-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UQwAJNt4vpMQTsFNgNgB+8lErzcpOevj2CIfrs9kKFVvfXl5PTZOkFIZjrMQcy6R hmRg0QuzOcMJjNsJwJoyUw== /in/edgar/work/20000920/0000784961-00-000021/0000784961-00-000021.txt : 20000924 0000784961-00-000021.hdr.sgml : 20000924 ACCESSION NUMBER: 0000784961-00-000021 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000920 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VDC COMMUNICATIONS INC CENTRAL INDEX KEY: 0000784961 STANDARD INDUSTRIAL CLASSIFICATION: [4813 ] IRS NUMBER: 061524454 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-14281 FILM NUMBER: 725965 BUSINESS ADDRESS: STREET 1: 75 HOLLY HILL LANE CITY: GREENWICH STATE: CT ZIP: 06830 BUSINESS PHONE: 2038695100 MAIL ADDRESS: STREET 1: 75 HOLLY HILL LANE CITY: GREENWICH STATE: CT ZIP: 06830 FORMER COMPANY: FORMER CONFORMED NAME: VDC CORP LTD DATE OF NAME CHANGE: 19960117 10-K 1 0001.txt ANNUAL SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K /X/ Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended June 30, 2000 / / Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from , to -- , Commission File Number: 001-14281 VDC COMMUNICATIONS, INC. ------------------------ (Exact Name of Registrant as Specified in its Charter) DELAWARE 061524454 -------- --------- (State or Other (I.R.S. Employer Identification No.) Jurisdiction of Incorporation or Organization) 75 HOLLY HILL LANE GREENWICH, CONNECTICUT 06830 ---------------------------- (Address of Principal Offices) (Zip Code) Registrant's telephone number, including area code: (203) 869-5100 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered ------------------- ------------------- common stock, $.0001 par value per share American Stock Exchange Securities registered under Section 12(g) of the Act: NONE 1 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. (1) Yes (X) No () (2) Yes (X) No () Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant, as of September 7, 2000, was approximately $16,551,328 based upon the closing price of the common stock on such date on the American Stock Exchange of $0.875. The information provided shall in no way be construed as an admission that any person whose holdings are excluded from the figure is an affiliate or that any person whose holdings are included is not an affiliate, and any such admission is hereby disclaimed. The information provided is included solely for record keeping purposes of the Securities and Exchange Commission. (APPLICABLE ONLY TO CORPORATE REGISTRANTS) As of September 7, 2000, the number of shares outstanding of the registrant's common stock, par value $.0001 per share, was 24,398,029 shares. DOCUMENTS INCORPORATED BY REFERENCE None. 2 Private Securities Litigation Reform Act Safe Harbor Statement This Annual Report on Form 10-K contains certain information regarding the registrant's plans and strategies that are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. When used in this and in other public statements by registrant and its officers, the words "may," "could," "should," "would," "believe," "anticipate," "estimate," "expect," "intend," "plan," "project" and similar terms and/or expressions are intended to identify forward-looking statements. These statements reflect the registrant's assessment of a number of risks and uncertainties and the registrant's actual results could differ materially from the results anticipated in these forward-looking statements. Such statements are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, projected or expected. Some, but not all, of such risks and uncertainties are described in the risk factors set forth below. Pro forma information contained within this Annual Report on Form 10-K, to the extent it is predictive of the financial condition and results of operations that would have occurred on the basis of certain stated assumptions, may also be characterized as forward-looking statements. Any forward-looking statement speaks only as of the date of this Annual Report on Form 10-K, and the registrant undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of an unanticipated event. Part I Item 1. Description of Business Background VDC Communications, Inc., a Delaware corporation ("VDC"), is the successor corporation to its former parent, VDC Corporation Ltd., a Bermuda company ("VDC Bermuda"), by virtue of a domestication merger (the "Domestication Merger") that occurred on November 6, 1998 pursuant to which VDC Bermuda merged with and into VDC. The effect of the Domestication Merger was that members/stockholders of VDC Bermuda became stockholders of VDC. The primary reason for the Domestication Merger was to reorganize VDC Bermuda as a publicly traded United States corporation domesticated in the State of Delaware. In connection with the Domestication Merger, 11,810,862 issued and outstanding shares of common stock of VDC Bermuda, $2.00 par value per share, were exchanged, and 8,487,500 issued and outstanding shares of preferred stock of VDC, $.0001 par value per share, were converted, on a one-for-one basis, into an aggregate 20,298,362 shares of common stock of VDC, $.0001 par value per share. The Domestication Merger has been accounted for as a reorganization which has been given retroactive effect in the financial statements for all periods presented. (As used in this document, the terms "VDC", "we" and "us" include both VDC and VDC Bermuda. The use of these terms reflects the fact that through November 6, 1998, the publicly held company was VDC Bermuda. Thereafter, due to the Domestication Merger, the publicly held company was VDC.) 3 The Domestication Merger reflects the completion of a series of transactions that commenced on March 6, 1998, when VDC (then a wholly-owned subsidiary of VDC Bermuda) acquired Sky King Communications, Inc., a Connecticut corporation ("Sky King Connecticut"), by merger. This merger transaction was accounted for as a reverse acquisition whereby Sky King Connecticut was treated as the acquirer for accounting purposes. Accordingly, the historical financial statements presented are those of Sky King Connecticut before the merger on March 6, 1998 and reflect the consolidated results of Sky King Connecticut and VDC Bermuda, and other wholly-owned subsidiaries after the Domestication Merger. The Sky King Connecticut acquisition (the "Sky King Connecticut Acquisition") enabled VDC Bermuda to enter into the telecommunications business and reflected the culmination of an overall business reorganization in which VDC Bermuda curtailed its prior lines of business. From its inception in 1980 through 1992, the principal business of VDC Bermuda had involved the acquisition and exploration of North American mineral resource properties. In recognition, however, of the decreasing mineral prices and increasing drilling and exploration costs, during the early 1990's, it elected to phase out of the mining business, and, by 1994, effectively suspended any further efforts in connection with its former mining business. Following a brief period in which it owned farm and ranch properties, the principal business of VDC Bermuda through 1996 consisted of the acquisition and development of commercial properties in and around the Isle of Man, British Isles, where the executive offices of VDC Bermuda were located at that time. In view, however, of unanticipated development costs and delays in zoning approvals, among others, management thereafter concluded that VDC Bermuda would be unable to complete the development of these properties in the manner originally intended. With returns on investment likely to be below management's expectations, during 1995 and 1996, VDC Bermuda commenced the sale of its real estate holdings, while attempting to devise plans for the redeployment of its capital resources. Finally, during the year ended June 30, 1997 ("Fiscal 1997"), VDC Bermuda made equity investments in an aggregate amount of approximately $5 million in two early stage ventures. When expected yields from these investments failed to materialize, management concluded that it was in the best interest of VDC Bermuda to: (i) suspend its venture capital operations; (ii) dispose of its investment assets; and (iii) select new management who would be in a better position to identify business opportunities that would more fully benefit from VDC Bermuda's attributes as a public corporation. During the remainder of Fiscal 1997, management reviewed several possibilities and ultimately identified Sky King Connecticut for acquisition in recognition of a number of factors, including its belief in the growth opportunities available within the national and international telecommunications industries, and the significant collective experiences of Sky King Connecticut's management within the telecommunications industry. Current Telecommunications Operations VDC Communications, Inc. (referred to herein as "VDC," "we" or "us"), directly and through its subsidiaries, owns telecommunications switching and ancillary 4 equipment, leases telecommunications lines and interconnects a global network of carriers and customers providing domestic and international long distance telecommunications services. Our customers include residential long distance end users and long distance telephone companies that resell our services to their retail customers or other telecommunications companies. We currently employ digital switching and transmission technology, and Internet Telephony, or Voice over Internet Protocol ("VoIP") gateway technology. Our telecommunications equipment, currently located in New York and Los Angeles comprises our operating facilities. We believe the telecommunications industry is attractive given its current size and future growth potential. We are currently a domestic and international telecommunications company providing retail and wholesale carrier services. Our objective is to provide these services to both retail and wholesale customers utilizing VoIP and circuit switched technologies in the short term; and, migrating towards a pure VoIP network in the long term. We have already begun the process of transforming our network with next generation technology. During the year ended June 30, 2000 ("Fiscal 2000"), we initiated the development of VDC's VoIP clearinghouse through a wholly-owned subsidiary ("Sub"). We expect that utilizing new Internet technologies to provide voice and facsimile, and possibly additional value added services in the future, will provide us: (i) increased cost efficiencies; (ii) greater network flexibility; and, (iii) an increased network scope. We expect that this can be achieved with a relatively minimal capital outlay. During Fiscal 2000, we began the development of this clearinghouse through Sub by: ordering IP, or Internet Protocol, gateway equipment; and, provisioning to connect to the Internet. In addition, we have since completed a trial and subsequently initiated the clearinghouse. Our clearinghouse is expected to allow wholesale customers to connect and use our network via the public Internet for the transmission of voice calls worldwide. The clearinghouse will provide the clearing and settling of all amounts due as a result of telecommunications traffic passed. During the fiscal year ending June 30, 2001 ("Fiscal 2001"), we expect to commit most of our resources towards the further development of our residential long distance operations and the VoIP clearinghouse. During the same period, we plan to de-emphasize our traditional wholesale operations and have already begun to take steps to reduce the costs associated with traditional wholesale operations. Services: 1. Domestic Residential Services We recently completed the merger of a residential long distance provider with and into one of our wholly-owned subsidiaries, which was renamed Rare Telephony, Inc. ("Rare"). As a result, through Rare and one of its wholly-owned subsidiaries, we now have over 9,500 retail customers in the United States. The majority of the traffic generated by these customers is originated and terminated domestically. We acquire residential customers through direct marketing via the telephone. We currently have two products that we offer to residential phone users. They provide the customer a competitive termination rate for long distance calls 5 within the United States. Both of these services are paid for in advance by the customer. We currently do not utilize our own facilities to carry our retail customers' traffic, but may in the future. We refer to these services as VDC PeopleTalkSM on our website, which is located at www.vdccorp.com. In the future, we expect to procure residential customers through an Internet marketing program. A provisional patent application has been filed for the business method (the "Method") associated with this marketing program. Through a second wholly-owned subsidiary of Rare ("Rare Sub"), we currently hold, subject to certain conditions, an exclusive license (the "Method License") to use the Method for the greatest time permitted by law (but in no event less than ten years). Although we believe the Method License may eventually become material to our operations, it is not currently material. We believe the acquisition of a retail provider diversifies both our customer base and our telecommunications traffic. In addition, we believe that there is significant potential to achieve higher levels of market penetration in the United States residential market. As a result, we have committed significant resources towards the development of this subsidiary. Our statements of operations and cash flow for the year ended June 30, 2000, do not include the results of our residential services operations. For the year ended June 30, 2000, these operations, on a stand-alone basis, resulted in revenues of approximately $1.5 million and a net loss of approximately $3.5 million. 2. International Wholesale Services The international telecommunications market consists of all telecommunications traffic that originates in one country and terminates in another. The implementation of a high quality international network is an important element in enabling a carrier to compete effectively in the international long distance telecommunications market. We have international gateway switches located in New York and Los Angeles and a VoIP gateway in New York. The network is capable of interconnecting and routing a voice or facsimile call to most parts of the world. In addition, we provide use of our switch capacity and co-location of our switch site to other carriers. We identify our wholesale services as those using traditional circuit switched technology and those using VoIP technology. Traditional wholesale services are referred to as VDC NetworkTalkSM on our website. VoIP wholesale services are referred to as VDC BusinessTalkSM on our website. At the end of December 1998, our international wholesale network became operational and we began carrying telecommunications traffic domestically and globally. Our international services are provided through several United States Federal Communications Commission Overseas Common Carrier Section 214 authorizations. The facilities-based global Section 214 authorization enables us to provide international basic switched, private line, data, and business services using authorized facilities to virtually all countries in the world, while the global resale Section 214 authorization enables us to resell the international services of authorized US common carriers for the provision of 6 authorized international basic switched, private line, data, and business services to virtually all countries. During the calendar years 1998 and 1999, we explored developing direct telecommunications routes to foreign countries, including into Central America. We operated a direct route into Central America until mid-1999. Although we received revenues from the operation of this direct route, it was not a profitable endeavor and we have since migrated to VoIP as a more cost effective manner of building network connectivity to foreign countries. The wholesale market provides international telecommunications services to its target customer base of long distance service providers worldwide. Our wholesale marketing efforts have traditionally been primarily directed to U.S.-based carriers that originate international traffic. With the advent of our VoIP clearinghouse, we will more actively seek international partners and customers. During Fiscal 2000, we initiated the development of a Voice over Internet Protocol ("VoIP"), or Internet Telephony, network, which we also call a clearinghouse. This network is expected to both supplement and complement our existing circuit-switched telephony network. We expect that this network will utilize the Internet as a means of transporting calls primarily to international destinations. We expect that the implementation of the VoIP network will result in decreased cost of transmission without noticeable degradation in quality. Although it has been possible to transmit VoIP calls since 1995, only recently has the technology improved such that phone-to-phone calls can be transmitted with quality more similar to traditional circuit-switched networks. Internet Telephony is based on packet switching technology. This technology completes a call by digitizing and dividing a speaker's voice into small packets that travel to their destination along lines carrying packets of other Internet traffic. Packets from multiple calls or faxes can be carried over the same line simultaneously with data from other sources, which results in a higher utilization of transmission lines than can be achieved with circuit-switched technology. Unlike circuit-switched traffic, data packets also can be compressed, which means that Internet Telephony uses less bandwidth per call than traditional methods. As a result, calls can be completed at a lower cost using VoIP. In order to successfully complete a VoIP call, the network provider, or VDC in this case, needs to have VoIP gateways at the originating and terminating ends of the call. We have provisioned and tested our United States gateway. We are in the process of identifying international partners to provision gateways in foreign countries. As a result, in the interim, we expect to utilize both the circuit-switched and the VoIP networks simultaneously and believe that this will provide an optimal network operation. However, we plan to reduce the use of our traditional technology and migrate our wholesale business towards the VoIP clearinghouse. As a result, we plan to de-emphasize our traditional wholesale operations during Fiscal 2001 and have begun the process of reducing the costs associated with traditional wholesale operations. In addition, we expect that this may reduce the revenues generated from these operations during Fiscal 2001. 7 We expect the addition of VoIP capability to our international wholesale network to provide significant operational flexibility and reduced costs. In addition, we are also exploring ways to utilize VoIP in our residential product offerings. The vast majority, approximately 98%, of our revenues during Fiscal 2000 were derived from traditional wholesale operations. Our two largest wholesale customers generated approximately 70% of our total revenues during Fiscal 2000. Therefore, the loss of our largest customers could have a material adverse effect on our business. We believe that the recent addition of residential customers helps diversify our customer base so that we will not be as dependent on these larger customers. 3. Tower Site Management Through Sky King Communications, Inc., a Delaware corporation and wholly-owned subsidiary of VDC ("Sky King"), we derive modest revenues from domestic tower site management. The towers provide sites for wireless communications companies to transmit their signals to their customers and receive signals from their customers. A small minority, approximately 2%, of our current revenues are derived from Sky King's tower site management service. We are exploring certain strategic alternatives regarding Sky King, including the potential sale of Sky King or its material contracts. Metromedia China Corporation Investment At the inception of our telecommunications business in March, 1998, we actively investigated telecommunications opportunities in Asia, Egypt and Russia, among other countries. We purchased two million shares and warrants to purchase four million additional shares of Metromedia China Corporation ("MCC"). MCC is a private company that has participated in telecommunications and e-commerce joint ventures in China. We are currently carrying the investment in MCC at $140,000. This valuation is extrapolated from the asset value attributed to this investment in the financial statements of Metromedia International Group ("MMG"), the majority owner of MCC. We continue to hold these shares and warrants for investment purposes only. During Fiscal 2000, we recorded an approximate $2.3 million writedown of our investment in MCC. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 5 to the Consolidated Financial Statements. Competition The domestic and international telecommunications industry is highly competitive and subject to rapid change, including the introduction of new services facilitated by advances in technology. We are unable to predict which of many possible future product and service offerings will be important to maintain and improve our competitive position or what expenditures will be required to develop and provide such products and services. Telecommunications providers, both retail and wholesale, compete on the basis of transmission quality, price, customer service, and breadth of service offerings. The U.S.-based international telecommunications services market is dominated by AT&T, MCI WorldCom and Sprint 8 Corporation. We expect to encounter increasing competition from these and other major domestic and international communications companies, many of which may have significantly greater resources and more extensive domestic and international communications networks than ours. This competition has been putting downward pressure on the price of telecommunications services, such as voice and facsimile services. The continuance of this trend could result in lower profit margins for us if we must reduce our prices to stay competitive. Furthermore, competition is expected to increase as a result of the new competitive opportunities created by the Basic Telecommunications Agreement concluded by members of the World Trade Organization in April 1997 (the "WTO Agreement"). Under the WTO Agreement, the United States and 68 other countries committed to open their telecommunications markets to competition commencing February 5, 1998. Government Regulation The following information provides a summary of the material present and proposed federal, state and local and international regulation and legislation affecting the telecommunications industry and the services we provide. This does not purport to be exhaustive. Regulations and legislation are often the subject of judicial proceedings, legislative hearings, and administrative proposals, which could change, in varying degrees, the manner in which the telecommunications industry operates. Neither the outcome of these proceedings, nor their impact upon the telecommunications industry or us can be predicted at this time. Our operations are generally heavily regulated. The United States Federal Communications Commission ("FCC") exercises authority over all interstate and international facilities-based and resale services offered by us. We also may be subject to regulation in foreign countries in connection with certain business activities. There can be no assurance that future regulatory, judicial and legislative changes will not have a material adverse effect on us, or that domestic or international regulators or third parties will not raise material issues with regard to our compliance or noncompliance with applicable laws or regulations or that regulatory activities will not have a materially adverse effect on us. We are also subject to other FCC and state specific requirements, including the filing of periodic reports and the payment of annual regulatory and other fees. In addition, FCC rules limit the routing of international traffic via international privately-owned lines and prohibit the accepting of "special concessions" from certain foreign telecommunications carriers. The FCC continues to refine its international service rules. FCC rules also require carriers holding Section 214 authorizations to notify the FCC sixty days in advance of an acquisition of a 25% or greater controlling interest by a foreign carrier in that U.S. carrier, or an acquisition by the U.S. carrier of a 25% or greater controlling interest in a foreign carrier. After receiving this notification, the FCC reviews the proposed transaction and, among other things, can require a carrier to meet certain "dominant carrier" reporting and other conditions if the FCC finds that the acquisition creates an affiliation with a dominant foreign carrier. Our cost of providing domestic long distance services may also be affected by changes in the access charge rates imposed by incumbent local exchange carriers ("LECs") on long distance carriers. We do not currently act as a LEC. The FCC 9 has significantly revised its access charge rules to permit incumbent LECs greater pricing flexibility and relaxed regulation in certain circumstances. The FCC may further modify its access charge rules, and we cannot predict the outcome of any such future rulemaking proceedings or any subsequent legal challenges on the telecommunications industry in general or on us in particular. We must comply with the requirements of common carriage under the Communications Act of 1934, as amended (the "Communications Act"), including the offering of service on a non-discriminatory basis at just and reasonable rates, and obtaining FCC approval prior to any assignment of FCC authorizations or any transfer of de jure or de facto control of VDC, with certain exceptions. Under the Communications Act and FCC rules, all international telecommunications carriers, including VDC's subsidiaries, are required to obtain authority under Section 214 of the Communications Act prior to initiating international common carrier services, and must file and maintain tariffs containing the rates, terms and conditions applicable to their services. We, through our wholly-owned subsidiaries (and wholly-owned subsidiaries of our wholly-owned subsidiaries), have received five Section 214 authorizations that authorize the provision of international services on a facilities and resale basis and have filed the requisite tariff for our international services. The FCC recently adopted changes to its rules regarding Section 214 authorizations, which are intended to reduce certain regulatory requirements. Among other things, these changes reduce the waiting period for granting new streamlined applications from 35 days to 14 days; eliminate the requirement for prior approval of pro forma assignments and transfers of control of Section 214 authorizations; and simplify the FCC's process of authorizing the use of private lines to provide switched services (known as international simple resale or "ISR") on particular routes. Domestic interstate common carriers such as VDC's subsidiaries are not required to obtain Section 214 or other authorization from the FCC for the provision of domestic interstate telecommunications services. Domestic interstate carriers previously were required to file and maintain tariffs with the FCC containing the specific rates, terms and conditions applicable to their services. These tariffs are effective upon one day's notice; through our subsidiaries, we have filed the requisite domestic tariffs with the FCC. The FCC recently adopted rules eliminating the obligation to file tariffs governing domestic interstate services and requiring that such tariffs be withdrawn. Thus, we will no longer be able to rely upon filed tariffs to establish the rates, terms, and conditions governing our relationships with customers of these services, and instead will have to enter into and rely upon contracts with these customers. The establishment and execution of such agreements will likely increase our costs of doing business. When appropriate, we would be required to conduct international business in compliance with the FCC's international settlements policy (the "ISP"). The international settlements policy establishes the permissible boundaries for U.S.-based carriers and their foreign correspondents to settle the cost of terminating each other's traffic over their respective networks. The precise terms of settlement are established in a correspondent agreement, also referred to as an operating agreement. Among other terms, the operating agreement typically establishes the types of service covered by the agreement, the division of revenues between the carrier that bills for the call and the carrier that terminates the call at the other end, the frequency of settlements (i.e. monthly or quarterly), the currency in which payments will be made, the formula for calculating traffic flows between countries, technical standards, procedures for the settlement of disputes, the effective date of the agreement and the term 10 of the agreement. The FCC recently approved significant changes to its ISP that affect us by virtue of our status as a carrier. Specifically, the FCC removed the ISP for arrangements between U.S. carriers and non-dominant foreign carriers (i.e., foreign carriers that lack market power). In addition, the FCC removed the ISP for arrangements with any carrier (dominant or non-dominant) on routes where settlement rates are at least 25% below the FCC's applicable benchmarks and U.S. carriers can terminate 50 percent more of U.S. billed traffic in the foreign market. These routes currently include Canada, the United Kingdom, Sweden, Germany, Hong Kong, The Netherlands, Denmark, Norway, France, Ireland, and Italy, among others. Certain confidential filing requirements still apply to dominant carrier arrangements. Moreover, in connection with changes to the ISP, the FCC now permits U.S. private line resellers to enter into ISR arrangements with non-dominant foreign carriers on any route. Regulation Specific to Domestic Interstate Telecommunications Services Our provision of domestic long distance in the United States is subject to regulation by the FCC and certain state public service commission and public utilities commissions, who regulate to varying degrees interstate and intrastate rates, respectively, ownership of transmission facilities, and the terms and conditions under which domestic services are provided. Under federal law, the domestic interstate carriers are subject to a variety of regulations that, for instance, govern the documentation and verifications necessary to change a consumer's long distance carrier and require the filing of periodic reports. The FCC also has jurisdiction to act upon complaints against any common carrier for failure to comply with its statutory obligations. Regulation Specific to Internet Telephony - VoIP In the United States and in numerous other countries, there is currently a small but growing body of laws and regulations directly applicable to Internet access, Internet commerce and VoIP. Due to the popularity and use of the Internet and VoIP, it is likely that a growing number of laws and regulations may be adopted at the international, federal, state and local levels. These regulations cover issues such as user privacy, consumer protection, freedom of expression, encryption standards, trade barriers, pricing, characteristics and quality of products and services, taxation, advertising, intellectual property rights, information security and the convergence of traditional telecommunications services with Internet communications and licensing. Moreover, a number of laws and regulations have been proposed and are currently being considered by federal, state and foreign legislatures with respect to those issues. The nature of any laws and regulations and the manner in which existing and new laws and regulations may be interpreted and enforced cannot be fully determined. VoIP and Internet service providers are currently considered "enhanced service providers" within the U.S. and are exempt from U.S. federal and state regulations governing telecommunications common carriers. Accordingly, the provision of Internet and VoIP services is currently exempt from tariffing, certification and rate regulation. We cannot predict the likelihood that state, federal, or foreign governments will impose additional regulations on VoIP operations, nor can we predict the future impact that any such regulation will have on our business, financial condition or results of operations. In April 1998, the FCC issued a report to Congress on the implementation of the universal service provisions of the Telecommunications Act of 1996. In its report, the FCC indicated that it 11 would re-examine its policy of not requiring providers of certain forms of VoIP and Internet service providers to contribute to the universal service mechanisms. In addition, the FCC stated that it may recognize phone-to-phone VoIP providers as being regulated telecommunications service providers. The European Commission issued on January 10, 1998, a Communication addressing whether VoIP should be considered "voice telephony" and thus subject to regulation by the member states of the European Union. Consistent with its earlier directives, the European Commission stated that Internet telephony could properly be considered "voice telephony," and thus subject to regulation only if certain factors are satisfied. The European Commission also held that at the time no form of VoIP satisfied all of these factors. Currently, providers of VoIP within the European Union are subject to no more than general authorization or declaration requirements by the Member States. Within the U.S. or internationally, we cannot predict the outcome of any future proceedings that may impact our provision of VoIP services or that may impose additional requirements, regulations, or changes upon our provision of such services. Other Disclosures We currently hold one service mark registered with the United States Patent and Trademark Office. The registration shall remain in force for ten years from the date of registration (March 28, 2000), subject to certain conditions and requirements. We do not currently believe that this mark is material to our operations. Employees As of September 6, 2000, VDC and its wholly-owned subsidiaries (including wholly-owned subsidiaries of VDC's wholly-owned subsidiaries) had approximately 251 employees, of which 5 were executive officers, and 195 were engaged in sales, 37 were engaged in operations, engineering and technical/data systems, and 14 were engaged in administration. We consider our employee relations to be good. Risk Factors 1. The auditors' report on our financial statements contains a going concern qualification. We may not be able to continue as a going concern if we do not generate profits or secure significant financing within the short term. Our auditors have raised the issue that we may not be able to continue as a going concern as a result of a lack of profits, working capital deficiency and future cash needs. We have used substantial amounts of working capital in our operations and have sustained significant operating losses. As of June 30, 2000, current liabilities exceeded current assets by approximately $2,700,000. Our continued operations are dependent upon meeting short term financing requirements and long term profitability. 2. We are not profitable. We have not yet experienced a profitable quarter and may not ever achieve profitability. We have yet to build sufficient volume of telecommunications voice and facsimile traffic to reach profitability. Our current expenses are 12 greater than our revenues. This will probably continue until we reach a greater level of maturity and it is possible that our revenues may never exceed our expenses. If operating losses continue we will need to find new sources of financing which may or may not be available or our operations will be in jeopardy. 3. We have limited capital. Being a relatively small company in a capital intensive industry, our limited capital is a significant risk to our future profitability and viability. We may sell additional shares of our stock, or engage in other financing activities, in order to provide capital that may be needed for our operations. There is no guarantee that market conditions will permit us to do this. If we cannot secure additional capital, our continued operations may be in jeopardy. 4. We are a company in the early stages of development. We commenced our present operations during the past 2-3 years, and therefore, have only a limited operating history upon which you can evaluate our business and performance. 5. We are diversifying our operations. We have recently entered into a phase of rapid diversification. We are expanding our business lines from being a provider of international wholesale telecommunications services to becoming a diverse supplier of residential, traditional wholesale, and VoIP wholesale telecommunications services. These efforts require us to assume greater risks, which include but are not limited to: greater demands on management's time; the ability of management to learn new skills while continuing to manage effectively our existing operations; investment risks associated with expenditures for new lines of business; and increased pressures upon our operations and financial systems. 6. Our stock is highly volatile. Our stock price fluctuates significantly. We believe that this will most likely continue. Historically, the market prices for securities of emerging companies in the telecommunications industry have been highly volatile. Future announcements concerning us or our competitors, including results of operations, technological innovations, government regulations, the gain or loss of significant customers, general trends in the industry, market conditions, analysts' estimates, proprietary rights, significant litigation, and other events in our industry, may have a significant impact on the market price of our stock. In addition, the stock market has experienced extreme price and volume fluctuations that have particularly affected the market price for many technology and telecommunications companies and that have often been unrelated to the operating performance of these companies. These broad market fluctuations may adversely affect the market price of our common stock. 13 7. There are a number of risks specifically associated with our residential long distance operations. We may not be able to successfully integrate the acquisition of Rare Telephony, Inc., a Nevada corporation ("Rare Nevada") into VDC. In addition, we may not be able to develop our newly acquired residential services successfully. If the market for our residential service products does not develop as we expect, or develops more slowly than expected, our business, financial condition and results of operations may be materially and adversely affected. Our customers and potential customers may be reluctant to use our residential services for a number of reasons, including, but not limited to: lack of product recognition; perceptions that the quality of service may be substandard; and, the reluctance of customers to change long distance carriers. 8. There are a number of risks that will be specifically associated with our VoIP operations. We may not be able to successfully develop our VoIP operations. If the market for Internet telephony and new services does not develop as we expect, or develops more slowly than expected, our business, financial condition and results of operations may be materially and adversely affected. Our customers may be reluctant to use VoIP services for a number of reasons, including, but not limited to: perceptions that the quality of voice transmitted over the Internet is substandard; and perceptions that Internet telephony is unreliable. In addition, competition in the market place may limit our ability to obtain an adequate profit margin. 9. There are a number of risks specifically associated with our traditional wholesale operations. Our traditional wholesale business depends partially on carriers and other communications service providers generating international voice traffic and selecting our network to carry at least some of this traffic. If the volume of international voice traffic fails to increase, or decreases, and our customers do not employ our network, our traditional wholesale operations will not be profitable, which may materially and adversely affect our business, financial condition and results of operations. We plan to de-emphasize our traditional wholesale services during the year ending June 30, 2001. As such, it is likely that the revenues derived from traditional wholesale services will not grow and could decrease. We cannot assure you that end-users will continue to purchase services from our customers or that our wholesale customers will maintain a demand for our services. 10. We rely heavily on certain underlying carriers. Separately, our wholesale and residential operations rely on a one or two underlying carriers for their underlying telecommunications connectivity and/or call completion. If any of these carriers can longer no provide services to us, or chooses to no longer provide services to us, it may materially and adversely affect our business. 14 11. Additional shares will be available for sale in the public market which could cause the market price of our stock to drop significantly. We estimate that approximately 21.6 million shares of our common stock are currently eligible for resale under applicable securities laws. We expect to register the potential resale of up to an additional 1,388,706 shares of VDC common stock into the public trading market, including 587,073 shares on behalf of Frederick A. Moran and his wife. This would have the effect of increasing the number of shares eligible for public trading. Sales of substantial amounts of the stock in the public market could have an adverse effect on the price of the stock and may make it more difficult for us to sell stock in the future. Although it is impossible to predict market influences and prospective values for securities, it is possible that the increase in the number of shares available for sale, in and of itself, could have a depressive effect on the price of our stock. 12. The future issuance of additional shares of common stock could decrease the value of the shares. We are presently authorized to issue 50,000,000 shares of common stock, of which 24,398,029 are outstanding as of the date of this report. Issuance of additional shares would likely have a dilutive effect upon the existing stockholders and may reduce the value of their investment. If, as of September 7, 2000, holders of our outstanding options and warrants exercise their rights to purchase shares, we must issue up to 2,924,535 shares of common stock. We may issue additional shares for valid business purposes within the discretion of our board of directors, including, without limitation: - additional equity financings; - the acquisition of other companies; and - compensation of our officers, employees, consultants, and directors. 13. We may not be able to compete successfully with other long distance carriers. AT&T, MCI WorldCom and Sprint Corporation dominate the U.S.-based international telecommunications services market. We also compete with ITXC, Inc., iBasis, Inc. and other foreign and U.S.-based long distance and VoIP providers, including the Regional Bell Operating Companies, which presently have some FCC authority to resell and terminate international telecommunication services. Many of these competitors have considerably greater financial and other resources and more extensive domestic and international communications networks than we do. If we compete with them for the same customers, their financial strength could hinder our ability to succeed. For example, larger competitors could discount services to attract or maintain customers. We may not have the financial resources to effectively compete with them on that level. Additionally, in the future we may compete abroad with a number of dominant telecommunications operators that previously held various monopolies established by law over the telecommunications traffic in their countries. Further, the number of our competitors is likely to increase as a result of the competitive opportunities created by a new Basic Telecommunications Agreement concluded by members of the WTO in April 1997. Under the terms of the WTO agreement, starting February 5, 1998, the United States and 68 countries have committed to open their 15 telecommunications markets to competition, increase foreign ownership and adopt measures to protect against anti-competitive behavior. As a result, we believe that competition will continue to increase, placing downward pressure on prices. Such pressure could adversely affect our gross margins if we are not able to reduce our costs commensurate with such price reductions. 14. Technical advancement could render our equipment obsolete. The telecommunications industry is in a period of rapid technological evolution, marked by the introduction of competitive product and service offerings, such as the utilization of the Internet for international voice and data communications. We are unable to predict which technological developments will challenge our competitive position or the amount of expenditures that will be required to respond to a rapidly changing technological environment. We expect that the future will bring significant technological change. It is possible that these changes could result in more advanced telecommunications equipment that could render our current equipment obsolete. If this were to happen, we would most likely have to invest significant capital in this new technology, which could have a material adverse effect on our business, operating results and financial condition. 15. A small number of customers historically have accounted for a significant percentage of our total sales. For the year ended June 30, 2000, two customers accounted for approximately 70% of our total sales. Our customers typically are not obligated contractually to purchase any quantity of services in any particular period. The loss of, or a material reduction in orders by, one or more of our key customers could have a material adverse effect on business, financial condition and results of operations. 16. Our cost of services and operating expenses may fluctuate significantly. Our cost of services, operating expenses and cash flow in any given period can vary due to factors including, but not limited to: (1) fluctuations in rates charged by carriers to terminate our telecommunications traffic; (2) increases in bad debt expense and reserves; (3) the timing of capital expenditures and other costs associated with acquiring or obtaining other rights to switching and other transmission facilities; (4) costs associated with changes in staffing levels of sales, marketing, technical support and administrative personnel; (5) changes in routing due to variations in the quality of vendor transmission capability; 16 (6) loss of favorable routing options; (7) actions by domestic or foreign regulatory entities; (8) financial difficulties of major customers; (9) pricing pressure resulting from increased competition; (10) the level, timing and pace of our expansion in international and commercial markets; and (11) general domestic and international economic and political conditions. 17. Some of our customers are high credit risks. We must assume a certain level of credit risk with our customers in order to do business. Based on such failures in the past, we know that if one or more of our customers fails or refuses to pay us in a timely manner, or at all, it could have a material adverse affect on business, cash flow and financial condition. 18. Limited long-term purchase and resale agreements and pricing pressures for transmission capacity could adversely affect our gross margins. A substantial portion of transmission capacity is obtained on a variable, per minute and short-term basis, subjecting us to the possibility of unanticipated price increases and service cancellations. Since we do not generally have long-term arrangements for the purchase or resale of international long distance services, and since rates fluctuate significantly over short periods of time, our gross margins are subject to significant fluctuations over short periods of time. Our gross margins also may be negatively impacted in the longer term by competitive pricing pressures. 19. Our ability to implement our plan successfully is dependent on a few key people. We are dependent on the management of VDC and its subsidiaries. We are particularly dependent upon Frederick A. Moran, the Chief Executive Officer of VDC. Mr. Moran is also a significant shareholder and Chairman of the Board of Directors of VDC. VDC has an employment agreement with Mr. Moran through March 2003. We believe the combination of his employment agreement and equity interest in VDC keeps Mr. Moran highly motivated to remain with VDC. We do not maintain key man insurance on Mr. Moran's life. 20. We may not be able to attract enough qualified technical personnel because they are in short supply. If this happens, our ability to compete in our industry would likely be curtailed. We believe that our success will depend in large part upon our ability to attract, retain, train and motivate highly-skilled employees, particularly project managers and other senior technical personnel. Qualified personnel are 17 in great demand. There is significant competition for good employees and it is likely that access to qualified personnel will remain limited for the foreseeable future. Many of our competitors are in a better financial position than VDC to offer higher compensation to qualified personnel. We may not be successful in attracting a sufficient number of such personnel in the future, or in retaining, training and motivating the employees we are able to attract. 21. Numerous contingencies could have a material adverse effect on us. Because we are in the early stages of development and because of the nature of the industry in which we operate, there are numerous contingencies over which we have little or no control, any one of which could have a material adverse effect on us. The contingencies include, but are not limited to, the addition or loss of major customers, whether through competition, merger, consolidation or otherwise; the loss of economically beneficial routing options for telecommunications traffic termination; financial difficulties of major customers; pricing pressure resulting from increased competition; credit risk; and technical difficulties with or failures of portions of our network that could impact our ability to provide service to or bill our customers. 22. The future regulation of VoIP services may be burdensome and eliminate cost advantages. VoIP operations may become subject to regulation in the future. If VoIP is regulated in a manner similar to traditional telephony, our VoIP operations may be burdened and any cost advantages provided by VoIP may be eliminated. We are unable to predict whether, and to what extent, VoIP will be regulated and the impact such regulation may have on our business. 23. Government involvement in industry could have an adverse effect. We are subject to various U.S. and foreign laws, regulations, agency actions and court decisions. Our U.S. international telecommunications service offerings are subject to regulation by the FCC. The FCC requires international carriers to obtain authorization prior to acquiring international facilities by purchase or lease, or providing international telecommunications service to the public. Prior FCC approval is also required, in most cases, to transfer control of certificated carriers such as our subsidiaries. We must file certain reports, notifications, contracts, and other documents with the FCC and must pay regulatory and other fees, which are subject to change. We are also subject to FCC policies and rules. The FCC could determine, by its own actions or in response to a third party's filing, that certain of our services, termination arrangements, agreements with foreign carriers, or reports did not comply with FCC policies and rules. If this occurred, the FCC could impose various sanctions, including ordering us to discontinue such arrangements, fining us or revoking our authorizations. Any of these actions could have a material adverse effect on our business, operating results and financial condition. 18 24. Recent and potential FCC actions may adversely affect our business by increasing competition, disrupting transmission arrangements and increasing costs. Regulatory action that may be taken in the future by the FCC may intensify the competition which we face, impose additional operating costs upon us, disrupt certain of our transmission arrangements or otherwise require us to modify our operations. Recent FCC rulemaking orders and other actions have lowered the entry barriers for new facilities-based and resale international carriers by streamlining the processing of new applications and granting non-dominant carriers greater flexibility in establishing non-standard settlement arrangements with non-dominant foreign carriers, including the non-dominant U.S. affiliates of such carriers. In addition, the FCC's rules implementing the WTO Agreement presume that competition will be advanced by the U.S. entry of facilities-based and resale carriers from WTO member countries, thus further increasing the number of potential competitors in the U.S. market and the number of carriers which may also offer end-to-end services. The FCC has also sought to reduce the foreign termination costs of U.S. international carriers by prescribing maximum or benchmark settlement rates which foreign carriers may charge U.S. carriers for terminating switched telecommunications traffic. The FCC has not stated how it will enforce its settlement benchmarks if U.S. carriers are unsuccessful in negotiating settlement rates at or below the prescribed benchmarks. If the FCC implements the reduced benchmarks, our transmission arrangements to certain countries may need to modify our existing arrangements. The Telecommunications Act of 1996 permits the FCC to forbear enforcement of the tariff provisions in such act, which apply to all interstate and international carriers. The FCC has adopted rules eliminating the tariffing requirements for domestic interstate services and requiring those carriers to de-tariff their interstate offerings. International service providers must continue to file tariffs. The FCC routinely reviews the contribution rate for various levels of regulatory fees, including the rate for fees levied to support universal service, which fees may be increased in the future for various reasons, including the need to support the universal service programs mandated by the Telecommunications Act of 1996, the total costs for which are still under review by the FCC. We cannot predict the net effect of these or other possible future FCC actions on our business, operating results and financial condition, although the net effect could be material. 