<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 28, 1997
SECTOR COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Commission File Number: 0-22382
Nevada 56-1051491
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7601 Lewinsville Road, Suite 250, McLean, VA 22102
(Address of principal executive offices)
(703) 761-1500
Registrant's telephone number
<PAGE>
ITEM 2. DISPOSITION OF ASSETS
(a) On February 28/th/, 1997, Sector Communications, Inc., a Nevada
Corporation, (the "Company") entered into an agreement (the "Agreement") with
Peacetime Communications, Ltd., a British Virgin Islands corporation
("Peacetime"), Emerald Capital, Inc., a British Virgin Islands corporation
("Emerald") and Wallington Investment, Ltd. a British Virgin Island corporation
("Wallington"), whereby the Company canceled obligations to Peacetime, Emerald
and Wallington in the aggregate amount of $4,780,000 and obtained additional
financing in the amount of $1,000,000 through the sale of 25% of the Company's
equity holdings in HIS Technologies AG ("Histech"), a Swiss Corporation, all of
the Company's interests in DBE Software, Inc., a Delaware corporation, ("DBE"),
and 1,000,000 shares of the Company's common stock (collectively the
"Securities").
The $4,080,000 debt due to Peacetime arose when Global Communications
Group, Inc. aka Global Communications, Ltd. a British Virgin Islands corporation
("Global BVI"), and Global Communications Group, Inc., a Texas corporation
("Global Texas") on one side and Peacetime entered into a Financing Agreement
dated January 31, 1994 and a Line of Credit Promissory Note Secured by a Pledge
Agreement on February 1, 1994 and Amended on August 15, 1994 (collectively the
"Global Financing Debt"). The Company agreed to assume the Global Financing debt
on April 19, 1996 when the Company entered into a Stock Purchase and Exchange
Agreement with the Shareholders of Global Communications Group, Inc. A Debt
Repayment Agreement among the Company, Global Texas and Peacetime was entered
into on June 14, 1996 (the "Debt Repayment Agreement") whereby the Company
memorialized its agreement to assume and pay in full the Global Financing Debt
within three years from the closing date of the Stock Purchase and Exchange
Agreement.
The remaining debt that was discharged arose on January 21, 1997 when
the Company signed Promissory Notes with Emerald Capital, Inc. and Wallington
Investment, Ltd. in the amounts of $350,000 each.
The Company obtained 80% of the outstanding shares of Histech in
August 1996. The Company, through its wholly owned subsidiary, Sector
Communications AG, a Swiss Corporation, entered into a Definitive Agreement
dated August 12, 1996 among Histech, and certain of HIS shareholders (the
"Selling Shareholders") whereby Sector acquired a 25.55% equity interest in
Histech from Histech and an additional 54.45% equity interest in Histech from
the Selling Shareholders.
The Company obtained an interest in DBE when it entered into a
Definitive Investment and Option to Merge Agreement with DBE in May 1996 (the
"DBE Agreement") whereby the Company advanced $1,100,000 to DBE. The DBE
Agreement was amended by a subsequent letter on January 16, 1997 whereby the
Company was to receive 145,745 shares of DBE common stock representing a 14.594%
equity stake in DBE in return for the $1,100,000 previously advanced by the
Company to DBE. In October 1993, the Chairman and CEO of the Company personally
purchased 38,700 shares of DBE common stock.
The Securities are apportioned among Peacetime, Emerald and Wallington
as follows.
<PAGE>
Peacetime purchased 2,417 shares of common stock of Histech, which represents
18% of the total outstanding shares of Histech, and has agreed to immediately
make available one million dollars ($1,000,000)(the "Additional Funding") to the
Company to draw upon on an as needed basis for a period of six months in return
for the assignment to Peacetime of the Company's entire claim to 145,745 shares,
representing 14.594% of the outstanding common stock, of DBE. The DBE common
stock has been placed into escrow pursuant to an escrow agreement (the "Escrow
Agreement") executed simultaneously with the Agreement. The Escrow Agreement
provides that Sector shall transfer its entire claim to 145,745 shares,
representing 14.594% of the outstanding common stock, of DBE to an Escrow Agent.
Upon Sector's receipt of one million dollars, the Escrow Agent shall transfer
Sector's interest in DBE to Peacetime. In the event that less than one million
dollars is made available to Sector, a percentage of Sector's interest in DBE
which is proportionate to the amount of capital provided to Sector shall be
delivered to Peacetime with the remainder of the DBE interest returned to
Sector.
Emerald and Wallington each received 500,000 shares of Sector
Communications, Inc. common stock and 134 shares of HIS common stock, which
represents 1% of the total number of outstanding shares of HIS. Wallington
previously held 945,000 shares of the Company's common stock.
ITEM 5. OTHER EVENTS
Sector Communications, Inc. has completed negotiations on a new Joint
Activity Agreement with the Bulgarian Telecommunications Company. The new 10
year agreement, replaces a 5 year contract (between the BTC and Sector's wholly
owned subsidiary Global Communications Group, Inc.) that had been unilaterally
terminated by the BTC, as previously reported. Along with extending the term of
Sector's engagement, the new deal, which went into effect February 21/st/, also
expands greatly the type of services that Sector can provide to its customers.
Sector has installed a private, high-speed fiber-optic network in
Bulgaria's capital city of Sofia and now provides international long-distance
services to customers in Sofia, Plovdiv, and other areas. Phase I of the network
is already providing switched voice traffic to a select group of luxury hotels
and resorts. Phase II will add additional fiber-optic cable to the network and
will expand Sector's service area to the Black Sea coast.
Sector will continue to handle the daily operations for the new joint
venture from their offices in Bulgaria's capital city of Sofia. Dr. Kalcho
Kalchev, Sector's General Manager in Sofia, said that all of Sector's circuits
have been reconnected by the BTC and that all connections to existing Sector
customers were being reestablished.
<PAGE>
ITEM 7. EXHIBITS
Exhibit Number Description
- -------------- -----------
10.1 Agreement dated February 28th, 1997 among Sector
Communications, Inc., Peacetime Communications, Ltd.,
Emerald Capital, Inc., Wallington Investment, Ltd.
10.2 Stock Purchase and Exchange Agreement with Global
Communications Group, Inc. dated April 19, 1996 (1)
10.3 Amendment Number 1 to Stock Purchase and Exchange Agreement
with Global Communications Group (1)
10.4 Debt Repayment Agreement among the Company, Global Texas and
Peacetime Communications, Inc. dated June 14, 1996 (1)
10.5 Promissory Note with Emerald Capital, Inc. dated January 21,
1997 (2)
10.6 Promissory Note with Wallington Investment, Ltd. dated
January 21, 1997 (2)
10.7 Definitive Agreement dated August 12, 1996 among Sector
Communications AG, Histech, and certain of HIS shareholders
(3)
10.8 Definitive Investment and Option to Merge Agreement dated
June 19, 1996 with DBE Software, Inc. (4)
10.9 Letter from Sector Communications, Inc. to DBE Software,
Inc. dated January 16, 1997 (2)
10.10 Escrow Agreement with Peacetime
10.11 Joint Activity Agreement with Bulgarian Telecommunications
Company - EAD
(1) Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the year ended February 29, 1996.
