Bulgarian Leva has declined significantly
- --------------
against the US dollar in recent periods, and further declines can be expected.
The value of the Leva against the US dollar has fluctuated significantly in the
past and can be expected to fluctuate significantly in the future.
The following table shows, for the periods and dates indicated, certain
information regarding the US dollar/Bulgarian Leva exchange rate, expressed in
Bulgarian Leva per US dollar.
<TABLE>
<CAPTION>
<S> <C>
May 21, 1996 124.20
January 1995 67.04
January 1994 32.00
January 1993 24.56
January 1992 17.18
March 1991 16.13
</TABLE>
There has been a floating exchange rate since February 1991. The exchange rates
for the period March 1991 to January 1995 were obtained from the 1995 CIA World
Factbook.
The majority of Global's assets and liabilities were denominated in U.S.
dollars. For the year ended December 31, 1995, substantially all of Global's
revenues were denominated in US dollars and the majority of Global's operating
costs from continuing operations were denominated in Leva.
So long as Global's is able to bill its customers in US dollars or in local
currency equivalent of predetermined US dollar amounts, and so long as Global is
able to freely change its receipts in local currencies for US dollars, Global
should not be significantly exposed to declines in the value of the Leva.
Nonetheless, no assurance can be given that Global's business will continue to
be able to bill customers in US dollars or in local currencies in amounts
determined by reference to the value of the US dollar or will continue to be
relatively effective in exchanging local currency for US dollars with out
significant difficulties, delays or costs. Moreover, no assurance can be given
that, even if Global is able to continue its current billing and conversion
practices, its customers will be able to generate sufficient revenues in US
dollars or local currencies to pay for Global's services at rates that would be
acceptable to Global. Any of these developments, in conjunction with further
declines in the value of the Leva against the US dollar, could have a material
adverse effect on Global.
19
<PAGE>
GENERAL RISKS INVOLVING GLOBAL
Loss History; Uncertainty of Future Profitability -- Global has incurred net
- -------------------------------------------------
losses since inception, has an accumulated deficit of $2,525,383 at December 31,
1995. The operations of Global to date have consumed substantial amounts of
cash. However, the management of Global expects, from this date forward, the
current operations to be profitable and able to generate sufficent cash to
fund its current level of operations. There can, however, be no assurance that
Global will be able to achieve or sustain profitability.
The expansion of Global's telecommunications operations, as currently proposed
by its managment, will require significant additional capital expenditures.
Operational and financial projections prepared by Global's management show such
expansion to be profitable and, as such in the best interest of Global and its
shareholder, Sector Communications, Inc.
Failure to generate sufficient funds in the future, whether from operations of
by raising additional debt or equity capital, may require Global to delay or
abandon some or all of its anticipated expansion or expenditures, which could
have a material adverse effect on the growth of Global. The Company intends to
seek such additional funding for its expansion through future equity or debt
offerings in the public or private markets. The Company's ability to obtain
additional financing will depend on its, including Global's, results of
operations, financial condition and business prospects and conditions prevailing
in the relevant capital markets at the time the financing is sought. There can
be no assurance that any additional funding required by Global will be available
or, if available, will be on favorable terms.
Dependence on Key Management Global is highly dependent on the principal members
- ----------------------------
of its management, the loss of whose services could have a material adverse
effect on Global. Global competes with others in the recruitment and retention
of qualified management and employees.
Rapid Technological Change The telecommunications industry is subject to rapid
- --------------------------
and significant changes in technology. There can be no assurances that Global
will be able to acquire or develop, on reasonable terms new technologies
necessary to compete in changed circumstances.
Licenses and Regulatory uncertainties -- Global's business is dependent on the
- -------------------------------------
maintenance of its JAA, which allows it to be the sole source provider of a
closed private international long distance traffic network for the hotel and
resort industry.
20
<PAGE>
Due to the political and economic risks associated with emerging countries, such
as Bulgaria, there can be no assurance that Global will be able to maintain its
JAA in force, that its terms will not be altered to Global's disadvantage or
that it will be renewed upon its expiration. The loss of, or a substantial
limitation upon the terms of, Global's JAA could have a material adverse effect
on the operations of Global.