25. Regulation of customers may materially adversely affect our revenues by decreasing the volume of traffic we receive from major customers. Our customers are also subject to actions taken by domestic or foreign regulatory authorities that may affect the ability of customers to deliver traffic to us. Future regulatory actions could materially adversely affect the volume of traffic received from a major customer, which could have a material adverse effect on our business, financial condition and results of operations. 26. Government regulatory policies may increase pricing pressures in our industry. We expect that government regulatory policies are likely to continue to have a major impact on the pricing of network services and possibly accelerate the entrance of new competitors and consolidation of the industry. These trends may affect demand for such services. Tariff rates, whether determined autonomously 19 by telecommunications service providers or in response to regulatory directives, may affect the cost effectiveness of deploying network services. Tariff policies are under continuous review and are subject to change. User uncertainty regarding future policies may also negatively affect demand for our services. 27. The international telecommunications market is risky. The international telecommunications market involves certain risks, such as changes in U.S. and foreign government regulations and telecommunications standards, dependence on foreign partners, tariffs, taxes and other trade barriers, the potential for nationalization and economic downturns and political instability in foreign countries. Moreover, international operations are subject to the Foreign Corrupt Practices Act ("FCPA"), which generally prohibits U.S. companies and their intermediaries from bribing foreign officials for the purpose of obtaining or keeping business. Failure by our agents, strategic partners and other intermediaries, whether past or future, to comply with the FCPA could result in our facing liability. In addition, our business could be adversely affected by a reversal in the current trend toward the deregulation of the telecommunications industry. International sales are subject to inherent risks, including: (1) unexpected changes in regulatory requirements, tariffs or other barriers; (2) difficulties in staffing and managing foreign operations; (3) longer payment cycles; (4) unstable political environments; (5) dependence on foreign partners; (6) greater difficulty in accounts receivable collection; and (7) potentially adverse tax consequences. We may rely on foreign partners to terminate traffic in foreign countries and to assist in installing transmission facilities and network equipment, complying with local regulations, obtaining required licenses and assisting with customer and vendor relationships. We may have limited recourse if our foreign partners do not perform. Our arrangements with foreign partners may expose us to significant legal, regulatory or economic risks over which we may have little control. 28. We may lose revenue or incur additional costs because of network failure. Any system or network failure that causes interruptions in our operations could have a material adverse effect on our business, financial condition or results of operations. Our services are dependent on our own and other companies' abilities to successfully integrate technologies and equipment. In connecting 20 with other companies' equipment, we take the risk of not being able to provide service due to their error. In addition, there is the risk that our equipment may malfunction or that we could make an error, which may negatively affect our customers' service and/or our ability to accurately bill our customers for services. Our hardware and other equipment may also suffer damage from natural disasters such as fires, floods, hurricanes and earthquakes, other catastrophic events such as civil unrest, terrorism and war and other sources of power loss and telecommunications failures. We have taken a number of steps to prevent our service from being affected by natural disasters, fire and the like. We have built redundant systems for power supply to our equipment. Nevertheless, there can be no assurance that any such systems will prevent the switches from becoming disabled in the event of an earthquake, power outage or otherwise. The failure of our network, or a significant decrease in telephone traffic resulting from effects of a natural or man-made disaster, could have a material adverse effect on our relationship with our customers and our business, operating results and financial condition. 29. We may not be able to continue to obtain sufficient transmission facilities on a cost-effective basis. The failure to obtain telecommunications facilities that are sufficient to support our network traffic in a manner that ensures the reliability and quality of our telecommunications services may have a material adverse effect on our business, financial condition or results of operations. Our business depends in part, on our ability to obtain transmission facilities on a cost-effective basis. 30. Foreign governments may not provide us with practical opportunities to compete in their telecommunications markets. We may be subject to regulation in foreign countries in connection with certain of our business activities. For example, laws or regulations in either the transmitting or terminating foreign jurisdiction may affect our use of transit, resale or other routing arrangements. In addition, our operations may be affected by foreign countries, either independently or jointly as members of national organizations such as the WTO may have adopted or may adopt laws or regulatory requirements regarding such services for which compliance would be difficult or expensive and that could force us to choose less cost-effective routing alternatives and that could adversely affect our business, operating results and financial condition. To the extent that we seek to provide telecommunications services in other non-U.S. markets, we are subject to the developing laws and regulations governing the competitive provision of telecommunications services in those markets. We may expand our operations as these markets implement scheduled liberalization to permit competition in the full range of telecommunications services in the next several years. The nature, extent and timing of the opportunity for us to compete in these markets will be determined, in part, by the actions taken by the governments in these countries to implement competition and the response of incumbent carriers to these efforts. The regulatory regimes in these countries may not provide us with practical opportunities to compete in the near future, or at all, and we may not be able to take advantage of any such liberalization in a timely manner. 21 Governments of many countries exercise substantial influence over various aspects of their countries' telecommunications markets. In some cases, the government owns or controls companies that are or may become competitors with us and/or our partners, such as national telephone companies, upon which our foreign partners may depend for required interconnections to local telephone networks and other services. Certain actions of these foreign governments could have a material adverse effect on our operations. In highly regulated countries in which we are not dealing directly with the dominant local exchange carrier, the dominant carrier may have the ability to terminate service to us or our foreign partner and, if this occurs, we may have limited or no recourse. In countries where competition is not yet fully established and we are dealing with an alternative operator, foreign laws may prohibit or impede new operators from offering services. 31. Anti-takeover provisions may deter change in control transactions. Certain provisions of our Certificate of Incorporation, as amended (the "Certificate of Incorporation"), and Bylaws, as amended (the "Bylaws"), and the General Corporation Law of the State of Delaware (the "GCL") could deter a change in our management or render more difficult an attempt to obtain control of us, even if such transactions would be beneficial to our shareholders. For example, we are subject to the provisions of the GCL that prohibit a public Delaware corporation from engaging in a broad range of business combinations with a person who, together with affiliates and associates, owns 15% or more of the corporation's outstanding voting shares (an "Interested Stockholder") for three years after the person became an Interested Stockholder, unless the business combination is approved in a prescribed manner. The Certificate of Incorporation includes undesignated preferred stock, which may enable the Board to discourage an attempt to obtain control of us by means of a tender offer, proxy contest, merger or otherwise. In addition, the Certificate of Incorporation provides for a classified Board of Directors such that approximately only one-third of the members of the Board will be elected at each annual meeting of stockholders. Classified boards may have the effect of delaying, deferring or discouraging changes in control of us. Further, certain other provisions of the Certificate of Incorporation and Bylaws and of the GCL could delay or make more difficult a merger, tender offer or proxy contest involving us. Additionally, certain federal regulations require prior approval of certain transfers of control of telecommunications companies, which could also have the effect of delaying, deferring or preventing a change in control. 32. We have not paid any dividends to our stockholders and do not expect to anytime in the near future. Instead, we plan to retain future earnings, if any, for investment back into VDC. Item 2. Description of Properties Our headquarters are located in approximately 6,270 square feet of leased office space in Greenwich, Connecticut. The office space is leased from an unaffiliated third party pursuant to a five-year agreement at an annual rental of approximately $170,000. We also lease approximately 3,566 square feet of office space in Aurora, Colorado and 15,790 square feet of office space in Newark, New Jersey where the operations of two of our subsidiaries are located. These 22 offices are leased from unaffiliated third parties pursuant to a five-year agreement at an annual rental of approximately $61,000 and a two-year agreement at an annual rental of approximately $132,000, respectively. We also lease a total of approximately 8,952 square feet in New York and Los Angeles as sites for its switching facilities. The locations are leased from unaffiliated third parties pursuant to ten-year leases at a combined annual rental of approximately $204,000. We believe that our facilities are adequate to support our current needs and that suitable additional facilities will be available, when needed, at commercially reasonable terms. Item 3. Legal Proceedings Worldstar Suit On or about July 30, 1999, Worldstar Communications Corporation ("Worldstar") commenced an action in the Supreme Court of New York entitled Worldstar Communications Corporation v. Lindemann Capital L.P., Activated Communications, L.P., Marc Graubart, Michael Mazzone, VDC Corporation and ING Baring Furman Selz, LLC (Index No. 603621/99) (the "Action"). Worldstar asserts in the Action that, under the terms of a purported joint venture arrangement with Lindemann Capital LP ("Lindemann") and Activated Communications, LP ("Activated"), Worldstar acquired certain rights to share in the profits and ownership of a telecommunications project in Nicaragua (the "Nicaraguan Project") owned by Masatepe Comunicaciones S.A., a Nicaraguan company ("Masacom"). Masatepe Communications U.S.A., L.L.C. ("Masatepe"), which owns a 49% equity interest in Masacom, was acquired by VDC and is now a wholly-owned subsidiary of VDC. The relief sought by Worldstar included: (1) monetary damages arising out of purported interference with Worldstar's profit participation and ownership in the Nicaraguan Project; and (2) a declaratory judgment that among other things: (a) Worldstar is entitled to share in the profits and ownership of the Nicaraguan Project; and (b) the transaction pursuant to which VDC acquired an interest in the Nicaraguan Project was void. Certain of the defendants, including VDC, filed a Motion to Dismiss. In an order dated July 12, 2000, the Court dismissed Worldstar's claims against VDC demanding monetary damages arising out of purported interference with Worldstar's profit participation and ownership in the Nicaraguan Project. The Court denied VDC's Motion to Dismiss Worldstar's declaratory judgment claim against VDC. In the event that the plaintiff prevails in the Action, the value of VDC's interest in Masatepe, Masacom and/or the Nicaraguan Project could be diluted. Additionally, VDC could be held liable for certain value that may be deemed to have been derived from the operation of Masatepe and/or the Nicaraguan Project, and for related damages. However, pursuant to the Purchase Agreement through which VDC acquired Masatepe (the "Purchase Agreement"), Activated has an obligation to indemnify and hold VDC and Masatepe harmless from any loss, liability, claim, damage and expense arising out or resulting from the Action. In addition, under certain circumstances, Activated has an obligation under the Purchase Agreement to repurchase from VDC all or part of VDC's equity interest in Masatepe. Furthermore, the defendants are vigorously defending the Action. In 23 view of the foregoing, VDC does not believe that the claims asserted in the Action will have a material adverse effect on VDC's assets or operations. StarCom Suit On or about July 12, 1999, StarCom Telecom, Inc. ("StarCom") commenced an action in the District Court of Harris County, Texas, in the 127th Judicial District entitled StarCom Telecom, Inc. vs. VDC Communications, Inc. (Civil Action No. 1999-35578) (the "StarCom Action"). StarCom asserts in the StarCom Action that VDC induced it to enter into an agreement with VDC through various purported misrepresentations. StarCom alleges that, due to these purported misrepresentations and purported breaches of contract, it has been unable to provide services to its customers. The relief sought by StarCom includes monetary damages arising out of VDC's purported misrepresentations and purported breaches of contract. In the event that StarCom prevails in the StarCom Action, VDC could be liable for monetary damages in an amount that would have a material adverse effect on VDC's assets and operations. VDC does not believe that the claims asserted in the StarCom Action are either meritorious or will have a material adverse effect on VDC's assets or operations. To date, despite the fact that the StarCom Action was filed over one year ago, opposing counsel in the StarCom Action has refused to have VDC served with process. Moreover, opposing counsel filed a Motion to Withdraw as Attorney in Charge of the StarCom Action. In the event that VDC is served in the StarCom Action, it intends to defend itself vigorously. Item 4. Submission of Matters to a Vote of Security Holders. None. Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. VDC's common stock has traded on the American Stock Exchange ("AMEX") since July 7, 1998 under the trading symbol "VDC." Commencing in 1993 until November 26, 1997, VDC's common stock traded on The NASDAQ Small Cap Market under the trading symbol "VDCLF". On November 26, 1997, NASDAQ imposed a trading halt on VDC's common stock, which was subsequently delisted from trading on NASDAQ on March 2, 1998. From March 2, 1998 to July 7, 1998, VDC's common stock was traded on the OTC Bulletin Board under the trading symbol "VDCLF." The following table sets forth certain information with respect to the high and low bid or closing prices of VDC's common stock for the periods indicated below:
Fiscal 2000 High Low First Quarter $3.50 $1.25 Second Quarter $2.25 $0.75 Third Quarter $3.94 $1.31 Fourth Quarter $3.94 $1.44 24 Fiscal 1999 First Quarter $7.88 $4.13 Second Quarter $4.50 $3.50 Third Quarter $5.63 $3.69 Fourth Quarter $4.00 $2.88 Fiscal 1998 First Quarter $5.38 $3.88 Second Quarter $6.50 $4.50 Third Quarter $6.50 $3.75 Fourth Quarter $8.63 $5.88
On September 7, 2000, the closing price for VDC's common stock on AMEX was $0.875 per share. The high and low bid and closing prices for VDC's common stock are rounded to the nearest 1/16th. Dividends VDC has not paid any cash dividends to date and has no intention of paying any cash dividends on its common stock in the foreseeable future. The declaration and payment of dividends is subject to the discretion of the Board of Directors and to certain limitations under the General Corporation Law of the State of Delaware. The timing, amount and form of dividends, if any, will depend, among other things, on VDC's results of operations, financial condition, cash requirements and other factors deemed relevant by the Board of Directors. Holders As of September 7, 2000, the approximate number of holders of record of VDC's common stock was 843. Based upon the records of our transfer agent, VDC believes the number of beneficial owners of the common stock exceeds 2,127. Recent Sales of Unregistered Securities In July 2000, VDC sold 625,000 shares of VDC common stock to accredited investors in a non-public offering exempt from registration pursuant to Section 4(2) and Rule 506 of Regulation D of the Securities Act of 1933, as amended, as follows:
Shareholder Number of Shares Consideration ($) ----------- ---------------- ----------------- Alan B. Snyder 375,000 375,000 Alan B. Snyder, IRA 125,000 125,000 Merl Trust 43,125 43,125 The Lucien I. Levy Revocable Living Trust 17,500 17,500 25 The Elvire Levy Revocable Living Trust 10,000 10,000 O.T. Finance, SA 54,375 54,375 ------ ------ Total 625,000 625,000
No commissions were paid in connection with the foregoing transaction. In June 2000, VDC issued 1,551,020 shares of VDC common stock to the former shareholders of Rare Telephony, Inc., a Nevada corporation ("Rare Nevada") in consideration of the merger of Rare Nevada with and into the Voice & Data Communications (Latin America), Inc. (a wholly-owned subsidiary of VDC now known as Rare Telephony, Inc.) (the "Rare Merger") and 81,633 shares of VDC common stock to RC&A Group, Inc., in consideration of investment banking services rendered in connection with the Rare Merger, in a non-public offering exempt from registration pursuant to Section 4(2) and Rule 506 of Regulation D of the Securities Act of 1933, as amended. Of the shares issued to the Rare Nevada shareholders, 930,610 were issued in escrow. On April 26, 2000, VDC sold 540,000 shares of VDC common stock to Frederick A. Moran and Joan Moran, joint tenants, both accredited investors, for $1,080,000 in a non-public offering exempt from registration pursuant to Section 4(2) and Rule 506 of Regulation D of the Securities Act of 1933, as amended. No commissions were paid in connection with the foregoing transaction. In consideration for investment banking services arising out of the March 6, 1998 Sky King Merger, during March and April 2000, VDC issued 127,500 shares of VDC common stock to accredited investors in a non-public offering exempt from registration pursuant to Section 4(2) and Rule 506 of Regulation D of the Securities Act of 1933, as amended, as follows: 52,500 shares to SPH Investments, Inc.; 50,000 shares to KAB Investments, Inc.; and 25,000 to FAC Enterprises, Inc. In October 1999, VDC sold 1,333,334 shares of VDC common stock to accredited investors in a non-public offering exempt from registration pursuant to Section 4(2) and Rule 506 of Regulation D of the Securities Act of 1933, as amended, as follows:
Shareholder Number of Shares Consideration ($) ----------- ---------------- ----------------- Adase Partners, L.P. 140,000 105,000.00 The Lucien I. Levy Revocable Living Trust 10,000 7,500.00 Frederick W. Moran (1) 666,667 500,000.25 Merl Trust 28,000 21,000.00 O.T. Finance, SA 22,000 16,500.00 Alan B. Snyder 266,667 200,000.25 Eric M. Zachs 200,000 150,000.00 ------- ---------- Total 1,333,334 1,000,000.50
(1) An adult son of Frederick A. Moran. 26 No commissions were paid in connection with the foregoing transaction. Item 6. Selected Financial Data. The following selected consolidated financial data as of and for each of the period(s) ended June 30, 2000, 1999, 1998, 1997 and 1996 have been derived from the audited consolidated Financial Statements of VDC. Since, as a result of the March 6, 1998 merger, the former stockholders of Sky King Connecticut acquired a controlling interest in VDC Bermuda, the acquisition has been accounted for as a "reverse acquisition". Accordingly, for financial statement presentation purposes, Sky King Connecticut was, for periods prior to March 6, 1998, viewed as the continuing entity and the related business combination was viewed as a recapitalization of Sky King Connecticut, rather than an acquisition by VDC Bermuda. The financial data presented below, for accounting purposes, reflects the relevant Statement of Operations data and Balance Sheet of Sky King Connecticut for periods before the merger on March 6, 1998 and reflect the consolidated results of Sky King Connecticut, VDC Bermuda, and VDC Bermuda's wholly-owned subsidiaries after the merger. On November 6, 1998, the Domestication Merger, whereby VDC Bermuda merged with and into VDC, was consummated. The Domestication Merger has been accounted for as a reorganization, which has been given retroactive effect in the financial statements for all periods presented. The following data should be read in conjunction with the Consolidated Financial Statements and the notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included herein.
Period from January 3, 1996 (inception) through Years ended June 30, 1996 June 30, 1997 June 30, 1998 June 30, 1999 June 30, 2000 ----------------------------------------------------------------------------------- Statement of Operations Data: revenues $ 4,850 $ 43,248 $ 99,957 $ 3,298,357 $ 8,528,693 cost of services 1,091 22,020 28,460 5,155,752 8,721,649 selling, general and administrative 30,461 53,657 1,167,429 4,636,230 2,482,457 non-cash compensation 0 - 2,254,000 16,146,000 - asset impairment charges 0 - - 1,644,385 - ----------------------------------------------------------------------------------- operating (loss) (26,702) (32,429) (3,349,932) (24,284,010) (2,675,413) operating (loss) per common share (0.01) (0.01) (0.76) (1.37) (0.13) (loss) on impairment-MCC - - - (21,328,641) (2,260,000) (loss) on note restructuring - - - (1,598,425) - other income (expense) - - 195,122 (63,637) (311,017) equity in (loss) of affiliate - - - (867,645) - ----------------------------------------------------------------------------------- net loss $ (26,702) $ (32,429) $ (3,154,810) $(48,142,358) $(5,246,430) =================================================================================== net loss per common share - basic and diluted $ (0.01) $ (0.01) $ (0.72) $ (2.72) $ (0.26) ----------------------------------------------------------------------------------- weighted average shares outstanding 3,699,838 3,699,838 4,390,423 17,678,045 20,573,864 ----------------------------------------------------------------------------------- Balance Sheet data: investment in MCC $ - $ - $ 37,790,877 $ 2,400,000 $ 140,000 ----------------------------------------------------------------------------------- total assets $ 16,499 $ 15,000 $ 45,823,684 $ 10,002,061 $10,334,513 ----------------------------------------------------------------------------------- long-term liabilities, net of current portion $ - $ - $ - $ 847,334 $ 745,559 ----------------------------------------------------------------------------------- 27 stockholders' equity $ 16,249 $ 14,750 $ 45,667,499 $ 6,567,532 $ 5,127,501 ----------------------------------------------------------------------------------- Other Operating data: EBITDA - Adjusted $ (25,162) $ (29,039) $ (1,089,726) $ (5,386,607) $(1,657,148) ----------------------------------------------------------------------------------- Cash flows used by operating activities $ (25,378) $ (28,573) $ (859,390) $ (4,253,532) $ (395,335) ----------------------------------------------------------------------------------- Cash flow used in investing activities $ - $ - $ (3,201,433) $ (2,492,484) $ (856,261) ----------------------------------------------------------------------------------- Cash flow from financing activities $ 27,551 $ 27,830 $ 6,271,504 $ 4,851,704 $ 1,705,922 ----------------------------------------------------------------------------------- Minutes of Use (4) - - - 12,155,801 31,699,313 ----------------------------------------------------------------------------------- Revenue per Minute of Use (4) $ - $ - $ - $ 0.225 0.22 -----------------------------------------------------------------------------------
(1) The loss from operations of $24,284,010 and $3,349,932 incurred during the years ended June 30, 1999 and 1998, respectively, is primarily attributable to non-cash compensation of $16,146,000 and $2,254,000, respectively (See Note 4 to the consolidated financial statements) and selling, general and administrative expenses. (2) Diluted net loss per share does not reflect the inclusion of common share equivalents which would be antidilutive. (3) EBITDA-Adjusted represents earnings (losses) before interest expense, income taxes, depreciation, amortization, other income (expense) and non-recurring charges including non-cash compensation and asset impairment charges. EBITDA does not represent cash flows as defined by generally accepted accounting principles. EBITDA is a financial measure commonly used in VDC's industry and should not be considered in isolation or as a substitute for net income (loss), cash flow from operating activities or other measure of liquidity determined in accordance with generally accepted accounting principles. (4) Not derived from audited financial statements. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations General As used in this document, the terms "VDC", "we" and "us" include both VDC and VDC Bermuda. The use of these terms reflects the fact that through November 6, 1998, the publicly held company was VDC Bermuda. Thereafter, due to the Domestication Merger, the publicly held company was VDC. We, directly and through our subsidiaries, own telecommunications switching and ancillary equipment, lease telecommunications lines and interconnect a global network of carriers and customers providing domestic and international long distance telecommunications services. Our customers include residential long distance end users and long distance telephone companies that resell our services to their retail customers or other telecommunications companies. We currently employ digital switching and transmission technology, and Internet Telephony, or Voice over Internet Protocol ("VoIP") gateway technology. Our 28 telecommunications equipment, currently located in New York and Los Angeles, comprises our operating facilities. We believe the telecommunications industry is attractive given its current size and future growth potential. We are currently a domestic and international telecommunications company providing retail and wholesale carrier services. Our objective is to provide these services to both retail and wholesale customers utilizing VoIP and circuit switched technologies in the short term; and, migrating towards a pure VoIP network in the long term. We have already begun the process of transforming our network with next generation technology. During the past year, we have made significant advancements in our strategic business plan. Some of the more important events include: (1) We completed, and had declared effective, a registration statement permitting the resale of outstanding shares providing our shareholders liquidity and enhancing the efficiency of the public market for our stock; (2) We raised over $2.1 million through the private placement of equity; (3) We initiated the development of a VoIP network; and (4) We completed the acquisition of a residential long distance telecommunications provider thereby diversifying our customer base and our traffic mix. We completed the merger of a residential long distance provider with and into one of our subsidiaries (the "Rare Merger"), which was renamed Rare Telephony, Inc. ("Rare") towards the end of the year ended June 30, 2000 ("Fiscal 2000"). As such, the operating results of Rare (and its predecessor Rare Nevada) were not included in our results. Rare's results of operations will be consolidated into VDC effective July 1, 2000. As a result of the Rare Merger, we now provide long distance telephone services to residential customers. We now have over 9,500 retail long distance telephone customers, more than tripling the number of customers at March 31, 2000 and up from the initiation of the residential sales effort in December 1999. As of September 7, 2000, Rare employed approximately 195 salespeople. We currently have three primary retail long-distance marketing concepts. Two of them provide customers with a competitive termination rate for long distance calls within the United States and a monthly rebate. The third concept will utilize an exclusive license, held by a wholly-owned subsidiary of Rare, to use a proprietary, Internet-driven, customer-acquisition method that we plan to employ to market telephony services over the Internet. We expect to initiate this concept in the future, although we have not yet set an implementation schedule. According to a member of National TeleCommunications, Inc.'s ("NTC") former management: seven of Rare's eight-member management team constituted a substantial part of NTC management; NTC, over a 30-month period, grew to approximately $275,000,000 in annualized run-rate revenues and about 1,800,000 29 telephony customers, thereby becoming the 8th largest retail long distance telephony company measured by presubscribed lines in the United States in 1998; and, NTC's assets were acquired by MCI WorldCom, or an affiliate or subsidiary thereof, in or about January 2000. Inc. Magazine ranked NTC the 38th fastest growing private company in the United States in 1997. As a result of the Rare transaction, we will seek to employ Internet technologies, including VoIP Telephony and an Internet-driven marketing technique, to reduce the operating costs and improve the marketing methodologies of the combined companies. In addition, Rare is expected to substantially broaden VDC's telephony customer base. Rare (including its predecessor Rare Nevada) only recently began operations and is currently experiencing negative earnings before interest, taxes, depreciation and amortization ("EBITDA"), which should continue to occur for at least the next several months. The acquisition of Rare Nevada is expected to result in a short-term increase in VDC's propensity to experience negative EBITDA. EBITDA is a financial measure commonly used in the telecommunications industry. Still, EBITDA is not derived from generally accepted accounting principles ("GAAP") and therefore investors should not consider it as indicative of operating income or cash flows from operating activities, as determined in accordance with GAAP, or as a measure of liquidity. We earn revenue from three sources. The first two sources we consider our traditional wholesale operations. The first source is our domestic and international telecommunications long distance services which is earned based on the number of minutes billable to our customers, which are other telephone companies. These minutes are generally billed on a monthly basis. Bills are generally due within zero to thirty days. Our second source of revenues is derived from the rental of space, switch capacity and circuits at our telecommunications facilities ("Partition") to other telephone companies. This revenue is generated and billed on a month-to-month basis. We plan to de-emphasize our wholesale operations, in part, by reducing related expenses. As such, we expect revenue from traditional wholesale operations may decrease during the year ending June 30, 2001 ("Fiscal 2001"). Our third source of revenue is from the management of domestic tower sites that provide transmission and receiver locations for wireless communications companies. This revenue is also generated and billed on a month-to-month basis. Effective July 1, 2000, we expect to generate revenues from residential long distance customer usage, which will be derived on a per-minute or monthly basis and which is anticipated to be a separate segment. Revenue derived through the per-minute wholesale transmission of voice and facsimile telecommunications traffic is normally in accordance with contracts with other telecommunications companies. These contracts are often for a year or more, but can generally be amended with a few days notice. Further, these contracts generally do not provide for a fixed volume of telecommunications traffic to be sent to us and, as such, the amount of telecommunications traffic that a customer sends to us during any given month can vary considerably. Occasionally, however, these contracts require payments to us if a customer does not send a fixed minimum amount of telecommunications traffic to us. 30 Costs of services is primarily comprised of costs incurred from other domestic and foreign telecommunications carriers to originate, transport and terminate calls that we send to them. The majority of our cost of service is variable, based on the number of minutes of use, with transmission and termination costs being our most significant expense. In addition, our costs of services include circuit expenses, the allocable personnel and overhead associated with operations, and depreciation of telecommunications equipment. We depreciate long distance telecommunications equipment over a period of five years. Our costs also include selling, general, and administrative expenses ("SG&A"). SG&A consists primarily of personnel costs, professional fees, travel, office rental and business development related costs. These costs include, but are not limited to, costs associated with international and VoIP market research, and due diligence regarding potential projects inside and outside of the U.S. Results of Operations For the Year-Ended June 30, 2000 Compared to the Year-Ended June 30, 1999 Revenues: Total revenues in the year ended June 30, 2000 increased to approximately $8.5 million from approximately $3.3 million for the year ended June 30, 1999 ("Fiscal 1999"). Revenue of approximately $7.0 million was generated during Fiscal 2000 by the transmission of approximately 31.7 million minutes of telecommunications traffic domestically and internationally ("Long Distance Revenue"). We also generated revenue of approximately $1.1 million from Partition, approximately $217,000 from contractually required payments from a customer due to its failure to provide a certain minimum level of telecommunications traffic, and approximately $129,000 from site tower management. Long Distance Revenue of approximately $2.8 million was generated during Fiscal 1999 by the transmission of approximately 12.2 million minutes. We also generated revenue of approximately $340,000 from Partition and approximately $106,000 from site tower management during Fiscal 1999. Costs of services: Costs of services of approximately $8.7 million during Fiscal 2000 were up from approximately $5.2 million for Fiscal 1999. The increase is due to increased domestic and international minutes of telecommunications traffic, which we purchased from other long distance carriers and increased operational expenses including salaries, depreciation, and circuit costs. Costs of services as a percentage of revenues decreased from 157% in Fiscal 1999 to 102% in Fiscal 2000. The decrease was mostly attributable to improved rates, increased traffic volume and lower fixed monthly circuit costs. Selling, general & administrative: SG&A expenses decreased to approximately $2.5 million during Fiscal 2000 from approximately $4.6 million for Fiscal 1999. This decrease was mainly attributable to an aggressive cost cutting program initiated in the Fall of 1999 that successfully discovered and reduced non-critical overhead and selling expenses without impairing our ability to grow revenues. Specifically, the following cost reductions were realized during Fiscal 2000: salaries decreased approximately $1 million, professional fees decreased approximately $427,000, amortization decreased approximately $472,000 and travel and entertainment decreased approximately $211,000. 31 Non-cash Compensation Expense: Non-cash compensation expense was $0 for Fiscal 2000 compared to $16,146,000 for Fiscal 1999. See "Non-cash Compensation Expense" under "For the Year-Ended June 30, 1999 compared to the Year-Ended June 30, 1998." Asset impairment charges: There were no asset impairment charges in Fiscal 2000. We incurred approximately $1.6 million in asset impairment charges during Fiscal 1999. These charges relate to the write off of billing software ($479,000), the write off of fixed assets ($503,000) in Nicaragua and write off of goodwill ($661,824) related to the Masatepe subsidiary. The acquisition of Masatepe was made primarily because of the continued relationship Masatepe's affiliate, Masatepe Comunicaciones, S.A. ("Masacom"), had with ENITEL, the Nicaraguan government controlled telecommunications company. Disagreements over business development arose between Masatepe and Masacom. As a result, we canceled our circuit into Central America and curtailed Masatepe's operations. Masatepe no longer operates its owned telecommunications route to Central America. Therefore, the goodwill attributable to the Masatepe acquisition had been permanently impaired. Other expense: Other expense was approximately $2.6 million for Fiscal 2000 compared with approximately $23.0 million for Fiscal 1999. The other expense in Fiscal 2000 was mostly due to a non-cash charge of $2,260,000 attributable to a writedown of our ownership interest in MCC, and approximately $275,000 in charges attributable to settlement or adjustments to disputed carrier charges. Other expense in Fiscal 1999 was mostly due to an approximate $21.3 million writedown of our ownership interest in MCC and a $1.6 million loss on restructuring of notes receivable. Net loss: Our net loss for Fiscal 2000 was approximately $5.2 million. The net loss was primarily the result of our operating loss and the writedown of our investment in MCC, which is separate and apart from our ongoing core operations. In Fiscal 1999, our net loss was approximately $48.1 million. This was primarily the result of non-cash charges, separate and apart from our ongoing core operations. The write down of our investment in MCC accounted for approximately $21.3 million of the loss. Non-cash compensation accounted for an additional $16.1 million of the loss. On an EBITDA basis, we experienced a loss of approximately $1.7 million during Fiscal 2000 as compared with approximately $5.4 million during Fiscal 1999. We expect that future profitability is likely to depend upon a combination of several factors, including the following: (1) the success of our retail marketing programs; (2) the competitiveness of both our retail and wholesale products; (3) the successful implementation of our VoIP network; (4) management of growth; and, (5) our financial and operational flexibility. 32 There are many other factors that could also have an impact. For the Year Ended June 30, 1999, Compared to the Year Ended June 30, 1998 Revenues: Total revenues in Fiscal 1999 increased to approximately $3.3 million from approximately $100,000 for the year ended June 30, 1998 ("Fiscal 1998"). This was the initial result of the implementation of our telecommunications services. During Fiscal 1999, our international network for telecommunications services became operational and commercial. During the latter months of Fiscal 1999, we experienced a steady increase in minutes of usage of telecommunications services as customers came on line and began utilizing our services. Revenues were generated by Long Distance Revenue, the rental of telecommunications facilities, and tower management. Revenue for Fiscal 1998 was attributable to tower management and consulting. Costs of services: Costs of services of approximately $5.2 million during Fiscal 1999 were the result of a combination of per minute fees and leased line fees associated with the traffic carried in the period, salaries, depreciation of telecommunications equipment, and other operating expenses. Costs of services of approximately $28,500 for Fiscal 1998 reflected site leasing expenses. Selling, general & administrative: SG&A expenses increased to approximately $4.6 million during Fiscal 1999 from approximately $1.2 million for Fiscal 1998. This increase was attributable to: (1) an overall increase in operational and corporate activity, including salaries and development costs necessary for the development and operation of new telecommunications services, including our telecommunications infrastructure; (2) professional fees, including consulting, legal and accounting expenses associated with the redeployment of our assets; (3) amortization of approximately $500,000 associated with the acquisition of Masatepe; and (4) non-recurring items: one-time write-off related to the purchase of a telecommunications route of $135,000 and non-cash severance expense totaling $391,875. Non-cash Compensation Expense: Non-cash compensation expense was $16,146,000 for Fiscal 1999 and $2,254,000 for Fiscal 1998. During Fiscal 1999, 3.9 million shares of VDC's Series B convertible preferred stock ("Escrow Shares"), were released from escrow based upon the achievement of performance criteria which included the deployment of telecommunications equipment in service areas with an aggregate population of greater than 3.9 million. Of the 3.9 million Escrow Shares released, 2.7 million were considered compensatory for accounting purposes. These compensatory shares were owned by management, their family trusts, minor children of management and an employee. The shares issued to former Sky King Connecticut shareholders' minor children were considered 33 compensatory because their beneficial ownership was attributed to certain Sky King Connecticut shareholders in management positions with VDC. The non-cash expense reflected on our financial statements was developed based on the deemed value of the shares released from escrow, which in turn, was based on the trading price of VDC's common stock on the date of release. During Fiscal 1998, 600,000 shares of Series B convertible preferred stock were released from escrow based upon the achievement of performance criteria which included the procurement of $6.9 million in equity financing. Of the 600,000 shares of Series B convertible preferred stock released from escrow, 415,084 were considered compensatory for accounting purposes. These compensatory shares were owned by management, their family trusts, minor children of management, and an employee. The non-cash compensation expense reflected on our financial statements is an accounting charge which was developed based on the deemed value of the shares released from escrow, which in turn, was based on the trading price of VDC Bermuda's common stock on the date of release. Other income (expense): Other income (expense) was approximately $(23.0) million for Fiscal 1999 compared with approximately $195,000 for Fiscal 1998. The other expense was mostly due to a non-cash charge of $(21.3) million attributable to a writedown of our ownership interest in MCC and a $(1.6) million loss on restructuring of notes receivable during Fiscal 2000. Other income during Fiscal 1998 was attributable to interest and dividend income. Net loss: Our net loss for Fiscal 1999 was approximately $48.1 million. The net loss was primarily the result of non-cash charges, separate and apart from our ongoing core operations. The write down of our investment in MCC accounted for approximately $21.3 million of the loss. Non-cash compensation accounted for an additional $16.1 million of the loss. These items did not affect our liquidity. On an EBITDA basis, we experienced a loss of approximately $5.4 million during Fiscal 1999. Our net loss for Fiscal 1998 was approximately $3.2 million. The Fiscal 1998 net loss was mostly attributable to a non-cash compensation charge and SG&A expenses. On an EBITDA basis, we experienced a loss of approximately $1.0 million during Fiscal 1998. Liquidity and Capital Resources Our auditors have raised the issue that we may not be able to continue as a going concern as a result of a lack of profits, working capital deficiency and future cash needs. A significant amount of capital has been expended towards operations and in connection with certain acquisitions and the establishment of our programs. These expenditures have been incurred in advance of the realization of gross profit that may occur as a result of such programs. Our liquidity requirements arise primarily from cash used in operating activities. To date, we have financed ourselves mostly through equity financing. As of September 12, 2000, we had approximately $200,000 in cash, on a consolidated basis. This does not represent sufficient funds to support our business plans or our current rate of operating losses. In order to continue developing our plans and operations, we need to find a source of funding. We expect to meet short term liquidity requirements by raising additional funds through equity financings and we are currently exploring several financing atlternatives. Liquidity and capital resources could improve within the short term by a combination of any one or more of the following factors: (i) an increase in revenues and gross profit from operations; and (ii) financing 34 activities. An inability to generate cash from either of these factors within the short term could have an adverse material affect on our operations and plans for future growth. During Fiscal 2000, we implemented cost-cutting measures, which included the following: (1) Reduced circuit costs by over 50% by eliminating unused capacity and more fully utilizing remaining capacity. (2) Obtained a release from the vendor on an equipment lease for an asset that was not a strategic fit for our current network and would have cost approximately $16,800 per month beginning January 2000. (3) Reduced our employees from 29 at September 14, 1999 to 18 at March 31, 2000. We have subsequently increased our employees significantly as a result of the Rare Nevada acquisition. (4) Amended our lease space in our Colorado office which reduced Colorado office rent by approximately 60%. Although operating results improved significantly during Fiscal 2000, the American Stock Exchange ("AMEX") has notified us that we fall below certain of AMEX's continued listing qualifications. We took numerous steps in Fiscal 2000 to address this issue, including: (i) raising $2.1 million through a private sale of equity; and (ii) substantially reducing overhead costs and operational expenses. As a result of cost cutting and increased sales, we have reduced our negative EBITDA, from approximately $5.4 million during Fiscal 1999 to approximately $1.7 million during Fiscal 2000. However, we expect our rate of EBITDA loss to increase in the quarter ending September 30, 2000 primarily as a result of the losses from our residential long distance operations. Our calculation of EBITDA does not take into account our existing commitments for capital expenditures and should not be seen as representative of the amount of funds generally available to us. The fact that our auditors have raised a going concern issue will likely result in intensified scrutiny by AMEX of our continued listing. As such, there can be no assurances of continued listing. As a result of the completion of the Rare Nevada acquisition in June 2000, we consider it less likely we will pursue other acquisition opportunities in the short term. Although we would likely use our common stock for acquisitions, such acquisitions may have a significant impact on our need for capital. In the event of a need for capital in connection with an acquisition, we would explore a range of financing options, which could include public or private debt, or equity financing. There can be no assurances that such financing will be available, or if available, will be available on favorable terms. Furthermore, any acquisition may increase our cash losses from operations, thereby reducing our liquidity. We are projecting capital expenditures of approximately $0 to $50,000 during the remainder of calendar 2000. The capital expenditures are expected to be mainly associated with the VoIP strategy and the residential services. We expect to fund these purchases through capital lease financing or equity financing and cash flow from operations, if any. 35 Funds may become available to us, through the monetization of certain non-strategic assets. For example, we have sold the telecommunications switch that we formerly owned and operated in Colorado. We have sold this switch for cash and a promissory note. We are also exploring the sale of Sky King, a wholly-owned subsidiary that manages domestic tower sites that provide transmission and receiver locations for wireless communications companies. We expect that any success in monetizing non-strategic assets would improve liquidity. To meet liquidity requirements in the long term, we need to increase our revenues and gross profit, which will most likely occur as a result of growth in the retail long distance business and an increase in minutes passed by our existing wholesale customers. There are no assurances, however, that these long term objectives will transpire. In order to meet these long term objectives, we believe we have to further develop a network that provides competitive telecommunications services and a marketing capability that is competitive in customer acquisition. We expect that we will continue to operate the network to build our customer base and that we will continue to acquire customers. Net cash used in operating activities was approximately $395,000 for Fiscal 2000. We collected approximately $8.4 million from customers while paying approximately $8.8 million to vendors, carriers, and employees. Net cash used by operating activities was approximately $4.3 million for Fiscal 1999. We collected approximately $2.0 million from customers while paying approximately $6.3 million to capital equipment vendors, carriers, other vendors and employees. Net cash used by operating activities of approximately $859,000 for Fiscal 1998 was mostly due to the net loss from operations net of a non-cash compensation charge. Net cash used by investing activities was approximately $856,000 for Fiscal 2000. Cash was used for capital expenditures and to fund Rare Nevada prior to the acquisition and was provided from collections on notes receivable and a sales tax refund on previously acquired switching equipment. Net cash used by investing activities was approximately $2.5 million for Fiscal 1999. Cash was used for capital expenditures on facilities and switching equipment, the purchase of Masatepe as well as investing in and/or lending funds to Masatepe's 49% Nicaraguan owned subsidiary, Masacom. Cash flows from investing activities included the collection of notes receivable and the return of escrow funds in connection with the investment in MCC. Net cash used by investing activities was approximately $3.2 million for Fiscal 1998. This was primarily the result of the investment in MCC, fixed asset acquisitions and deposits on the purchase of fixed assets offset by the collection of notes receivable. Cash provided by financing activities was approximately $1.7 million for Fiscal 2000. Cash was provided from the proceeds of the issuance of common stock and the exercise of common stock options and used to fund capital lease obligations. The funds were used mostly for working capital and to fund Rare Nevada prior to the acquisition. Cash provided by financing activities was approximately $4.9 million for Fiscal 1999. This reflects proceeds from the issuance of common stock, the collection of stock subscriptions receivable, and proceeds from the issuance of short-term debt less repayments of debt and capital lease obligations. The funds were used mostly for working capital and capital expenditures. Proceeds provided by financing activities of approximately $6.3 million for Fiscal 1998 were solely from the issuance of common stock and were used to fund operations and capital expenses. 36 We are currently funding operations through existing cash and accounts receivable collections. We do not know how long it will take before we will be able to operate profitably and, therefore, sustain our business without outside funding. Recent Accounting Standards During 1998, the FASB issued SFAS No. 133. "Accounting for Derivative Instruments and Hedging Activities". During the second quarter of 1999, the FASB postponed the adoption date of SFAS No. 133 until January 1, 2000. The FASB further amended SFAS No. 133 in June 2000. SFAS No. 133 requires that all derivative financial instruments be recorded on the consolidated balance sheets at their fair value. Changes in the fair value of derivatives will be recorded each period in earnings or other comprehensive earnings, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. Gains and losses on derivative instruments reported in other comprehensive earnings will be reclassified as earnings in the periods in which earnings are affected by the hedged item. VDC does not expect the adoption of this statement to have a significant impact on VDC's results of operations, financial position or cash flows. In 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 dealing with revenue recognition which is effective in the fourth quarter of calendar 2000. VDC does not expect its adoption to have a material effect on VDC's financial statements. Item 7a. Quantitative and Qualitative Disclosures About Market Risk VDC is currently not exposed to material future earnings or cash flow exposures from changes in interest rates on long-term debt obligations since our long-term debt obligations are at fixed rates. VDC's carrying value of cash and cash equivalents, accounts receivable, accounts payable, and marketable securities-available for sale, are a reasonable approximation of their fair value. Item 8. Financial Statements The information required by this Item is found immediately following the signature page of this report. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Statement Disclosure None. 37 Part III Item 10. Directors and Executive Officers. The directors and executive officers of VDC are listed below.