(2) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB
for the quarter ended November 30, 1996.
(3) Incorporated by reference to the Company's Current Report on Form 8-K dated
November 18, 1996 and amended December 13, 1996.
(4) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB
for the quarter ended August 31, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: February 28, 1997 SECTOR COMMUNICATIONS, INC.
By: /s/ Theodore Georgelas
-----------------------------
Theodore Georgelas - CEO
<PAGE>
EXHIBIT 10.1
SECTOR COMMUNICATIONS, INC.
LONG-TERM DEBT RETIREMENT AND FUNDING AGREEMENT
THIS AGREEMENT (the "Agreement") is made as of this 28th day of February,
1997, among Sector Communications, Inc., a Nevada corporation , formerly known
as Aurtex, Inc. (the "Company"), Peacetime Communications, Ltd., a British
Virgin Islands corporation ("Peacetime"), Emerald Capital, Inc., a British
Virgin Islands corporation ("Emerald") and Wallington Investment, Ltd. a British
Virgin Island corporation ("Wallington").
WHEREAS, Global Communications Group, Inc. aka Global Communications, Ltd.
a British Virgin Islands corporation ("Global BVI"), and Global Communications
Group, Inc., a Texas corporation ("Global Texas") on one side and Peacetime
entered into a Financing Agreement dated January 31, 1994 and a Line of Credit
Promissory Note Secured by a Pledge Agreement on February 1, 1994 and Amended on
August 15, 1994 collectively the "Global Financing Debt");
WHEREAS, the Company entered into a Stock Purchase and Exchange Agreement
with the Shareholders of Global Communications Group, Inc. on April 19, 1996
whereby the Company agreed to enter into an agreement to pay the outstanding
principal and accrued interest of the Global Financing Debt owed by Global Texas
to Peacetime;
WHEREAS, a Debt Repayment Agreement among the Company, Global Texas and
Peacetime was entered into on June 14, 1996 (the "Debt Repayment Agreement")
whereby the Company agreed to assume and pay in full the Global Financing Debt
within three years from the closing date of the Stock Purchase and Exchange
Agreement;
WHEREAS, the Company, through its wholly owned subsidiary, Sector
Communications AG, a Swiss Corporation, entered into a Definitive Agreement
dated August 12, 1996 among HIS Technologies AG ("Histech"), a Swiss
Corporation, and certain of HIS shareholders (the "Selling Shareholders")
whereby Sector acquired a 25.55% equity interest in Histech from Histech and an
additional 54.45% equity interest from Histech from the Selling Shareholders;
WHEREAS, the Company entered into a Definitive Investment and Option to
Merge Agreement with DBE Software, Inc., a Delaware corporation, ("DBE") in May
1996, which was amended by the subsequent Letter of January 16, 1997 whereby the
Company received 145,745 shares representing a 14.594% equity stake in DBE;
WHEREAS, on January 21, 1997 the Company signed a Promissory Note payable
to Emerald Capital, Inc. in the amount of $350,000;
WHEREAS, on January 21, 1997 the Company signed a Promissory Note payable
to Wallington Investment, Ltd. in the amount of $350,000;
WHEREAS, the Company desires to retire its debt obligations to Peacetime,
Emerald and Wallington and obtain additional financing in the amount of
$1,000,000 through the sale of 25% of the Company's equity holdings in HIS, all
of the Company's interests in DBE, and 1,000,000 shares of the Company's common
stock;
NOW THEREFORE, for and in consideration of the premises and the mutual
covenants hereinafter set forth, the parties hereto do hereby agree as follows:
<PAGE>
I. PURCHASE OF SECURITIES
Subject to the terms and conditions hereinafter set forth, the Parties
hereby agree as follows:
1.1 Peacetime agrees:
(i) to purchase 24,170 shares of common stock of HIS Technologies
AG, a Swiss Corporation, ("Histech") which represents 18% of the
total outstanding shares of Histech;
(ii) to immediately make available one million dollars
($1,000,000)(the "Additional Funding") to the Company to draw
upon on an as needed basis for a period of six months in return
for the assignment to Peacetime of the Company's entire claim to
145,745 shares, representing 14.594% of the outstanding common
stock, of DBE Software, a Delaware corporation, ("DBE") pursuant
to the escrow agreement executed simultaneously herewith and
incorporated herein. The value of the Company's entire claim to
the DBE shares is $1,100,000.
1.2 Emerald agrees to purchase 500,000 shares of Sector Communications,
Inc. common stock and 1,193 shares of HIS common stock, which represents 1% of
the total number of outstanding shares of HIS.
1.3 Wallington agrees to purchase 500,000 shares of Sector
Communications, Inc. common stock and 1,193 shares of HIS common stock, which
represents 1% of the total number of outstanding shares of HIS.
II. CANCELLATION OF DEBT
2.1 In consideration for the purchase of the securities as stated in
Section 1.1 (i) herein, Peacetime agrees to cancel and discharge all of the
outstanding debt that was assumed by the Company pursuant to the Debt Repayment
Agreement. Said debt, including all outstanding principal and accrued interest,
totals $4,780,000.00.
2.2 In consideration for the purchase of the securities as stated in
Section 1.2 herein, Emerald agrees to cancel and discharge all of the
outstanding debt that was assumed by the Company pursuant to the Promissory Note
dated January 21, 1997 in the principal amount of $350,000.00.
2.3 In consideration for the purchase of the securities as stated in
Section 1.2 herein, Wallington agrees to cancel and discharge all of the
outstanding debt that was assumed by the Company pursuant to the Promissory Note
dated January 21, 1997 in the principal amount of $350,000.00.
2.4 Peacetime, Emerald and Wallington each agree to waive any and all
notice requirements that said debt instruments contain. Peacetime, Emerald and
Wallington discharge all obligations assumed by the Company under the Debt
Repayment Agreement and subsequent Promissory Notes and shall deliver to the
Company any and all canceled documents representing said debt to the Company
marked "paid in full" and "fully extinguished as a matter of law" within
-2-
<PAGE>
three (3) business days of the date of this Agreement.
