Armenia Settles US$8.25 Million ArmenTel Profit Tax Dispute.

LOS ANGELES--(BUSINESS WIRE)--Oct. 13, 1999--

The Ministry of State Revenues of the Republic of Armenia Wednesday announced that it has settled a US$8.25 million profit tax dispute with Athens-based Hellenic Telecommunications Organization S.A. (OTE).

The tax dispute arose out of the March 1998 sale of substantially all the shares of ArmenTel, the Armenian telephone company. The Ministry originally sued OTE in June of this year to obtain payment of the tax.

The settlement, which was made part of a judgment entered by the court on Oct. 12, 1999, had been approved on Sept. 30 by the Court of the First Instance in Yerevan, Armenia, and represents the full amount of the tax and a large portion of the expenses incurred by the Ministry in bringing the suit. Settlement terms call for OTE to pay the Ministry US$8.25 million before Dec. 31, 2000, with the first payment of US$3.25 million due by Oct. 21, 1999.

"We are extremely pleased with the result," said Minister of Justice Davit Harutyunyan. "The payment not only demonstrates the good faith of OTE, but also is a reflection of the working relationship the government of Armenia has developed with OTE, which can continue to prosper for the good of the citizens of Armenia."

The Ministry was represented in the suit by the litigation team of the Los Angeles-based law firm, Manatt, Phelps & Phillips, LLP.

"The outcome of this suit makes it clear that Armenia has emerged not only as a country that welcomes foreign investment, but as one which will conduct itself in accordance with the rule of law, both of which are essential to a mature business environment," said lead attorney and Manatt, Phelps & Phillips partner Harold Reichwald.

When the lawsuit was originally filed in June 1999, the Ministry also had sued Trans World Telecommunications Ltd. and its parent company Trans World Telecommunications Holding Ltd., over the same profit tax issue. In addition to the sale of most of the government's holdings in ArmenTel, Trans World also sold all of its shares in ArmenTel to OTE. This latter sale is what gave rise to the profit tax that has been in dispute.

Trans World, which is controlled by Orange County, Calif. real estate developer Barry Hon, refused to settle with the Ministry, which took the suit to trial. As a result, a separate ruling was made against both Trans World and its parent company in the amount of US$8.41 million.

The Armenian Court decided that under Armenian law both Trans World and OTE were liable for the profit tax, although Trans World, as the taxpayer in question, had primary liability while OTE as the tax agent only had secondary liability.

"Barry Hon showed no interest in paying the taxes his companies owed as a result of their sale of the shares in ArmenTel, nor did he behave in any way which suggested that a settlement with him could be reached," said Harutyunyan. "The fact that OTE stepped up and voluntarily discharged this tax liability tells us that they are a partner with whom Armenia can have strong business relationships in the future," he continued.

Armenia continues to retain a minority interest in ArmenTel.

Manatt, Phelps & Phillips, LLP is a national law firm with more than 200 professionals in principal offices in Los Angeles, Palo Alto, and Sacramento, Calif.; Washington, D.C.; Nashville, Tenn.; and affiliate offices in Mexico.