Name Age Position - ---- --- -------- Frederick A. Moran (1)(2) 58 Chairman, Chief Executive Officer, Secretary and Director James B. Dittman (1) 58 Director Dr. Hussein Elkholy (2) 67 Director Dr. Leonard Hausman (1)(2) 58 Director Clayton F. Moran 29 Chief Financial Officer and Treasurer Charles W. Mulloy 35 Vice President, Corporate Development Edwin B. Read 43 Vice President, Operations Peter Zagres 36 Vice President, Sales & Buying
(1) Member of Compensation Committee (2) Member of Audit Committee Frederick A. Moran Mr. Moran has served as Chairman, Chief Executive Officer, Secretary, and Director of VDC since March 6, 1998. Mr. Moran served as Chief Financial Officer of VDC from March 6, 1998 until December 10, 1999. Mr. Moran served as the Chairman of Sky King Connecticut from its inception in 1996 through its merger with and into VDC. In 1997, Mr. Moran served as Chairman and Chief Executive Officer of NovoComm, Inc., a privately owned company engaged in the telephony and communications businesses in Russia and Ukraine. Mr. Moran was the co-founder and, from 1990 to 1993, served as Chairman and Chief Executive Officer of International Telcell, Inc. (now part of Metromedia International Group, Inc.). Additionally, Mr. Moran was the founder of and, from 1987 to 1996, served as President of Moran & Associates, Inc. Securities Brokerage, an investment banking and securities brokerage firm ("Moran Brokerage"), and Moran Asset Management, Inc., an investment advisory firm ("Moran Asset"). James B. Dittman Mr. Dittman has served as a member of VDC's Board of Directors since November 4, 1998. Mr. Dittman is President and a principal shareholder of Dittman Incentive Marketing, a motivation and performance improvement company he founded in 1976. 38 In 1997, this company was named by the top industry publication as one of the five most innovative incentive marketing companies in the United States. Prior to forming Dittman Incentive Marketing, Mr. Dittman held management positions in marketing and communications with such firms as the Bendix Corporation, Litton Industries, and the SCM Corporation. Mr. Dittman's articles on incentive marketing have appeared widely in business publications, and he has been a keynote speaker and conducted incentive workshops and seminars for 25 years. Mr. Dittman is a past President of the Society of Incentive Travel Executives ("SITE"). In 23 years of SITE involvement, Mr. Dittman has been a member of the Board of Directors and Executive Committee and a Trustee of the SITE Foundation. Dr. Hussein Elkholy Dr. Elkholy has served as a member of VDC's Board of Directors since July 8, 1998. From 1995 to the present, Dr. Elkholy has served as the Chairman of National Telecom Company and the President and Chief Executive Officer of Satellite Equipment Manufacturing Corporation, both located in Cairo, Egypt. Dr. Elkholy is also a member of the Board of Directors of the following entities: Egynet, Egyptian Telephone Company, Egyptian Space Communication. Dr. Elkholy is also a full professor at the Department of Mathematics, Computer Science and Physics at Fairleigh Dickinson University, where he has taught undergraduate and graduate courses in physics, engineering and computer science for over 34 years. From 1979 to 1980, Dr. Elkholy served as acting Dean of the College of Arts and Sciences at Fairleigh Dickinson University. Dr. Leonard Hausman Dr. Hausman has served as a member of VDC's Board of Directors since November 4, 1998. Dr. Hausman is a partner in Middle East Holdings LLC, a company devoted to facilitating trade and investment in the Middle East and North Africa. Dr. Hausman is also a member of the Board of Directors of the following entities: deltathree.com, Inc., EastWeb, Inc., Peaceworks, Inc. Dr. Hausman is also President of American Online University. From 1988 until 1998, Dr. Hausman was the Director of the Institute for Social and Economic Policy in the Middle East at Harvard University. Clayton F. Moran Mr. Moran has served as Chief Financial Officer and Treasurer of VDC since December 10, 1999. Prior thereto, Mr. Moran served as Vice President, Finance of VDC beginning on June 1, 1998. Prior to joining VDC, Mr. Moran was employed by Moran Real Estate Holdings, Inc. and Putnam Avenue Properties, Inc. and from 1993 to 1995, Mr. Moran was an equity research analyst with Smith Barney, Inc. Mr. Moran is a graduate of Princeton University, with a Bachelor of Arts degree in economics. Mr. Moran is an adult son of Frederick A. Moran. 39 Charles W. Mulloy Mr. Mulloy has served as Vice President, Corporate Development, of VDC since February 1, 1998. Mr. Mulloy has a broad background as a technologist and business development manager, having worked in California's Silicon Valley business community for over 10 years. From 1996 to 1998, Mr. Mulloy served as a business development and system design executive for the IBM Corporation and managed IBM's strategic relationship with the Intel Corporation. From 1994 to 1996, Mr. Mulloy served as Vice President of Inacom Information Systems. Prior to that, from 1987 to 1994, Mr. Mulloy served as National Sales Manager for California Computer Options. Mr. Mulloy has extensive experience in developing data and telecommunications solutions with a foundation in network strategy and deployment. He has designed and managed business solutions for several telecommunications companies. Mr. Mulloy graduated from San Francisco State University with a Bachelor of Arts degree in telecommunications. Edwin B. Read Mr. Read has served as Vice President of Operations of VDC since December 10, 1999. Prior to this appointment he served as Manager of System Engineering, having joined VDC in April 1998 as one of its charter employees. As a 20 year Electrical Engineer, Mr. Read has a diverse background in telecommunications, having implemented systems throughout the world, most recently with Communications Group International Inc ("CGI") (1993 - 1998). Prior to CGI, he held engineering management positions with Plexsys Corporation, Harris Corporation and worked as a private consultant. With these companies and as an independent consultant, Mr. Read has served as a field installation/integration engineer, as a project development engineer, and has been extensively involved in projects for most of the continents of the world. His work has taken him to several Central and South American countries, throughout the Caribbean region, to the countries of the former Soviet Union, to China, Africa, and the Middle East. Peter Zagres Mr. Zagres has served as the Vice President of Sales and Buying for VDC since December 10, 1999. From 1997 to present, Mr. Zagres has served as Chief Executive Officer of Quality Management Resources, Inc., a telecommunications consulting firm specializing in structuring the operations and sales efforts of telecommunications companies. In 1998, in his capacity as Chief Executive Officer of Quality Management Resources, Inc., Mr. Zagres served as Director of Operations for AmeriCom Communications, Inc., a Sacramento based retail long distance provider and as Vice President of Sales for Cross Communications, Inc., a California based calling card and callback provider. From 1995 to 1998, Mr. Zagres served as Director of Operations for One World Communications, Inc. an Arizona based callback and calling card solutions provider. Involvement in Certain Legal Proceedings In a civil action filed by the Securities and Exchange Commission ("SEC") during June 1995, Frederick A. Moran ("Mr. Moran") and Moran Asset were found by the United States District Court for the Southern District of New York to have violated Section 206(2) of the Investment Advisers Act of 1940 (the "Advisers 40 Act") for negligently allocating shares of stock to Mr. Moran's personal, family and firm accounts at a slightly lower price than shares of stock purchased for Moran Asset's advisory clients the following day. The Court also found that Mr. Moran, Moran Asset and Moran Brokerage had violated the disclosure requirements of Section 204 of the Advisers Act and the corresponding broker-dealer registration requirements of Section 15(b) of the Securities Exchange Act of 1934 (the "Exchange Act") by willfully failing to disclose that Mr. Moran's two eldest sons were members of Moran Asset's and Moran Brokerage's board of directors. Mr. Moran was the President and principal portfolio manager of Moran Asset, as well as the President and Director of Research for Moran Brokerage. As a result of these findings, Mr. Moran, Moran Asset and Moran Brokerage were permanently enjoined from violating Sections 204, 206(2), and 207 of the Advisers Act and Section 15(b) of the Exchange Act. The Court ordered Moran Asset and Moran Brokerage to pay civil monetary penalties in the respective amounts of $50,000 and $25,000. The Court also ordered Mr. Moran to disgorge $9,551.17 plus prejudgment interest and pay a civil monetary penalty for $25,000. Although Mr. Moran and the other named parties accepted and fully complied with the findings of the District Court, they believe that the outcome of the matter and the sanctions imposed failed to take into account a number of mitigating circumstances, the first of which is that the basis for the violation of Section 206(2) of the Advisers Act was an isolated incident of negligence resulting in the allocation of 15,000 shares of stock to Moran family and firm accounts at a slightly lower price than those purchased for firm clients the following day, resulting in $9,551.17 in higher purchase cost incurred by these clients. In the opinion of Mr. Moran, the scope of this infraction was not properly considered in view of the following circumstances, among others: (i) the extraordinary volume of the daily business undertaken by Moran Asset and Moran Brokerage which, on the date in question, purchased approximately $34,000,000 of stocks for advisory clients and proprietary accounts; (ii) that the appropriate personnel had inadvertently allocated shares to certain personal and family accounts on the belief that all client purchases had been completed; and (iii) shares of an additional stock had been purchased that day for certain personal and family accounts at prices higher than those paid by advisory clients the following day. Second, with respect to the violation of the disclosure requirements of Section 204 of the Advisers Act and Section 15(b) of the Exchange Act, the Court found Mr. Moran and others to be liable for failure to disclose additional directors of Moran Asset and Moran Brokerage. However, the additional directors in question were Mr. Moran's two older sons who had been appointed as directors as a matter of clerical convenience. In fact, they never participated in any Board of Directors meetings, nor made any decisions concerning Moran Asset or Moran Brokerage, and were never informed that they were directors. Furthermore, if their directorships had been disclosed, as the Court had determined to be required, Mr. Moran believes that any such disclosure would have, in fact, enhanced the Form ADV of Moran Asset and the Form BD of Moran Brokerage, since both adult sons were professional securities analysts with major investment banks and held college degrees from prestigious universities. Third, during his twenty-four years as a full time investment professional, Mr. Moran has not otherwise been the subject of any SEC, NASD or other regulatory or judicial matters. To the best of VDC's knowledge, other than the events specified above, there have been no events under any state or federal bankruptcy laws, no criminal proceedings, no judgments, orders, decrees or injunctions entered against any 41 officer or director, and no violations of federal or state securities or commodities laws material to the ability and integrity of any director or executive officer during the past five years. Terms of Officers All officers of VDC serve for terms expiring at the next annual meeting of shareholders following their appointment. Officers' terms are without prejudice to the terms of their employment agreements. Each of VDC's officers, as well as each employee director, devotes substantially full time to the affairs of VDC. Board Composition In accordance with the terms of VDC's Certificate of Incorporation, the terms of office of the Board of Directors are divided into three classes: Class I, whose term will expire at the annual meeting of stockholders to be held in 2002; Class II, whose term will expire at the annual meeting of stockholders to be held in 2000; and Class III, whose term will expire at the annual meeting of stockholders to be held in 2001. The Class I directors are Dr. Hussein Elkholy and James Dittman; the Class II director is Dr. Leonard Hausman; and the Class III director is Frederick A. Moran. At each annual meeting of stockholders after the initial classification, the successors to directors whose term will then expire will be elected to serve from the time of election and qualification until the third annual meeting following election. This classification of the Board of Directors may have the effect of delaying or preventing changes in control or changes in management of VDC. Section 16(a) Beneficial Ownership Reporting Compliance Based solely on its review of copies of forms filed pursuant to Section 16(a) of the Exchange Act, and written representations from certain reporting persons, VDC believes that during Fiscal 2000 all reporting persons timely complied with all filing requirements applicable to them, except for Form 4s and a Form 5 for PortaCom Wireless, Inc ("PortaCom"). Beyond what is reported above, VDC does not know the following with regard to PortaCom: (i) the number of late reports; (ii) the number of transactions that were not reported on a timely basis, or (iii) any known failure to file a required form. Item 11. Executive Compensation The following Summary Compensation Table sets forth the compensation earned for the three fiscal years ended June 30, 2000 by VDC's Chief Executive Officer and each of VDC's four most highly compensated executive officers, other than the Chief Executive Officer, whose total annual salary and bonus for Fiscal 2000 exceeded $100,000 (the "Named Executive Officers"). Other than the Chief Executive Officer, there was no VDC executive officer who earned salary and bonus in excess of $100,000 for services rendered in all capacities to VDC and its subsidiaries during Fiscal 2000. 42
Summary Compensation Table Long Term Compensation ---------------------- Annual Compensation Awards ------------------- ------ Securities Underlying Options/ Name and Principal Position Year(s) Salary($) SARs(#) - --------------------------- ------- --------- ------- Frederick A. Moran(1) 2000 125,000.00 670,000(2) Chief Executive Officer, 1999 125,000.04(3) 200,000(4) Chairman, Secretary and 1998 40,625.05(5) - Director of VDC
(1) Mr. Moran also served as Chief Financial Officer during Fiscal 2000 until December 10, 1999 when another officer was elected to that position. (2) VDC granted Mr. Moran an option to purchase 450,000 shares of VDC common stock on November 30, 1999 and an option to purchase 20,000 shares of VDC common stock on March 24, 2000. Additional information regarding these stock option grants is contained in the "Option Grants in Last Fiscal Year" table below. Also includes option to purchase 200,000 shares of VDC common stock that was repriced. See "Ten-Year Option / SAR Repricings." (3) Included $20,833.34 in deferred income, but not yet paid to Mr. Moran. (4) VDC granted Mr. Moran an option to purchase 200,000 shares of VDC common stock on December 8, 1998. Additional information regarding these stock option grants is contained in the "Option Grants in Last Fiscal Year" table below. (5) Reflects compensation for partial year employment. Mr. Moran became Chief Executive Officer, Chief Financial Officer, Chairman, and Director of VDC in March 1998 in connection with the Sky King Connecticut Acquisition. Mr. Moran was neither an officer nor a director of VDC prior to the Sky King Connecticut Acquisition. The following table contains information concerning stock option grants made to Named Executive Officers during Fiscal 2000. 43
Option Grants in Last Fiscal Year --------------------------------- Individual Grants ----------------- Potential Potential Realizable Realizable Value at Assumed Value at Assumed Annual Rates of Annual Rates of % of Total Stock Price Stock Price Number of Securities Options/SARs Exercise or Appreciation for Appreciation for Underlying Options/ Granted to Employees Base Price Expiration Option Term Option Term Name SARs Granted (#) in Fiscal Year (1) ($/Share) Date 5% ($)(2) 10% ($) (2) - ---- ---------------- ------------------ --------- ---- --------- ----------- Frederick A. Moran 450,000 (3) 17.7% $1.03125 11/30/04 74,368.13 215,371.41 Frederick A. Moran 20,000 (4) 1%(5) $3.79 3/24/05 11,944.25 34,922.56 Frederick A. Moran 200,000 (6) 7.9% $1.38 12/8/03 27,877.50 (7) 90,025.00 (7)
(1) Based upon options to purchase an aggregate of 2,544,500 shares of common stock granted to employees in Fiscal 2000. The options to purchase 2,544,500 shares of common stock includes: (a) options to purchase 1,862,000 shares of common stock granted under VDC's 1998 Stock Incentive Plan, as Amended in Fiscal 2000; and (b) options to purchase 682,500 shares of common stock granted prior to Fiscal 2000 but repriced in Fiscal 2000. Excludes options to purchase 30,000 shares of common stock granted to non-employees in Fiscal 2000 and options to purchase 75,000 shares of common stock granted to non-employees prior to Fiscal 2000 but repriced in Fiscal 2000. (2) The 5% and 10% assumed annual rates of compounded stock price appreciation are mandated by rules of the Securities and Exchange Commission. There can be no assurance provided to any executive officer or any other holder of VDC's securities that the actual stock price appreciation over the 5 year option term will be at the assumed 5% and 10% levels or at any other defined level. Unless the market price of the common stock appreciates over the option term, no value will be realized from the option grants made to the Named Executive Officers. (3) VDC granted Mr. Moran an option to purchase 450,000 shares of VDC common stock on November 30, 1999. The option vests in equal installments over five years commencing on the first anniversary of the date of grant. The options are exercisable upon vesting. (4) VDC granted Mr. Moran an option to purchase 20,000 shares of VDC common stock on March 24, 2000. The option was fully vested as of the date of grant. The option was exercisable as of the date of grant. (5) The actual percentage is less than 1%. The 1% reflected in the table reflects rounding. (6) Represents option to purchase 200,000 shares of VDC common stock granted to Mr. Moran on December 8, 1998 and repriced on October 1, 1999. The option vests in equal installments over five years commencing on the first anniversary of the date of grant (December 8, 1998). The options are exercisable upon vesting. 44 (7) Does not include potential realized value at assumed annual rates of stock price appreciation for period from October 1, 1999 to December 8, 1999. Assumes appreciation from December 8, 1999 through December 8, 2003.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year End Option/SAR Values ----------------------------------------------------------------------------------------- Number of Securities Value of Unexercised Underlying Unexercised In-the-Money Options Options/SARs at FY-End(#) at FY-End($) Shares Acquired Value Exercisable/ Exercisable/ Name on Exercise (#) Realized($) Unexercisable Unexercisable (1) - ---- --------------- ----------- ------------- ------------- Frederick A. Moran 0 0 40,000(E)/160,000(U) 4,800(E)/19,200(U) Frederick A. Moran 0 0 0(E)/450,000(U) 0(E)/210,937.50(U) Frederick A. Moran 0 0 20,000(E)/0(U) (2)
(1) Based upon the closing price for VDC common stock for June 30, 2000 of $1.50 per share. (2) Based upon the closing price for VDC common stock for June 30, 2000 of $1.50 per share, none of the options referenced in this line were in-the-money at the close of Fiscal 2000.
Ten-Year Option / SAR Repricings Number of Securities Market Price of Length of Original Underlying Options/ Stock at Time Exercise Price at New Option Term Remaining SARs Repriced or of Repricing or Time of Repricing Exercise at Date of Repricing Name Date Amended (#) Amendment $ or Amendment $ Price $ or Amendment ---- ---- ----------- ----------- -------------- ------- ------------ Clayton F. Moran 10/1/99 10,000 1.25 4.125 1.25 6/1/08 Clayton F. Moran 10/1/99 45,000 1.25 3.75 1.25 12/8/08 Frederick A. Moran 10/1/99 200,000 1.25 4.125 1.38 (1) 12/8/03 Charles W. Mulloy 10/1/99 10,000 1.25 4.125 1.25 2/1/08 Charles W. Mulloy 10/1/99 50,000 1.25 4.125 1.25 9/2/08 Charles W. Mulloy 10/1/99 40,000 1.25 3.75 1.25 12/8/08 Robert E. Warner 10/1/99 5,000 1.25 4.125 1.25 4/1/08 Robert E. Warner 10/1/99 2,500 1.25 4.125 1.25 9/2/08 Robert E. Warner 10/1/99 42,500 1.25 3.75 1.25 12/8/08
45 (1) The new exercise price was slightly more than 110% of the market price of the stock at the time of repricing. The repricing was structured this way for Mr. Moran to preserve the incentive stock option nature of his option. Explanation of Repricing Competition for skilled engineers, sales personnel and other key employees in the telecommunications industry is intense, and the use of stock options for retention and motivation of such personnel is widespread in high-technology industries. The Board of Directors believes that stock options are a critical component of the compensation offered by VDC to promote long-term retention of key employees, motivate high levels of performance and recognize employee contributions to the success of VDC. The market price of the common stock decreased from a high of $7.50 in July 1998 to a low of $1.25 on October 1, 1999. In light of this substantial decline in market price, the Board of Directors believed that the outstanding stock options with an exercise price in excess of the actual market price were no longer an effective tool to encourage employee retention or to motivate high levels of performance. As a result, in October 1999, the Board of Directors approved an option repricing program under which options to acquire shares of common stock that were originally issued with exercise prices above $1.25 per share were reissued with an exercise price of $1.25 per share (or $1.38 in the case of the Chief Executive Officer and his wife), the fair market value of the common stock at the repricing date. These options will continue to vest under the original terms of the option grant. Options to purchase 757,500 shares of VDC common stock were affected by the repricing program including options to purchase 567,500 shares of common stock issued under the Plan and options to purchase 190,000 shares of common stock issued outside of the Plan. Options to purchase 510,000 shares of common stock granted to executive officers and members of the Board of Directors were affected by the repricing program. Compensation Committee: Frederick A. Moran James Dittman Dr. Leonard Hausman Committees of the Board of Directors On November 9, 1998, VDC's Board of Directors established an Audit Committee and Compensation Committee. Frederick A. Moran, Dr. Hussein Elkholy, and Dr. Leonard Hausman serve on the Audit Committee. Mr. Moran is not an independent member of the Audit Committee. On May 30, 2000, VDC's Board of Directors and the Audit Committee adopted and approved an Audit Committee Charter for VDC. As reflected in this Charter, the Audit Committee's primary duties and responsibilities are to: - Monitor the integrity of VDC's financial reporting process and systems of internal controls regarding finance, accounting, and legal compliance. 46 - Monitor the independence and performance of VDC's independent auditors and internal auditing department. - Provide an avenue of communication among the independent auditors, management, the internal auditing department, and the Board of Directors. The Charter goes into considerable additional detail regarding the Audit Committee's duties and responsibilities. The Compensation Committee consists of Frederick A. Moran, James Dittman, and Dr. Leonard Hausman. James Dittman and Dr. Leonard Hausman are non-employee directors within the meaning of Rule 16b-3 under the Exchange Act and outside directors within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended. The Compensation Committee recommends general compensation policies to the Board, oversees VDC's compensation plans, establishes the compensation levels for executive officers and advises the Board on the compensation policies for VDC's executive officers. The Board may, from time to time, establish other committees of the Board. Director Compensation As compensation for their service to VDC, each independent Director is granted upon initial appointment options to purchase 25,000 shares of VDC's common stock. The options vest in equal installments over three years commencing on the first anniversary of the date of grant and are contingent upon continued service as a member of the Board of Directors. Other than the stock options granted to independent Directors, Directors do not receive a salary, payment or reimbursement of any kind for their service to VDC. From time to time, the Board may grant additional options to each independent Director. On November 30, 1999, VDC granted each of Dr. Leonard Hausman, Dr. Hussein Elkholy and James Dittman options to purchase 10,000 shares of VDC common stock at an exercise price of $.9375 per share, in connection with their service as Directors. The options vest in equal installments over three years commencing on the first anniversary of the date of grant and are contingent upon continued service as a member of the Board of Directors. Employment Contracts and Termination of Employment and Change-in-Control Arrangements VDC has an employment agreement with Frederick A. Moran. The agreement, which is dated March 3, 1998, provides for an initial term of five years with year-to-year renewals in the event that neither Mr. Moran nor VDC elects to terminate the agreement after the initial term or otherwise. The agreement contains non-competition and non-solicitation provisions which survive employment for a term of one year. Mr. Moran's current base salary is $125,000. Upon Mr. Moran's death, incapacity or termination without "cause", as defined in the agreement, Mr. Moran is entitled to a lump sum payment at the time of the termination of his employment equal to one year's base salary. Mr. Moran has been granted options to purchase shares of VDC common stock. See "Option Grants in Last Fiscal Year." Pursuant to VDC's 1998 Stock Incentive Plan, as Amended 47 (the "Plan"), all options held by Mr. Moran, and all other option holders under the Plan will vest upon certain change-in-control transactions. Compensation Committee Interlocks and Insider Participation in Compensation Decisions On November 9, 1998, VDC's Board of Directors established a Compensation Committee. The Compensation Committee consists of Frederick A. Moran, James Dittman, and Dr. Leonard Hausman. James Dittman and Dr. Leonard Hausman are non-employee directors within the meaning of Rule 16b-3 under the Exchange Act and outside directors within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended. Mr. Moran serves as an executive officer of VDC and as an officer of each of VDC's subsidiaries. The Compensation Committee recommends general compensation policies to the Board, oversees VDC's compensation plans, establishes the compensation levels for executive officers and advises the Board on the compensation policies for VDC's executive officers. No executive officer of VDC served as a member of the board of directors of any entity that had one or more executive officers serving as a member of VDC's Board of Directors or Compensation Committee. Item 12. Security Ownership of Certain Beneficial Owners and Management The following table sets forth certain information regarding the beneficial ownership of VDC common stock as of September 7, 2000 with respect to: (i) each person known by VDC to beneficially own 5% or more of the outstanding shares of VDC common stock; (ii) each of VDC's directors; (iii) each of VDC's Named Executive Officers; and (iv) all directors and executive officers of VDC as a group. Except as otherwise indicated, each person set forth below has sole voting and investment power on the shares reported.
Amount and Nature of Percent Name and Address of Beneficial Owner (1) Beneficial Ownership(2) Of Class - ------------------------------------ ----------------------- -------- Frederick A. Moran 4,112,387 (3) 16.8% 75 Holly Hill Lane Greenwich, CT 06830 Dr. Hussein Elkholy 16,666 (4) * 75 Holly Hill Lane Greenwich, CT 06830 Dr. Leonard Hausman 16,666 (4) * 75 Holly Hill Lane Greenwich, CT 06830 James B. Dittman 18,666 (4) * 75 Holly Hill Lane Greenwich, CT 06830 48 Clayton F. Moran 1,448,663 (5) 5.9% 75 Holly Hill Lane Greenwich, CT 06830 Frederick W. Moran 1,608,563 (6) 6.6% Jefferies & Company 520 Madison Avenue New York, NY 10022 All executive officers and directors 5,700,786 (7) 23.2% as a group (8 persons)
(*) Less than 1%. (1) PortaCom Wireless, Inc. ("PortaCom"), a shareholder shown in previous VDC Annual Reports on Form 10-K as being a significant shareholder, has been excluded from the foregoing table due to the fact that the records of VDC's transfer agent as of September 7, 2000 indicate that PortaCom does not beneficially own 5% or more of the outstanding shares of VDC common stock. (2) The securities "beneficially owned" by an individual are determined in accordance with the definition of "beneficial ownership" set forth in the regulations promulgated under the Securities Exchange Act of 1934, and, accordingly, may include securities owned by or for, among others, the spouse and/or minor children of an individual and any other relative who has the same home as such individual, as well as other securities as to which the individual has or shares voting or investment power or which each person has the right to acquire within 60 days of the date hereof through the exercise of options, or otherwise. Beneficial ownership may be disclaimed as to certain of the securities. This table has been prepared based on 24,398,029 shares of common stock outstanding as of September 7, 2000. (3) Includes 1,139,890 shares owned directly by Mr. Moran as well as 2,907,997 shares owned, directly or indirectly, by certain members of Mr. Moran's family and certain entities associated with Mr. Moran's family, whose ownership is attributed to Mr. Moran. Also, does not include 1,608,563 shares owned by Frederick W. Moran and 1,448,663 beneficially owned by Clayton F. Moran, both of whom are Mr. Moran's adult children. Includes options, in the name of Mr. Moran, to purchase 60,000 shares of common stock. Includes options, in the name of Mr. Moran's wife, to purchase 4,500 shares of common stock. Does not include options, in the name of Mr. Moran, to purchase 760,000 shares of common stock which may vest in or after November 2000. Does not include options, in the name of Mr. Moran's wife, to purchase 33,000 shares of common stock which may vest in or after November 2000. Mr. Moran has filed a Schedule 13D (and an amendment thereto) reporting beneficial ownership of more than 10% of VDC Communications, Inc.'s outstanding shares of common stock. This Schedule 13D contains numerous disclaimers including one in which he asserts "[t]he filing of this Statement shall not be construed as an admission that Mr. Moran is, for purposes of Section 13(d), or 13(g) of the Act, the beneficial owner of any securities covered by the Statement." 49 (4) Includes options to purchase 16,666 shares of common stock. Does not include options to purchase 18,334 shares of common stock which may vest on or after November 30, 2000. (5) Includes options to purchase 23,000 shares of common stock. Does not include options to purchase 212,000 shares of common stock which may vest on and after November 30, 2000. Includes 63 shares that Mr. Moran has the right to acquire upon demand from a trust. An adult son of Frederick A. Moran and employed as Chief Financial Officer and Treasurer of VDC. (6) Includes 63 shares that Mr. Moran has the right to acquire upon demand from a trust. An adult son of Frederick A. Moran. (7) Includes options to purchase 218,498 shares of common stock. Does not include options to purchase 1,587,002 shares of common stock which may vest on and after November 30, 2000. Item 13. Certain Relationships and Related Transactions Registration of Certain Moran Shares VDC registered the potential resale of 6,931,046 shares of VDC common stock the beneficial ownership of which is attributed to Frederick A. Moran and certain members of Mr. Moran's immediate family (the "Moran Shares"). The Moran Shares were included in an Amendment No. 1 to a Registration Statement on Form S-1 (Registration No. 333-80107) which was filed with the United States Securities and Exchange Commission on November 8, 1999 (the "Registration Statement"). Of the Moran Shares included in the Registration Statement, 328,170 of said shares were included pursuant to registration rights granted in connection with the sale of said shares in May 1999 to Mr. Moran, certain Moran family members, and certain trusts for the benefit of Mr. Moran's minor children. VDC will include the Moran Shares, to the extent they have not been sold or disposed of, in a registration statement on Form S-3 that VDC is currently working on in order to continue to permit their resale. VDC will also include in the S-3 an additional 587,073 for Mr. Moran and his wife. 540,000 of these shares are being included in the S-3 pursuant to registration rights granted in connection with their sale to Mr. Moran and his wife. Loans From Director and Officer In September 1999, Frederick A. Moran, a director and officer of VDC, transferred personal funds totaling $80,000 to VDC. This amount represented a short term loan to be repaid by VDC in accordance with the terms of a promissory note executed by VDC on September 24, 1999. In April 2000, VDC repaid the promissory note and accrued interest in full. The promissory note was due on September 24, 2000 and provided for an interest rate of eight percent (8%) per annum. 50 Private Placement Transactions Through a Securities Purchase Agreement dated April 26, 2000, VDC sold an aggregate of 540,000 shares of VDC common stock, at a price of $2.00 per share, the closing market price on the date of sale, to Frederick A. Moran and Joan B. Moran, joint tenants, in a non-public offering exempt from registration pursuant to Section 4(2) and Rule 506 of Regulation D of the Act. Through a Securities Purchase Agreement dated October 27, 1999, VDC sold 666,667 shares of VDC common stock, at a price of $0.75 per share, to Frederick W. Moran, the adult son of Frederick A. Moran, in a non-public offering exempt from registration pursuant to Section 4(2) and Rule 506 of Regulation D of the Act. Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K A. Financial Statements filed as part of this Report: Auditors' Report of BDO Seidman LLP, Independent Auditors, on Company's Consolidated Financial Statements for the fiscal years ended June 30, 2000 and 1999, and 1998. Consolidated Balance Sheets of VDC as of June 30, 2000, 1999. Consolidated Statements of Operations of VDC for the fiscal years ended June 30, 2000, 1999, and 1998. Consolidated Statements of Cash Flows of VDC for the fiscal years ended June 30, 2000, 1999, and 1998. Consolidated Statements of Stockholders' Equity of VDC for the fiscal years ended June 30, 2000, 1999, and 1998. Notes to Consolidated Financial Statements of VDC B. The following Exhibits are filed as part of this Report: The following Exhibits are attached hereto and incorporated herein by reference.