III. REPRESENTATIONS BY THE PURCHASERS
3.1 The Purchasers recognize that the purchase of Securities involves a
high degree of risk and is suitable only for persons of adequate financial means
who have no need for liquidity in this investment in that (i) the Purchasers may
not be able to liquidate the Purchasers' investment in the event of an
emergency; (ii) transferability is extremely limited; and (iii) in the event of
a disposition, the Purchasers could sustain a complete loss of the Purchasers'
entire investment.
3.2 The Purchasers represent that (i) the Purchasers are competent to
understand and do understand the nature of the investment; and (ii) the
Purchasers are able to bear the economic risk of this investment.
3.3 The Purchasers hereby represent that the Purchasers have been
furnished by the Company during the course of this transaction with all
information regarding Sector, Histech and DBE which the Purchasers had requested
or desired to know; that all other documents which could be reasonably provided
have been made available for the Purchasers' inspection and review; and that the
Purchasers have been afforded the opportunity to ask questions of and receive
answers from duly authorized officers or other representatives of Sector,
Histech and DBE concerning the terms and conditions of the Agreement, and any
additional information that the Purchasers had requested.
3.4 The Purchasers hereby acknowledge that this sale of Securities has
not been reviewed by the Securities and Exchange Commission (the "SEC") because
of the Company's representations that this is intended to be a private sale
pursuant to Section 4(1) of the 1933 Act. The Purchasers represent that the
Securities are being purchased for the Purchasers' own account, for investment
purposes and not for distribution or resale to others. The Purchasers agree that
the Purchasers will not sell, transfer or otherwise dispose of any of the
Securities unless they are registered under the 1933 Act or unless an exemption
from such registration is available.
3.5 The Purchasers understand that the Securities have not been
registered under the 1933 Act by reason of a claimed exemption under the
provisions of the 1933 Act which depends, in part, upon the Purchasers'
investment intention. In this connection, the Purchasers understand that it is
the position of the SEC that the statutory basis for such exemption would not be
present if the Purchasers' representation merely meant that the Purchasers'
present intention was to hold the Securities for a short period, for a deferred
sale, for a market rise, assuming that a market develops and is maintained, or
for any other fixed period. The Purchasers realize that, in the view of the SEC,
a purchase now with an intent to resell would represent a purchase with an
intent inconsistent with the Purchasers' representation to the Company, and the
SEC might regard such a sale, transfer or other disposition as a deferred sale
for which no exemption from registration is available.
3.6 The Purchasers agree that Sector, Histech and DBE may, if they
desire, permit the transfer of the Securities by the Purchasers out of the
Purchasers' name only when the Purchasers' request for transfer is accompanied
by an opinion of counsel reasonably satisfactory to Sector, Histech and DBE that
the proposed sale, transfer or disposition does not result in a violation of the
1933 Act or any applicable state "Blue Sky" laws (collectively, "Securities
Laws"). The Purchasers agree to hold the Sector, Histech and DBE and their
respective directors, officers and controlling persons and their respective
heirs, representatives, successors and assigns harmless
-3-
<PAGE>
and to indemnify them against all liabilities, costs and expenses incurred by
them as a result of any sale, transfer or other disposition of the Securities by
the undersigned Purchasers in violation of any Securities Laws or any
misrepresentation herein.
3.7 The Purchasers consent to the placement of a legend on the
certificates evidencing the Securities stating that they have not been
registered under the 1933 Act and setting forth or referring to the restrictions
on the sale, transfer or other disposition thereof. The Purchasers are aware
that the Company will make a notation in its appropriate records with respect to
the restrictions on the sale, transfer or other disposition of the Securities.
3.8 The Purchasers acknowledge and agree that the Company is relying on
the Purchasers' representations contained in this Agreement and the related
subscription documents in determining whether to sell the Securities to
Purchasers. The Purchasers hereby give the Company authority to call the
Purchasers' bank or place of employment or otherwise review the financial
standing of the Purchasers.
3.9 The Purchasers represent and warrant that all representations made by
Purchasers hereunder are true and correct in all material respects as of the
date of execution hereof, and Purchasers further agree that until the closing on
the Securities subscribed for the Purchasers shall inform the Company
immediately of any changes in any of the representations provided by the
Purchasers hereunder.
3.10 The Purchasers represent and warrant that the Purchasers shall
undertake to complete all filings required by the Securities Exchange Act of
1934, as amended, and any other laws on a timely basis.
IV. REPRESENTATIONS BY THE COMPANY
4.1 The Company represents and warrants to the Purchasers as follows:
(a) The Company is a corporation duly organized, existing and in
good standing under the laws of the State of Nevada and has the corporate power
to conduct its business.
(b) The execution, delivery and performance of this Agreement by the
Company has been duly approved by the Board of Directors of the Company.
(c) The Company is the sole record and beneficial owner of the
number of Securities of DBE, and the Company's wholly owned subsidiary, Sector
AG is the sole record and beneficial owner of the number of Securities of
Histech as set forth above, free and clear of all voting trust and other
arrangements that require or permit any of the Securities owned by the Company
or Sector AG to be voted by or encumbered by or at the discretion of anyone
other than the Company.
(d) Upon consummation of the transactions contemplated hereby, the
Company will have transferred to Peacetime, such Securities, free and clear of
all encumbrances other than such restrictions on resale as have been created as
a result of this Agreement.
(e) Neither the execution nor delivery by the Company of this
Agreement or any of the other documents contemplated hereby, the performance by
the Company of the terms hereof, nor the consummation of the transactions
contemplated hereby (i) requires any consent,
-4-
<PAGE>
notice, or approval of any third party; (ii) or has resulted or will result in a
breach of the terms or conditions of, a default under, a conflict with, or the
acceleration of any right to cause the acceleration of any performance or any
increase in any payment required by, or the termination, suspension,
modification, impairment, or forfeiture of any rights or privileges of the
Company under any material agreement or obligation.
(f) The Securities have been duly authorized, and when delivered,
and paid for, will be validly issued, fully paid and non-assessable.
V. NOTICES TO PURCHASERS
5.1 THE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE 1933 ACT, OR THE
SECURITIES LAWS OF ANY STATE AND ARE BEING OFFERED AND SOLD IN RELIANCE ON
EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE 1933 ACT AND SUCH LAWS. THE
SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC, ANY STATE
SECURITIES COMMISSION OR OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE
FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE
ACCURACY OR ADEQUACY OF THE OFFERING DOCUMENTS. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
5.2 THE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE 1933
ACT, AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. PURCHASER SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
VI. MISCELLANEOUS
6.1 Any notice or other communication given hereunder shall be deemed
sufficient if in writing and sent by registered or certified mail, return
receipt requested, addressed to Sector Communications Suite 250, 7601
Lewinsville Rd, McLean, VA 22202 Attention: Mr. Theodore J. Georgelas, CEO, and
to the Purchasers at the Purchasers' address indicated on the last page of this
Agreement. Notices shall be deemed to have been given on the date of mailing,
except notices of change of address, which shall be deemed to have been given
when received.