Dependance on Significant Customers; Necessity to Develop Customer Base --
- -----------------------------------------------------------------------
Global currently serves twelve of hotels in the cities of Sofia and Plodiv.
Global's long term success will depend on developing a diverse customer base.
There can be no assurance that Global will be able or allowed to expand its
customer base to additional customers in Sofia or in other geographic regions of
Bulgaria.
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<PAGE>
MANAGEMENT
The acquisition of Global will have no impact on the Executive officers and
directors of the Company. The Company plans to continue the employment of
Global's executive officers as operating managers in order to provide the
necessary telecommunications experience necessary to continuing providing
telecommunications services in the Republic of Bulgaria.
The following table lists the names, ages, and positions of the executive
officers and directors of the Company as of May 31, 1996. All officers and
directors have been appointed to serve until their successors are elected and
qualified. Additional information regarding the business experience, length of
time served in each capacity, and other matters relevant to each individual is
set forth following the table.
<TABLE>
<CAPTION>
Name Age Position
- --------------------- --- --------------------------------------
<S> <C> <C>
Theodore J. Georgelas 49 President, Chief Executive Officer and
and Chairman of the Board of Directors
S. Allan Kline 75 Director
Jeff L. Shear 54 Director
Roger Hedin 35 Vice President and Director
</TABLE>
Theodore J. Georgelas became President and Chief Executive Officer effective
- ---------------------
January 17, 1996, and was elected as Chairman of the Board of Directors of the
Company at that time. Mr. Georgelas has been the Manager/Member of G & S
International L.C. (Developers of commercial, retail, industrial and residential
properties both domestically and internationally) for at least the last five
years. He serves on the Executive Committee and Board of United Bankshares,
Inc. and is Chairman of the Board of one of its subsidiaries, United Bank
(Virginia). He is a cofounder of a cellular telephone business in Delaware and
a cofounder of dbe Software, Inc., a software company marketing a database
utility programming tool.
Mr. S. Allan Kline was a founder of the Company and has been a director since
- ------------------
its inception on March 19, 1990. Since 1988, he has been a director and is
currently the president of Biomyne, Inc., a corporation which is the general
partner of Biomyne North Company. Biomyne North Company holds 8,010,000 shares
of Common Stock of the Company. Mr. Kline is a director of Xicor, Inc., a
company in the semiconductor business, and of Senetek PLC, an English company
engaged in sponsored research in the life sciences and biotechnology fields.
Mr. Kline holds a degree in physics from the University of Chicago, an
engineering degree from the Illinois Institute of Technology, and a LL.D. from
Yale University.
22
<PAGE>
Mr. Jeff Shear has been a director of The Company since March 31, 1993. Since
- --------------
1978 he has been president of Shear Kershman Labs, a consulting company for new
products for food and pharmaceutical companies. He was formerly chairman and
chief executive officer of Pharmaceutical Delivery Systems, a company which
manufactured and marketed pharmaceuticals. Mr Shear has a B.S. degree in
chemical engineering from Washington University.
Mr. Roger Hedin has been a director of the Company since February 16, 1995 and
- ---------------
was elected a vice president of the Company in January 1996. Mr. Hedin was also
a director of the Company from March 31, 1993 to November 1, 1993. He has been
involved with private businesses in Europe during the last seven years. Prior
to that time he was active in a corporate development division of ASEA in
Sweden. Mr. Hedin has studied engineering and economics at the Institute of
Technology in Linkoping and at the University of Linkoping.
All directors are elected annually and serve until the next annual meeting of
stockholders or until the election and qualification of their successors.
Directors, with the exception of Mr. Georgelas receive a monthly fee of $ 2,000,
and reimbursed for their expenses in attending out-of-town meetings. The Board
of Directors of the Company selects the Company's officers, and such officers
serve at the discretion of the Board of Directors of the Company. There are no
family relationships among the directors or officers of the Company.
23