Exhibit No. Description Method of Filing ----------- ----------- ---------------- 2.1 Agreement and Plan of Merger dated May 25, 2000 by and among (1) VDC Communications, Inc., Voice & Data Communications (Latin America), Inc., Rare Telephony, Inc., and the holders of all of the outstanding common stock of Rare Telephony, Inc. 51 2.2 Amendment to Agreement and Plan of Merger dated June 14, 2000 (1) 2.3 Certificate of Merger of Rare Telephony, Inc. into Voice & Data (1) Communications (Latin America), Inc. 2.4 Articles of Merger of Rare Telephony, Inc. into Voice & Data (1) Communications (Latin America), Inc. 3.1 Certificate of Incorporation, as amended of VDC Communications, (2) Inc. 3.2 Amended and Restated Bylaws of VDC Communications, Inc. (2) 4.1 Specimen of common stock certificate (3) 4.2 1998 Stock Incentive Plan (3) 10.1 1998 Stock Incentive Plan, as Amended (4) 10.2 Settlement, Release and Separation Agreement by and among VDC (4) Communications, Inc. and William H. Zimmerling, dated October 1, 1999 10.3 Settlement, Release and Separation Agreement by and among VDC (4) Communications, Inc. and Robert E. Warner, dated October 18, 1999 10.4 Form of Non-Qualified Stock Option Agreement (4) 10.5 Incentive Stock Option Agreement between Frederick A. Moran and (4) VDC Communications, Inc., dated October 1, 1999 10.6 Form of Incentive Stock Option Agreement (4) 10.7 Form of Incentive Stock Option Agreement (4) 10.8 Form of Securities Purchase Agreement for October 1999 (4) 10.9 Form of Registration Rights Agreement for October 1999 (4) 10.10 Form of Non-Qualified Stock Option Agreement for November 1999 (5) 10.11 Form of Incentive Stock Option Agreement for November 1999 (5) 10.12 Incentive Stock Option Agreement between Frederick A. Moran and (5) VDC Communications, Inc., dated November 30, 1999 10.13 Incentive Stock Option Agreement between Peter Zagres and VDC (5) Communications, Inc., dated November 30, 1999 52 10.14 Incentive Stock Option Agreement between Charles W. Mulloy and (5) VDC Communications, Inc., dated December 21, 1999 10.15 Release Agreement by and among Zions Credit Corporation, VDC (5) Communications, Inc., and VDC Telecommunications, Inc., dated December 6, 1999 10.16 Assumption Agreement between Zions Credit Corporation, VDC (5) Communications, Inc., VDC Telecommunications, Inc. and Wang Communications, Inc., dated December 1999 10.17 Master Agreement to Lease Equipment by and between Cisco (6) Systems Capital Corporation and VDC Telecommunications, Inc., dated February 22, 2000 10.18 Letter Agreement by and between Cisco Systems Capital (6) Corporation and VDC Telecommunications, Inc. dated March 3, 2000 10.19 Guaranty executed by VDC Communications, Inc. on February 22, (6) 2000 for the benefit of Cisco Systems Capital Corporation 10.20 Agreement by and between Level 3 Communications, LLC and VDC (6) Telecommunications, Inc. dated March, 2000 10.21 Commercial Pilot Agreement by and between TransNexus, L.L.C. (6) and VDC Telecommunications, Inc. dated March 27, 2000 10.22 Incentive Stock Option Agreement between Frederick A. Moran and (6) VDC Communications, Inc., dated March 24, 2000 10.23 Form of Incentive Stock Option Agreement for March 2000 (6) 10.24 Agreement by and among VDC Communications, Inc., Masatepe (6) Communications, U.S.A., L.L.C., General Electric Capital Corporation, Newbridge Networks Corporation and Newbridge Networks, Inc., dated March 2000 10.25 Securities Purchase Agreement by and between VDC (6) Communications, Inc. and Frederick A. Moran and Joan Moran, joint tenants, dated April 26, 2000 10.26 Promissory Note, dated April 20, 2000, made by Rare Telephony, (6) Inc. and Cash Back Rebates LD.com, Inc. in favor of VDC Communications, Inc. 10.27 Guaranty Agreement, dated April 20, 2000, made by Network (6) Consulting Group, Inc. in favor of VDC Communications, Inc. 53 10.28 Personal Guaranty Agreement, dated April 20, 2000, made by (6) Peter J. Salzano in favor of VDC Communications, Inc. 10.29 Security Agreement, dated April 20, 2000, by and between (6) Network Consulting Group, Inc. and VDC Communications, Inc. 10.30 Security Agreement, dated April 20, 2000, by and between (6) Network Consulting Group, Inc. and VDC Communications, Inc. 10.31 Security Agreement, dated April 20, 2000, by and between Peter (6) J. Salzano and VDC Communications, Inc. 10.32 Agreement, dated April 20, 2000, by and among VDC (6) Communications, Inc., Rare Telephony, Inc., and Cash Back Rebates LD.com, Inc. 10.33 Letter Agreement, dated April 7, 2000, by and among VDC (6) Communications, Inc., Rare Telephony, Inc., and Cash Back Rebates LD.com, Inc., and Free dot Calling.com, Inc. 10.34 Promissory Note, dated May 4, 2000, made by Rare Telephony, (6) Inc. and Cash Back Rebates LD.com, Inc. in favor of VDC Communications, Inc. 10.35 Guaranty Agreement, dated May 4, 2000, made by Network (6) Consulting Group, Inc. in favor of VDC Communications, Inc. 10.36 Personal Guaranty Agreement, dated May 4, 2000, made by Peter (6) J. Salzano in favor of VDC Communications, Inc. 10.37 Escrow Agreement, dated May 25, 2000, by and among VDC (1) Communications, Inc., Voice & Data Communications (Latin America), Inc., the shareholders of Rare Telephony, Inc., and Buchanan Ingersoll Professional Corporation 10.38 Form of Registration Rights Agreement (1) 10.39 Form of Executive Employment Agreement (1) 10.40 Form of Employment Agreement (1) 10.41 Independent Contractor Agreement, dated May 25, 2000, by and (1) among Peter J. Salzano and Voice & Data Communications (Latin America), Inc. 10.42 License Agreement, dated June 14, 2000, by and between Peter J. (1) Salzano and Free dot Calling.com, Inc. 54 10.43 Network Agreement, dated May 25, 2000, by and among Network (1) Consulting Group, Inc. and VDC Communications, Inc. 10.44 Funding Agreement, dated June 14, 2000, by and between Voice & (1) Data Communications (Latin America), Inc. and VDC Communications, Inc. 10.45 Promissory Note, dated June 23, 2000, made by Rare Telephony, (1) Inc. in favor of Peter J. Salzano 10.46 Form of Securities Purchase Agreement for June 2000 (7) 10.47 Form of Amendment to Securities Purchase Agreement for July (7) 2000 10.48 Form of Registration Rights Agreement for June 2000 (7) 10.49 1998 Stock Incentive Plan, as Amended Through August 9, 2000 (7) 10.50 Incentive Stock Option Agreement between Frederick A. Moran and (7) VDC Communications, Inc., dated August 9, 2000 10.51 Incentive Stock Option Agreement between Clayton F. Moran and (7) VDC Communications, Inc., dated August 9, 2000 10.52 Purchase and Sale Agreement, by and between Omnetrix (7) International, Inc. and VDC Telecommunications, Inc., dated August 26, 2000 10.53 Promissory Note, dated August 26, 2000, made by Omnetrix (7) International, Inc. in favor of VDC Telecommunications, Inc. 10.54 Security Agreement, dated August 26, 2000, made by Omnetrix (7) International, Inc. in favor of VDC Telecommunications, Inc. 10.55 Promissory Note, dated June 14, 2000, made by Voice & Data (7) Communications (Latin America), Inc. in favor of VDC Communications, Inc. 10.56 Promissory Note, dated June 14, 2000, made by Voice & Data (7) Communications (Latin America), Inc. in favor of VDC Communications, Inc. 10.57 Form of Promissory Note executed by Rare Telephony, Inc. (7) 21.1 Subsidiaries of Registrant (7) 27.1 Financial Data Schedule (7)
55 (1) Filed as an Exhibit to VDC Communications, Inc.'s Current Report on Form 8-K, dated June 14, 2000, and incorporated by reference herein. (2) Filed as an Exhibit to Registrant's registration statement on Form S-4, filed with the SEC on September 9, 1998, and incorporated by reference herein. (3) Filed as an Exhibit to Registrant's registration statement on Form 8-A/A, filed with the SEC on January 19, 1999, and incorporated by reference herein. (4) Filed as an Exhibit to Registrant's Amendment No. 1 to Registration Statement on Form S-1, filed with the SEC on November 8, 1999, and incorporated by reference herein. (5) Filed as an Exhibit to VDC Communications, Inc.'s Form 10-Q for the quarter ended December 31, 1999, and incorporated herein by reference. (6) Filed as an Exhibit to VDC Communications, Inc.'s Form 10-Q for the quarter ended March 31, 2000, and incorporated by reference herein. (7) Filed herewith. C. Reports on Form 8-K Report on Form 8-K dated June 14, 2000 reporting acquisition of Rare Telephony, Inc. An Amendment to Form 8-K (Form 8-K/A) was filed with the Securities and Exchange Commission on August 25, 2000 amending a previously filed Form 8-K dated as of June 14, 2000 relative to the Company's acquisition of Rare Telephony, Inc. The Amendment contained the historical "Financial Statements of Acquired Businesses" and "Pro Forma Financial Information" required under Items 7(a) and 7(b) of Form 8-K. 56 Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: September 20, 2000 VDC COMMUNICATIONS, INC. By: /s/ Frederick A. Moran ----------------------------- Chairman of the Board and Chief Executive Officer By: /s/ Clayton F. Moran ----------------------------- Chief Financial Officer/ Principal Accounting Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Form 10-K has been signed by the following persons in the capacities and on the dates indicated.
Signature Title Date /s/ Frederick A. Moran Chairman of the Board, September 20, 2000 - ---------------------- Chief Executive Officer, Frederick A. Moran Director /s/ Clayton F. Moran Chief Financial Officer and September 20, 2000 - -------------------- Treasurer/ Principal Clayton F. Moran Accounting Officer /s/ James B. Dittman Director September 13, 2000 - -------------------- James B. Dittman /s/ Dr. Hussein Elkholy Director September 14, 2000 - ----------------------- Dr. Hussein Elkholy /s/ Dr. Leonard Hausman Director September 14, 2000 - ----------------------- Dr. Leonard Hausman
57 VDC COMMUNICATIONS, INC. AND SUBSIDIARIES Index to Financial Statements Report of Independent Certified Public Accountants F-2 Consolidated financial statements: Balance sheets F-3 Statements of operations F-4 Statements of stockholders' equity F-5-F-7 Statements of cash flows F-8 Notes to consolidated financial statements F-9-F-25 Supplemental material: Report of Independent Certified Public Accountants on supplemental material F-26 Schedule II - Valuation and Qualifying Accounts F-27 F-1 Report of Independent Certified Public Accountants Board of Directors and Stockholders of VDC Communications, Inc. and subsidiaries Greenwich, Connecticut We have audited the accompanying consolidated balance sheets of VDC Communications, Inc. and subsidiaries as of June 30, 1999 and 2000 and the related consolidated statements of operations, stockholders' deficit, and cash flows for each of the three years in the period ended June 30, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of VDC Communications, Inc. and subsidiaries as of June 30, 1999 and 2000 and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2000 in conformity with generally accepted accounting principles. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses from operations and has a working captial deficit that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ BDO Seidman, LLP -------------------- BDO Seidman, LLP Valhalla, New York August 30, 2000 F-2 VDC COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
June 30, June 30, 1999 2000 ---- ---- Assets Current: Cash and cash equivalents $ 317,799 $ 772,125 Restricted cash 475,770 Marketable securities 90,375 51,213 Accounts receivable, net of allowance for doubtful accounts of $7,000 in 1999 and $504,088 in 2000 1,251,581 935,217 Notes receivable - current 249,979 - -------------------------------------- Total current assets 2,385,504 1,758,555 Property and equipment, less accumulated depreciation 4,888,163 4,286,707 Intangibles, net - 3,643,193 Investment in MCC 2,400,000 140,000 Other assets 328,394 506,058 -------------------------------------- Total assets $ 10,002,061 $ 10,334,513 -------------------------------------- Liabilities and Stockholders' Equity Current: Accounts payable and accrued expenses $ 2,160,839 $ 3,748,037 Unearned revenue - 463,585 Current portion of long term debt - 71,490 Current portion of capitalized lease obligations 426,356 178,341 -------------------------------------- Total current liabilities 2,587,195 4,461,453 Long-term portion of long term debt - 224,077 Long-term portion of capitalized lease obligations 847,334 521,482 -------------------------------------- Total liabilities 3,434,529 5,207,012 -------------------------------------- Commitment and Contingencies Stockholders' equity: Preferred stock, $0.0001 par value, authorized 10 million shares; issued and outstanding-none - - Common stock, $0.0001 par value, authorized 50 million shares issued - 20,186,462 and 25,200,347 at June 30, 1999 and 2000, respectively 2,018 2,520 Additional paid-in capital 67,737,195 71,556,305 Accumulated deficit (60,339,393) (65,904,573) Treasury stock - at cost, 1,875,000 shares at June 30, 1999 and June 30, 2000 (164,175) (164,175) Stock subscriptions receivable (344,700) - Accumulated comprehensive income (loss) (323,413) (362,576) -------------------------------------- Total stockholders' equity 6,567,532 5,127,501 -------------------------------------- Total liabilities and stockholders' equity $ 10,002,061 $ 10,334,513 --------------------------------------
See accompanying notes to consolidated financial statements. F-3
VDC COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS Year Ended June 30, 1998 1999 2000 ---- ---- ---- Revenue $ 99,957 $ 3,298,357 $ 8,528,693 Operating Expenses Costs of services 28,460 5,155,752 8,721,649 Selling, general and administrative expenses 1,167,429 4,636,230 2,482,457 Non-cash compensation expense 2,254,000 16,146,000 - Asset impairment charges - 1,644,385 - --------------------------------------------------------------- Total operating expenses 3,449,889 27,582,367 11,204,106 --------------------------------------------------------------- Operating loss (3,349,932) (24,284,010) (2,675,413) Other income (expense): Writedown of investment in MCC - (21,328,641) (2,260,000) Loss on note restructuring - (1,598,425) - Other income (expense) 195,122 (63,637) (311,017) --------------------------------------------------------------- Total other income (expense) 195,122 (22,990,703) (2,571,017) Equity in loss of affiliate - (867,645) - --------------------------------------------------------------- Net loss (3,154,810) (48,142,358) (5,246,430) Other comprehensive income (loss), net of tax: Unrealized gain (loss) on marketable securities 75,775 (399,188) (39,163) --------------------------------------------------------------- Comprehensive loss $ (3,079,035) $ (48,541,546) $ (5,285,593) --------------------------------------------------------------- Net loss per common share - basic and diluted $ (0.72) $ (2.72) $ (0.26) --------------------------------------------------------------- Weighted average number of shares outstanding 4,390,423 17,678,045 20,573,864 ---------------------------------------------------------------
See accompanying notes to consolidated financial statements. F-4 VDC COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Convertible Convertible Preferred Stock Preferred Stock Series A Series B - ------------------------------------------------------------------------------------------------------------------- Shares Amount Shares Amount - ------------------------------------------------------------------------------------------------------------------- Balance - June 30, 1997 - $- - $- Reverse acquisition - - - - Release of escrow shares 600,000 60 Collection on stock subscription receivable - - - - Issuance of common shares in connection with investment in MCC - - - - Issuance of common stock - - - - Issuance of common stock for note - - - - Unrealized gain on marketable securities - - - - Net loss - - - - - ------------------------------------------------------------------------------------------------------------------- Balance - June 30, 1998 - - 600,000 60 - ------------------------------------------------------------------------------------------------------------------- Release of escrow shares - - 3,900,000 390 Issuance of common stock in connection with acquisition - - - - Collection on stock subscription receivable - - - - Conversion of preferred stock into common stock - - (4,500,000) (450) Purchase of treasury stock - - - - Issuance of common shares in connection with investment banking fees - - - - Issuance of common shares in connection with investment in MCC - - - - Return of common stock in connection with investment in MCC - - - - Adjustment to common stock issued in connection with acquisition - - - - Common stock issued to settle claim - - - - Issuance of common stock - - - - Unrealized loss on marketable securities - - - - Net loss - - - - - ------------------------------------------------------------------------------------------------------------------- Balance - June 30, 1999 - - - - - ------------------------------------------------------------------------------------------------------------------- Cancel stock subscription receivable - - - - Issuance of common stock - - - - Issuance of common stock under price guarantee - - - - Stock options exercised - - - - Issuance of common shares in connection with investment banking fees - - - - Issuance of common shares in connection with acquisition of subsidiary - - - - Unrealized loss on marketable securities - - - - Net loss - - - - - ------------------------------------------------------------------------------------------------------------------- Balance - June 30, 2000 - $ - - $ - - -------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements F-5 VDC COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Additional Stock Common Stock Paid-in Accumulated Subscriptions Shares Amount Capital Deficit Receivable ------ ------ ------- ------- ---------- Balance - June 30, 1997 5,500,000 $ 550 $ 73,331 $ (59,131) $ - Reverse acquisition 3,697,908 370 6,053,324 - (465,838) Release of escrow shares - - 3,258,034 (1,004,094) - Collection on stock subscription receivable - - - - 287,800 Issuance of common shares in connection with investment in MCC 4,965,828 497 34,618,127 - - Issuance of common stock 1,130,584 113 5,983,391 - - Issuance of common stock for note 154,787 15 1,247,898 - (1,247,913) Unrealized gain on marketable securities - - - - - Net loss - - - (3,154,810) - - -------------------------------------------------------------------------------------------------------------------------------- Balance - June 30, 1998 15,449,107 1,545 51,234,105 (4,218,035) (1,425,951) - -------------------------------------------------------------------------------------------------------------------------------- Release of escrow shares - - 23,399,610 (7,254,000) - Issuance of common stock in connection with acquisition 154,444 15 700,865 Collection on stock subscription receivable 917,076 Conversion of preferred stock into common stock 4,500,000 450 - - - Purchase of treasury stock - - - - 164,175 Issuance of common shares in connection with investment banking fees 290,000 29 724,971 (725,000) - Issuance of common shares in connection with investment in MCC 198,067 20 1,012,141 - - Return of common stock in connection with investment in MCC (2,000,000) (200) (13,962,300) - - Adjustment to common stock issued in connection with acquisition (14,160) (1) (99,119) - - Common stock issued to settle claim 95,000 9 391,865 - - Issuance of common stock 1,514,004 151 4,335,057 - - Unrealized loss on marketable securities - - - - - Net loss - - - (48,142,358) - - -------------------------------------------------------------------------------------------------------------------------------- Balance - June 30, 1999 20,186,462 2,018 67,737,195 (60,339,393) (344,700) - -------------------------------------------------------------------------------------------------------------------------------- Cancel stock subscription receivable (137,880) (14) (344,686) - 344,700 Issuance of common stock 1,873,334 187 2,079,813 - - Issuance of common stock under price guarantee 2,000,000 200 - - - Stock options exercised 49,500 5 61,870 - - Issuance of common shares in connection with investment banking fees 127,500 13 318,737 (318,750) - Issuance of common shares in connection with acquisition of subsidiary 1,101,431 111 1,703,376 - - Unrealized loss on marketable securities Net loss - - - (5,246,430) - - -------------------------------------------------------------------------------------------------------------------------------- Balance - June 30, 2000 25,200,347 $ 2,520 $ 71,556,305 $(65,904,573) $ - - --------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements F-6 VDC COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Unrealized gain (loss) on Treasury Marketable Stock Treasury Securities # of shares Stock $ Total ---------- ----------- ------- ----- Balance - June 30, 1997 $ - $ - $ - $ 14,750 Reverse acquisition - - - 5,587,856 Release of escrow shares - - - 2,254,000 Collection on stock subscription receivable - - - 287,800 Issuance of common shares in connection - - - - with investment in MCC - - - 34,618,624 Issuance of common stock - - - 5,983,504 Issuance of common stock for note - - - - Unrealized gain on marketable securities 75,775 - - 75,775 Net loss - - - (3,154,810) - ---------------------------------------------------------------------------------------------------------------------- Balance - June 30, 1998 75,775 - - 45,667,499 - ---------------------------------------------------------------------------------------------------------------------- Release of escrow shares - - - 16,146,000 Issuance of common stock in connection with acquisition - - - 700,880 Collection on stock subscription receivable - - - 917,076 Conversion of preferred stock into common stock - - - - Purchase of treasury stock - 1,875,000 (164,175) - Issuance of common shares in connection with investment banking fees - - - - Issuance of common shares in connection with investment in MCC - - - 1,012,161 Return of common stock in connection with investment in MCC - - - (13,962,500) Adjustment to common stock issued in connection with acquisition - - - (99,120) Common stock issued to settle claim - - - 391,874 Issuance of common stock - - - 4,335,208 Unrealized loss on marketable securities (399,188) - - (399,188) Net loss - - - (48,142,358) - ---------------------------------------------------------------------------------------------------------------------- Balance - June 30, 1999 (323,413) 1,875,000 (164,175) 6,567,532 - ---------------------------------------------------------------------------------------------------------------------- Cancel stock subscription receivable - - - - Issuance of common stock - - - 2,080,000 Issuance of common stock under price guarantee - - - 200 Stock options exercised - - - 61,875 Issuance of common shares in connection with investment banking fees - - - - Issuance of common shares in connection with acquisition of subsidiary - - - 1,703,487 Unrealized loss on marketable securities (39,163) - - (39,163) Net loss - - - (5,246,430) - ---------------------------------------------------------------------------------------------------------------------- Balance - June 30, 2000 $ (362,576) 1,875,000 $ (164,175) $5,127,501 - ----------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements F-7 VDC COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended June 30, 1998 1999 2000 ---- ---- ---- Cash flows from operating activities: Net loss $(3,154,810) $(48,142,358) $(5,246,430) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 6,205 1,107,018 1,018,266 Writedown of investment in MCC - 21,328,641 2,260,000 Non-cash compensation expense 2,254,000 16,146,000 - Loss on note restructuring - 1,598,425 - Equity in losses of affiliate - 867,645 - Impairment loss - 1,644,385 - Non-cash severance - 391,875 - Gain on disposal of fixed asset - - (54,878) Provision for doubtful accounts - 7,000 497,088 Changes in operating assets and liabilities: Restricted cash - (475,770) 475,770 Accounts receivable - (1,258,581) (61,393) Other assets 44,146 527,533 71,364 Accounts payable and accrued expenses (8,931) 2,004,655 644,878 ----------------------------------------------------- Net cash used by operating activities (859,390) (4,253,532) (395,335) Cash flows from investing activities: Cash paid for investment in MCC (2,799,731) - - Proceeds from return of escrow in connection - - - with the investment in MCC - 1,012,161 - Payment for purchase of subsidiary - (589,169) - Investment in affiliate - (867,645) - Preacquisition loans to Rare - - (1,100,000) Proceeds from repayment of notes receivable 700,000 2,451,596 249,979 Purchase of investment securities (288,600) - - Fixed asset acquisition (323,951) (4,499,427) (216,258) Refund of fixed asset acquisition - - 210,018 Deposit of fixed assets (489,151) - - ----------------------------------------------------- Net cash flows used in investing activities (3,201,433) (2,492,484) (856,261) Cash flows from financing activities: Proceeds from issuance of common stock 6,271,504 4,335,209 2,080,000 Stock options exercised - - 61,875 Collections on stock subscription receivables - 917,076 - Repayment of note payable - (692,379) - Proceeds from issuance of short-term debt - 500,000 - Repayments on capital lease obligations - (208,202) (435,953) ----------------------------------------------------- Net cash flows provided by financing activities 6,271,504 4,851,704 1,705,922 ----------------------------------------------------- Net increase (decrease) in cash and cash equivalents 2,210,681 (1,894,312) 454,326 Cash and cash equivalents, beginning of period 1,430 2,212,111 317,799 ----------------------------------------------------- Cash and cash equivalents, end of period $ 2,212,111 $ 317,799 $ 772,125 -----------------------------------------------------
See accompanying notes to consolidated financial statements. F-8 VDC Communications, Inc. and Subsidiaries Notes to consolidated financial statements 1. Summary of Significant Accounting Policies (a) Basis of Presentation The financial statements presented are those of VDC Communications, Inc. ("VDC") which is the successor to VDC Corporation Ltd. ("VDC Bermuda") by way of a domestication merger (the "Domestication Merger") that occurred on November 6, 1998. (See Note 4). (As used in these financial statements, the term "VDC," includes both VDC and VDC Bermuda. The use of these terms reflects the fact that through November 6, 1998, the publicly held company was VDC Bermuda. Thereafter, due to the Domestication Merger, the publicly held company was VDC.) The Domestication Merger reflects the completion of a series of transactions that commenced on March 6, 1998 when VDC (then a wholly-owned subsidiary of VDC Bermuda) acquired Sky King Communications, Inc. ("Sky King Connecticut") by merger. This merger transaction was accounted for as a reverse acquisition whereby Sky King Connecticut was the acquirer for accounting purposes. Accordingly, the historical financial statements presented are those of Sky King Connecticut before the merger on March 6, 1998 and reflect the consolidated results of Sky King Connecticut, VDC Bermuda, and VDC Bermuda's wholly-owned subsidiaries after the merger. On November 6, 1998, the Domestication Merger, whereby VDC Bermuda merged with and into VDC, was consummated. In June 2000, VDC completed the acquisition of Rare Telephony, Inc., a Nevada corporation ("Rare Nevada"). For financial statement purposes, the acquisition was effective June 30, 2000. (See Note 3 for further discussion) (b) Business VDC is a facilities based global telecommunications company that offers wholesale and retail international and domestic long distance. Effective July 1, 2000, VDC will operate two business segments (wholesale and retail businesses). VDC is subject to various risks in connection with the operation of its business. These risks include, but are not limited to, changes in liquidity, availability of financing, government regulation, dependence on transmission facilities, network maintenance and failure, and competition from larger industry participants. (c) Principles of Consolidation The consolidated financial statements represent all companies of which VDC directly or indirectly has majority ownership. VDC's consolidated financial statements include the accounts of wholly-owned subsidiaries VDC Telecommunications, Inc. ("VDC Telecommunications"), Rare Telephony, Inc., a Delaware corporation ("Rare"), Masatepe Communications, U.S.A., L.L.C. F-9 ("Masatepe"), Voice & Data Communications (Hong Kong) Limited ("VDC Hong Kong"), Sky King Communications, Inc. ("Sky King"), WorldConnectTelecom.com, Inc. ("WorldConnectTelecom.com"), Cash Back Rebates LD.com, Inc. ("Cash Back"), and Free dot Calling.com, Inc. ("Free dot"). Intercompany accounts and transactions have been eliminated. (d) Revenue Recognition Revenues from wholesale and retail long distance are recognized when services are provided and are presented net of estimated uncollectible amounts. Retail customer prepayments are recorded as unearned revenue until earned. Additionally, VDC records on a monthly basis, revenues from renting its network facilities and from the management of tower sites that provide transmission and receiver site locations for wireless communications companies. (e) Accounts Receivable After confirming retail customer orders in writing, VDC waits seven days to deposit new customer prepayments. The seven day waiting period allows customers time to receive written confirmation of their order. As such, VDC records the last seven days retail sales in a reporting period as accounts receivable. The increase in the allowance for doubtful accounts in Fiscal 2000 is mostly attributable to two wholesale customers. (f) Cost of services Cost of services include network costs that consist of access, transport, and termination costs. These costs also include salaries, depreciation and overhead attributable to operations. Such costs are recognized when incurred in connection with the provision of telecommunications services. (g) Cash and Cash Equivalents For purposes of the statement of cash flows, VDC considers all liquid investments with an original maturity of three months or less to be cash equivalents. The carrying amounts reported in the accompanying balance sheet approximate fair market value. (h) Property and Equipment Property and equipment are carried at cost. Replacements and betterments are capitalized. Repairs and maintenance are charged to operations. Depreciation and amortization of property and equipment are computed using the straight-line method over the following estimated useful lives: F-10 operating equipment 5 years leasehold improvements life of lease furniture and equipment 3-5 years Operating equipment includes assets financed under capital lease obligations of $929,863 and $1,331,987 at June 30, 2000 and 1999, respectively. Accumulated depreciation related to assets financed under capital leases was $219,036 and $70,865 at June 30, 2000 and 1999, respectively. For income tax purposes, depreciation is computed using statutory recovery methods. (i) Intangible Assets: Intangible assets consist of goodwill of approximately $3.3 million, costs to obtain telecommunications tariffs of approximately $87,000, and product development costs of approximately $265,000. In conjunction with its acquisition of Rare Nevada (see Note 3), VDC recorded intangible assets of approximately $3.3 million due to the purchase price exceeding the fair values of the net assets acquired. Goodwill is being amortized over a period of three years. Telecommunications Tariffs are amortized on a straight-line basis over a period of 2 years. Rare Nevada capitalized product development costs incurred for the production of computer software used in the retail billing process and other related product development costs. Capitalized costs consist of the direct labor involved from the point of technological feasibility until the product was generally available. VDC amortizes capitalized costs on a straight line basis over the estimated useful life of the asset, which is three years. (j) Earnings (loss) Per Share of Common Stock Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share" specifies the computation, presentation and disclosure requirements for earnings per share ("EPS"). SFAS 128 requires the presentation of basic EPS and diluted EPS. Loss per common share - basic and diluted is computed on the weighted average number of shares outstanding. If dilutive, common equivalent shares (common shares assuming exercise of options and warrants) utilizing the treasury stock method, as well as the conversion of convertible preferred stock are considered in presenting diluted earnings per share. Warrants to purchase 125,535, 1,064,081 and 938,546 shares of common stock at prices ranging from $4.00 to $7.00 and options to purchase 2,513,000, 850,500 and 61,500 and shares of common stock at prices ranging from $0.94 to $4.125 for the years ended June 30, 2000, 1999 and 1998, respectively, are not included in the computation of diluted loss per share because they are antidilutive due to the net loss. (k) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of F-11 contingent assets and liabilities at the dates of the financial statements and reported amounts of revenue and expenses during the reported periods. The investment in MCC was valued based on criteria discussed in Note 5. Actual results could differ from those estimates. (l) Financial Instruments The carrying amount of financial instruments including cash and cash equivalents, accounts receivable and accounts payable approximated fair value at June 30, 2000 and 1999 because of the relatively short maturity of these financial instruments. Management estimates that the fair values of capital lease obligations and long term debt approximates fair value at June 30, 2000 based on their terms and interest rates. (m) Long-lived Assets Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets for Long-Lived Assets to be Disposed of, requires that long-lived assets and certain intangible assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If undiscounted expected future cash flows are less than the carrying value of the assets, an impairment loss is to be recognized based on the fair value of the assets. During the year ended June 30, 1999, VDC recognized an impairment loss of $1,165,187 on long-lived assets of a subsidiary as described in Note 7 and an impairment loss of $479,199 in connection with the write off of certain billing software. VDC recorded a write down of its investment in MCC of approximately $2.3 million and $21.3 million during the years ended June 30, 2000 and 1999, respectively (see Note 5). (n) Concentrations of Credit Risk and Major Customers Financial instruments that potentially subject VDC to concentrations of credit risk consist of cash and cash equivalents and accounts receivable. VDC's customer base includes domestic and international companies in the telecommunications industry. VDC performs ongoing credit evaluations of its customers but generally does not require collateral to support customer receivables. VDC will establish an allowance for possible losses, if needed, based on factors surrounding the credit risk of specific customers. Sales and net accounts receivables from major customers are as follows as of and for the years ended June 30:
Percentage of Sales ------------------- 1998 1999 2000 ---- ---- ---- Customer A -% 27% 48% Customer B -% -% 24% Customer C -% 38% -% --------------------------------------------------------------- -% 65% 72% --------------------------------------------------------------- F-12 Percentage of Net Accounts Receivable ------------------------------------- 1998 1999 2000 ---- ---- ---- Customer A -% 55% 64% Customer B -% -% -% Customer C -% -% -% --------------------------------------------------------------- -% 55% 64% ---------------------------------------------------------------
(o) Recent Accounting Pronouncements During 1998, the FASB issued SFAS No. 133. "Accounting for Derivative Instruments and Hedging Activities". During the second quarter of 1999, the FASB postponed the adoption date of SFAS No. 133 until January 1, 2000. The FASB further amended SFAS No. 133 in June 2000. SFAS No. 133 requires that all derivative financial instruments be recorded on the consolidated balance sheets at their fair value. Changes in the fair value of derivatives will be recorded each period in earnings or other comprehensive earnings, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. Gains and losses on derivative instruments reported in other comprehensive earnings will be reclassified as earnings in the periods in which earnings are affected by the hedged item. VDC does not expect the adoption of this statement to have a significant impact on VDC's results of operations, financial position or cash flows. In 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 dealing with revenue recognition which is effective in the fourth quarter of calendar 2000. VDC does not expect its adoption to have a material effect on VDC's financial statements. 2. Going Concern The accompanying consolidated financial statements have been prepared on the basis that the Company is a going concern, which contemplates the realization of assets and the satisfaction of liabilities, except as otherwise disclosed, in the normal course of business. However, because of the Company's recurring losses from operations and significant arrearages on trade payables, such realization of assets and the satisfaction of related liabilities is subject to significant uncertainty. The Company's overall stability is highly dependent on its ability to raise working capital, to achieve profitable operations and to generate sufficient cash flows from operating and financing activities to meet current obligations as they come due. Management is currently pursuing various financing arrangements. However, there can be no assurances that VDC will be able to secure additional financing. 3. Rare Nevada Acquisition Rare Nevada was a privately held corporation through June 2000. Rare Nevada merged with and into a wholly-owned subsidiary of VDC as of June 30, 2000. The surviving VDC subsidiary has been renamed Rare Telephony, Inc. ("Rare"). Rare Nevada commenced operations in July 1999. Rare operates through its wholly-owned subsidiaries, Cash Back Rebates LD.com., a Delaware corporation and Free dot Calling.com, Inc, a Nevada corporation, which is not yet operational. Rare is a F-13 pre-paid long distance provider that obtains customers through telemarketing sales. In the future, through Free dot Calling.com, Inc., Rare anticipates offering its services over the Internet through a proprietary E-commerce platform. The acquisition was consummated through the issuance of 1,551,020 shares of common stock of which 531,222 shares of common stock are subject to release based on certain Rare employees and consultants rendering post combination services. The release of 531,222 shares of common stock, if and when it occurs, will be charged to compensation expense at the fair market value of the common stock on the date of release. Subject to certain additional terms and conditions set forth in the applicable escrow agreement, if certain Rare employees and a consultant are not terminated for cause, do not resign from employment or service and do not breach a material term of employment or consulting contracts, 180,616, 138,118, and 212,488 shares of common stock will be released on June 14, 2001, 2002, and 2003, respectively. Accordingly, 1,019,798 shares of common stock, valued at the June 14, 2000 closing market price of $1.5625 per share, determined the purchase price. The purchase price also includes an investment banking fee in the form of 81,633 shares of common stock valued at $1.5625 per share. The acquisition has been accounted for using the purchase method of accounting with the excess of the purchase price over the estimated fair value of the net assets acquired recorded as goodwill. The consolidated financial statements presented do not include Rare's results of operations since the acquisition was effective, for accounting purposes, on June 30, 2000. As a result, VDC's June 30, 2000 consolidated balance sheet reflects the effect of the acquisition of Rare. Pro-forma unaudited consolidated results of operations as if the merger had taken place as of July 1, 1999, rather than June 30, 2000, are as follows:
Year ended June 30, 2000 ------------------------ Net Revenue $ 9,997,677 Net loss $(10,080,745) Loss per common share $(0.47)
4. Sky King Merger/Domestication Merger/Non-cash Compensation On March 6, 1998, Sky King Connecticut entered into a merger agreement with VDC Bermuda and its subsidiary, VDC Communications, Inc. (then called "VDC (Delaware), Inc.") ("VDC") (the "Sky King Merger"). This transaction was accounted for as a reverse acquisition whereby Sky King Connecticut was the acquirer for accounting purposes. One of the conditions precedent to the completion of the Sky King Merger was the sale by VDC Bermuda of its various investment interests so that at the closing of the Sky King Merger, its only material assets would consist of cash and notes receivable. Since the assets and liabilities of VDC Bermuda acquired were monetary in nature, the merger has been recorded at the value of the net monetary assets. Operations of VDC Bermuda prior to the Sky King Merger consisted of the management of its investments. The consideration paid to the former Sky King Connecticut shareholders in the Sky King Merger consisted of the issuance of 10 million newly-issued shares of preferred stock of VDC which were convertible, and have been converted, in the aggregate, into 10 million shares of common stock of VDC. Of the consideration paid to the Sky King Connecticut shareholders, VDC Series B preferred stock convertible in the aggregate into 4.5 million shares of VDC common stock (the F-14 "Escrow Shares") were placed in escrow to be held and released as VDC achieved certain performance criteria. On November 6, 1998, VDC completed the Domestication Merger. The effect of the Domestication Merger was that members of VDC Bermuda became stockholders of VDC. The primary reason for the Domestication Merger was to reorganize VDC Bermuda, which had been a Bermuda company, as a publicly traded U.S. corporation domesticated in the State of Delaware. In connection with the Domestication Merger, 11,810,862 issued and outstanding shares of common stock of VDC Bermuda, $2.00 par value per share, were exchanged, and 8,487,500 issued and outstanding shares of VDC preferred stock, $.0001 par value per share, were converted, on a one-for-one basis, into an aggregate 20,298,362 shares of common stock of VDC, $.0001 par value per share. The Domestication Merger was accounted for as a reorganization, which has been given retroactive effect in the financial statements for all periods presented. During the year ended June 30, 1999, 3.9 million Escrow Shares were released from escrow. Of the Escrow Shares released, approximately 2.7 million were considered compensatory to the extent of the trading value of the shares on the date of the release. This resulted in a non-cash compensation charge of $16,146,000 for the year ended June 30, 1999. During the year ended June 30, 1998, 600,000 Escrow Shares were released from escrow. Of the Escrow Shares released, 415,084 were considered compensatory to the extent of the trading value of the shares on the date of the release. This resulted in a non-cash compensation charge of $2,254,000 for the year ended June 30, 1998. Compensatory shares are related to former Sky King Connecticut shareholders that are members of the VDC's management, their family trusts and minor children and an employee. The shares issued to former Sky King Connecticut shareholders' minor children were considered compensatory because their beneficial ownership was attributed to certain Sky King Connecticut shareholders. Non-compensatory shares released related to non-employee shareholders and non-minor children of employee shareholders where beneficial ownership does not exist. The non-compensatory shares have been accounted for as a stock dividend in which the issued stock is recorded at fair value on the date of release through a charge to accumulated deficit. 5. Metromedia China Corporation Investment On June 22, 1998 VDC acquired from PortaCom Wireless, Inc. ("PortaCom"), 2 million shares of the common stock of Metromedia China Corporation ("MCC") and warrants to purchase 4 million shares of common stock of MCC at an exercise price of $4.00 per share. The consideration given for the investment in MCC consisted of 5,113,895 common shares at $6.98125, $1,787,570 in cash, and 50,000 investment advisory shares valued at $6.00 per share. VDC's ownership in MCC is approximately 3.4% exclusive of the warrants. In October 1999, a condition for the release from escrow of 2 million shares of VDC's common stock to the seller of the investment in MCC was satisfied. The shares were released pursuant to a condition in a settlement agreement which provided for the release of the escrowed shares in the event that VDC's stock price closed below $5.00 for 40 trading days during the 120 consecutive trading F-15 days subsequent to August 31, 1999. The shares issued under this escrow agreement were recorded as an increase in common stock of $200. Based on a review of MCC's majority owner's (Metromedia International Group ("MMG")) SEC filings, VDC is carrying its investment in MCC at $140,000. This adjusted carrying value was developed based on an amount relative to MMG's carrying amount. During the years ended June 30, 2000 and 1999, VDC recorded a write down on the investment in MCC of approximately $2.3 million and $21.3 million, respectively. MMG's carrying value reflects the liquidation of MCC's interests in four telecommunications joint ventures in China. All four of these ventures prematurely terminated operations by order of the Chinese government in calendar 1999. According to MMG: (1) MCC is currently developing a family of commercial information exchange and transaction processing business units, each targeting operations within a specific Chinese vertical industry sector; (2) the units are expected to focus on providing services to domestic Chinese enterprises; (3) MCC also expects to operate its own application software and systems integration unit; and (4) all MCC subsidiary units are expected to operate inside China as licensed Chinese companies. 6. Property and Equipment Major classes of property and equipment consist of the following:
June 30, 1999 June 30, 2000 ------------- ------------- Operating equipment $ 4,943,233 $ 4,741,429 Office equipment 107,533 474,665 Leasehold Improvements 271,939 331,750 Furniture & fixtures 161,572 292,470 ------- ------- 5,484,277 5,840,314 Accumulated depreciation-beginning of year (9,883) (596,113) depreciation expense-cost of services (597,398) (929,083) depreciation expense-SG&A (36,890) (89,182) Accumulated depreciation-equipment sold or impaired 48,057 60,771 -------------- -------------- Property and equipment, net of accumulated depreciation $ 4,888,163 $ 4,286,707 -------------- --------------
7. Asset Impairment - subsidiary The August 1998 acquisition of Masatepe resulted in goodwill of $1,134,554. The acquisition was made primarily because of the contractual relationship Masatepe's affiliate, Masatepe Comunicaciones, S.A. ("Masacom"), had with the Nicaraguan government controlled telecommunications company, ENITEL. Disagreements over business development arose between Masatepe and Masacom. As a result, VDC cancelled its circuit into Central America and curtailed Masatepe's operations. Masatepe no longer operates its owned telecommunications route to Central America. VDC believes that the goodwill attributable to its acquisition of Masatepe has therefore been permanently impaired. For the year ended June 30, 1999, a write down in accordance with SFAS 121 was recognized by writing off the unamortized portion of the goodwill associated with the Masatepe acquisition ($661,824). F-16 Additionally, Masatepe also had property and equipment with a net book value of $503,363 in Nicaragua at June 30, 1999. Despite its efforts, Masatepe has not been able to obtain its Nicaraguan assets and, therefore, were considered unrecoverable. During the year ended June 30, 1999, these assets were also written off in accordance with FASB No. 121. VDC has accrued approximately $1.1 million of current liabilities in the June 30, 2000 and 1999 balance sheets which is related to the responsibility of Masatepe as a partial owner of Masacom. Masatepe owns a 49% interest in Masacom, a Nicaraguan company. Masacom had supported the development of Masatepe's operations in Central America. Masatepe accounted for the investment using the equity method considering 100% of Masacom's losses. At June 30, 1999, VDC is carrying the investment in Masacom at $0. The following is Masacom's summary of financial position at June 30, 1999 and results of operations from inception through June 30, 1999: Assets $ 55,322 Liabilities $ 15,866 Results of operations (loss) $ (867,645) Masacom had no recorded assets or liabilities at June 30, 2000 and no revenues, expenses, gains or losses for the year ended June 30, 2000. 8. Restructured Note Receivable During the year ended June 30, 1999, VDC restructured notes receivable from debtors by reducing the principal and accrued interest which together totaled $1,598,425. It was necessary to restructure the notes for the following reasons: (i) the debtors were not meeting the terms of the original notes and (ii) to accelerate payment terms of the original notes for the benefit of VDC. The restructured terms provided VDC with needed short term working capital. 9. Income Taxes VDC accounts for income taxes in accordance with SFAS No. 109, "Accounting for VDC Income Taxes," under which deferred tax assets and liabilities are provided on differences between financial reporting and taxable income using enacted tax rates. Deferred income tax expenses or credits are based on the changes in deferred income tax assets or liabilities from period to period. Under SFAS No. 109, deferred tax assets may be recognized for temporary differences that will result in deductible amounts in future periods. A valuation allowance is recognized if, on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. The tax effects of temporary differences that give rise to deferred tax assets at June 30, 1999 and 2000 are as follows (in thousands): F-17
1999 2000 - ----------------------------------------------------------------------------------------------------- Impairment loss - MCC - capital loss carryforward $ 9,278 $ 10,261 Net operating loss carry forwards 2,800 5,579 Accrual - ENITEL 481 481 Difference between book and tax depreciation and amortization 464 534 Loss from affiliate - capital loss carryforward 377 377 Reserve for loss on assets 223 439 ---------------------------------------- Total gross deferred tax assets 13,623 17,671 Less: Valuation allowance (13,623) (17,671) ---------------------------------------- Net deferred tax assets $ - $ - - -----------------------------------------------------------------------------------------------------
The Company has net operating loss carryforwards of approximately $12.8 million as of June 30, 2000, which expire through 2020. Approximately $1.4 million of the net operating loss carryforwards are subject to annual limitations of approximately $79,000 due to the Rare acquisition. Reconciliation of VDC's actual tax rate to the U.S. Federal Statutory rate is as follows:
Year ended June 30, 1998 1999 2000 (in percents) ---- ---- ---- Income tax rates Statutory U.S. Federal rate -34.0% -34.0% -34.0% States rates -9.5% -9.5% -9.5% Valuation allowance 43.5% 43.5% 43.5% ----- ----- ----- Total -% -% -%
10. Debt In February 2000, an independent third party loaned Rare Nevada $200,000 at 15% per annum. The loan is due in monthly installments of $6,933.07 per month commencing in June 2000 with the final payment due May 2003. On June 14, 2000, Rare entered into a loan agreement to pay $100,000 to Network Consulting Group with interest at 8% per annum (the "Note"). The Note will be paid in monthly installments of $3,133.64 commencing on December 1, 2000 and continue thereafter on the first day of each successive month until November 1, 2003 when the entire outstanding principal balance and any unpaid interest is due. The president of Network Consulting was a significant shareholder in Rare Nevada.