6.2 This Agreement shall not be changed, modified, or amended except by a
writing signed by the parties to be charged, and this Agreement may not be
discharged except by performance in accordance with its terms or by a writing
signed by the party to be charged.
6.3 This Agreement shall be binding upon and inure to the benefit of the
parties hereto and to their respective heirs, legal representatives, successors
and assigns. This Agreement sets forth the entire agreement and understanding
between the parties as to the subject matter thereof and merges and supersedes
all prior discussions, agreements and understandings of any and every nature
among them.
6.4 This Agreement and its validity, construction and performance shall
be governed in all respects by the laws of the Commonwealth of Virginia.
6.5 This Agreement may be executed by facsimile signature and in one or
more
-5-
<PAGE>
counterparts, each of which shall be deemed original and all of which, when
taken together, shall constitute one instrument. Upon the execution and delivery
of this Agreement by the Purchasers, this Agreement shall become a binding
obligation of the Purchasers with respect to the purchase of Securities as
herein provided.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first written above.
Sector Communications, Inc.
By: /s/ Theodore J. Georgelas
-----------------------------------
Theodore J. Georgelas - CEO
Peacetime Communications Ltd.
/s/ Mohamed Hadid
By: Mohamed Hadid
------------------
Title: President
-----------------
Emerald Capital, Inc.
/s/ Yolanda Herik
By: Yolanda Herik
------------------
Title: President
-----------------
Wallington Investment, Ltd.
/s/ Mohamed Hadid
By: Mohamed Hadid
------------------
Title: Authorized Agent
-----------------
-7-
<PAGE>
EXHIBIT 10.10
ESCROW AGREEMENT
This Agreement, made and entered into this 28th day of February, 1997 by and
between Sector Communications, Inc., a Nevada Corporation ("Sector") and
Peacetime Communications, LTD, a British Virgin Islands Corporation
("Peacetime").
Whereas,
Peacetime and Sector have entered into an Agreement known as the Long-Term Debt
------------------
Retirement and Funding Agreement ("Funding Agreement"), which is being executed
- ------------------------------------------------------
simultaneously with this Agreement; and
The Funding Agreement contains provisions whereby Peacetime shall make available
funds to Sector totaling One Million Dollars ($1,000,000.00) over a six (6)
month period from the date of said Agreement; and
Sector agrees to transfer all of its right, title, and interest in the Sector's
interest in DBE to Peacetime upon the receipt of $1,000,000.00.
Now Therefore, in consideration of the terms and conditions contained herein,
and other good and valuable consideration, the receipt and sufficiency of which
is hereby expressly acknowledged and received, the parties agree as follows:
1. The Escrow Agent shall be the Stoppelman Law firm, PC Attention J.
Peter Wolf, Esquire (the "Escrow Agent").
2. Sector shall deliver to the Escrow Agent, Stock Certificates
representing all of its right, title, and interest in its holdings of DBE
Stock.
<PAGE>
Said Stock constitutes 14.594% of all the outstanding shares of Stock of
DBE; totaling 145,745 Shares.
3. Peacetime shall make funds available to Sector on an as needed basis
until Peacetime had advanced funds totaling One Million Dollars
($1,000,000.00).
4. Upon receipt of the funds totaling One Million Dollars, Sector shall
notify the Escrow Agent of its receipt of said Funds.
5. Upon notice from Sector that it has received One Million Dollars of
funding, the Escrow Agent shall immediately, within 24 hours, release all
of the Stock Certificates it holds in DBE to Peacetime.
6. In the event Peacetime does not fund to Sector on demand, and ten days
elapses from the date of demand by Sector for funding under the Funding
Agreement, Sector shall have the option of notifying Peacetime of its
intent to terminate said Funding Agreement. Peacetime shall have five (5)
days upon notice from Sector of Sector's intent to terminate the Funding
Agreement to fund the money demanded by Sector. If Peacetime fails to fund
money to Sector by the end of the fifth day of such notice, then Sector
shall have the right to terminate this Escrow Agreement. If Sector
exercises its right to terminate this Escrow Agreement, then Sector shall
notify Escrow Agent and upon receipt of notice, the Escrow Agreement shall
do as follows:
a.) Ascertain the total amount of funds provided by Peacetime to
Sector pursuant to the Funding Agreement.
<PAGE>
b.) Use the value of DBE Stock as One Million, One Hundred Thousand
Dollars ($1,100,000.00).
c.) Divide the value of DBE Stock by the amount of funds provided by
Peacetime as ascertained in 6(a) above.
Example:
Peacetime funds $500,000.00
500,000.00
----------
1,100,000.00 = 45%
This figure represents the amount of shares of DBE due Peacetime.
d.) Deliver to Peacetime shares of DBE totaling the amount as
calculated in 6 ( c ) herein.
e.) Deliver to Sector the remaining shares of DBE it holds in Escrow.
7. Notices shall be given and ordered sufficient if in writing and sent
via Federal Express and facsimile to:
---
Sector Communications
7601 Lewinsville Road
Suite 250
McLean, VA 22102
Attn: Theodore J. Georgelas, CEO
Facsimile: (703)893-3744
<PAGE>
Peacetime Communications, LTD
The Stoppelman Law Firm
1749 Old Meadow Road
Suite 610
McLean, VA 22102
Facsimile: (703)827-7455
8. The duties and responsibilities of the Escrow Agent are limited to
those specifically set forth herein. The Escrow Agent shall not be liable
for any mistake of fact or error of judgment made in good faith or for any
acts or omissions by it of any kind resulting from other than willful
misconduct or gross negligence. The Escrow Agent shall be entitled to rely,
and shall be protected in doing so, upon (i) any written notice, instrument
or signature believed by the Escrow Agent to be genuine and to have been
signed or presented by the proper Party or Parties duly authorized to do
so, and (ii) the advice of counsel (which may be of the Escrow Agent's own
choosing). The Escrow Agent shall have no responsibility for the contents
of any writing submitted to them hereunder and shall be entitled in good
faith to rely without any liability upon the contents thereof.
9. Sector and Peacetime jointly and severally will indemnify and hold
harmless Escrow Agent against any losses, claims, damages, liabilities and
expenses, including reasonable costs of investigation and counsel fees and
disbursements that may be imposed on Escrow Agent or incurred by Escrow
Agent in connection with its acceptance of appointment of the performance
of its duties under this Agreement, including any litigation arising from
this Agreement or involving the subject matter hereof, unless any such
loss, claim, damage, liability or expense shall be the result of Escrow
Agent's gross negligence, willful default or breath of trust.