Aggregate principal maturities on long term debt are as follows: F-18 Year ending June 30, -------------------- 2001 $ 71,490 2002 98,911 2003 102,797 2004 22,369 -------- Total $295,567
11. Capital Transactions On March 6, 1998, in connection with the Sky King Merger, all of the outstanding shares of Sky King Connecticut were exchanged for preferred shares of VDC (see Note 4). On November 6, 1998, in connection with the Domestication Merger, all the issued and outstanding shares of VDC Bermuda and all preferred stock issued and outstanding of VDC were converted, on a one-for-one basis, into common stock of VDC. The Domestication Merger has been given retroactive effect in the financial statements for all periods presented. On March 31, 1998, VDC sold 100,000 shares of common stock at $5.50 per share and on March 24, 1998, 600,000 shares of common stock at $4.75 per share, each to unrelated investors for total cash consideration of $3.4 million less an investment banking fee of $85,500. In May 1998, VDC sold 275,000 shares of common stock to unrelated investors and 308,430 shares to the Chief Executive Officer and his family for $6.00 per share less an investment banking fee of $31,500. In June 1998, VDC issued 5.3 million VDC common shares to PortaCom in exchange for the investment in MCC (see Note 5). 5,113,895, 3,113,895 and 4,915,828 common shares have been reflected as outstanding under the agreement as of June 30, 2000, June 30, 1999, and June 30, 1998, respectively. Additionally, 50,000 shares of VDC common stock were issued for investment advisory fees in connection with the investment in MCC. In November 1998, an executive officer and member of the VDC's Board of Directors ("Officer") resigned. In connection with the resignation, the Officer surrendered 1,875,000 common shares in exchange for the elimination of a subscription receivable for $164,175. Additionally, VDC agreed not to pursue potential employment and other claims against the Officer. The transaction has been accounted for as the purchase of 1,875,000 shares of treasury stock using the cost method. The subscription receivable represented the Officer's basis in his 27.5% ownership in Sky King Connecticut. In December 1998, VDC sold 245,159 shares at $3.625 per share, the public market price at that time. The Chairman and CEO and certain family members and entities associated with the Chairman and CEO participated as investors in the private placement. In May 1999, through a private placement, VDC sold 328,170 shares of VDC common stock to the Chief Executive Officer and his family at $3.00 per share, the public market price at that time, and 932,592 shares of VDC common stock at $2.70 per share and warrants to purchase 93,258 shares of VDC common stock at $6.00 per share to unrelated investors. VDC incurred investment-banking fees of: F-19 (i) $56,000, (ii) issued 5,185 shares of VDC common stock, and (iii) warrants to purchase 27,777 shares of VDC common stock at $6.00 in connection with the private placement. The warrants expire in May 2002. The Chief Executive Officer and his family did not receive any warrants in the private placement. In October 1999, VDC sold 666,667 shares of common stock to unrelated investors and 666,667 shares to an adult son of VDC's Chief Executive Officer at $0.75 per share, the public market price at that time. In April 2000, VDC sold 540,000 shares of VDC common stock to the Chairman and C.E.O. at $2 per share, the public market price at that time. During the year ended June 30, 2000 and 1999, VDC issued 127,500 and 290,000 shares of VDC common stock, respectively, to satisfy investment bankers fees for services arising out of the merger of Sky King Communications, Inc., a Connecticut corporation with and into VDC Communications, Inc. (then a wholly-owned subsidiary of VDC Corporation Ltd., a Bermuda company) on March 6, 1998 (the "Sky King Merger"). The shares were issued at the fair market value as of the date of the merger ($2.50 per share) and a corresponding charge to accumulated deficit. 12. Stock Option Plans During the year ended June 30, 1998, VDC granted 61,500 stock options. All stock options were granted to employees at exercise prices equal to the market value on the date of grant. On September 4, 1998, VDC adopted the VDC Communications, Inc. 1998 Stock Incentive Plan (the "1998 Plan"). The 1998 Plan provides for the granting of stock options or other rights to purchase up to 5 million shares of common stock. Options expire up to 10 years after the date of grant, except for incentive options issued to a holder of more than 10 percent of the common stock outstanding, which expire five years after the date of grant. Options generally vest in equal increments over five years. In light of the decline in market price of the VDC's common stock as of October 1999, the Board of Directors believed that the outstanding stock options with an exercise price in excess of the actual market price were no longer an effective tool to encourage employee retention or to motivate high levels of performance. As a result, in October 1999, the Board of Directors approved an option repricing program under which options to acquire shares of common stock that were originally issued with exercise prices above $1.25 per share were reissued with an exercise price of $1.25 per share, the fair market value of the common stock at the repricing date. These options will continue to vest under the original terms of the option grant. Options to purchase 757,500 shares of VDC common stock were affected by the repricing program including options to purchase 567,500 shares of common stock issued under VDC's 1998 Stock Incentive Plan, as amended (the "Plan") and options to purchase 190,000 shares of common stock issued outside of the Plan. F-20 In March 2000, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 44 "Accounting for Certain Transactions involving Stock Compensation an interpretation of APB No. 25". Among other issues, this interpretation clarifies the accounting consequence of various modifications to the terms of a previously fixed stock option or award. The interpretation requires a charge to operations for the difference between the quoted market value of VDC's common stock at the end of each reporting period and the option price of unexercised, outstanding stock options. The interpretation is effective July 1, 2000 but covers events that occur after December 15, 1998. Thus, compensation expense may be recorded in the future as a result of this repricing. SFAS No. 123, "Accounting for Stock-Based Compensation", encourages adoption of a fair-value based method for valuing the cost of stock-based compensation. However, it allows companies to continue to use the intrinsic value method prescribed under Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Options Issued to Employees", for options granted to employees and disclose pro forma net income and earnings per share in accordance with SFAS No. 123. Had compensation cost for VDC's stock-based compensation plans been determined consistent with SFAS No. 123, VDC's net income and earnings per share would have been as follows:
Year ended June 30, 1998 1999 2000 - ----------------------------------------------------------------------------------- Pro forma results Net loss: As reported $(3,154,810) $(48,142,358) $ (5,246,430) Pro forma $(3,188,260) $(48,545,002) $ (5,919,211) Loss per common share-basic and diluted As reported $(0.72) $ (2.72) $ (0.26) Pro forma $(0.73) $ (2.75) $ (0.27)
The fair value of each option grant is estimated on the date of grant using the Black-Scholes pricing model with the following assumptions:
Years ended June 30, 1998 1999 2000 - ------------------------------------------------------------------------------------ Dividend yield 0.0% 0.0% 0.0% Risk free interest rate 5.6% 5.0% 6.4% Expected volatility 46.5% 46.1% 45.8% Expected lives 6 years 6 years 6 years - ------------------------------------------------------------------------------------
Information regarding VDC's stock option plans and non-qualified stock options as of June 30, 2000, 1999 and 1998 and changes during the years ended on those dates is summarized as follows: F-21
Number of shares Weighted Average Exercise Price ---------------- ------------------------------- Outstanding at June 30, 1997 - - Granted 61,500 $5.16 Exercised - - Forfeited - - - -------------------------------------------------------------------------------------------------------------------- Outstanding at June 30, 1998 61,500 $5.16 Granted 1,023,500 $3.88 Exercised - - Forfeited 234,500 $4.04 - -------------------------------------------------------------------------------------------------------------------- Outstanding at June 30, 1999 850,500 $3.85 Granted 1,892,000 $1.19 Exercised 49,500 $1.25 Forfeited 180,000 $3.09 - -------------------------------------------------------------------------------------------------------------------- Outstanding at June 30, 2000 2,513,000 $1.20
Options exercisable and weighted average fair value of options granted during the years ended June 30 is shown below:
1999 2000 ---- ---- Options exercisable at year end 20,500 261,600 weighted average exercise price $4.125 $1.25 weighted average fair value of options granted during the year $2.07 $0.67
Information about stock options outstanding at June 30, 2000 is summarized as follows:
Range of exercise Number outstanding Weighted Average remaining Weighted average prices at June 30, 2000 contracted life-years exercise price $.9375-$1.57 2,405,500 9.1 $1.20 - -------------------- --------------------- ----------------------------- ---------------------- $3.00-$3.79 107,500 9.75 $3.50 - -------------------- --------------------- ----------------------------- ----------------------
13. Commitments and Contingencies Litigation In July 1999, a former customer filed suit against VDC asserting that VDC induced it to enter into an agreement through various purported misrepresentations. The suit alleges that, due to these purported misrepresentations and purported breaches of contract, the former customer has been unable to provide services to its customers. The relief sought includes monetary damages resulting from the purported breach of contract and the purported misrepresentations and the recovery of attorneys' fees. In the event that the former customer prevails, VDC could be liable for monetary damages in an amount that would have a material adverse effect on VDC's assets and operations. VDC believes that the claims asserted are without merit and VDC will, if it is served with process, vigorously defend itself against them. In the opinion of management, based on the information that it presently possesses, the claims F-22 will not have a material adverse effect on VDC's consolidated financial position, results of operations or liquidity. In addition, VDC is a defendant in another lawsuit. Management presently believes that the disposition of this lawsuit will not have a material effect on VDC's assets or operations. Capital Leases VDC finances some of its telecommunications equipment under capital lease arrangements as follows: Future minimum lease payments under capital leases are as follows:
Year ending June 30, -------------------- 2001 $ 246,900 2002 246,900 2003 246,900 2004 102,875 ---- -------- Total minimum lease payments 843,575 less: amount representing interest 143,752 -------- present value of minimum lease payments 699,823 less: current portion 178,341 -------- long-term capital lease obligations $ 521,482 --------
Operating Leases VDC leases office and equipment space under noncancellable operating leases. Future minimum lease payments are as follows:
Year ending June 30, - -------------------- 2001 564,534 2002 545,669 2003 438,804 2004 307,873 2005 220,093 thereafter 804,215 --------- $ 2,881,188
F-23 Rent expense for the years ended June 30, 2000, 1999 and 1998 was approximately $532,000, $516,000, and $29,000, respectively. Employment Agreements VDC and its subsidiaries have entered into several multi-year employment agreements expiring through 2003 with officers and certain employees of VDC, which provide for aggregate annual base salaries as follows:
Years ended June 30, - -------------------- 2001 $ 1,425,546 2002 1,089,296 2003 477,832 - ---- -------- $ 2,992,674
14. Fourth Quarter Financial Information During the fourth quarter of the year ended June 30, 2000, VDC recorded asset impairment charges of $2,260,000 related to the investment in MCC (see Note 5), approximately a $275,000 charge attributable to carrier disputes and a $254,000 bad debt reserve for a specific customer. During the fourth quarter of the year ended June 30, 1999, VDC recorded asset impairment charges of $1,165,187, related to the Masatepe acquisition (see Note 7) and $1,940,000 related to the investment in MCC (see Note 5). During the fourth quarter of the year ended June 30, 1998, VDC recorded non-cash compensation expense of $1,453,000, related to the release of convertible preferred stock from escrow (See Note 4). 15. Subsequent Events In July 2000, VDC sold 625,000 shares of common stock to unrelated investors at $1.00 per share, the public market price at that time. 16. Supplemental Disclosure of Cash Flow Information
- ---------------------------------------------------------------------------------------------------------------------------------- 1998 1999 2000 ---- ---- ---- Cash paid during the year for: Interest $ - $92,304 $135,998 Schedule of non-cash investing and financing: - --------------------------------------------- Excess of purchase price above net liabilities of Rare Telephony including $1,100,000 due to VDC - - 3,291,517 Cancellation of stock subscription receivable - - 344,700 Net assets acquired in exchange for stock 5,871,071 - - F-24 Equipment acquired through capital lease obligations - 1,481,892 249,335 Equipment exchanged for note - 192,379 - Release of investment banking shares - 725,000 318,750 Common stock placed in escrow in connection with the investment in MCC - 13,962,500 - Stock subscription for common stock 164,175 - - Treasury stock acquired in exchange for subscription receivable - 164,175 - Common stock issued in connection with acquisition of subsidiaries - 700,875 1,703,487 - ----------------------------------------------------------------------------------------------------------------------------------
F-25 Report of Independent Certified Public Accountants Board of Directors and Stockholders of VDC Communications, Inc. and Subsidiaries Greenwich, Connecticut The audits referred to in our report dated August 30, 2000 relating to the consolidated financial statements of VDC Communications and subsidiaries included the audits of Schedule II - Valuation and Qualifying Accounts for each of the three years in the period ended June 30, 2000. This schedule is the responsibility of management. Our responsibility is to express and opinion on this schedule based on our audits. In our opinion, such Schedule II - Valuation and Qualifying Accounts, presents fairly, in all material respects, the information set forth therein. /s/ BDO SEIDMAN, LLP -------------------- BDO SEIDMAN, LLP Valhalla, New York August 30, 2000 F-26 Schedule II
Valuation and Qualifying Accounts Additions Charged to Balance at Selling Deductions- Beginning General & Accounts Balance at Description of Period Administrative Written Off End of Period - ------------------------------------------------------------------------------------------- Allowance for doubtful accounts: 30-Jun-98 $0 $0 $0 $0 30-Jun-99 $0 $7,000 $0 $7,000 30-Jun-00 $7,000 $497,088 $0 $504,088
F-27
Exhibit Index Exhibit Page Number in Number Rule 0-3 (b) (Referenced to Sequential Item 601 of Numbering System Reg. S-K) Where Exhibit Can Be Found 10.46 Form of Securities Purchase Agreement for June 2000 10.47 Form of Amendment to Securities Purchase Agreement for July 2000 10.48 Form of Registration Rights Agreement for June 2000 10.49 1998 Stock Incentive Plan, as Amended Through August 9, 2000 10.50 Incentive Stock Option Agreement between Frederick A. Moran and VDC Communications, Inc., dated August 9, 2000 10.51 Incentive Stock Option Agreement between Clayton F. Moran and VDC Communications, Inc., dated August 9, 2000 10.52 Purchase and Sale Agreement, by and between Omnetrix International, Inc. and VDC Telecommunications, Inc., dated August 26, 2000 10.53 Promissory Note, dated August 26, 2000, made by Omnetrix International, Inc. in favor of VDC Telecommunications, Inc. 10.54 Security Agreement, dated August 26, 2000, made by Omnetrix International, Inc. in favor of VDC Telecommunications, Inc. 10.55 Promissory Note, dated June 14, 2000, made by Voice & Data Communications (Latin America), Inc. in favor of VDC Communications, Inc. 10.56 Promissory Note, dated June 14, 2000, made by Voice & Data Communications (Latin America), Inc. in favor of VDC Communications, Inc. 10.57 Form of Promissory Note executed by Rare Telephony, Inc. 21.1 Subsidiaries of Registrant 27.1 Financial Data Schedule
58 EX-10.46 2 0002.txt EX-10.46 The following Form of Securities Purchase Agreement was entered into with the following individuals and entities in June 2000 as follows:
Individual / Entity Shares Purchased Purchase Price ($) - ------------------------------- ---------------------------- ---------------------------- Alan B. Snyder 300,000 375,000 - ------------------------------- ---------------------------- ---------------------------- Alan B. Snyder, IRA 100,000 125,000 - ------------------------------- ---------------------------- ---------------------------- O.T. Finance, SA 43,500 54,375 - ------------------------------- ---------------------------- ---------------------------- Merl Trust 34,500 43,125 - ------------------------------- ---------------------------- ---------------------------- The Lucien I. Levy Revocable 14,000 17,500 Living Trust - ------------------------------- ---------------------------- ---------------------------- The Elvire Levy Revocable 8,000 10,000 Living Trust - ------------------------------- ---------------------------- ----------------------------
VDC COMMUNICATIONS, INC. ---------- Form of Securities Purchase Agreement ---------- Shares of Common Stock at $1.25 per Share ---------- CONFIDENTIAL - ------------ FORM OF SECURITIES PURCHASE AGREEMENT THIS SECURITIES PURCHASE AGREEMENT (the "Agreement" or the "Securities Purchase Agreement") is entered into as of the 28th day of June, 2000, by and between VDC Communications, Inc., a Delaware corporation ("VDC" or the "Company"), and the investor whose name appears at the end of this Agreement ("Purchaser" or "Subscriber"). R E C I T A L S: ---------------- The Company wishes to obtain additional working capital and the Purchaser desires to provide such working capital to the Company through the purchase of certain shares of the Company's common stock, $.0001 par value per share (the "Common Stock"), being privately offered by the Company. NOW, THEREFORE, in consideration of the premises hereof and the agreements set forth herein below, the parties hereto, intending to be legally bound, hereby agree as follows: 1. Sale and Purchase of Shares. ---------------------------- Subject to the terms and conditions hereof, the Company agrees to issue and sell, and the Purchaser agrees to purchase that number of shares of Common Stock (the "Shares") identified on the signature page hereof at a purchase price of $1.25 per share. The total purchase price is set forth on the signature page hereof (the "Purchase Price"). The Purchase Price is payable upon subscription in cash, certified check or wire transfer. If paying by check, the check should be made payable to "VDC Communications, Inc." and delivered to VDC Communications, Inc. at 75 Holly Hill Lane, Greenwich, Connecticut, 06830. The sale of Shares evidenced by this Agreement is part of an overall private placement transaction (the "Offering") being undertaken by the Company of a maximum amount of $1,500,000. See Section 3 hereafter. No broker, investment banker or any other person, other than Santa Fe Capital Group (NM), Inc. ("Santa Fe"), will receive from the Company any compensation as a broker, finder, adviser or in any other capacity in connection with the purchase of the Shares. The Company shall pay Santa Fe an investment banking fee (the "Santa Fe Fee") based upon gross proceeds received by the Company in the Offering from investors introduced to the Company by Santa Fe (the "Santa Fe Proceeds"). Specifically, Santa Fe is entitled to: five percent (5%) of the first $1,000,000 in Santa Fe Proceeds; and four percent (4%) of the second $1,000,000 in Santa Fe Proceeds. Fifty percent (50%) of the Santa Fe Fee shall be paid to Santa Fe in shares of Company Common valued at $1.25 per share. 2 2. Description of the Shares. -------------------------- (a) Restricted Securities. The Shares shall be ------------------------ "restricted securities" as that term is defined under Rule 144 of the Securities Act of 1933, as amended (the "Act"), and may not be offered for sale or sold or otherwise transferred in a transaction which would constitute a sale thereof within the meaning of the Act unless (i) such security has been registered for sale under the Act and registered or qualified under applicable state securities laws relating to the offer and sale of securities; or (ii) exemptions from the registration requirements of the Act and the registration or qualification requirements of all such state securities laws are available and the Company shall have received an opinion of counsel, prepared at Purchaser's expense, that the proposed sale or other disposition of such securities may be effected without registration under the Act and would not result in any violation of any applicable state securities laws relating to the registration or qualification of securities for sale, such counsel and such opinion to be satisfactory to the Company. (b) Voting Rights; Dividends. Holders of Common Stock of ------------------------- the Company have equal rights to receive dividends when, as, and if declared by the Board of Directors out of funds legally available therefor. Holders of Common Stock of the Company have one vote for each share held of record and do not have cumulative voting rights. (c) Liquidation; Redemption. Holders of Common Stock of ------------------------- the Company are entitled upon liquidation of the Company to share ratably in the net assets available for distribution, subject to the rights, if any of holders of any preferred stock of the Company then outstanding. Shares of Common Stock of the Company are not redeemable and have no preemptive or similar rights. All outstanding shares of Common Stock of the Company are fully paid and nonassessable. (d) Restriction Upon Resale. The Subscriber hereby agrees ------------------------ that the Shares shall be subject to restrictions upon the transfer, sale, encumbrance or other disposition of the Shares. See "Understanding of Investment Risks" and "Registration Rights". 3. Shares Offered in a Private Placement Transaction. -------------------------------------------------- The Shares offered by this Securities Purchase Agreement are being offered as a non-public offering pursuant to Section 4(2) and Regulation D of the Act ("Regulation D") by the Company on a "best efforts" basis of a maximum principal amount of $1,500,000 (the "Maximum Offering") to be offered to certain accredited investors. Accordingly, there can be no assurances as to the number of securities that will be sold in the Offering. The Company may, in its sole discretion, reject, in whole or part, subscriptions from purchasers to the extent such subscriptions, when aggregated with other subscriptions from this private placement transaction exceed the Maximum Offering. Additionally, the Company may, in its sole discretion, reject any subscription from any purchaser to the extent all subscription documentation and funds for such subscription are not received by the Company on or before 5 p.m. Eastern Standard Time on Friday, July 14, 2000, (the "Outside Subscription Date"). The Company may reject 3 subscriptions for other reasons, in its sole discretion. The proceeds of this Offering are intended to raise working capital for the Company. 4. Binding Effect of Securities Purchase Agreement; The Closing. ------------------------------------------------------------- This Securities Purchase Agreement shall not be binding on the Company unless and until an authorized executive officer of the Company has evidenced acceptance thereof by executing the signature page at the end hereof. The Company may accept or reject this Securities Purchase Agreement in its sole discretion. In the event the Company rejects this Agreement, the Purchaser's funds will be returned without deduction of any costs and without interest. A closing (the "Closing") will occur contemporaneously with the acceptance of this Agreement by the Company and the Company's receipt of the Purchase Price. The Company shall deliver to the Purchaser within fifteen (15) business days after the Outside Subscription Date a stock certificate representing the number of Shares purchased, bearing applicable restrictive legends, duly executed by the appropriate officer(s) and registered on the books of the Company in Purchaser's name. 5. Representations and Warranties of the Purchaser. The Purchaser ------------------------------------------------ represents and warrants to the Company as follows: (a) Accredited Investor. The Purchaser has such knowledge -------------------- and experience in business and financial matters such that the Purchaser is capable of evaluating the merits and risks of purchasing the Shares. The Purchaser is either an "accredited investor" as that term is defined in Rule 501 of Regulation D of the Act or a "qualified institutional buyer" as that term is defined in Rule 144A of the Act, and represents that he satisfies the suitability standards identified in Section 10 hereof; (b) Loss of Investment. The Purchaser('s) (i) overall -------------------- commitment to investments which are not readily marketable is not disproportionate to his net worth; (ii) investment in the Company will not cause such overall commitment to become excessive; (iii) can afford to bear the loss of his entire investment in the Company; and (iv) has adequate means of providing for his current needs and personal contingencies and has no need for liquidity in his investment in the Company; (c) Special Suitability. The Purchaser satisfies any -------------------- special suitability or other applicable requirements of his state of residence and/or the state in which the transaction by which the Shares are purchased occurs; (d) Investment Intent. The Purchaser hereby acknowledges ------------------ that the Purchaser has been advised that this offering has not been registered with, or reviewed by, the Securities and Exchange Commission ("SEC") because this offering is intended to be a non-public offering pursuant to Section 4(2) and Regulation D of the Act. The Purchaser represents that the Purchaser's Shares are being purchased for the Purchaser's own account and not on behalf of 4 any other person, for investment purposes only and not with a view towards distribution or resale to others. The Purchaser agrees that the Purchaser will not attempt to sell, transfer, assign, pledge or otherwise dispose of all or any portion of the Shares unless they are registered under the Act or unless in the opinion of counsel an exemption from such registration is available, such counsel and such opinion to be satisfactory to the Company. The Purchaser understands that the Shares have not been registered under the Act by reason of a claimed exemption under the provisions of the Act which depends, in part, upon the Purchaser's investment intention; (e) State Securities Laws. The Purchaser understands that ---------------------- no securities administrator of any state has made any finding or determination relating to the fairness of this investment and that no securities administrator of any state has recommended or endorsed, or will recommend or endorse, the offering of the Shares; (f) Authority; Power; No Conflict. The execution, ---------------------------------- delivery and performance by the Purchaser of the Agreement are within the powers of the Purchaser, have been duly authorized and will not constitute or result in a breach or default under, or conflict with, any order, ruling or regulation of any court or other tribunal or of any governmental commission or agency, or any agreement or other undertaking, to which the Purchaser is a party or by which the Purchaser is bound, and, if the Purchaser is not an individual, will not violate any provision of the charter documents, Bylaws, indenture of trust, operating agreement, or partnership agreement, as applicable, of the Purchaser. The signatures of the Purchaser on the Agreement are genuine, and the signatory, if the Purchaser is an individual, has legal competence and capacity to execute the same, or, if the Purchaser is not an individual, the signatory has been duly authorized to execute the same; and the Agreement constitutes the legal, valid and binding obligations of the Purchaser, enforceable in accordance with its terms; (g) No General Solicitation. The Purchaser acknowledges ------------------------ that no general solicitation or general advertising (including communications published in any newspaper, magazine or other broadcast) has been received by him and that no public solicitation or advertisement with respect to the offering of the Shares has been made to him; (h) Advice of Tax and Legal Advisors. The Purchaser has --------------------------------- relied solely upon the advice of his own tax and legal advisors with respect to the tax and other legal aspects of this investment; (i) Broker Fees. The Purchaser is not aware that any ------------ person, and has been advised that no person, will receive from the Company any compensation as a broker, finder, adviser or in any other capacity in connection with the purchase of the Shares other than as declared herein; (j) Access to Information. Purchaser has had access to ----------------------- all material and relevant information concerning the Company, its management, financial condition, capitalization, market information, properties and prospects necessary to enable Purchaser to make an informed investment decision with respect to its investment in the Shares. Purchaser has carefully read and reviewed, and is familiar with and understands the contents thereof and hereof, 5 including, without limitation, the risk factors referenced in this Agreement. See "Understanding of Investment Risks." Purchaser acknowledges that it has had the opportunity to ask questions of and receive answers from, and to obtain additional information from, representatives of the Company concerning the terms and conditions of the acquisition of the Shares and the present and proposed business and financial condition of the Company, and has had all such questions answered to its satisfaction and has been supplied all information requested; (k) Review of Reports. The Purchaser acknowledges that ------------------ it has been provided with an opportunity to review: (i) a copy of the Company's Annual Report on Form 10-K for the year ended June 30, 1999; (ii) a copy of the Company's Quarterly Reports on Form 10-Q for the quarters ended September 30, 1999, December 31, 1999, and March 31, 2000; (iii) a copy of the Company's Amendment Number 1 to Registration Statement on Form S-1 (SEC File Number 333-80107); (iv) a copy of the Company's Current Report on Form 8-K, dated June 14, 2000; and (v) all other recent reports filed by the Company with the Securities and Exchange Commission under the Securities Exchange Act of 1934 (collectively, the "Reports"). (l) Understanding the Nature of Securities. The Purchaser --------------------------------------- understands and acknowledges that: (i) The Shares have not been registered under the Act or any state securities laws and are being issued and sold in reliance upon certain exemptions contained in the Act; (ii) The Shares are "restricted securities" as that term is defined in Rule 144 promulgated under the Act; (iii) The Shares cannot be sold or transferred without registration under the Act and applicable state securities laws, or unless the Company receives an opinion of counsel reasonably acceptable to it (as to both counsel and the opinion) that such registration is not necessary; and (iv) The Shares and any certificates issued in replacement therefor shall bear the following legend, in addition to any other legend required by law or otherwise: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION, OR THE AVAILABILITY OF EXEMPTION FROM REGISTRATION, UNDER THE ACT and any applicable state securities laws, BASED ON AN OPINION LETTER OF COUNSEL SATISFACTORY TO THE COMPANY." 6 (m) Information Provided. The Purchaser has, on or --------------------- before the date of the Closing, been afforded the opportunity to review and is familiar with the Reports and has based his decision to invest solely on the information contained therein, and the information contained within this Agreement and the associated exhibits and schedules, and has not been furnished with and is not relying upon any other literature, prospectus or other information except as included in the Reports or this Agreement. 6. Indemnification. The Purchaser shall indemnify and hold ---------------- harmless the Company and the Company's officers, directors and employees from and against any and all loss, damage or liability (including attorneys' fees), due to, or arising out of, a breach or inaccuracy of any representation or warranty contained in Section 5. 7. Understanding of Investment Risks. Any investment in the ------------------------------------- Shares should not be made by a Purchaser who cannot afford the loss of his entire Purchase Price. The Purchaser acknowledges that the Shares offered hereby have not been approved or disapproved by the Securities and Exchange Commission, or any state securities commissions, nor has the Securities and Exchange Commission or any state securities commission passed upon the adequacy or accuracy of this Securities Purchase Agreement or any exhibit hereto. Prior to making an investment in the Securities, the Purchaser has fully considered, among other things, the financial and other information and risk factors set forth in the Reports and acknowledges that such information has been considered prior to making this investment decision. 8. Registration Rights. The Company has agreed to advise the -------------------- Purchaser by written notice at least ten (10) calendar days prior to the filing of a registration statement under the Act (excluding registration on Forms S-8, S-4 or any successor forms thereto), covering securities of the Company to be offered and sold to the public generally (whether on behalf of the Company or selling security holders) and shall, upon the request of the Purchaser given at least five (5) calendar days prior to the filing of such registration statement, include in any such registration statement such information as may be required to permit the public resale of the Shares; provided, however, that in the event the resale of the Shares has not been previously included within a registration statement, the Company shall in any event file a registration statement under the Act within one year of the Outside Subscription Date, the purpose of which is to register the resale of the Shares. The registration rights associated with the Shares are described more particularly and are subject in full to the terms of a Registration Rights Agreement substantially in the form attached hereto as Exhibit "A." The Company shall use reasonable best efforts to file, within six (6) months of the Outside Subscription Date, a registration statement on behalf of certain Company security holders which, if filed, will include the Shares referenced in this Agreement, subject to the conditions and limitations set forth in a Registration Rights Agreement substantially in the form attached hereto as Exhibit "A." The Company's obligation to register the Shares extends only to the inclusion of the Shares in a registration statement which covers the public resale thereof. In all events, the Company shall have no obligation: (i) 7 to assist or cooperate in the offering or disposition of such Shares; (ii) to obtain a commitment from an underwriter relative to the sale of such Shares; or (iii) to include such Shares within an underwritten offering of the Company. The Company shall assume no responsibility for the manner of sale, timing of sale, or sales price relating to the resale of the Shares. 9. Representations and Warranties of the Company. The Company ------------------------------------------------ hereby represents and warrants to Purchaser as follows: (a) Organization and Standing of the Company. The Company ----------------------------------------- is a duly organized and validly existing corporation in good standing under the laws of the State of Delaware with adequate power and authority to conduct the business in which it is now engaged and has the corporate power and authority to enter into this Agreement, and is duly qualified and licensed to do business as a foreign corporation in such other jurisdictions as is necessary to enable it to carry on its business, except where failure to do so would not have a material adverse effect on its business; (b) Corporate Power and Authority. The execution and ------------------------------- delivery of this Agreement and the transactions contemplated hereby have been duly authorized by the Board of Directors of the Company. No other corporate act or proceeding on the part of the Company is necessary to authorize this Agreement. When duly executed and delivered by the parties hereto, this Agreement will constitute a valid and legally binding obligation of the Company enforceable against it in accordance with its terms, except as such enforceability may be limited by (i) bankruptcy, insolvency, moratorium, reorganization or other similar laws and legal and equitable principles limiting or affecting the rights of creditors generally; and/or (ii) general principles of equity, regardless of whether considered in a proceeding in equity or at law. 10. IMPORTANT CONSIDERATIONS: SUITABILITY STANDARDS - WHO SHOULD --- -------------------------------------------------------------- INVEST. - ------- INVESTMENT IN THE SHARES INVOLVES A HIGH DEGREE OF RISK AND IS SUITABLE ONLY FOR PERSONS OF SUBSTANTIAL FINANCIAL RESOURCES WHO HAVE NO NEED FOR LIQUIDITY IN THEIR INVESTMENT. A substantial number of state securities commissions have established investor suitability standards for the marketing within their respective jurisdictions of restricted securities. Some have also established minimum dollar levels for purchases in their states. The reasons for these standards appear to be, among others, the relative lack of liquidity of securities of such programs as compared with other securities investments. Investment in the Shares involves a high degree of risk and is suitable only for persons of substantial financial means who have no need for liquidity in their investments. The Company has adopted as a general investor suitability standard the requirement that each Subscriber for Shares represents in writing that the Subscriber: (a) is acquiring the Shares for investment and not with a 8 view to resale or distribution; (b) can bear the economic risk of losing his entire investment; (c) his overall commitment to investments which are not readily marketable is not disproportionate to his net worth, and an investment in the Shares will not cause such overall commitment to become excessive; (d) has adequate means of providing for his current needs and personal contingencies and has no need for liquidity in this investment in the Shares; (e) has evaluated all the risks of investment in the Company; and (f) has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of investing in the Company or is relying on his own purchaser representative in making an investment decision. In addition, all of the Subscribers for Shares must be: (1) extremely sophisticated investors with substantial net worth and experience in making investments of this nature; and (2) "accredited investors," as defined in Rule 501 of Regulation D under the Act, by meeting any of the following conditions: (i) he or she has an individual income in excess of $200,000 in each of the two most recent years or joint income with his or her spouse in excess of $300,000 in each of those years, and he or she reasonably expects an income in excess of the aforesaid levels in the current year, or (ii) he or she has an individual net worth, or a joint net worth with his or her spouse, at the time of his or her purchase, in excess of $1,000,000 (net worth for these purposes includes homes, home furnishings and automobiles), or (iii) he or she otherwise satisfies the Company that he or she is an accredited investor, as defined in Rule 501 under the Act. Other categories of investors included within the definition of accredited investor include the following: certain institutional investors, including certain banks, whether acting in their individual or fiduciary capacities; certain insurance companies; federally registered investment companies; business development companies (as defined under the Investment Company Act of 1940); Small Business Investment Companies licensed by the Small Business Administration; certain employee benefit plans; private business development companies (as defined in the Investment Advisers Act of 1940); tax exempt organizations (as defined in Section 501(c)(3) of the Internal Revenue Code) with total assets in excess of $5,000,000; entities in which all the equity owners are accredited investors; and certain affiliates of the Company. A partnership Subscriber, which satisfies the requirements set forth in clauses (a) through (f) above shall satisfy the suitability standards if it is an accredited investor by reason of clause (iii) above, or if all of its partners are accredited investors. A corporate subscriber, which satisfies the requirements set forth in clauses (a) through (f) above shall satisfy the investor suitability standards if it is an accredited investor by reason of clause (iii) above, or if all of its shareholders are accredited investors. Corporate subscribers must have net worth of at least three (3) times the amount of their investment in the Shares. 9 The suitability standards referred to above represent minimum suitability requirements for prospective purchasers and the satisfaction of such standards by a prospective purchaser does not necessarily mean that the Shares are a suitable investment for such purchaser. The Company may, in circumstances it deems appropriate, modify such requirements. The Company may also reject subscriptions for whatever reasons, in its sole discretion, it deems appropriate. Securities Purchase Agreements may not necessarily be accepted in the order in which received. Purchasers who are residents of certain states may be required to meet certain additional suitability standards. THE ACCEPTANCE OF A SUBSCRIPTION FOR SHARES BY THE COMPANY DOES NOT CONSTITUTE A DETERMINATION BY THE COMPANY THAT AN INVESTMENT IN THE SHARES IS SUITABLE FOR A PROSPECTIVE INVESTOR. THE FINAL DETERMINATION OF THE SUITABILITY OF INVESTMENT IN THE SHARES MUST BE MADE BY THE PROSPECTIVE INVESTOR AND HIS OR HER ADVISERS. 11. State Law Considerations for Residents of All States. ----------------------------------------------------- IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE ISSUER'S SECURITIES AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT, AND THE APPLICABLE STATES SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE INVESTOR MUST RELY ON THE INVESTOR'S OWN EXAMINATION OF THE PERSON OR ENTITY CREATING THE SECURITIES AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED, IN MAKING AN INVESTMENT DECISION ON THESE SECURITIES. 12. Notices. All notices, consents, waivers, and other -------- communications under this Agreement must be in writing and will be deemed to have been duly given when (a) delivered by hand (with written confirmation of receipt), (b) sent by facsimile (with written confirmation of receipt), provided 10 that a copy is mailed by certified mail, return receipt requested (provided that facsimile notice shall be deemed received on the next business day if received after 5:00 p.m. Eastern Standard Time), or (c) on the next business day, if sent by a nationally recognized overnight delivery service, in each case to the appropriate addresses and facsimile numbers set forth below (or to such other addresses and facsimile numbers as a party may designate by notice to the other parties): If to the Company: VDC Communications, Inc. 75 Holly Hill Lane Greenwich, CT 06830 Attention: Frederick A. Moran Chairman & C.E.O. Facsimile: (203) 552-0908 with a copy to: VDC Communications, Inc. 75 Holly Hill Lane Greenwich, CT 06830 Attention: Louis D. Frost, Esq. VDC Corporate Counsel Facsimile: (203) 552-0908 If to Purchaser: to the address and facsimile number set forth at the end of this Agreement or to such other addresses and facsimile number as may be specified in accordance herewith from time to time. 13. Survival of Representations and Warranties. Representations --------------------------------------------- and warranties contained herein shall survive the execution and delivery of this Agreement. 14. Parties in Interest. All the terms and provisions of this ---------------------- Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and permitted assigns of the parties hereto, provided that this Agreement and the interests herein may not be assigned by either party without the express written consent of the other party. 15. Governing Law. This Agreement shall be governed by and -------------- construed in accordance with the laws of the State of Connecticut without regard to the principles of conflict of laws. 11 16. Arbitration. All controversies arising out of or related to ------------ this Agreement shall be determined by binding arbitration applying the laws of the State of Connecticut. Any arbitration between the parties shall be conducted at the Company's offices in Greenwich, Connecticut, or at such other location designated by the Company, before the American Arbitration Association (the "AAA"). The decision of the arbitrator(s) shall be final and binding upon the parties and judgment may be obtained thereon by either party in a court of competent jurisdiction. Each party shall bear the cost of preparing and presenting its own case. The cost of the arbitration, including the fees and expenses of the arbitrator(s), shall be shared equally by the parties hereto unless the award otherwise provides. Nothing in this section will prevent either party from resorting to judicial proceedings if interim injunctive relief under the laws of the State of Connecticut from a court is necessary to prevent serious and irreparable injury to one of the parties, and the parties hereto agree that the state courts in Stamford, Connecticut and the United States District Court in the District of Connecticut in Bridgeport, Connecticut shall have exclusive subject matter and in personam jurisdiction over the parties for purposes of obtaining interim injunctive relief. 17. Sections and Other Headings. The section and other headings ---------------------------- contained in this Agreement are for the convenience of reference only, and do not constitute part of this Agreement or otherwise affect any of the provisions hereof. 18. Pronouns. Whenever the context of this Agreement may require, --------- any pronoun will include the corresponding masculine, feminine and neuter form, and the singular form of nouns and pronouns will include the plural. 19. Counterpart Signatures. This Agreement may be executed in ------------------------ multiple counterparts each of which shall be an original but all of which together shall constitute one and the same instrument. This Agreement may also be executed and delivered by exchange of facsimile copies showing the signatures of the parties, and those signatures need not be affixed to the same copy. The facsimile copies showing the signatures of the parties will constitute originally signed copies of the Agreement requiring no further execution. 20. Severability. If any provision of this Agreement shall be ------------- invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction. 21. Entire Agreement; Amendments. This Agreement and the --------------------------------- instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor the Purchaser make any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be waived or amended other than by an instrument in writing signed by the party to be charged with enforcement. 22. Construction. This Agreement and any related instruments will ------------- not be construed more strictly against one party then against the other by virtue of the fact that drafts may have been prepared by counsel for one of the 12 parties, it being recognized that this Agreement and any related instruments are the product of negotiations between the parties and that both parties have contributed to the final preparation of this Agreement and all related instruments. 23. Agreement Read and Understood. Both parties hereto acknowledge ------------------------------ that they have had an opportunity to consult with an attorney, and such other experts or consultants as they deem necessary or prudent, regarding this Agreement and that they, or their designated agents, have read and understand this Agreement. 24. United States Dollars. All dollar amounts stated herein refer ---------------------- to and are payable solely in United States Dollars. IN WITNESS WHEREOF, intending to be legally bound, the parties hereto have caused this Agreement to be signed. Purchaser: Shares/$ - ------------------------ --------------------------------------------- Number and dollar amount of Shares purchased - Purchase Price Address/Residence of Purchaser: --------------------------------------------- --------------------------------------------- Social Security Number: ---------------------- Accredited Investor Certification --------------------------------- (Place initials on the appropriate line(s)) (i) I am a natural person who had individual - ---- income of more than $200,000 in each of the most recent two years or joint income with my spouse in excess of $300,000 in each of the most recent two years and reasonably expect to reach that same income level for the current year ("income", for purposes hereof, should be computed as follows: individual adjusted gross income, as reported (or to be reported) on a federal income tax return, increased by (1) any deduction of long-term capital gains under Section 1202 of the Internal Revenue Code of 1986 (the "Code"), (2) 13 any deduction for depletion under Section 611 et seq. of the Code, (3) any exclusion for interest under Section 103 of the Code and (4) any losses of a partnership as reported on Schedule E of Form 1040); or (ii) I am a natural person whose individual net - ---- worth (i.e., total assets in excess of total liabilities), or joint net worth with my spouse, will at the time of purchase of the Shares be in excess of $1,000,000; or (iii) The Purchaser is an investor satisfying the - ---- requirements of Section 501(a)(1), (2) or (3) of Regulation D promulgated under the Securities Act, which includes but is not limited to, a self-directed employee benefit plan where investment decisions are made solely by persons who are "accredited investors" as otherwise defined in Regulation D; or (iv) The Purchaser is a "qualified institutional - ---- buyer" as that term is defined in Rule 144A of the Securities Act; or (v) The Purchaser is a trust, which trust has - ---- total assets in excess of $5,000,000, which is not formed for the specific purpose of acquiring the Shares offered hereby and whose purchase is directed by a sophisticated person as described in Rule 506(b)(ii) of Regulation D and who has such knowledge and experience in financial and business matters that he is capable of evaluating the risks and merits of an investment in the Shares; or (vi) I am a director or executive officer of the - ---- Company; or (vii) The Purchaser is an entity (other than a - ---- trust) in which all of the equity owners meet the requirements of at least one of the above subparagraphs. Agreed and Accepted by VDC COMMUNICATIONS, INC. By: -------------------------- Frederick A. Moran Chairman & C.E.O. Dated: ----------------------- 14 EX-10.47 3 0003.txt EX-10.47 The following Form of Amendment to Securities Purchase Agreement was entered into with the following individuals and entities in July 2000 as follows:
Individual / Entity Shares Purchased Purchase Price ($) - ------------------------------- ---------------------------- ---------------------------- Alan B. Snyder 375,000 375,000 - ------------------------------- ---------------------------- ---------------------------- Alan B. Snyder, IRA 125,000 125,000 - ------------------------------- ---------------------------- ---------------------------- O.T. Finance, SA 54,375 54,375 - ------------------------------- ---------------------------- ---------------------------- Merl Trust 43,125 43,125 - ------------------------------- ---------------------------- ---------------------------- The Lucien I. Levy Revocable 17,500 17,500 Living Trust - ------------------------------- ---------------------------- ---------------------------- The Elvire Levy Revocable 10,000 10,000 Living Trust - ------------------------------- ---------------------------- ----------------------------
FORM OF AMENDMENT TO SECURITIES PURCHASE AGREEMENT THIS AMENDMENT TO SECURITIES PURCHASE AGREEMENT (the "Amendment"), is made and entered into as of July 17, 2000, by and among VDC COMMUNICATIONS, INC., a Delaware corporation ("VDC") and . RECITALS: WHEREAS, the parties hereto have entered into a Securities Purchase Agreement, dated June 28, 2000 (the "Purchase Agreement"); WHEREAS, the parties hereto desire to amend the Purchase Agreement in the manner set forth herein effective as of the date hereof; and WHEREAS, any capitalized term used but not defined herein shall have the meaning ascribed to such term in the Purchase Agreement. NOW, THEREFORE, in consideration of the foregoing premises and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree that the Purchase Agreement is hereby amended as follows: 1. The Purchase Agreement is hereby amended to provide that the price per share is $1.00. Additionally, the last sentence of Section 1 of the Purchase Agreement is amended to read: "If the Santa Fe Fee is paid to Santa Fe, fifty percent (50%) of the Santa Fe Fee shall be paid to Santa Fe in shares of Company Common Stock valued at $1.00 per share." 2. The signature page of the Purchase Agreement is hereby amended to provide for the purchase of Shares at $1.00 per share for a total Purchase Price of $ . 3. Except as otherwise set forth herein, the terms of the Purchase Agreement shall remain in full force and effect. 4. This Amendment may be executed in two or more counterparts and delivered via facsimile, each of which shall be deemed to be an original, and all of which together shall be deemed to be one and the same instrument. IN WITNESS WHEREOF, the parties have signed this Amendment as of the date first written above. VDC COMMUNICATIONS, INC. By: ----------------------------------- Frederick A. Moran Chairman & CEO Purchaser: -------------------------------------- EX-10.48 4 0004.txt EX-10.48 The following Form of Registration Rights Agreement was entered into with the following individuals and entities in June 2000 as follows: - ------------------------------- Individual / Entity - ------------------------------- Alan B. Snyder - ------------------------------- Alan B. Snyder, IRA - ------------------------------- O.T. Finance, SA - ------------------------------- Merl Trust - ------------------------------- The Lucien I. Levy Revocable Living Trust - ------------------------------- The Elvire Levy Revocable Living Trust - ------------------------------- FORM OF REGISTRATION RIGHTS AGREEMENT ------------------------------------- This Registration Rights Agreement (this "Agreement") is dated as of June 28, 2000 by and between VDC COMMUNICATIONS, INC., a Delaware corporation (the "Company"), and the undersigned (the "Holder" or the "Investor"). W I T N E S S E T H: -------------------- WHEREAS, simultaneously with the execution and delivery of this Agreement, the Investor is purchasing from the Company, pursuant to the Securities Purchase Agreement dated the date hereof (the "Purchase Agreement"), certain shares of the Company's Common Stock (the "Securities"); WHEREAS, all capitalized terms not hereinafter defined shall have that meaning assigned to them in the Purchase Agreement; and WHEREAS, the Company desires to grant to the Holder the registration rights set forth herein with respect to the Securities. NOW, THEREFORE, the parties hereto agree as follows: 1. Definitions. (a) "Closing" shall mean the closing provided for in the Purchase Agreement. (b) "Common Stock" shall mean the common stock of the Company, par value $.0001 per share. (c) "Company" shall mean VDC Communications, Inc. (d) "Offering" shall mean that private placement transaction pursuant to which the Company shall offer shares of Common Stock upon terms and conditions set forth in the Purchase Agreements. (e) "Person" means an individual, a partnership (general or limited), corporation, limited liability company, joint venture, business trust, cooperative, association or other form of business organization, whether or not regarded as a legal entity under applicable law, a trust (inter vivos or testamentary), an estate of a deceased, insane or incompetent person, a quasi-governmental entity, a government or any agency, authority, political subdivision or other instrumentality thereof, or any other entity. (f) "Principal Market" means the OTC Electronic Bulletin Board, the Nasdaq National Market, the Nasdaq Small Cap Stock Market, the American Stock Exchange or the New York Stock Exchange, whichever is at the time the principal trading exchange or market for the Common Stock. (g) "Registration Statement" shall mean the Registration Statement of the Company filed with the SEC pursuant to the provisions of Section 3 of this Agreement which covers the resale of the Securities on Form S-1, S-3 or any other appropriate form then permitted by the SEC to be used for such registration and the sales contemplated to be made thereby under the Securities Act, or any similar rule that may be adopted by the SEC, and all amendments and supplements to such Registration Statement, including any pre-and post- effective amendments thereto, in each case including the prospectus contained therein, all exhibits thereto and all materials incorporated by reference therein. (h) "Restricted Stock" shall mean the Securities that may be issued to the Holder pursuant to the Purchase Agreement, and any additional shares of Common Stock or other equity securities of the Company issued or issuable after the date hereof in respect of any such Securities (or other equity securities issued in respect thereof) by way of a stock dividend or stock split, in connection with a combination, exchange, reorganization, recapitalization or reclassification of Company securities, or pursuant to a merger, division, consolidation or other similar business transaction or combination involving the Company; provided that: as to any particular shares of Restricted Stock, such securities shall cease to constitute Restricted Stock (i) when a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of thereunder, or (ii) when and to the extent such securities are permitted to be distributed pursuant to subparagraph (k) of Rule 144 (or any successor provision to such Rule) promulgated under the Securities Act or are otherwise freely transferable to the public without further registration under the Securities Act. (i) "Securities Act" shall mean the Securities Act of 1933, as amended, or any similar or successor federal statute, and the rules and regulations of the SEC thereunder, all as the same shall be in effect at any relevant time. (j) "SEC" shall mean the United States Securities and Exchange Commission. 2 (k) "Trading Day" means a day on which the Principal Market on which the Common Stock is listed or admitted to trading is open for the transaction of business or, if the Common Stock is not listed or admitted to trading on any national securities exchange, any day other than a Saturday, Sunday, or a day on which banking institutions in the State of Connecticut are authorized or obligated by law or executive order to close. 2. Restrictions on Transfer. The Holder acknowledges and --------------------------- understands that prior to the registration of the Restricted Stock as provided herein, the Restricted Stock and the Securities are "restricted securities" as defined in Rule 144 promulgated under the Securities Act. The Holder understands that no disposition or transfer of the Restricted Stock or the Securities may be made by the Holder in the absence of (i) an opinion of counsel to the Holder, satisfactory to the Company and prepared at Holder's expense, that such transfer may be made without registration under the Securities Act or any applicable state securities laws; or (ii) such security has been registered for sale under the Securities Act and registered or qualified under applicable state securities laws relating to the offer and sale of securities 3. Registration Rights. -------------------- (a) Piggyback Registration Rights. The Company shall advise the Holder by written notice at least ten (10) calendar days prior to the filing of a Registration Statement under the Securities Act (excluding registration on Forms S-8, S-4, or any successor forms thereto), covering securities of the Company to be offered and sold (whether by the Company or any stockholder thereof) and shall, upon the request of the Holder given at least five (5) calendar days prior to the filing of such Registration Statement, include in any such Registration Statement such information as may be required to permit an offering of the Restricted Stock. The Holder shall promptly furnish such information as may be reasonably requested by the Company in order to include such Restricted Stock in the Registration Statement. In the event that any registration pursuant to this Section 3 shall be, in whole or in part, an underwritten public offering of Common Stock on behalf of the Company, and the managing underwriters advise the Company in writing that in their opinion the number of securities requested to be included in such registration exceeds the number which can be sold in an orderly manner in such offering within a price range acceptable to the Company, the Company shall include in such registration (i) first, the securities the Company proposes to sell, and (ii) second, the Restricted Stock and any other registrable securities eligible and requested to be included in such registration to the extent that the number of shares to be registered will not, in the opinion of the managing underwriters, adversely affect the offering of the securities pursuant to clause (i), pro rata among the holders of such registrable securities, including the Holder of the Restricted Stock, on the basis of the number of shares eligible for registration which are owned by all such holders. Notwithstanding the foregoing, the Company may withdraw any registration statement referred to in this Section 3 without thereby incurring liability to the holders of the Restricted Stock. (b) Shelf Registration. In the event that the Restricted Stock is not otherwise included within a Registration Statement filed pursuant to Section 3(a) above, 3 the Company shall use reasonable efforts to prepare and file, not later than twelve (12) months following the Closing of the Offering, a Registration Statement with the SEC. (c) Notwithstanding anything to the contrary contained herein, the Company's obligation in Section 3(a) and 3(b) above shall extend only to the inclusion of the Restricted Stock in a Registration Statement filed under the Securities Act. The Company shall have no obligation to assure the terms and conditions of distribution, to obtain a commitment from an underwriter relative to the sale of the Restricted Stock or to otherwise assume any responsibility for the manner, price or terms of the distribution of the Restricted Stock. Furthermore, the Company shall not be restricted in any manner from including within the Registration Statement or the distribution, issuance or resale of any of its or any other securities. 4. Registration Procedures. Whenever it is obligated to register ------------------------ any Restricted Stock pursuant to this Agreement, the Company shall: (a) prepare and file with the SEC a Registration Statement with respect to the Restricted Stock in the manner set forth at Sections 3(a) or 3(b) hereof and use reasonable efforts to cause such Registration Statement to remain effective for that period identified in Section 4(g) hereafter; (b) prepare and file with the SEC such amendments and supplements to such Registration Statement and the prospectus used in connection therewith as may be necessary to keep such Registration Statement effective for the period specified in Section 4(g) below and to comply with the provisions of the Securities Act with respect to the disposition of all Restricted Stock covered by such Registration Statement in accordance with the Holder's intended method of disposition set forth in such Registration Statement for such period; (c) furnish to the Holder and to each underwriter, if any, such number of copies of the Registration Statement and the prospectus included therein (including each preliminary prospectus), as such person may reasonably request in order to facilitate the public sale or other disposition of the Restricted Stock covered by such Registration Statement; (d) use reasonable efforts to register or qualify the Restricted Stock covered by such Registration Statement under the securities or blue sky laws of such jurisdictions as the Holder, or, in the case of an underwritten public offering, the managing underwriter shall reasonably request; provided, however, that the Company shall not for any such purpose be required to qualify generally to transact business as a foreign corporation in any jurisdiction where it is not so qualified or to consent to general service of process in any such jurisdiction; (e) promptly notify the Holder under such Registration Statement and each underwriter, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus contained in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required or necessary to be stated therein in order to make the statements contained therein not misleading in light of the circumstances under which they were made; 4 (f) make available for inspection by the Holder, any underwriter participating in an underwritten disposition on behalf of any Holder, and any attorney, accountant or other agent retained by such underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors and employees to supply all information reasonably requested by the Holder, underwriter, attorney, accountant or agent in connection with such Registration Statement; (g) for purposes of Sections 4(a) and 4(b) above, the period of distribution of Restricted Stock shall be deemed to extend until the earlier of: (A) in an underwritten public offering of all of the Restricted Stock, the period in which each underwriter has completed the distribution of all securities purchased by it; (B) in any other registration, the earlier of the period in which all shares of Restricted Stock covered thereby shall have been sold or two (2) years from the Closing. (h) if the Common Stock of the Company is listed on any securities exchange or automated quotation system, the Company shall use reasonable efforts to list (with the listing application being made at the time of the filing of such Registration Statement or as soon thereafter as is reasonably practicable) the Restricted Stock covered by such Registration Statement on such exchange or automated quotation system; (i) enter into normal and customary underwriting arrangements or an underwriting agreement and take all other reasonable and customary actions if the Holder sells its shares of Restricted Stock pursuant to an underwriting (however, in no event shall the Company, in connection with such underwriting, be required to undertake any special audit of a fiscal period in which an audit is normally not required); (j) notify the Holder if there are any amendments to the Registration Statement, any requests by the SEC to supplement or amend the Registration Statement, or of any threat by the SEC or state securities commission to undertake a stop order with respect to sales under the Registration Statement; and (k) cooperate in the removal of any restrictive legends from the shares of Restricted Stock in connection with the resale of such shares covered by an effective Registration Statement. 5. Expenses. --------- (a) For the purposes of this Section 5, the term "Registration Expenses" shall mean: all expenses incurred by the Company in complying with Sections 3 and 4 of this Agreement, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel and independent public accountants for the Company, "blue sky" fees, fees of the National Association of Securities Dealers, Inc. ("NASD"), fees and expenses of listing shares of Restricted Stock on any securities exchange or automated quotation system on which the Company's shares are listed and fees of transfer agents and registrars. The term "Selling Expenses" shall mean: all underwriting discounts and selling commissions applicable to the sale of Restricted Stock and all accountable or non-accountable expenses paid to any underwriter in respect of the sale of Restricted Stock. 5 (b) Except as otherwise provided herein, the Company will pay all Registration Expenses in connection with the Registration Statements filed pursuant to Section 3 of this Agreement. All Selling Expenses in connection with any Registration Statements filed pursuant to Section 3 of this Agreement shall be borne by the participating Holder in proportion to the number of shares sold by each. 6. Obligations of Holder. ---------------------- (a) In connection with each registration hereunder, each selling Holder will promptly furnish to the Company in writing such information with respect to such seller and the securities held by such seller, and the proposed distribution by him or them as shall be reasonably requested by the Company in order to assure compliance with federal and applicable state securities laws, as a condition precedent to including such seller's Restricted Stock in the Registration Statement. Each selling Holder also shall agree to promptly notify the Company of any changes in such information included in the Registration Statement or prospectus as a result of which there is an untrue statement of material fact or an omission to state any material fact required or necessary to be stated therein in order to make the statements contained therein not misleading in light of the circumstances then existing. (b) In connection with each registration pursuant to this Agreement, the Holder whose shares are included therein will not effect sales thereof until notified by the Company of the effectiveness of the Registration Statement, and thereafter will suspend such sales after receipt of telegraphic, facsimile or written notice from the Company to suspend sales to permit the Company to correct or update a Registration Statement or prospectus. At the end of any period during which the Company is obligated to keep a Registration Statement current, the Holder included in said Registration Statement shall discontinue sales of shares pursuant to such Registration Statement upon receipt of notice from the Company of its intention to remove from registration the shares covered by such Registration Statement which remain unsold, and such Holder shall notify the Company of the number of shares registered which remain unsold immediately upon receipt of such notice from the Company. 7. Information Blackout and Holdbacks. ----------------------------------- (a) At any time when a Registration Statement effected pursuant to Section 3 relating to Restricted Stock is effective, upon written notice from the Company to the Holder that the Company has determined in good faith that sale of Restricted Stock pursuant to the Registration Statement would require disclosure of non-public material information, the Holder shall suspend sales of Restricted Stock pursuant to such Registration Statement until such time as the Company notifies the Holder that such material information has been disclosed to the public or has ceased to be material or that sales pursuant to such Registration Statement may otherwise be resumed. (b) Notwithstanding any other provision of this Agreement, each Holder of Restricted Stock shall not effect any public sale or distribution (including sales pursuant to Rule 144) of equity securities of the Company, or any securities convertible into or exchangeable or exercisable for such securities, during the thirty (30) calendar days prior to the commencement of any primary offering to be undertaken by the Company of shares of its own common stock (the "Primary Offering"), which may also include other securities, 6 and ending one hundred and twenty (120) calendar days after completion of any such Primary Offering, unless the Company, in the case of a non-underwritten offering, or the managing underwriter, in the case of an underwritten Primary Offering, otherwise agrees. 8. Indemnification --------------- (a) The Company agrees to indemnify, to the extent permitted by law, each Holder of Restricted Stock, its officers and directors and each Person who controls such Holder (within the meaning of the Securities Act) against all losses, claims, damages, liabilities and expenses caused by any untrue statement of material fact contained in any Registration Statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto or any omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same are caused by or contained in any information furnished to the Company by such Holder for use therein or by such Holder's failure to deliver a copy of the Registration Statement or prospectus or any amendments or supplements thereto after the Company has furnished such Holder with a sufficient number of copies of the same. (b) In connection with any Registration Statement in which a Holder of Restricted Stock is participating, each such Holder shall furnish to the Company in writing such information and affidavits as the Company reasonably requests for use in connection with any such Registration Statement or prospectus and, to the extent permitted by law, shall indemnify the Company, its directors and officers and each Person who controls the Company (within the meaning of the Securities Act) against any losses, claims, damages, liabilities and expenses resulting from: (i) any untrue or alleged untrue statement of material fact contained in the Registration Statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, (but only to the extent that such untrue statement or omission is contained in any information or affidavit so furnished by such Holder); or (ii) any disposition of the Restricted Stock in a manner that fails to comply with the permitted methods of distribution identified within the Registration Statement; provided that the obligation to indemnify (if there shall be more than one Holder) shall be individual, not joint and several, for each Holder and shall be limited to the net amount of proceeds received by such Holder from the sale of Restricted Stock pursuant to such Registration Statement. (c) Any Person entitled to indemnification hereunder shall (i) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification (provided that the failure to give prompt notice shall not impair any Person's right to indemnification hereunder to the extent such failure has not prejudiced the indemnifying party) and (ii) unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. If such defense is assumed, the indemnifying party shall not be subject to any liability for any settlement made by the indemnified party without its consent (but such consent shall not be unreasonably withheld). An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim shall not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable 7 judgment of any indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim. (d) The indemnification provided for under this Agreement shall remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer, director or controlling Person of such indemnified party and shall survive the transfer of securities. The Company also agrees to make such provisions, as are reasonably requested by any indemnified party, for contribution to such party in the event the Company's indemnification is unavailable for any reason. 9. Miscellaneous Provisions. ------------------------- (a) Governing Law. This Agreement shall be governed by --------------- and construed in accordance with the laws of the State of Connecticut without regard to principles of conflicts of laws. (b) Counterparts. This Agreement may be executed in ------------- multiple counterparts each of which shall be an original but all of which together shall constitute one and the same instrument. This Agreement may also be executed and delivered by exchange of facsimile copies showing the signatures of the parties, and those signatures need not be affixed to the same copy. The facsimile copies showing the signatures of the parties will constitute originally signed copies of the Agreement requiring no further execution. (c) Amendments and Waivers. Except as otherwise provided ----------------------- herein, the provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given without the written consent of the Company and the Holder. (d) Notices. All notices, consents, waivers, and other -------- communications under this Agreement must be in writing and will be deemed to have been duly given when (a) delivered by hand (with written confirmation of receipt), (b) sent by facsimile (with written confirmation of receipt), provided that a copy is mailed by certified mail, return receipt requested (provided that facsimile notice shall be deemed received on the next business day if received after 5:00 p.m. Eastern Standard Time), or (c) on the next business day, if sent by a nationally recognized overnight delivery service, in each case to the appropriate addresses and facsimile numbers set forth below (or to such other addresses and facsimile numbers as a party may designate by notice to the other parties) (i) if to the Company to: VDC Communications, Inc. 75 Holly Hill Lane Greenwich, CT 06830 Attn: Frederick A. Moran, Chief Executive Officer Telephone: (203) 869-5100 Facsimile: (203) 552-0908 8 (ii) if to the Holder, to the address identified on the books and records of the Company (e) Successors and Assigns; Holders as Beneficiaries. ----------------------------------------------------- This Agreement shall inure to the benefit of and be binding upon the parties and their respective successors and assigns, and the agreements of the Company herein shall inure to the benefit of the Holders and their respective successors and assigns. (f) Headings. The headings in this Agreement are for --------- convenience of reference only and shall not limit or otherwise affect the meaning hereof. (g) Entire Agreement; Survival; Termination. This --------------------------------------------- Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, representations, warranties or undertakings, other than those set forth or referred to herein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. (h) Construction. This Agreement and any related ------------- instruments will not be construed more strictly against one party then against the other by virtue of the fact that drafts may have been prepared by counsel for one of the parties, it being recognized that this Agreement and any related instruments are the product of negotiations between the parties and that both parties have contributed to the final preparation of this Agreement and all related instruments. (i) Arbitration. All controversies arising out of or ------------ related to this Agreement shall be determined by binding arbitration applying the laws of the State of Connecticut. Any arbitration between the parties shall be conducted at the Company's offices in Greenwich, Connecticut, or at such other location designated by the Company, before the American Arbitration Association (the "AAA"). The decision of the arbitrator(s) shall be final and binding upon the parties and judgment may be obtained thereon by either party in a court of competent jurisdiction. Each party shall bear the cost of preparing and presenting its own case. The cost of the arbitration, including the fees and expenses of the arbitrator(s), shall be shared equally by the parties hereto unless the award otherwise provides. Nothing in this section will prevent either party from resorting to judicial proceedings if interim injunctive relief under the laws of the State of Connecticut from a court is necessary to prevent serious and irreparable injury to one of the parties, and the parties hereto agree that the state courts in Stamford, Connecticut and the United States District Court in the District of Connecticut in Bridgeport, Connecticut shall have exclusive subject matter and in personam jurisdiction over the parties for purposes of obtaining interim injunctive relief. (j) Agreement Read and Understood. Both parties hereto ------------------------------ acknowledge that they have had an opportunity to consult with an attorney, and such other experts or consultants as they deem necessary or prudent, regarding this Agreement and that they, or their designated agents, have read and understand this Agreement. 9 (k) Binding Effect. This Agreement shall not be binding --------------- on the Company unless and until an authorized executive officer of the Company has evidenced acceptance thereof by executing the signature page at the end hereof. IN WITNESS WHEREOF, intending to be legally bound, the parties hereto have caused this Agreement to be signed. ATTEST: VDC COMMUNICATIONS, INC. By: - --------------------------- ----------------------------------- Frederick A. Moran Chief Executive Officer WITNESS: - --------------------------- ----------------------------------- 10 EX-10.49 5 0005.txt EX-10.49 VDC Communications, Inc. 1998 STOCK INCENTIVE PLAN, AS AMENDED (as amended through August 9, 2000) Section 1. General Purpose of the Plan; Definitions. The name of the plan is the VDC Communications, Inc. 1998 Stock Incentive Plan, As Amended (the "Plan"). The purpose of the Plan is to encourage and enable the officers, employees, directors and consultants of VDC Communications, Inc. (the "Company") and its Subsidiaries upon whose judgment, initiative and efforts the Company largely depends for the successful conduct of its business to acquire a proprietary interest in the Company. It is anticipated that providing such persons with a direct stake in the Company's welfare will assure a closer identification of their interests with those of the Company, thereby stimulating their efforts on the Company's behalf and strengthening their desire to remain with the Company. The following terms shall be defined as set forth below: "Act" means the Securities Exchange Act of 1934, as amended. "Award" or "Awards," except where referring to a particular category of grant under the Plan, shall include Incentive Stock Options, Non-Qualified Stock Options, Restricted Stock Awards, Stock Awards, Performance Share Awards and Stock Appreciation Rights. "Board" means the Board of Directors of the Company. "Code" means the Internal Revenue Code of 1986, as amended, and any successor Code, and related rules, regulations and interpretations. "Effective Date" means the date on which the Plan is approved by the stockholders as set forth in Section 19. "Fair Market Value" of the Stock on any given date means (i) if the principal market for the Stock is the American Stock Exchange, Inc. ("AMEX"), any other United States securities exchange or the National Market System of National Association of the Securities Dealers Automated Quotation System ("NASDAQ"), the Fair Market Value on any date shall be the closing price reported for the Stock on such exchange or system for such date or, if no sales were reported for such date, for the last day preceding such date for which a sale was reported, or (ii) if the principal market for the Stock is not a national securities exchange or the NASDAQ National Market System, and the Stock is admitted to quotation on NASDAQ, the Fair Market Value on any given date shall be the average of the highest bid and lowest asked prices of the Stock reported for such date or, if no bid and asked prices were reported for such date, for the last day preceding such date for which such prices were reported; and (iii) if the Fair Market Value cannot be determined on the basis previously set forth in this definition on the date that Fair Market Value is to be determined, the Board shall in good faith determine the Fair Market Value of the Stock on such date. "Incentive Stock Option" means any Stock Option designated and qualified as an "incentive stock option" as defined in Section 422 of the Code. "Independent Director" means a member of the Board who is not an employee or officer of the Company or any Subsidiary. "Non-Qualified Stock Option" means any Stock Option that is not an Incentive Stock Option. "Option" or "Stock Option" means any Option to purchase shares of Stock granted pursuant to Section 6. "Performance Share Award" means any Award granted pursuant to Section 12. "Restricted Stock Award" means any Award granted pursuant to Section 10. "Stock" means the Common Stock, par value $.0001 per share, of the Company, subject to adjustments pursuant to Section 14. "Stock Appreciation Right" or "SAR" means any Award granted pursuant to Section 7. "Stock Award" means any award granted pursuant to Section 11. "Subsidiary" means any corporation or other entity (other than the Company) in any unbroken chain of corporations or other entities, beginning with the Company, if each of the corporations or entities (other than the last corporation or entity in the unbroken chain) owns stock or other interests possessing 50% or more of the economic interest or the total combined voting power of all classes of stock or other interests in one of the other corporations or entities in the chain. Section 2. Administration. The Plan shall be administered by the full Board of Directors of the Company or a committee of such Board of Directors comprised of two or more "Non-Employee Directors" within the meaning of Rule 16b-3(a)(3) (or its successor rule) promulgated under the Act (the "Plan Administrator"). Subject to the provisions of the Plan, the Plan Administrator is authorized to: (a) construe the Plan and any Award under the Plan; (b) select the directors, officers, employees and consultants of the Company and its Subsidiaries to whom Awards may be granted; (c) determine the number of shares of Stock to be covered by any Award; 2 (d) determine and modify from time to time the terms and conditions, including restrictions, of any Award and to approve the form of written instrument evidencing Awards; (e) accelerate at any time the exercisability or vesting of all or any portion of any Award and/or to include provisions in awards providing for such acceleration; (f) impose limitations on Awards, including limitations on transfer and repurchase provisions; (g) extend the exercise period within which Stock Options may be exercised; and (h) determine at any time whether, to what extent, and under what circumstances Stock and other amounts payable with respect to an Award shall be deferred either automatically or at the election of the participant and whether and to what extent the Company shall pay or credit amounts constituting interest (at rates determined by the Plan Administrator) or dividends or deemed dividends on such deferrals. The determination of the Plan Administrator on any such matters shall be conclusive. Section 3. Delegation of Authority to Grant Awards. The Plan Administrator, in its discretion, may delegate to the Chairman of the Company all or part of the Plan Administrator's authority and duties with respect to granting Awards to individuals who are not subject to the reporting provisions of Section 16 of the Act or "covered employees" within the meaning of Section 162(m) of the Code. The Plan Administrator may revoke or amend the terms of such a delegation at any time, but such revocation shall not invalidate prior actions of the Chairman that were consistent with the terms of the Plan. Section 4. Eligibility. Directors, officers, employees and consultants of the Company or its Subsidiaries who, in the opinion of the Plan Administrator, are mainly responsible for the continued growth and development and future financial success