<PAGE>
10. After the Escrow Agent has delivered the Escrow Deposit pursuant to
the terms of this Agreement, the Escrow Agent shall have discharged all of
its obligation hereunder and neither Sector or Peacetime shall thereafter
have any claim against the Escrow Agent on account of this Agreement.
11. No party to this Escrow Agreement may assign its rights and
obligations hereunder without the prior written consent of the other
parties hereto.
12. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and to their respective heirs, legal representatives,
successors and assigns. This Agreement sets forth the entire agreement and
understanding between the parties as to the subject matter thereof and
merges and supersedes all prior discussions, agreements and understandings
of any and every nature among them.
13. This Agreement and its validity, construction and performance shall be
governed in all respects by the laws of the Commonwealth of Virginia.
14. This Agreement may be executed by facsimile signature and in one or
more counterparts, each of which shall be deemed original and all of which,
when taken together, shall constitute one instrument. Upon the execution
and delivery of this Agreement by the Purchasers, this Agreement shall
become a binding obligation of the Purchasers with respect to the purchase
of Securities as herein provided.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first written above.
SECTOR COMMUNICATIONS, INC.
By: /s/ Theodore Georgelas
Theodore Georgelas, President
PEACETIME COMMUNICATIONS, LTD
By: /s/ Mohamed Hadid for Pierre Caland
THE STOPPELMAN LAW FIRM
By: /s/ John S. Stoppleman
<PAGE>
EXHIBIT 10.11
JOINT ACTIVITY AGREEMENT
This contract was entered as of this day of 14/th/, month 02, 1997 in Sofia
between
1. BULGARIAN TELECOMMUNICATIONS COMPANY - EAD, (BTC) head office and address
of management: Sofia, 8, Totleben Blvd., registered with Sofia City Court,
Company case No. 34241/92, represented by Michail Danov - Chairman of the
company and executive member of the Board of Directors
and
2. SECTOR COMMUNICATIONS, INC. (SECTOR), USA, Virginia 22102, McLean, 7601
Lewinsville Road, suite 250 and represented by Theodore Georgelas -
President and Chief Executive Officer
for fulfilling joint activity within the meaning of art. 357 - 364 of the
Obligations and Contracts Act. The parties agreed on the following:
1. GENERAL PROVISIONS
Subject of the contract
- -----------------------
Art. 1. With the present contract the parties unite their efforts to fulfill
joint activity consisting in providing specialized telecommunications services
to a group of users.
Art. 2. When implementing the subject of the contract both parties shall keep
their legal and economic independence.
Purpose of the contact
- ----------------------
Art. 3. By signing this contract the parties aim to improve the quality of the
telecommunications services under Art. 1.
P.1
<PAGE>
Name
- ----
Art. 4. The name under which the parties shall fulfill the joint activity shall
be "BULSEC". It shall be used only for advertising purposes.
Term. Effective date
- --------------------
Art. 5. The contract is signed for a term of ten (10) years which shall start
from the date of beginning of the joint activity. The date of beginning of the
joint activity shall be indicated in a protocol signed by the parties and shall
constitute an inseparable part thereof.
Art. 6. The contract shall be effective from the date of its signing by the
parties thereunder, the adoption of resolution for its approval by their
managing bodies and the issuance of the relevant licenses by the competent state
authorities.
Head office of the joint activity
- ---------------------------------
Art. 7. The Head office of the joint activity shall be Sofia city, area
"Sredets", 4, 6th of September Str., Sofia.
II. MANAGEMENT OF THE JOINT ACTIVITY
Management
- ----------
Art. 8. The joint activity shall be managed by:
1. The parties under this contract
2. Consultative Council
Art. 9. (1) The parties thereunder shall manage the joint activity and specific
decisions shall be made by their lawful representatives at meetings held from
time to time.
P.2
<PAGE>
(2) The managing bodies of the companies which are parties thereunder shall be
entitled to authorize in writing other persons to participate directly in the
management of the joint activity.
Art. 10. (1) The joint activity shall be represented before third persons by
any of the parties.
(2) Upon the unanimous decision of all contractual parties any party
can be authorized to manage and represent fully or partially explicitly
specified in the power of attorney aspects of the joint activity before third
parties. The authorized party shall have no right to re-authorize third party
with the same rights.
(3) The power of attorney under the precedent para may be withdrawn
at any time on the initiative of any party.
(4) Under this contract the parties shall assign and SECTOR shall
accept to represent the joint activity before the users with regard to issues
relating to: the range of services, the design and construction of the internal
telecommunication network, negotiating the prices of the specific services,
billing of those services and to collect on behalf and at the account of the
joint activity the amounts due by the users, including the amounts due to BTC
according to the BTC's tariffs. Upon undertaking those moves SECTOR shall be
obliged to coordinate their parameters with BTC and to sign the specific
agreements after BTC's prior consent.
Consultative Council
- --------------------
Art. 11. The Consultative Council shall consist of two representatives of each
party and shall coordinate their work and the decision making, support the
operational management of the joint activity and monitor the proper book
keeping.
Art. 12. The members of the Consultative Council shall have no right to fulfill
other activities except those specified in the precedent article and shall have
no managing or representative competencies.
Accounting
- ----------
Art. 13. (1) The accounting of the joint activity shall be independent and
shall be run separately from the accounting of the participants therein.
(2) The parties thereunder shall be obliged to run the accounting and
for the purposes of the book-keeping the partners shall have the right to assign
the joint technical performance of that activity to their representatives.
(3) The parties shall agree to apply the following type of accounting
in accordance with the Accountancy Act: double entry accounting.
P.3
<PAGE>
(4) The representatives of the parties who shall be directly in
charge with the accounting shall prepare within 25 days of the end of each
calendar month an income and expenses statement of the joint activity and shall
submit information on the joint activity for the corresponding period.
III. RIGHTS AND OBLIGATIONS OF THE PARTIES
Rights
- ------
Art. 14. (1) Any party shall be entitled:
1. to manage the joint activity unless one of the parties is assigned to
do so;
2. to get information on the development of the joint activity and to
audit the books;
3. to get its share of the profit in proportion to its share specified in
Art. 28.
Obligations of the BTC
- ----------------------
Art. 15. (1) BTC - EAD (State Owned Joint-Stock Company) is a telecommunications
operator. The BTC undertakes to provide to the group of users, covered by the
joint activity, the following services:
1. local and long-distance connection to the PSTN of any of the users.
2. carrier services and other telecommunications services from and for
any of the users according to the BTC's License.
(2) The traffic shall be carried through BTC's equipment which shall be
specified in advance by the parties thereunder.