of the business shall be eligible to participate in the Plan. In addition, Independent Directors are eligible to receive an automatic grant of Stock Options pursuant to Section 9 hereof. Section 5. Shares Subject to the Plan. The initial number of shares of Stock which may be issued pursuant to the Plan shall be 5,000,000. For purposes of the foregoing limitation, the shares of Stock underlying any Awards which are forfeited, canceled, reacquired by the Company, satisfied without the issuance of Stock or otherwise terminated (other than by exercise) shall be added back to the number of shares of Stock available for issuance under the Plan. Notwithstanding the foregoing, on and after the date that the Plan is subject to Section 162(m) of the Code, Stock Options with respect to no more than 1,000,000 shares of Stock may be granted to any one individual participant during any one calendar year period. To the extent that an SAR is granted in conjunction with an Option, the shares covered by such SAR and Option shall be counted only once. 3 Common Stock to be issued under the Plan may be either authorized and unissued shares or shares held in treasury by the Company. Section 6. Stock Options. Options granted pursuant to the Plan may be either Options which are Incentive Stock Options or Non-Qualified Stock Options. Incentive Stock Options and Non-Qualified Stock Options shall be granted separately hereunder. The Plan Administrator, shall determine whether and to what extent Options shall be granted under the Plan and whether such Options granted shall be Incentive Stock Options or Non-Qualified Stock Options; provided, however, that: (a) Incentive Stock Options may be granted only to employees of the Company or any Subsidiary that is a "subsidiary corporation" within the meaning of Section 424(f) of the Code; and (b) No Incentive Stock Option may be granted following the tenth anniversary of the effective date of the Plan. The provisions of the Plan and any stock Option agreement pursuant to which Incentive Stock Options shall be issued shall be construed in a manner consistent with Section 422 of the Code (or any successor provision) and rules and regulations promulgated thereunder. Section 7. Stock Appreciation Rights. The Plan Administrator may, from time to time, subject to the provisions of the Plan, grant SARs to eligible participants. Such SARs may be granted (i) alone, (ii) simultaneously with the grant of an Option (either an Incentive Stock Option or Non-Qualified Stock Option) and in conjunction therewith or in the alternative thereto or (iii) subsequent to the grant of a Non-Qualified Stock Option and in conjunction therewith or in the alternative thereto. (a) An SAR shall entitle the holder upon exercise thereof to receive from the Company, upon a written request filed with the Secretary of the Company at its principal offices (the "Request"), (i) a number of shares of Stock (with or without restrictions as to substantial risk of forfeiture and transferability, as determined by the Plan Administrator in its sole discretion), (ii) an amount of cash, or (iii) any combination of shares of Stock and cash, as specified in the Request (but subject to the approval of the Plan Administrator in its sole discretion, at any time up to and including the time of payment, as to the making of any cash payment), having an aggregate Fair Market Value equal to the product of (i) the excess of the Fair Market Value, on the day of such Request, of one share of Stock over the exercise price per share specified in such SAR or its related Option, multiplied by (ii) the number of shares of Stock for which such SAR shall be exercised. (b) The exercise price of an SAR granted alone shall be determined by the Plan Administrator, but may not be less than the Fair Market Value of the underlying Stock on the date of grant. An SAR granted simultaneously with or subsequent to the grant of an Option and in conjunction therewith or in the alternative thereto shall have the same exercise price as the related Option, shall be transferable only upon the same terms and conditions as the related Option, and shall be exercisable only to the same extent as the related Option; provided, however, that an SAR, by its terms, shall be exercisable only 4 when the Fair Market Value of the Stock subject to the SAR and related Option exceeds the exercise price thereof. (c) Upon exercise of an SAR granted simultaneously with or subsequent to an Option and in the alternative thereto, the number of shares of Stock for which the related Option shall be exercisable shall be reduced by the number of shares of Stock for which the SAR shall have been exercised. The number of shares of Stock for which an SAR shall be exercisable shall be reduced upon any exercise of a related Option by the number of shares of Stock for which such Option shall have been exercised. (d) Any SAR shall be exercisable upon such additional terms and conditions as may be prescribed by the Plan Administrator. Section 8. Terms of Options and SARs. Each Option or SAR granted under the Plan shall be evidenced by an agreement between the Company and the person to whom such Option or SAR is granted and shall be subject to the following terms and conditions: (a) Subject to adjustment as provided in Section 14 of this Plan, the price at which each share covered by an Option may be purchased shall be determined in each case by the Plan Administrator; provided, however, that such price shall not, in the case of an Incentive Stock Option, be less than the Fair Market Value of the underlying Stock at the time the Option is granted. If an optionee owns (or is deemed to own under applicable provisions of the Code and rules and regulations promulgated thereunder) more than ten percent (10%) of the combined voting power of all classes of the stock of the Company and an Option granted to such optionee is intended to qualify as an Incentive Stock Option, the Option price shall be no less than 110% of the Fair Market Value of the Common Stock covered by the Option on the date the Option is granted. (b) The aggregate Fair Market Value of shares of Stock with respect to which Incentive Stock Options are first exercisable by the optionee in any calendar year (under all plans of the Company) shall not exceed the limitations, if any, imposed by Section 422(d) of the Code (or any successor provision). If any Option designated as an Incentive Stock Option, either alone or in conjunction with any other Option or Options, exceeds the foregoing limitation, the portion of such Option in excess of such limitation shall automatically be reclassified (in whole share increments and without fractional share portions) as a Non-Qualified Stock Option, with later granted Options being so reclassified first. (c) Options and SARs shall not be transferable by the participant otherwise than by will or by the laws of descent and distribution or pursuant to a domestic relations order. After the death of the participant, the Option or SAR may be transferred to the Company upon such terms and conditions, if any, as the Plan 5 Administrator and the personal representative or other person entitled to exercise the Option or SAR may agree within the period specified in subsection 8(d)(iii) hereof. (d) An Option or SAR may be exercised in whole at any time, or in part from time to time, within such period or periods (not to exceed ten years from the granting of the Option in the case of an Incentive Stock Option) as may be determined by the Plan Administrator and set forth in the agreement (such period or periods being hereinafter referred to as the "Option Period"), provided that, unless the agreement provides otherwise: (i) If a participant who is an employee of the Company or a Subsidiary shall cease to be employed by the Company or the Subsidiary, as the case may be, all Options and SARs to which the employee is then entitled to exercise may be exercised only within three months after the termination of employment and within the Option Period or, if such termination was due to disability or retirement (as hereinafter defined), within two years after termination of employment and within the Option Period. Notwithstanding the foregoing, if an employee of the Company ceases to be an employee of the Company but immediately continues as an employee of a Subsidiary (i.e. there is not more than a two week gap between such employments) or an employee of a Subsidiary ceases to be an employee of that Subsidiary but immediately continues as an employee of the Company or another Subsidiary (i.e. there is not more than a two week gap between such employments), then said participant's Options shall remain unaffected by said transition in employment. Notwithstanding the foregoing: (a) in the event that any termination of employment shall be for Cause (as defined herein) or the participant becomes an officer or director of, a consultant to or employed by a Competing Business (as defined herein), during the Option Period, then any and all Options and SARs held by such participant shall forthwith terminate and all vested Options shall be forfeited; and (b) the Plan Administrator may, in its sole discretion, extend the Option Period of any Option or SAR for up to three years from the date of termination of employment regardless of the original Option Period. For purposes of the Plan, retirement shall mean the termination of employment with the Company (or a Subsidiary, as the case may be), other than for Cause, at any time after the age 65. For purposes of this Plan, the term "Cause" shall mean (a) with respect to an individual who is party to a written agreement with the Company (or a Subsidiary, as the case may be) which contains a definition of "cause" or "for cause" or words of similar import for purposes of termination of employment thereunder by the Company (or a Subsidiary, 6 as the case may be), "cause" or "for cause" as defined in such agreement; (b) in all other cases (I) the willful commission by an employee of a criminal or other act that causes substantial economic damage to the Company (or a Subsidiary, as the case may be) or substantial injury to the business reputation of the Company (or a Subsidiary, as the case may be); (II) the commission of an act of fraud in the performance of such person's duties to or on behalf of the Company (or a Subsidiary, as the case may be); or (III) the continuing willful failure of a person to perform the duties of such person to the Company (or a Subsidiary, as the case may be) (other than a failure to perform duties resulting from such person's incapacity due to illness) after written notice thereof (specifying the particulars thereof in reasonable detail) and a reasonable opportunity to cure such failure are given to the person by the Board of Directors of the Company (or a Subsidiary, as the case may be) or the Plan Administrator. For purposes of the Plan, no act, or failure to act, on the part of any person shall be considered "willful" unless done or omitted to be done by the person other than in good faith and without reasonable belief that the person's action or omission was in the best interest of the Company (or a Subsidiary, as the case may be). For purposes of this Plan, the term "Competing Business" shall mean: any person, corporation or other entity engaged in the business of (a) providing telecommunications services or (b) selling or attempting to sell any product or service which is the same as or similar to products or services sold by the Company (or a Subsidiary, as the case may be) within the last year prior to termination of such person's employment, consultant relationship or directorship, as the case may be, hereunder. (ii) If a participant who is a director of the Company shall cease to serve as a director of the Company, any Options or SARs then exercisable by such director may be exercised only within three months after the cessation of service and within the Option Period unless such cessation was due to disability, in which case such optionee may exercise such Option or SAR within two years after cessation of service and within the Option Period. Notwithstanding the foregoing: (a) if any cessation of service as a director was the result of removal for Cause or the participant becomes an officer or director of, a consultant to or employed by a Competing Business during the Option Period, any Options and SARs held by such participant shall forthwith terminate; and (b) the Plan Administrator may in its sole discretion extend the Option Period of any 7 Option or SAR for up to three years from the date of cessation of service regardless of the original Option Period; (iii) If the participant shall die during the Option Period, any Options or SARs then exercisable may be exercised only within two years after the participant's death and within the Option Period and only by the participant's personal representative or persons entitled thereto under the participant's will or the laws of descent and distribution; (iv) The Option or SAR may not be exercised for more shares (subject to adjustment as provided in Section 14) after the termination of the participant's employment, cessation of service as a director, cessation of service as a consultant, or the participant's death, as the case may be, than the participant was entitled to purchase thereunder at the time of the termination of the participant's employment, service, or the participant's death; and (v) If a participant owns (or is deemed to own under applicable provisions of the Code and regulations promulgated thereunder) more than 10% of the combined voting power of all classes of stock of the Company (or any parent or subsidiary corporation of the Company) and an Option granted to such participant is intended to qualify as an Incentive Stock Option, the Option by its terms may not be exercisable after the expiration of five years from the date such Option is granted. (vi) If a participant who is a consultant to the Company or a Subsidiary shall cease to serve as a consultant to the Company or a Subsidiary, as the case may be, any Options or SARs then exercisable by such consultant may be exercised only within three months of the cessation of service and within the Option Period. Notwithstanding the foregoing, the Plan Administrator may in its sole discretion extend the Option Period of any Option or SAR for up to three years from the date of cessation of service regardless of the original Option Period. Notwithstanding the foregoing, if a consultant of the Company ceases to be a consultant of the Company but immediately continues as a consultant of a Subsidiary (i.e. there is not more than a two week gap between such engagements) or a consultant of a Subsidiary ceases to be a consultant of that Subsidiary but immediately continues as a consultant of the Company or another Subsidiary (i.e. there is not more than a two week gap between such engagements), then said participant's Options shall remain unaffected by said transition in engagement. 8 (e) The Option exercise price of each share purchased pursuant to an Option shall be paid in full at the time of each exercise (the "Payment Date") of the Option (i) in cash; (ii) by delivering to the Company a notice of exercise with an irrevocable direction to a broker-dealer registered under the Act to sell a sufficient portion of the shares and deliver the sale proceeds directly to the Company to pay the exercise price; (iii) in the discretion of the Plan Administrator, through the delivery to the Company of previously-owned shares of Common Stock having an aggregate Fair Market Value equal to the Option exercise price of the shares being purchased pursuant to the exercise of the Option; provided, however, that shares of Common Stock delivered in payment of the Option price must have been held by the participant for at least six (6) months in order to be utilized to pay the Option price; (iv) in the discretion of the Plan Administrator, through an election to have shares of Common Stock otherwise issuable to the optionee withheld to pay the exercise price of such Option; or (v) in the discretion of the Plan Administrator, through any combination of the payment procedures set forth in subsections (i)- (iv) of this Section 8(e). (f) The Plan Administrator, in its discretion, may authorize "stock retention Options" which provide, upon the exercise of an Option previously granted under this Plan (a "prior Option"), using previously owned shares, for the automatic issuance of a new Option under this Plan with an exercise price equal to the current Fair Market Value and for up to the number of shares equal to the number of previously-owned shares delivered in payment of the exercise price of the prior Option. Such stock retention Option shall have the same Option Period as the prior Option. (g) Nothing contained in the Plan nor in any Award agreement shall confer upon any participant any right with respect to the continuance of employment by the Company nor interfere in any way with the right of the Company to terminate his employment or change his compensation at any time. (h) The Plan Administrator may include such other terms and conditions not inconsistent with the foregoing as the Plan Administrator shall approve. Without limiting the generality of the foregoing sentence, the Plan Administrator shall be authorized to determine that Options or SARs shall be exercisable in one or more installments during the term of the Option, subject to the attainment of performance goals and objectives and the right to exercise may be cumulative as determined by the Plan Administrator. Section 9. Independent Director Options. Anything to the contrary notwithstanding, each Independent Director who is first elected or appointed to serve as a director commencing June 1, 1998 shall automatically be granted Non-Qualified Stock Options to purchase 25,000 shares of Stock. The Option exercise price for Options granted to Independent Directors under the Plan will 9 be equal the Fair Market Value of the Stock on the date of grant. Options granted to Independent Directors under the foregoing provisions will be granted on the date that such Independent Director is first elected or appointed to serve as a director and, so long as the Independent Director continuously remains a director, will vest in equal annual installments over three years commencing on the anniversary of the date of grant and will expire ten years after grant; provided, however, that if the optionee ceases to serve as a director, the Options will terminate ninety days after such cessation. Section 10. Restricted Stock Awards. (a) The Plan Administrator may grant Restricted Stock Awards to any officer, employee or consultant of the Company and its Subsidiaries. A Restricted Stock Award entitles the recipient to acquire shares of Stock subject to such restrictions and conditions as the Plan Administrator may determine at the time of grant ("Restricted Stock"). Conditions may be based on continuing employment (or other business relationship) and/or achievement of pre-established performance goals and objectives. (b) Upon execution of a written instrument setting forth the Restricted Stock Award and paying any applicable purchase price, a participant shall have the rights of a shareholder with respect to the Stock subject to the Restricted Stock Award, including, but not limited to the right to vote and receive dividends with respect thereto; provided, however, that shares of Stock subject to Restricted Stock Awards that have not vested shall be subject to the restrictions on transferability described in Section 10(d) below. Unless the Plan Administrator shall otherwise determine, certificates evidencing the Restricted Stock shall remain in the possession of the Company until such Restricted Stock is vested as provided in Section 10(c) below. (c) The Plan Administrator at the time of grant shall specify the date or dates and/or the attainment of pre-established performance goals, objectives and other conditions on which Restricted Stock shall become vested, subject to such further rights of the Company or its assigns as may be specified in the instrument evidencing the Restricted Stock Award. If the grantee or the Company, as the case may be, fails to achieve the designated goals or the grantee's relationship with the Company is terminated prior to the expiration of the vesting period, the grantee shall forfeit all shares of Stock subject to the Restricted Stock Award which have not then vested. (d) Unvested Restricted Stock may not be sold, assigned transferred, pledged or otherwise encumbered or disposed of except as specifically provided herein or in the written instrument evidencing the Restricted Stock Award. Section 11. Stock Awards. The Plan Administrator may, in its sole discretion, grant (or sell at a purchase price determined by the Plan Administrator) a Stock Award to any officer, employee or consultant of the 10 Company or its Subsidiaries, pursuant to which such individual may receive shares of Stock free of any vesting restrictions (a "Stock Award") under the Plan. Stock Awards may be granted or sold as described in the preceding sentence in respect of past services or other valid consideration, or in lieu of any cash compensation due to such individual. Section 12. Performance Share Awards. A Performance Share Award is an Award entitling the recipient to acquire shares of Stock upon the attainment of specified performance goals. The Plan Administrator may make Performance Share Awards independent of or in connection with the granting of any other Award under the Plan. Performance Share Awards may be granted under the Plan to any officer, employee or consultant of the Company or its Subsidiaries, including those who qualify for awards under other performance plans of the Company. The Plan Administrator in its sole discretion shall determine whether and to whom Performance Share Awards shall be made, the performance goals applicable under each such Award, the periods during which performance is to be measured, and all other limitations and conditions applicable to the awarded Performance Shares; provided, however, that the Plan Administrator may rely on the performance goals and other standards applicable to other performance plans of the Company in setting the standards for Performance Share Awards under the Plan. Section 13. Tax Withholding. (a) Whenever shares are to be issued or cash is to be paid under the Plan, the Company shall have the right to require the participant to remit to the Company an amount sufficient to satisfy federal, state and local tax withholding requirements prior to the delivery of any certificate for shares or any proceeds; provided, however, that in the case of a participant who receives an Award of shares under the Plan which is not fully vested, the participant shall remit such amount on the first business day following the Tax Date. The "Tax Date" for purposes of this Section 13 shall be the date on which the amount of tax to be withheld is determined. If a participant makes a disposition of shares acquired upon the exercise of an Incentive Stock Option within either two years after the Option was granted or one year after its exercise by the participant, the participant shall promptly notify the Company and the Company shall have the right to require the participant to pay to the Company an amount sufficient to satisfy federal, state and local tax withholding requirements. (b) A participant who is obligated to pay the Company an amount required to be withheld under applicable tax withholding requirements may pay such amount (i) in cash; (ii) in the discretion of the Plan Administrator, through the delivery to the Company of previously-owned shares of Common Stock having an aggregate Fair Market Value on the Tax Date equal to the tax obligation provided that the previously owned shares delivered in satisfaction of the withholding obligations must have been held by the participant for at least six (6) months; or (iii) in the discretion of the Plan Administrator, through a 11 combination of the procedures set forth in subsections (i) and (ii) of this Section 13(b). (c) A participant who is obligated to pay to the Company an amount required to be withheld under applicable tax withholding requirements in connection with either the exercise of a Non-Qualified Stock Option, or the receipt of a Restricted Stock Award, Stock Award or Performance Share Award under the Plan may, in the discretion of the Plan Administrator, elect to satisfy this withholding obligation, in whole or in part, by requesting that the Company withhold shares of stock otherwise issuable to the participant having a Fair Market Value on the Tax Date equal to the amount of the tax required to be withheld; provided, however, that shares may be withheld by the Company only if such withheld shares have vested. Any fractional amount shall be paid to the Company by the participant in cash or shall be withheld from the participant's next regular paycheck. (d) An election by a participant to have shares of stock withheld to satisfy federal, state and local tax withholding requirements pursuant to Section 13(c) must be in writing and delivered to the Company prior to the Tax Date. Section 14. Adjustment of Number and Price of Shares. Any other provision of the Plan notwithstanding: (a) If, through or as a result of any merger, consolidation, sale of all or substantially all of the assets of the Company, reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar transaction, the outstanding shares of Stock are increased or decreased or are exchanged for a different number or kind of shares or other securities of the Company, or additional shares or new or different shares or other securities of the Company or other non-cash assets are distributed with respect to such shares of Stock or other securities, the Plan Administrator shall make an appropriate or proportionate adjustment in (i) the number of Stock Options that can be granted to any one individual participant, (ii) the number and kind of shares or other securities subject to any then outstanding Awards under the Plan, and (iii) the price for each share subject to any then outstanding Stock Options under the Plan, without changing the aggregate exercise price (i.e., the exercise price multiplied by the number of shares) as to which such Stock Options remain exercisable. The adjustment by the Plan Administrator shall be final, binding and conclusive. If this Section 14(a) applies and the event is also an Acquisition Event (as defined below), then Section 14(d) shall be applicable to such event, and this Section 14(a) shall not be applicable. 12 (b) In the event that, by reason of a corporate merger, consolidation, acquisition of property or stock, separation, reorganization or liquidation, the Board of Directors shall authorize the issuance or assumption of a stock Option or stock Options in a transaction to which Section 424(a) of the Code applies, then, notwithstanding any other provision of the Plan, the Plan Administrator may grant an Option or Options upon such terms and conditions as it may deem appropriate for the purpose of assumption of the old Option, or substitution of a new Option for the old Option, in conformity with the provisions of Code Section 424(a) and the rules and regulations thereunder, as they may be amended from time to time. If this Section 14(b) applies and the event is also an Acquisition Event (as defined below), then Section 14(d) shall be applicable to such event, and this Section 14(b) shall not be applicable. (c) No adjustment or substitution provided for in this Section 14 shall require the Company to issue or to sell a fractional share under any stock Option agreement or share award agreement and the total adjustment or substitution with respect to each stock Option and share award agreement shall be limited accordingly. (d) Acquisition; Change in Control Events; Liquidation or Dissolution. (i) Definitions (A) An "Acquisition Event" shall mean: (1) after August 9, 2000, any merger or consolidation of the Company with or into another entity as a result of which the Stock is converted into or exchanged for the right to receive cash, securities or other property; or (2) after August 9, 2000, any exchange of shares of the Company for cash, securities or other property pursuant to a statutory share exchange transaction. (B) A "Change in Control Event" shall mean: (1) after August 9, 2000, any merger, consolidation, or transaction (or series of related transactions which commence after August 9, 2000 and occur within any 12 month period) which results in the voting securities of the Company outstanding immediately prior thereto representing immediately thereafter (either by remaining outstanding or by being converted into voting securities of the surviving 13 or acquiring entity) less than 62.5% of the combined voting power of the voting securities of the Company or such surviving or acquiring entity outstanding immediately after such merger, consolidation, or transaction; or (2) any individual, entity, or "person," as such term is used in Sections 13(d) and 14(d) of the Act (other than (A) the Company, (B) any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or (C) any person who, immediately prior August 9, 2000, was the "beneficial owner" (as defined in Rule 13d-3 (or its successor rule) under the Act), directly or indirectly, of more than 10% of the combined voting power of the Company's then outstanding voting securities), is or becomes, after August 9, 2000, the "beneficial owner" (as defined in Rule 13d-3 (or its successor rule) under the Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company's then outstanding voting securities; or (3) during any period of not more than two consecutive years, not including any period prior to August 9, 2000, individuals who at the beginning of such period constitute the Board, and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including, but not limited to a consent solicitation, relating to the election of directors of the Company) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; or (4) after August 9, 2000, any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company, other than to a wholly-owned subsidiary of the Company; or 14 (5) the complete liquidation of the Company. (ii) Effect on Options (A) Acquisition Event. Upon the occurrence of an Acquisition Event (regardless of whether such event also constitutes a Change in Control Event), or the execution by the Company of any agreement with respect to an Acquisition Event (regardless of whether such event will result in a Change in Control Event), the Board shall provide that all outstanding Options shall be assumed, or equivalent options shall be substituted, by the acquiring or succeeding corporation (or an affiliate thereof); provided that if such Acquisition Event also constitutes a Change in Control Event, such assumed or substituted options shall be immediately exercisable in full upon the occurrence of such Acquisition Event. For purposes hereof, an Option shall be considered to be assumed if, following consummation of the Acquisition Event, the Option confers the right to purchase, for each share of Stock subject to the Option immediately prior to the consummation of the Acquisition Event, the consideration (whether cash, securities or other property) received as a result of the Acquisition Event by holders of Stock for each share of Stock held immediately prior to the consummation of the Acquisition Event (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares of Stock); provided, however, that if the consideration received as a result of the Acquisition Event is not solely common stock of the acquiring or succeeding corporation (or an affiliate thereof), the Company may, with the consent of the acquiring or succeeding corporation, provide for the consideration to be received upon the exercise of Options to consist solely of common stock of the acquiring or succeeding corporation (or an affiliate thereof) equivalent in fair market value to the per share consideration received by holders of outstanding shares of Stock as a result of the Acquisition Event. Notwithstanding the foregoing, if the acquiring or succeeding corporation (or an affiliate thereof) does not agree to assume, or substitute for, such Options, then the Plan Administrator shall, upon written notice to the participants, provide that all then unexercised Options will become exercisable in full as of a specified time prior to the Acquisition Event (the Board shall 15 use its best efforts to ensure that Option holders have at least 90 calendar days, and in no event less than 30 calendar days, to exercise their Options) and will terminate immediately prior to the consummation of such Acquisition Event, except to the extent exercised by the participants before the consummation of such Acquisition Event; provided, however, in the event of an Acquisition Event under the terms of which holders of Stock will receive upon consummation thereof a cash payment for each share of Stock surrendered pursuant to such Acquisition Event (the "Acquisition Price"), then the Board may instead provide that all outstanding Options shall terminate upon consummation of such Acquisition Event and that each participant shall receive, in exchange therefor, a cash payment equal to the amount (if any) by which (A) the Acquisition Price multiplied by the number of shares of Stock subject to such outstanding Options (whether or not then exercisable), exceeds (B) the aggregate exercise price of such Options. (B) Change in Control Event that is not an Acquisition Event. Upon the occurrence of a Change in Control Event that does not also constitute an Acquisition Event, all Options then-outstanding shall automatically become immediately exercisable in full. (iii) Effect on Other Awards (A) Acquisition Event that is not a Change in Control Event. The Plan Administrator shall specify the effect of an Acquisition Event that is not a Change in Control Event on any other Award granted under the Plan at the time of the grant of such Award. (B) Change in Control Event. Upon the occurrence of a Change in Control Event (regardless of whether such event also constitutes an Acquisition Event), except to the extent specifically provided to the contrary in the instrument evidencing any other Award or any other agreement between a participant and the Company, all other Awards shall become exercisable, realizable or vested in full, or shall be free of all conditions or restrictions, as applicable to each such Award. 16 (iv) Liquidation or Dissolution. In the event of a proposed liquidation or dissolution of the Company, the Plan Administrator shall upon written notice to the participants provide that all then unexercised Options will (i) become exercisable in full as of a specified time prior to the effective date of such liquidation or dissolution (the Board shall use its best efforts to ensure that Option holders have at least 90 calendar days, and in no event less than 30 calendar days, to exercise their Options) and (ii) terminate effective upon such liquidation or dissolution, except to the extent exercised before such effective date. The Plan Administrator may specify the effect of a liquidation or dissolution on any Restricted Stock Award or other Award granted under the Plan at the time of the grant of such Award. Section 15. Amendment and Discontinuance. The Board of Directors may alter, amend, suspend or discontinue the Plan, provided that no such action shall deprive any person without such person's consent of any rights theretofore granted pursuant hereto. Section 16. Compliance with Governmental Regulations. Notwithstanding any provision of the Plan or the terms of any agreement entered into pursuant to the Plan, the Company shall not be required to issue any shares hereunder prior to registration of the shares subject to the Plan under the Securities Act of 1933 or the Act, if such registration shall be necessary, or before compliance by the Company or any participant with any other provisions of either of those acts or of regulations or rulings of the Securities and Exchange Commission thereunder, or before compliance with other federal and state laws and regulations and rulings thereunder, including the rules of AMEX, any applicable exchange or of the NASDAQ Stock Market. The Company shall use its best efforts to effect such registrations and to comply with such laws, regulations and rulings forthwith upon advice by its counsel that any such registration or compliance is necessary. Section 17. Compliance with Section 16. With respect to persons subject to Section 16 of the Act, transactions under this Plan are intended to comply with all applicable conditions of Rule 16b-3 (or its successor rule and shall be construed to the fullest extent possible in a manner consistent with this intent ). To the extent that any Award fails to so comply, it shall be deemed to be modified to the extent permitted by law and to the extent deemed advisable by the Plan Administrator in order to comply with Rule 16b-3. Section 18. Participation by Foreign Nationals. The Plan Administrator may, in order to fulfill the purposes of the Plan and without amending the Plan, modify grants to foreign nationals or United States citizens employed abroad in order to recognize differences in local law, tax policy or custom. Section 19. Effective Date of Plan. The Plan became effective on September 4, 1998, the date of approval and adoption of the Plan by requisite vote of the holders of the outstanding shares of Stock. 17 EX-10.50 6 0006.txt EX-10.50 2000-OP35 Frederick A. Moran Optionee VDC COMMUNICATIONS, INC. ------------------------ INCENTIVE STOCK OPTION AGREEMENT UNDER THE VDC COMMUNICATIONS, INC. 1998 STOCK INCENTIVE PLAN, AS AMENDED (the "Plan") This Agreement is made as of August 9, 2000, (the "Grant Date") by and between VDC Communications, Inc., a Delaware corporation (the "Corporation") and Frederick A. Moran (the "Optionee"). WHEREAS, Optionee is an employee of the Corporation or one of its subsidiaries and the Corporation considers it desirable and in its best interest that Optionee be given an inducement to acquire a proprietary interest in the Corporation and an incentive to advance the interests of the Corporation by granting the Optionee an option to purchase shares of common stock of the Corporation (the "Common Stock"); NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree that as of the Grant Date, the Corporation hereby grants Optionee an option to purchase from it, upon the terms and conditions set forth in the Plan (a copy of which is attached hereto) and this Agreement, that number of shares of the authorized and unissued Common Stock of the Corporation as is set forth on Schedule A hereto. 1. Terms of Stock Option. The option to purchase Common --------------------- Stock granted herein is subject to the terms, conditions, and covenants set forth in the Plan as well as the following: (a) This option shall constitute an Incentive Stock Option which is intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended; (b) The per share exercise price for the shares subject to this option shall be 110% of the Fair Market Value (as defined in the Plan) of the Common Stock on the Grant Date, which exercise price is set forth on Schedule A hereto; 1 (c) This option shall vest in accordance with the vesting schedule set forth on Schedule A hereto; and (d) No portion of this option may be exercised more than five (5) years from the Grant Date. 2. Payment of Exercise Price. The option may be ---------------------------- exercised, in part or in whole, only by written request to the Corporation accompanied by payment of the exercise price in full either: (i) in cash for the shares with respect to which it is exercised; (ii) by delivering to the Corporation a notice of exercise with an irrevocable direction to a broker-dealer registered under the Securities Exchange Act of 1934, as amended, to sell a sufficient portion of the shares and deliver the sale proceeds directly to the Corporation to pay the exercise price; (iii) in the discretion of the Plan Administrator, through the delivery to the Corporation of previously-owned shares of Common Stock having an aggregate Fair Market Value equal to the option exercise price of the shares being purchased pursuant to the exercise of the Option; provided, however, that shares of Common Stock delivered in payment of the option price must have been held by the Optionee for at least six (6) months in order to be utilized to pay the option price; (iv) in the discretion of the Plan Administrator, through an election to have shares of Common Stock otherwise issuable to the Optionee withheld to pay the exercise price of such Option; or (v) in the discretion of the Plan Administrator, through any combination of the payment procedures set forth in Subsections (i) - (iv) of this paragraph. 3. Miscellaneous. ------------- (a) This Agreement and the options represented hereby may not be assigned or transferred in any manner except by will or by the laws of descent and distribution or pursuant to a domestic relations order. (b) This Agreement will be governed and interpreted in accordance with the laws of the State of Connecticut, and may be executed in more than one counterpart, each of which shall constitute an original document. (c) No alterations, amendments, changes or additions to this Agreement will be binding upon either the Corporation or Optionee unless reduced to writing and signed by both parties. (d) All controversies or claims arising out of this Agreement shall be determined by binding arbitration, conducted at the Corporation's offices in Greenwich, Connecticut, or at such other location 2 designated by the Corporation, before the American Arbitration Association. (e) No rule of construction requiring interpretation against the drafting party shall apply to the interpretation of this Agreement. (f) If any provision of this Agreement is held to be invalid, the remaining provisions shall remain in full force and effect. In witness whereof, the parties have executed this Agreement as of the Grant Date. VDC COMMUNICATIONS, INC. By: /s/ Frederick A. Moran ----------------------------- Frederick A. Moran Chief Executive Officer OPTIONEE /s/ Frederick A. Moran -------------------------------- Frederick A. Moran 3 Frederick A. Moran Optionee Schedule A 1. Grant Date: August 9, 2000 2. Number of Shares of Common Stock covered by the Option: 150,000 3. Exercise Price (110% of Fair Market Value of Common Stock on the Grant Date): $.825 4. The Option shall vest in accordance with the following schedule: (i) 30,000 shares shall vest on the first anniversary of the Grant Date, provided Optionee remains continuously employed by the Corporation or any of its Subsidiaries (as defined in the Plan) from August 9, 2000 through August 8, 2001; (ii) 30,000 shares shall vest on the second anniversary of the Grant Date, provided Optionee remains continuously employed by the Corporation or any of its Subsidiaries (as defined in the Plan) from August 9, 2000 through August 8, 2002; (iii) 30,000 shares shall vest on the third anniversary of the Grant Date, provided Optionee remains continuously employed by the Corporation or any of its Subsidiaries (as defined in the Plan) from August 9, 2000 through August 8, 2003; (iv) 30,000 shares shall vest on the fourth anniversary of the Grant Date, provided Optionee remains continuously employed by the Corporation or any of its Subsidiaries (as defined in the Plan) from August 9, 2000 through August 8, 2004; and (v) 30,000 shares shall vest on the fifth anniversary of the Grant Date, provided Optionee remains continuously employed by the Corporation or any of its Subsidiaries (as defined in the Plan) from August 9, 2000 through August 8, 2005. 4 EX-10.51 7 0007.txt EX-10.51 2000-OP34 Clayton F. Moran Optionee VDC COMMUNICATIONS, INC. ------------------------ INCENTIVE STOCK OPTION AGREEMENT UNDER THE VDC COMMUNICATIONS, INC. 1998 STOCK INCENTIVE PLAN, AS AMENDED (the "Plan") This Agreement is made as of August 9, 2000, (the "Grant Date") by and between VDC Communications, Inc., a Delaware corporation (the "Corporation") and Clayton F. Moran (the "Optionee"). WHEREAS, Optionee is an employee of the Corporation or one of its subsidiaries and the Corporation considers it desirable and in its best interest that Optionee be given an inducement to acquire a proprietary interest in the Corporation and an incentive to advance the interests of the Corporation by granting the Optionee an option to purchase shares of common stock of the Corporation (the "Common Stock"); NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree that as of the Grant Date, the Corporation hereby grants Optionee an option to purchase from it, upon the terms and conditions set forth in the Plan (a copy of which is attached hereto) and this Agreement, that number of shares of the authorized and unissued Common Stock of the Corporation as is set forth on Schedule A hereto. 