Art. 16. BTC undertakes to provide the services under the precedent article
seven days a week, 24 hours: by rendering reliable carrier services of
international, long-distance and local traffic.
Art. 17. BTC undertakes to maintain in accordance with the existing technical
standards the international, local and long-distance lines necessary for the
implementation of the activity.
Art. 18. BTC undertakes to provide operational information regarding the
location, the cause and the forecast for resuming operation or recovering
service within technical parameters not later than six (6) hours after the BTC
has been
P.4
<PAGE>
informed about an interruption or another failure in the normal provision of
telecommunications services
Art. 19. To appoint two representatives of the BTC who shall take part in the
Consultative Council along with the representatives of the other parties to
monitor and to coordinate permanently the commercial, technical and financial
relations between the parties as well as to appoint the necessary number of
specialists to run jointly the accounting.
Art. 20. BTC undertakes to render administrative and technical assistance to
SECTOR within its possibilities to help the performance of SECTOR's obligations
thereunder, whenever the performance of these obligations is impossible or
extremely difficult without this assistance.
Obligations of Sector
- ---------------------
Art. 21. To achieve the objectives of the joint activities, SECTOR undertakes
to advertise and to promote to any of the users BTC's increasing expertise and
possibilities to offer high quality telecommunications services as well as
additional services which shall be offered as a result of the joint activities.
Art. 22. In view to improve the services provided to any of the users, SECTOR
undertakes:
1. to inform BTC on inquiries regarding additional services as well as
on the requirements relating to such services;
2. to inform BTC on the occurrence of a failure, disconnection or
service degradation, relating to the normal provision of services
to the users;
3. to construct at SECTOR's costs telecommunications sites, optical
fiber cables and other digital equipment according to technical
parameters and routes specified and agreed upon in advance with BTC
and after the completion of each specific site to transfer the
ownership of those of them to the BTC which, according to the
Telecommunications Act, are BTC's exclusive right. The maintenance
of the transferred equipment shall be effectuated by BTC;
4. to equip the delivered and installed equipment with monitoring
system and SECTOR shall provide 24 hour access of the competent
state authorities to the relevant premises and equipment according
to the effective legal acts;
5. to transfer the ownership at no cost on all already constructed
sites and equipment which, under the Telecommunications Act, are
BTC's exclusive right.
6. after coordination with the BTC to construct, maintain and manage
the closed administrative communication network in the buildings
and premises of the users;
P.5
<PAGE>
7. to provide information to the users relating to billing and
accounting of the provided telecommunications and other services;
8. upon assignment from BTC to collect from the users the amounts due
for provided services to those users.
Art. 23. To appoint two representatives who along with the representatives of
the other parties to participate in the work of the Consultative Council, to
monitor permanently and to coordinate the commercial, technical and financial
relations between the parties as well as the necessary number of specialists for
jointly running the book-keeping.
Assignment of rights and obligations
- ------------------------------------
Art. 24. None of the parties shall be entitled to assign its rights and
obligations thereunder without the prior written consent of the other parties.
The parties thereunder agree that SECTOR shall register its subsidiary in
Bulgaria to which SECTOR shall assign later on its rights and obligations
thereunder.
IV FINANCIAL TERMS
Art. 25. Any party thereunder shall have the right to cover the expenses
incurred by it, from the income from the joint activity before the
distribution of the profit.
Art. 26. (1) The profit from the joint activity shall be the remainder after
deducting consecutively first BTC's expenses, SECTOR's expenses and then the
respective share of investments made by SECTOR after this agreement becomes
effective.
(2) SECTOR undertakes within 40 days after the beginning of each calendar
year at the latest to prepare and submit to the other parties thereunder a
Business plan for the joint activity along with an Annex for the group of
potential users.
(3) The parties thereunder agree to discuss and to adopt the Business plan
within 60 days at the latest after the beginning of each calendar year. The
discussion and the adoption of the first Business plan shall be completed within
60 days at the latest after the beginning of the joint activity.
(4) If until the 135th day after the beginning of the joint activity the
income does not cover all the expenses incurred for the joint activity and the
monthly amount for paying back the investment made after this agreement becomes
effective, then SECTOR's expenses shall be calculated according to the formula,
specified in Section I, item 2 (b) of Annex 1 thereof.
P.6
<PAGE>
Art. 27. (1) SECTOR shall have the right to receive the amount which SECTOR will
invest in the future (under Art. 26, (1)) in the telecommunication network of
BTC or in other equipment, the ownership of which has been transferred to the
company according to the Telecommunications Act, under a plan and schedule
agreed upon by the parties and the investment shall be paid back in full by the
expiration of the term thereof.
(2) The investment which SECTOR has made prior to the effective date of
this contract shall be assessed by a group of experts which shall consist of
equal number of representatives of the parties thereunder and shall be adopted
by a protocol for a transfer at no cost which is an inseparable part thereof.
Art. 28. The profit from the joint activity shall be distributed between the
parties as follows:
BTC - EAD - 65 %
SECTOR - 35 %
Art. 29. The distribution shall be made on a monthly basis with annual
reconciliation and the payment for the respective month shall be made by the
25th of the following month at the latest.
Art. 30. The financial relations between the parties and namely the technical
procedures for calculating and determining the income, the expenses and the way
of returning the investment, the profit calculation, the payments and issuing of
invoices are specified in detail in Annex 1 thereto.
V. TERMINATION OF THE CONTRACT
Art. 31. This contract shall be terminated under the following circumstances:
a. upon expiration of the term unless the parties thereunder decide to
extend it;
b. upon the mutual decision of the parties thereunder;
c. provided the parties reach a new agreement on the subject of this
contract;
d. due to circumstances of force majeure, which continue more than 6
months;
P.7
<PAGE>
e. in case by virtue of a decree issued by a state body a part of the
rights of any party have been divested due to which this party is
actually not able to perform its obligations under this contract;
f. according to the decision of a competent Arbitration Court;
g. upon the institution of a procedure for liquidation or bankruptcy of
any of the parties thereunder;
h. in case either party fails to perform its obligations thereunder for
more than 30 days after the explicit written notification thereof, the
not-defaulting party can interrupt the performance of its obligations
thereunder.
VI. LIABILITIES IN CASE OF NON-PERFORMANCE
Art. 32. In case of non-performance of a non-monetary obligation under this
contract, the non-defaulting party shall have the right to claim indemnity for
actually incurred losses which include damages and lost profits.
Art. 33. (1) In case of delay in paying a financial obligation the non-
defaulting party shall have the right to claim a penalty equal to the double
BNB basic interest rate for delay for the relevant period of time.
(2) The penalty under the precedent item shall be due for a failure to
perform a financial obligation.
(3) A failure to perform a financial obligation shall be deemed in the case
when a contractual party has collected the amount due from a customer of the
joint activity and has not paid the amounts due to the other parties thereunder
within the terms specified therein according to Art. 30 thereof.
(4) The amount collected later than within the fixed term shall be
distributed within 10 day term between the parties according to the ratio under
Art. 28 along with the penalty for delay.
Art. 34. In case of cancellation of the contract due to the either party's
failure to perform its obligations, the non-defaulting party shall have the
right to claim penalties at the rate of the average monthly profit which it has
received for the term of this contract.
VII. FORCE MAJEURE
Art. 35. Force majeure shall be an unforeseeable and unpreventable event of
extraordinary kind, which has arisen after the signing of this contract and
makes impossible the actual performance of the obligations of any of the parties
hereto.
P.8
<PAGE>
Art. 36. For the purposes of this contract circumstances of force majeure shall
mean but shall not be limited to: acts of God, fire, wars, insurrections,
decrees issued by state bodies and any other actions or inaction beyond the
control of the parties which will cause the consequences under the previous
article.
Art. 37. None of the parties shall be liable for any failure of performance
thereunder caused by the occurrence of events of force majeure.
Art. 38. The parties shall send immediately notification to each other upon
occurrence of events under Art. 35 as well as on the termination of such an
event.
VIII. CONFIDENTIALITY
Art. 39 (1) The parties thereunder undertake when implementing this contract
to comply with the principle of confidentiality and not to disclose its content
to a third party unless with the written consent of the other parties.
(2) The restriction per the previous para shall not be valid in case
when this contract is required by competent state authorities so that the
relevant permits be issued or either party is bound to do so in compliance with
the effective legislation in the country.
IX. ADDITIONAL PROVISIONS
(S) 1. For the purpose of this contract:
1. THE TERM "AFFILIATED COMPANY" shall mean a company which is wholly
owned and has 100% of the votes in the General Meeting.
2. "TELECOMMUNICATION FACILITIES AND EQUIPMENT" - shall mean all lines,
cables and equipment which constitute a part of the PSTN.
3. "MONITORING SYSTEM" - shall mean an equipment needed to connect a
special security system
4. "DATE OF BEGINNING OF THE JOINT ACTIVITY" - shall be the date on which
SECTOR's lines have been switched on.
P.9
<PAGE>
5. "INCOME FROM THE JOINT ACTIVITY" - shall mean any revenue received as
a result from the implementation of the joint activity under Art. 1. thereto.
X. FINAL PROVISIONS
(S). 1 Both parties shall settle all disputes arising from the fulfillment of
this contract through amicable agreements and negotiations. In case an agreement
has not been reached, the case shall be settled finally by the Arbitration Court
with the Bulgarian Chamber of Industry and Commerce which shall consist of three
arbitrators in compliance with the Rules for Conciliation and Arbitration of
this court. The place of arbitration shall be Sofia.
(S). 2. All amendments or riders thereof shall be valid only if made in written
form.
(S). 3. The provisions of the Obligations and Contracts Act and namely art. 357-
364 shall apply for all cases, unsettled under this contract.
(S). 4. The following annexes shall be an inseparable part thereof:
a. Annex 1 concerning the financial relations between the parties
b. Annex 2 concerning the rules for running the accounting of the joint activity
c. Annex 3. - A protocol for evaluating the investments
(S). 4. This contract has been executed in four identical copies (two in
Bulgarian and two in English), one copy in English and Bulgarian for each party.
In case of Arbitration procedure the Bulgarian version shall prevail.
For BTC:
/s/ Michail Danov
For SECTOR:
/s/ Theodore Georgelas
P.10
<PAGE>
ANNEX 1
TO THE JOINT ACTIVITY AGREEMENT BETWEEN BTC - EAD AND SECTOR COMMUNICATIONS INC.
Subject: Financial Terms and Payment Procedure between the parties thereunder
I. FINANCIAL TERMS
With regard to the performance of the obligations of the parties under the joint
activity agreement and according to Art. 10 (4) thereto SECTOR shall negotiate a
total price of the service provided by SECTOR's terminal equipment for carried
international traffic per minute which shall include the following components:
2. BTC's expenses
3. SECTOR's expenses
4. Investment return expenses
5. Remainder (profit)
1. BTC'S EXPENSES
(a) BTC's tariffs shall be the prices for 1 min. international telephone call,
determined in Art. 36 (6) of the Tariffs for Local and International Telephone,
Telegraph and Radio broadcasting Services approved with Decree of the Council of
Ministers No. 157 of 02.07.1996 and distributed by zones, according to Art. 35
(3), item 2. The tariffs are converted into US$ according to the BNB exchange
rate by the date of implementing the tariffs. (Table 1).
(b) Whenever the Tariffs for telecommunications services are changed, the BTC
shall change the prices according to the new prices converted into US$ according
to the BNB exchange rate posted on the day of implementing the new tariffs.
c) A lump sum of US$ 1.200 shall be due for the provision of 2 Mbit/s access to
a new customer to the international exchange. The monthly subscription fee due
for the same shall be US$ 85. The other fees for access and subscription for
local and long-distance exchange as well as for any other telecommunications
services shall be according to the effective tariffs.
2. SECTOR'S EXPENSES
Sector's expenses shall be determined under the following conditions:
a) For the first 135 days after the beginning of the joint activity: US$ 42 .190
monthly for international traffic up to 100.000 minutes.
b) On the 135 days from the beginning of the joint activity reconciliation
according to the following formula shall be done:
IN - (EBTC + INV + ES) = RS WHERE,
<PAGE>
IN is the monthly income from the joint activity
EBTC are the monthly expenses of the BTC (under item 1 thereof)
ES are the monthly expenses of SECTOR' (under item 2 thereof)
INV is the monthly amount for paying back the investments
RS is the monthly result (remainder) formed after deducting the above mentioned
components from the income from the joint activity where
If RS> or = 0 - US$ 42.190 shall be recognized as SECTOR's expenses
If RS> 0 - as SECTOR's expenses shall be recognized the amount calculated
according to the following formula:
ES = IN - (EBTC + INV)
c) For monthly international traffic carried through the joint activity above
100.000 min. for the difference above 100.000 min. 1.000 US$ for each portion of
10.000 minutes begun shall be allowed for expenses according to the enclosed
Schedule 1(Table 2).
d) With respect to the start-up period of the joint activity, the active
marketing and the process of negotiating contracts with customers, additional
expenses shall be allowed to Sector in the amount of $ 5.0000 monthly for the
first 12 months of the joint activity.
ITEM 3. INVESTMENT RETURN EXPENSES
The amount of the investments made by SECTOR shall be divided to equal monthly
portions for the period between the acceptance date of the investment and the
expiration of the contract.
ITEM 4. FINANCIAL RESULT
The financial result shall be the remainder from the income from the joint
activity and the expenses specified in items 1 and 2 thereof and deducting the
investments under item 3.
The financial result shall be divided between the parties according to Art 28
of the Joint Activity Agreement.
VAT shall not be included in the amounts per items 1,2, 3 and 4. VAT shall be
charged additionally by the parties, according to the provisions of the Law.
II. PAYMENT PROCEDURE
1. SECTOR shall send data for the international outgoing traffic effectuated by
its customers to the BTC until 5th of the month following the month to which the
data refer.
2. BTC shall prepare a detailed bill #2 and a main bill until 10th of the month
following the month to which the data refer (Tables 4, 5 and 6).
<PAGE>
3. Within 3 days following the preparation of the bill per item 2, Department
"Finances" with BTC, shall issue to Sector a tax invoice on the basis of the
main bill and the amount in US$ shall be converted into BGL based on the
official rate of BNB posted the day of issuing the invoice.
4. SECTOR undertakes to pay the amount per the invoice till 25th of the month
during which the invoice has been issued.
5. In order to fix correctly the payment of the distributed profit an agreement
statement for distributing the profit shall be signed every month till 15th of
the month where all amounts per items 1, 2, 3 and 4 shall be determined. The
annual reconciliation shall be made within the same term.
6. BTC shall issue a tax invoice for its share of the profit to SECTOR within 3
day term after the signing of the above mentioned statement.
7. SECTOR undertakes to wire the amount per the precedent item to the account of
the other party until 25th of the month when the invoice is issued.
III. ADDITIONAL PROVISIONS
1. In case of discrepancies relating to the recorded traffic by the parties,
BTC's data shall be accepted if the difference is up to 5%, and if it exceeds 5%
- - upon agreement between the parties.
2. The form and the name of each document relating to the payment procedure is
depicted in the relevant enclosures, according to the provisions.
3. The provisions of Regulation 3 for Telephone and Facsimile Messages of the
CPT shall be applied with regard to defaulting debtors.
4. In case of delayed payment of the services from customers of the Joint
activity the penalties shall be to SECTOR's benefit on the condition that SECTOR
has observed and effectuated the payment procedure with regard to the other
party, as specified in Section II of Annex 1.
SIGNED BY:
BTC - EAD: FOR SECTOR COMMUNICATIONS INC.:
/s/ Michail Danov /s/ Theodore Georgelas
Chairman: (M. Danov) Theodore Georgelas - President and CEO
<PAGE>
Table 1.
--------
TARIFFS
OF INTERNATIONAL CALLS (1 MIN.) BY ZONES based on US$/BGL exchange rate 1US$ =
180 BGL
1ST ZONE - 0.555 $
2ND ZONE - 0.694 $
3RD ZONE - 1.041 $
4TH ZONE - 1.250 $
5TH ZONE - 1.600 $
6TH ZONE - 1.666 $
<PAGE>
TABLE 2 FOR CALCULATING SECTOR'S EXPENSES ACCORDING TO ANNEX 1, ITEM 2, C
<TABLE>
<CAPTION>
MINUTES EXPENSES IN US$
------- ---------------
<S> <C>
UP TO 100.000 42 .190*
100.001 - 110.000 42 .190 + 1.000
110.001 - 120.000 42 .190 + 2.000
120.001 - 130.000 42 .190 + 3.000
130.001 - 140.000 42 .190 + 4.000
140.001 - 150.000 42 .190 + 5.000
150.001 - 160.000 42 .190 + 6.000
160.001 - 170.000 42 .190 + 7.000
170.001 - 180.000 42 .190 + 8.000
180.001 - 190.000 42 .190 + 9.000
190.001 - 200.000 42 .190 +10.000
200.001 - 210.000 42 .190 +11.000
210.001 - 220.000 42 .190 +12.000
220.001 - 230.000 42 .190 +13.000
230.001 - 240.000 42 .190 +14.000
240.001 - 250.000 42 .190 +15.000
250.001 - 260.000 42 .190 +16.000
260.001 - 270.000 42 .190 +17.000
270.001 - 280.000 42 .190 +18.000
280.001 - 290.000 42 .190 +19.000
290.000 - 300.000 42 .190 +20.000
</TABLE>
*ACCORDING TO ITEM 2 A AND B OF ANNEX 1
THERETO
THE SAME PRINCIPLE SHALL BE APPLIED TO
SECTOR'S EXPENSES FOR TRAFFIC ABOVE
300.000 MINUTES.
<PAGE>
ANNEX 2
TO THE JOINT ACTIVITY AGREEMENT BETWEEN BTC-EAD, SECTOR COMMUNICATIONS INC. AND
BULBANK
RULES FOR THE ACCOUNTING OF THE JOINT ACTIVITY ACCORDING TO ART. 13 OF THE JOINT
ACTIVITY AGREEMENT
1. The accounting of the joint activity shall be based on the Accountancy act,
the Value Added Tax Act and the National Accounting Standards.
2. The accounting of the joint activity shall be based on copies of issued and
received documents relating to the joint activity as well as on the contract
signed between the parties which specifies the amount of the expenses and
investments made by Sector.
3. On 16th of the month following the accounting period the representatives of
the parties in charge of the accounting shall prepare and submit all the
documents required for the accounting.
4. The issuance and the receipt of invoices shall be effectuated according to
the procedure under Art. 64 a, of the Regulations for Application of Value Added
Tax Act. The name of the joint activity BULSEC as well as the tax number
according to the Tax Procedure Act shall be filled out in the invoices.
5. With regard to the charging, collection and payment of Value Added Tax,
subsidiary accounts of Sector's book-keeping shall be used to record the income
from the joint activity.
6. The loss for a certain month shall be deducted from the profit of the
following months.
<PAGE>
PLAN OF THE ACCOUNTING OF THE JOINT ACTIVITY
6. D/t/ 491 All partners / C/t/ 703 Income from the joint
activity
2. D/t/ 602 1 BTC expenses
D/t/ 602 2 Sector's expenses / C/t/ 491 All partners
D/t/602 3 Sector's investment
3. D/t/ 703 Income from the joint activity / C/t/ 602 1 BTC expenses
C/t/ 602 2 Sector's expenses
C/t/ 602 3 Sector's investment
4. D/t/ 703 Income from the joint activity / C/t/ 123 Profit
5. D/t/ 123 Profit / C/t/ 491 1 BTC
C/t/ 491 2 Sector
6. D/t/ 491 1 BTC / C/t/ 491 All partners
D/t/ 491 2 Sector