1. Terms of Stock Option. The option to purchase Common --------------------- Stock granted herein is subject to the terms, conditions, and covenants set forth in the Plan as well as the following: (a) This option shall constitute an Incentive Stock Option which is intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended; (b) The per share exercise price for the shares subject to this option shall be the 100% of the Fair Market Value (as defined in the Plan) of the Common Stock on the Grant Date, which exercise price is set forth on Schedule A hereto; (c) This option shall vest in accordance with the vesting schedule set forth on Schedule A hereto; and (d) No portion of this option may be exercised more than ten (10) years from the Grant Date. 2. Payment of Exercise Price. The option may be ---------------------------- exercised, in part or in whole, only by written request to the Corporation accompanied by payment of the exercise price in full either: (i) in cash for the shares with respect to which it is exercised; (ii) by delivering to the Corporation a notice of exercise with an irrevocable direction to a broker-dealer registered under the Securities Exchange Act of 1934, as amended, to sell a sufficient portion of the shares and deliver the sale proceeds directly to the Corporation to pay the exercise price; (iii) in the discretion of the Plan Administrator, through the delivery to the Corporation of previously-owned shares of Common Stock having an aggregate Fair Market Value equal to the option exercise price of the shares being purchased pursuant to the exercise of the Option; provided, however, that shares of Common Stock delivered in payment of the option price must have been held by the Optionee for at least six (6) months in order to be utilized to pay the option price; (iv) in the discretion of the Plan Administrator, through an election to have shares of Common Stock otherwise issuable to the Optionee withheld to pay the exercise price of such Option; or (v) in the discretion of the Plan Administrator, through any combination of the payment procedures set forth in Subsections (i) - (iv) of this paragraph. 3. Miscellaneous. ------------- (a) This Agreement and the options represented hereby may not be assigned or transferred in any manner except by will or by the laws of descent and distribution or pursuant to a domestic relations order. (b) This Agreement will be governed and interpreted in accordance with the laws of the State of Connecticut, and may be executed in more than one counterpart, each of which shall constitute an original document. (c) No alterations, amendments, changes or additions to this Agreement will be binding upon either the Corporation or Optionee unless reduced to writing and signed by both parties. (d) All controversies or claims arising out of this Agreement shall be determined by binding arbitration, conducted at the Corporation's offices in Greenwich, Connecticut, or at such other location designated by the Corporation, before the American Arbitration Association. 2 (e) No rule of construction requiring interpretation against the drafting party shall apply to the interpretation of this Agreement. (f) If any provision of this Agreement is held to be invalid, the remaining provisions shall remain in full force and effect. In witness whereof, the parties have executed this Agreement as of the Grant Date. CORPORATION: VDC COMMUNICATIONS, INC. By: /s/ Frederick A. Moran ------------------------ Frederick A. Moran Chief Executive Officer OPTIONEE: /s/ Clayton F. Moran --------------------------- Clayton F. Moran 3 Clayton F. Moran Optionee Schedule A 1. Grant Date: August 9, 2000 2. Number of Shares of Common Stock covered by the Option: 80,000 3. Exercise Price (100% of Fair Market Value of Common Stock on the Grant Date): $.75 4. The Option shall vest in accordance with the following schedule: (i) 16,000 shares shall vest on the first anniversary of the Grant Date, provided Optionee remains continuously employed by the Corporation or any of its Subsidiaries (as defined in the Plan) from August 9, 2000 through August 8, 2001; (ii) 16,000 shares shall vest on the second anniversary of the Grant Date, provided Optionee remains continuously employed by the Corporation or any of its Subsidiaries (as defined in the Plan) from August 9, 2000 through August 8, 2002; (iii) 16,000 shares shall vest on the third anniversary of the Grant Date, provided Optionee remains continuously employed by the Corporation or any of its Subsidiaries (as defined in the Plan) from August 9, 2000 through August 8, 2003; (iv) 16,000 shares shall vest on the fourth anniversary of the Grant Date, provided Optionee remains continuously employed by the Corporation or any of its Subsidiaries (as defined in the Plan) from August 9, 2000 through August 8, 2004; and (v) 16,000 shares shall vest on the fifth anniversary of the Grant Date, provided Optionee remains continuously employed by the Corporation or any of its Subsidiaries (as defined in the Plan) from August 9, 2000 through August 8, 2005. 4 EX-10.52 8 0008.txt EX-10.52 PURCHASE AND SALE AGREEMENT --------------------------- THIS PURCHASE AND SALE AGREEMENT is made this 26th day of August, 2000 (the "Date of this Agreement"), by and between VDC TELECOMMUNICATIONS, INC., a Delaware corporation ("Seller"), and OMNETRIX INTERNATIONAL, INC., a Colorado corporation ("Buyer"). R E C I T A L S : ----------------- WHEREAS, Seller is engaged in the telecommunications business; and WHEREAS, Seller DESIRES TO SELL AND ASSIGN TO buyer, and Buyer desires to purchase and assume from Seller, on the terms and subject to the conditions set forth in this Agreement, the Purchased Assets, as defined herein. NOW, THEREFORE, in consideration of the recitals and of the mutual covenants, conditions, warranties and agreements set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Buyer and Seller hereby agree as follows: ARTICLE I DEFINITIONS 1.1 When used in this Agreement, the following terms shall have the meanings specified: "Affiliate" shall mean any Person controlling, controlled by or under common control with Seller. "Control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with") as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities, by contract or otherwise. Control is presumed by the ownership (whether legal or beneficial) of over fifty percent (50%) of the applicable Person. "Agreement" shall mean this Purchase and Sale Agreement, together with the Schedules and the Exhibits attached hereto, as the same shall be amended from time to time in accordance with the terms hereof. "Assumed Liabilities" is defined in Section 2.4. "Bill of Sale" shall mean the instrument in the form of EXHIBIT "A" attached hereto. Page 1 of 32 "Buyer" shall mean OMNETRIX INTERNATIONAL, INC., a Colorado corporation. "Buyer's Certificate" shall mean the corporate certifications of Buyer in the form of EXHIBIT "B" attached hereto. "Closing" shall mean the conference to be held at 10:00 a.m., Greenwich, Connecticut, time on the Closing Date at the offices of VDC Telecommunications, Inc. at 75 Holly Hill Lane, Greenwich, CT 06830, or at such other location, at which the transactions contemplated by this Agreement shall be consummated. "Closing Date" shall mean (a) August 26, 2000; or (b) such other date as Buyer and Seller may agree upon in writing. The Closing may not occur after August 30, 2000, unless Buyer and Seller agree in writing to extend the Closing Date beyond such date. The Closing shall be deemed effective as of the opening of business on the Closing Date. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Earnest Money" is defined in Section 2.2. "Event of Loss" shall mean any loss, taking, condemnation, damage or destruction of or to any of the Purchased Assets. "Exhibits" shall mean those exhibits referred to in this Agreement which have been delivered concurrently with the execution of this Agreement, and which are hereby incorporated herein and made a part hereof. "Lien" shall mean any lien or encumbrance directly affecting the Purchased Assets. "Person" shall mean any natural person, general or limited partnership, corporation, firm, association or other legal entity. "Purchased Assets" shall mean the right, title and interest of Seller in and to the assets described on EXHIBIT "C" hereto and incorporated herein by reference. "Purchase Price" is defined in Section 2.2. "Schedules" shall mean those schedules referred to in this Agreement which have been delivered concurrently with the execution of this Agreement, and which are hereby incorporated herein and made a part hereof. "Seller" shall mean VDC TELECOMMUNICATIONS, INC., a Delaware corporation. "Seller's Certificate" shall mean the corporate certifications of Seller in the form of EXHIBIT "D" attached hereto. Page 2 of 32 1.2 Singular/Plural; Gender; Sections. Where the context so --------------------------------- requires or permits, the use of the singular form includes the plural, and the use of the plural form includes the singular, and the use of any gender includes any and all genders. Except as specifically set forth herein, all Section references are to Sections and articles of this Agreement. ARTICLE II PURCHASE AND SALE 2.1 Purchase and Sale. On the terms and subject to the conditions ----------------- set forth in this Agreement, Seller shall, at the Closing on the Closing Date, sell, assign, convey, transfer and deliver to Buyer, and Buyer shall purchase and acquire from Seller, all of Seller's right, title and interest, legal and equitable, as of the Closing Date, in and to the Purchased Assets. THE PURCHASED ASSETS ARE BEING PURCHASED IN AN "AS IS", "WHERE IS" CONDITION. Except for the express warranties set forth in aRTICLE iv, SELLER does not make, and hereby disclaims, any and all other Express and/or implied warranties, including, but not limited to, warranties of merchantability, fitness for a particular purpose, noninfringement and title, and any warranties arising from a course of dealing, usage, or trade practice. SELLER MAKES NO REPRESENTATIONS OF OWNERSHIP IN OR TRANSFERABILITY OF SOFTWARE. 2.2 Purchase Price. The total purchase price for the Purchased -------------- Assets shall be TWO HUNDRED AND TWENTY FIVE THOUSAND AND NO/100 DOLLARS ($225,000.00) (the "Purchase Price"). The Purchase Price shall be paid as follows: (a) On the Date of this Agreement, Buyer shall deliver to Seller a cashier's check in the amount of thirty-SIX Thousand EIGHT hundred and seventy-five and no/100 Dollars ($36,875.00) (the "Second Payment") as an earnest money deposit. Additionally, Seller shall retain the FIFTEEN Thousand SIX HUNDRED AND TWENTY FIVE AND no/100 Dollars ($15,625.00) paid by Buyer to Seller in connection with the execution of a Letter of Intent (the "First Payment") (the First Payment and the Second Payment are collectively referred to as the "Earnest Money"). If this Agreement is terminated (by either party or for any reason whatsoever), then to compensate Seller for its work on this Agreement and transaction and for the loss of a benefit of the bargain (and not as a penalty) the Earnest Money, together with all interest earned thereon, shall be kept by Seller without further obligation or liability to Buyer. The parties agree, in this regard, that the forfeit of the Earnest Money is reasonable and the damages associated with failure to consummate the transaction represented by this Agreement are difficult to estimate. The retention of the Earnest Money shall not be deemed an election of remedies. Notwithstanding the foregoing, if Seller is in default in the performance of its material obligations under this Agreement or has materially breached its representations and warranties hereunder and fails to cure said default or breach within five (5) calendar days of written notice from Buyer Page 3 of 32 and Buyer is not in default of its material obligations under this Agreement and has not materially breached its representations and warranties hereunder, then Seller shall keep the First Payment and shall return the Second Payment to Buyer. (b) The Purchase Price, less the Earnest Money shall be paid to Seller in immediately available funds at Closing, as defined herein, subject to compliance with the terms and conditions set forth herein and fulfillment of all conditions precedent as specified herein. 2.3 Closing Date Deliveries. At the Closing on the Closing Date: ----------------------- (a) Seller shall deliver, or cause to be delivered, to Buyer, properly executed and dated as of the Closing Date all documents required under Section 7.7 of this Agreement. (b) Buyer shall deliver, or cause to be delivered, to Seller, properly executed and dated as of the Closing Date all documents required under Section 8.3 of this Agreement. 2.4 Assumption of Liabilities. As of the Closing, Buyer shall --------------------------- assume and become obligated to pay any debt, obligation or liability of any kind or nature arising out of the Purchased Assets (the "Assumed Liabilities"). To the best of Seller's knowledge, as of the Date of this Agreement, there are no Liens on the Purchased Assets. Nothing in the foregoing sentence shall impose upon Seller any duty of investigation or due diligence. Without limiting the generality of the foregoing sentence, Seller shall have no duty to perform a UCC lien search in any state or jurisdiction. 2.5 Taxes. All federal, state, local and other transfer, sales and ----- use taxes applicable to, imposed upon or arising out of the transfer to Buyer of the Purchased Assets as contemplated by this Agreement shall be paid by Buyer. 2.6 Risk of Loss. Subject to Section 10.1 hereof, the risk of all ------------ Events of Loss prior to the Closing shall be upon Seller and the risk of all Events of Loss at or subsequent to the Closing shall be upon Buyer. 2.7 Allocation of Purchase Price. The Purchase Price will be ---------------------------- allocated among the Purchased Assets in accordance with SCHEDULE 2.7. Buyer and Seller each agree to report such allocation to the Internal Revenue Service in the form required by Treasury Regulation 1.1060T. ARTICLE III GOVERNMENTAL APPROVALS 3.1 Governmental Approvals. Promptly following the execution of ----------------------- this Agreement, if executed prior to the Closing Date, Buyer shall proceed to prepare and file with the appropriate governmental authorities any requests for Page 4 of 32 approvals or waivers that are required from governmental authorities in connection with the Closing, and shall diligently and expeditiously prosecute such requests for approvals or waivers and all proceedings necessary to secure such approvals and waivers. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER Seller hereby represents and warrants to Buyer, which representations and warranties shall survive the Closing in accordance with Section 10.4, as follows: 4.1 Organization. Seller is a corporation duly organized and ------------ validly existing under the laws of the State of Delaware. Seller has the power to own or lease its properties and to carry on its business in the place where such properties are now owned, leased or operated and such business is now conducted. 4.2 Authorization: Enforceability. The execution, delivery and ------------------------------- performance of this Agreement and all of the documents and instruments required hereby by Seller and the consummation by Seller of the transactions contemplated hereby have been duly and validly authorized by the Board of Directors of Seller, and no other proceedings on its part are necessary to authorize the execution, delivery and performance of this Agreement. This Agreement is, and the other documents and instruments required hereby will be, when executed and delivered by Seller, the valid and binding obligations of Seller, enforceable against Seller in accordance with their respective terms, subject only to bankruptcy, insolvency, reorganization, moratoriums or similar laws at the time in effect affecting the enforceability or rights of creditors generally and by general equitable principles which may limit the right to obtain equitable remedies. 4.3 Authority; No Breach. Seller has the requisite corporate power -------------------- and authority to execute and deliver this Agreement and to perform its obligations hereunder. The execution, delivery and performance of this Agreement by Seller and the consummation of the transactions contemplated hereby do not conflict with or result in any breach of any of the provisions of, or constitute a default under, result in a violation of, result in the creation of a right of termination or acceleration or any lien, security interest, charge or authorization, consent, approval, exemption or other action by or notice to any court or other governmental body, under the provisions of the Articles of Incorporation or Bylaws of Seller or any indenture, mortgage, lease, loan agreement or other agreement or instrument by which Seller or the Purchased Assets are bound or affected, or any law, statute, rule or regulation or order, judgment or decree to which Seller or the Purchased Assets are subject. 4.4 Governmental Authorities; Consents. The Seller is not required ---------------------------------- to submit any notice, report or other filing with any governmental authority in connection with the execution or delivery by it of this Agreement or the consummation of the transactions contemplated hereby. No consent, approval or authorization of any governmental or regulatory authority is required to be Page 5 of 32 obtained by Seller in connection with its execution, delivery and performance of this Agreement. 4.5 Brokers. Neither this Agreement nor the sale and purchase of ------- the Purchased Assets or any other transaction contemplated by this Agreement was induced or procured through any Person acting on behalf of or representing Seller as broker, finder, investment banker, financial advisor or in any similar capacity. 4.6 Title to Purchased Assets. Seller owns good and marketable --------------------------- title in and to the Purchased Assets. SELLER MAKES NO REPRESENTATIONS REGARDING THE OWNERSHIP OF OR TRANSFERABILITY OF ANY SOFTWARE CONTAINED OR USED WITH THE SWITCH. THE SELLER HEREBY SELLS THE HARDWARE TO THE BUYER. ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to Seller which representations and warranties shall survive the Closing in accordance with Section 10.4, as follows: 5.1 Organization. Buyer is a corporation duly organized and ------------ validly existing under the laws of the State of Colorado, with the requisite corporate power and authority to enter into this Agreement and perform its obligations hereunder. 5.2 Execution, Delivery; Valid and Binding Agreement. The ----------------------------------------------------- execution, delivery and performance of this Agreement by Buyer and the consummation by Buyer of the transactions contemplated hereby do not conflict with or result in any breach of any provisions of, constitute a default under, result in a violation of, result in the creation of a right of termination or acceleration of any lien, security interest, charge or encumbrance upon any assets of the Buyer, or require any authorization, consent, approval, exemption or other action by or notice to any court or other governmental body, under the provisions of the Articles of Incorporation or Bylaws of Buyer or any indenture, mortgage, lease, loan agreement or other agreement or instrument by which Buyer is bound or affected, or any law, statute, rule or regulation or order, judgment or decree to which Buyer is subject. This Agreement is, and the other documents and instruments required hereby will be, when executed and delivered by Buyer the valid and binding obligations of Buyer enforceable against Buyer in accordance with their respective terms, subject only to bankruptcy, insolvency, reorganization, moratoriums or similar laws at the time in effect affecting the enforceability or right of creditors generally and by general equitable principles which may limit the right to obtain equitable remedies. 5.3 Brokers. Neither this Agreement nor the sale and purchase of ------- the Purchased Assets or any other transaction contemplated by this Agreement was induced or procured through any Person acting on behalf of or representing Buyer as broker, finder, investment banker, financial advisor or in any similar capacity. Page 6 of 32 ARTICLE VI CERTAIN MATTERS PENDING THE CLOSING From and after the Date of this Agreement, if prior to the Closing Date, and until the Closing: 6.1 Access. Buyer and its authorized agents, officers and ------ representatives shall have access to the Purchased Assets to conduct such examination and investigation of the Purchased Assets as it deems necessary, provided that such examinations shall be during the Seller's normal business hours, and shall not interfere with Seller's operations. 6.2 Notice of Adverse Changes. Pending the Closing Date, Seller -------------------------- shall give Buyer prompt notice of the occurrence of any Event of Loss. ARTICLE VII CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER The obligations of Buyer to be performed on the Closing Date shall be subject to the satisfaction of the following conditions on or before the Closing Date: 7.1 Compliance with Agreement. Seller shall have performed and --------------------------- complied with all of its material obligations under this Agreement which are to be performed or complied with by it prior to or at the Closing; 7.2 Representations and Warranties. The representations and -------------------------------- warranties made by Seller in Section IV of this Agreement shall be materially true and correct as of the Closing Date with the same force and effect as though such representations and warranties had been made on the Closing Date; 7.3 Event of Loss. Between the Date of this Agreement and the ------------- Closing, the Purchased Assets shall not have sustained an Event of Loss which individually or in the aggregate would cost in excess of $20,000 to repair; 7.4 Deliveries at Closing. Seller shall have delivered or caused ---------------------- to be delivered to the Buyer the documents, each properly executed and dated as of the Closing Date, required pursuant to Section 7.7; 7.5 Seller shall have performed in all material respects all of the covenants and agreements required to be performed and complied with by it under this Agreement prior to the Closing; Page 7 of 32 7.6 Seller's Board of Directors shall have approved this Agreement and the transactions contemplated hereby; 7.7 On the Closing Date, Seller shall have delivered to Buyer all of the following: (a) the Bill of Sale and such other instruments of conveyance, transfer, assignment and delivery as Buyer shall have reasonably requested pursuant to Section 2.3(a) hereof; (b) a copy of the text of the resolutions adopted by the board of directors of Seller authorizing the execution, delivery and performance of this Agreement and the consummation of all of the transactions contemplated by this Agreement; along with a certificate executed on behalf of Seller, by its corporate secretary certifying to Buyer that such copy is a true, correct and complete copy of such resolutions, and that such resolutions were duly adopted and have not been amended or rescinded; (c) an officers' certificate executed on behalf of Seller by its corporate secretary certifying the signature and office of each officer executing this Agreement or any of the related documents; (d) a certificate of good standing from the Secretary of State of the State of Delaware, dated at or about the Closing, to the effect that such corporation is in good standing under the laws of such state; and (e) an executed copy of each of the related documents. If any of the conditions set forth in this Article VII have not been satisfied, the Buyer may nevertheless elect to proceed with the consummation of the transactions contemplated hereby. Any such election to proceed shall be evidenced by a certificate signed on behalf of the Buyer by an officer of the Buyer. ARTICLE VIII CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER The obligations of Seller to consummate the transactions contemplated by this Agreement are subject to the satisfaction of the following conditions on or before the Closing Date: 8.1 Compliance with Agreement. Buyer shall have performed and ------------------------- complied with all of its material obligations under this Agreement which are to be performed or complied with by it prior to or at the Closing. Without limiting the generality of the preceding sentence, for purposes of this Agreement, the delivery of the Second Payment and the full Purchase Price shall be deemed a material obligation. Page 8 of 32 8.2 Representations and Warranties. The representations and -------------------------------- warranties made by Buyer in this Agreement shall be true and correct as of the Closing Date with the same force and effect as though such representations and warranties had been made on the Closing Date; 8.3 Deliveries at Closing. In addition to the payments listed ----------------------- under Section 2.2(a) of this Agreement, Buyer shall have delivered or caused to be delivered to Seller the following documents, each properly executed and dated as of the Closing Date: (a) a promissory note (the "Note") in form and substance substantially as set forth in Exhibit "E"; (b) a security agreement (the "Security Agreement") ") in form and substance substantially as set forth in Exhibit "F"; (c) a State of Colorado UCC-1 ("UCC-1") in form and substance substantially as set forth in Exhibit "G"; (d) a copy of the text of the resolutions adopted by the board of directors of Buyer authorizing the execution, delivery and performance of this Agreement and the consummation of all of the transactions contemplated by this Agreement, along with a certificate executed on behalf of Buyer by its corporate secretary certifying to Seller that such copy is a true, correct and complete copy of such resolutions, and that such resolutions were duly adopted and have not been amended or rescinded, and (e) an officers' certificate executed on behalf of Buyer by its corporate secretary certifying the signature and office of each officer executing this Agreement or any of the related documents; (f) a certificate of good standing from the Secretary of State of the State of Colorado, dated at or about the Closing, to the effect that such corporation is in good standing under the laws of such state; and (g) such other documents as Seller shall reasonably request. 8.4 Buyer shall have performed in all material respects all the covenants and agreements required to be performed by it under this Agreement prior to the Closing; 8.5 There shall not be threatened, instituted or pending any action or proceeding, before any court or governmental authority or agency, domestic or foreign, (i) challenging or seeking to make illegal, or to delay or otherwise directly or indirectly restrain or prohibit, the consummation of the transactions contemplated hereby or seeking to obtain material damages in connection with such transactions, (ii) seeking to invalidate or render unenforceable any material provision of this Agreement, or (iii) otherwise relating to and materially adversely affecting the transactions contemplated hereby; and Page 9 of 32 8.6 There shall not be any action taken, or any statute, rule, regulation, judgment, order or injunction, enacted, entered, enforced, promulgated, issued or deemed applicable to the transactions contemplated hereby by any federal, state or foreign court, government or governmental authority or agency, which would reasonably be expected to result, directly or indirectly, in any of the consequences referred to in Section 8.5 hereof. If any of the conditions set forth in this Article VIII have not been satisfied, Seller may nevertheless elect to proceed with the consummation of the transactions contemplated hereby. Any such election to proceed shall be evidenced by a certificate signed on behalf of Seller by an officer of Seller. ARTICLE IX INDEMNIFICATION 9.1 Survival of Representations and Warranties. ------------------------------------------ Notwithstanding any investigation made by or on behalf of any of the parties hereto or the results of any such investigation and notwithstanding the participation of such party in the Closing, the representations and warranties contained in this Agreement shall survive the Closing for a period of three years following the Closing Date. 9.2 Indemnification by Seller. ------------------------- (a) Seller shall indemnify and hold Buyer harmless from and against, and agree promptly to defend Buyer from and reimburse Buyer for, any and all losses, damages, costs, expenses, liabilities, obligations and claims of any kind (including, without limitation, reasonable attorney fees and other legal costs and expenses) which Buyer may at any time suffer or incur, or become subject to, as a result of or in connection with any material breach or inaccuracy of any of the representations and warranties made by Seller in or pursuant to this Agreement, or in any instrument, certificate or affidavit delivered by Seller at the Closing in accordance with the provisions of any Section hereof. (b) Nothing contained in this Section 9.2 shall provide Seller with rights of indemnification or remedies against Buyer greater than as set forth in Section 10.2 if the transactions contemplated by this Agreement fail to close. 9.3 Indemnification by Buyer. ------------------------ (a) Buyer shall indemnify and hold Seller harmless from and against, and agrees to promptly defend Seller from and reimburse Seller for, any and all losses, damages, costs, expenses, liabilities, obligations and claims of any kind (including, without limitation, Page 10 of 32 reasonable attorney fees and other legal costs and expenses) which Seller may at any time suffer or incur, or become subject to, as a result of or in connection with: (i) any material breach or inaccuracy of any representations and warranties made by Buyer in or pursuant to this Agreement, or in any certificate or affidavit delivered by Buyer at the Closing in accordance with the provisions of any Section hereof; (ii) any failure by Buyer to carry out, perform, satisfy and discharge any of its covenants, agreements, undertakings, liabilities or obligations under this Agreement or under any of the documents and materials delivered by Buyer pursuant to this Agreement; (iii) the Assumed Liabilities; or (iv) the operation and ownership of the Purchased Assets by Buyer from and after the Closing Date. (b) Nothing contained in this Section 9.3 shall provide Seller with rights of indemnification or remedies against Buyer greater than as set forth in Section 10.2 if the transactions contemplated by this Agreement fail to close. 9.4 Notification of Claims; Election to Defend. ------------------------------------------ (a) A party entitled to be indemnified pursuant to Section 9.2 or 9.3 (the "Indemnified Party") shall notify the party liable for such indemnification (the "Indemnifying Party") in writing of any claim or demand which the Indemnified Party has determined has given or could give rise to a right of indemnification under this Agreement. Subject to the Indemnifying Party's right to defend in good faith third party claims as hereinafter provided, the Indemnifying Party shall satisfy its obligations under this Article IX within thirty (30) days after the receipt of written notice thereof from the Indemnified Party. (b) If the Indemnified Party shall notify the Indemnifying Party of any claim or demand pursuant to Section 9.4(a), and if such claim or demand relates to a claim or demand asserted by a third party against the Indemnified Party which the Indemnifying Party acknowledges is a claim or demand for which it must indemnify or hold harmless the Indemnified Party under Section 9.2 or 9.3, the Indemnifying Party shall have the right to employ counsel acceptable to the Indemnified Party to defend any such claim or demand asserted against the Indemnified Party. The Indemnified Party shall have the right to participate in the defense of any such claim or demand. The Indemnifying Party shall notify the Indemnified Party in writing, as promptly as possible (but in any case before the due date for the answer or response to a claim) after the date of the notice of claim given by the Indemnified Party to the Indemnifying Party under Section 9.4(a) of its election to defend in good faith any such third party Page 11 of 32 claim or demand. So long as the Indemnifying Party is defending in good faith any such claim or demand asserted by a third party against the Indemnified Party, the Indemnified Party shall not settle or compromise such claim or demand. The Indemnified Party shall cooperate with the Indemnifying Party with respect to such defense and shall make available to the Indemnifying Party or its agents all records and other materials in the Indemnified Party's possession reasonably required by it for its use in contesting any third party claim or demand. Whether or not the Indemnifying Party elects to defend any such claim or demand, the Indemnified Party shall have no obligations to do so. ARTICLE X TERMINATION; MISCELLANEOUS; CONFLICT OF INTEREST 10.1 Termination. This Agreement may be terminated and the ----------- transactions contemplated hereby may be abandoned at any time on or prior to the Closing Date, as follows: (a) by mutual written agreement of Seller and Buyer; or (b) by Buyer if any of the conditions set forth in Article VII of this Agreement shall not have been fulfilled by the Closing Date; or (c) by Seller if any of the conditions set forth in Article VIII of this Agreement shall not have been fulfilled by the Closing Date. 10.2 Rights on Termination: Waiver. ----------------------------- (a) If this Agreement is terminated pursuant to Section 10.1(a), then Seller shall keep the Earnest Money and all further obligations of the parties under or pursuant to this Agreement shall terminate without further liability of either party to the other. (b) If this Agreement is terminated pursuant to Section 10.1(b) or 10.1(c), then the parties shall be free to pursue all legal and equitable remedies, including specific performance, available to them. If this Agreement is terminated pursuant to Section 10.1(b) and Seller is in default in the performance of its material obligations under this Agreement or has materially breached its representations and warranties hereunder and fails to cure said default or breach within five (5) calendar days of written notice from Buyer and Buyer is not in default of its material obligations under this Agreement and has not materially breached its representations and warranties hereunder, then Seller shall keep the First Payment and shall return the Second Payment to Buyer. 10.3 Bulk Transfer. Buyer and Seller hereby waive compliance with ------------- the Bulk Transfer provisions of the Uniform Commercial Code and all similar laws. 10.4 Survival. The obligations to indemnify contained in Article IX -------- hereof, the agreements contained herein and, as limited by the introductory paragraphs of Articles IV and V hereof, the representations and warranties made in this Agreement or made pursuant hereto shall survive the Closing and the consummation of the transactions contemplated by this Agreement, and shall survive any independent investigation by Buyer or Seller, and any dissolution, merger or consolidation of Buyer or Seller and shall bind the legal Page 12 of 32 representatives, assigns and successors of Buyer and Seller for a period of three (3) years after the Closing Date. 10.5 Entire Agreement; Amendment; and Waivers. This Agreement and ------------------------------------------ the documents referred to herein and to be delivered pursuant hereto constitute the entire agreement between the parties pertaining to the subject matter hereof, and supersede all prior and contemporaneous agreements, understandings, negotiations and discussions of the parties, whether oral or written, and there are no warranties, representations or other agreements between the parties in connection with the subject matter hereof, except as specifically set forth herein. No amendment, supplement, modification, waiver or termination of this Agreement shall be binding unless executed in writing by the party to be bound thereby. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision or breach of this Agreement, whether or not similar, unless otherwise expressly provided. 10.6 Expenses. Except as otherwise specifically provided herein, -------- whether or not the transactions contemplated by this Agreement are consummated, each of the parties shall pay the fees and expenses of its respective counsel, accountants and other experts incident to the negotiation and preparation of this Agreement and consummation of the transactions contemplated hereby. 10.7 Benefit; Assignment. This Agreement shall be binding upon and ------------------- inure to the benefit of and shall be enforceable by Buyer and Seller and their successors and assigns. This Agreement shall not be assigned by any party without the prior written consent of the other party. 10.8 Confidentiality. Buyer agrees that prior to Closing, Buyer and --------------- its respective agents and representatives shall not use for its or their own benefit (except when directed by a court or as otherwise required by law), and shall hold in strict confidence and not disclose, (i) any data or information relating to Seller, or its Affiliates obtained from Seller or any of its directors, officers, employees, agents or representatives in connection with this Agreement, or (ii) any data and information relating to the business, customers, financial statements, conditions or operations of the Seller which is confidential in nature and not generally known to the public (clauses (i) and (ii) together, "Seller's Information"). If the transactions contemplated in this Agreement are not consummated for any reason, Buyer shall return to Seller all data, information and any other written material obtained by Buyer from Seller in connection with this transaction and any copies, summaries or extracts thereof, and shall refrain from disclosing any of Seller's Information to any third party or using any of Seller's Information for its own benefit or that of any other person. 10.9 Notice. All notices, consents, waivers, and other ------ communications under this Agreement must be in writing and will be deemed to have been duly given when (a) delivered by hand (with written confirmation of receipt), (b) sent by facsimile (with written confirmation of receipt), provided that a copy is mailed by certified mail, return receipt requested (provided that facsimile notice shall be deemed received on the next business day if received after 5:00 p.m. Eastern Standard Time), or (c) when received by the addressee, if sent by a nationally recognized overnight delivery service (receipt requested), in each case to the appropriate addresses and facsimile numbers set Page 13 of 32 forth below (or to such other addresses and facsimile numbers as a party may designate by notice to the other parties): If to Seller: VDC TELECOMMUNICATIONS, INC. Attn: Frederick A. Moran, President 75 Holly Hill Lane Greenwich, CT 06830 (203) 552-0908 (facsimile) If to Buyer: OMNETRIX INTERNATIONAL, INC. Attn: William Van Vliet, President 3025 South Parker Road Suite 705 Aurora, CO 80014 (303) 743-7835 (facsimile) 10.10 Counterparts; Headings. This Agreement may be executed in ---------------------- multiple counterparts each of which shall be an original but all of which together shall constitute one and the same instrument. This Agreement may also be executed and delivered by exchange of facsimile copies showing the signatures of the parties, and those signatures need not be affixed to the same copy. The facsimile copies showing the signatures of the parties will constitute originally signed copies of the Agreement requiring no further execution. The Article and Section headings in this Agreement are inserted for convenience of reference only and shall not constitute a part hereof. 10.11 Income Tax Position. Neither Buyer nor Seller shall take a -------------------- position for income tax purposes which is inconsistent with this Agreement. 10.12 Severability. The invalidity or unenforceability of any term ------------ of this Agreement shall not affect the validity or enforeceability of this Agreement or any of its other terms; in the event that any court or arbitrator determines that any provision of this Agreement is invalid or unenforceable, as the case may be, then, and in either such event, neither the enforceability nor the validity of said paragraph or section as a whole shall be affected. Rather, the scope of said paragraph or section shall be revised by the court or arbitrator as little as possible to make the paragraph or section enforceable. If the court or arbitrator will not revise said paragraph or section, then this Agreement shall be construed as though the invalid or unenforceable term(s) were not included herein. 10.13 Judicial Interpretation. Should any provision of this ------------------------ Agreement require judicial interpretation, the parties hereto agree that the court interpreting or construing the same shall not apply a presumption that the terms hereof shall be more strictly construed against one party by reason of the Page 14 of 32 rule of construction that a document is to be construed more strictly against the party which itself or through its agent prepared the same, it being agreed that the agents of each party have participated in the preparation hereof. 10.14 Governing Law; Jurisdiction; Trial by Jury. This Agreement ------------------------------------------- shall be governed by and construed in accordance with the internal substantive and procedural laws of the State of Colorado without regard to conflict of laws principles. The parties consent to the personal jurisdiction and venue of the United States District Court for the District of Colorado in Denver, Colorado. The parties waive any objection relating to improper venue or forum non conveniens to the conduct of any proceeding in either such court. At the Seller's sole election and determination, any legal, equitable, or arbitration action may also be brought in the State of Connecticut or in any other state or federal court of competent jurisdiction in any state in which the Buyer has assets and the parties waive any objection relating to improper venue or forum non conveniens to the conduct of any proceeding in any such court. The parties expressly waive any right to a trial by jury. 10.15 Remedies Cumulative. Each right and remedy granted to Seller ------------------- under this Agreement shall be cumulative and in addition to any other right or remedy existing in equity, at law, by virtue of statute or otherwise, and may be exercised by Seller from time to time concurrently or independently and as often and in such order as Seller may elect. Any failure or delay on the part of Seller in exercising any such right or remedy shall not operate as a waiver thereof. 10.16 Saturdays, Sundays and Legal Holidays. If the time period by -------------------------------------- which any acts or payments required hereunder must be performed or paid expires on a Saturday, Sunday or legal holiday, then such time period shall be automatically extended to the close of business on the next regularly scheduled business day. [Remainder of page left blank] Page 15 of 32 IN WITNESS WHEREOF, the parties have executed this Purchase and Sale Agreement as of the day and year first above written. "SELLER" WITNESS: VDC TELECOMMUNICATIONS, INC. /s/ Clayton F. Moran - --------------------------- Signature Clayton F. Moran By: /s/ Frederick A. Moran - --------------------------- ----------------------------------------- Print Name Frederick A. Moran President "BUYER" WITNESS: OMNETRIX INTERNATIONAL, INC. /s/ Richard Krumbein - --------------------------- Signature Richard Krumbein By:/s/ William Van Vliet - --------------------------- ----------------------------------------- Print Name William Van Vliet President Page 16 of 32 SCHEDULE 2.7 Page 17 of 32 EXHIBIT "A" ----------- BILL OF SALE Page 18 of 32 EXHIBIT "B" ----------- OFFICERS CERTIFICATE OMNETRIX INTERNATIONAL, INC. I, the undersigned, President of OMNETRIX INTERNATIONAL, INC., ("Omnetrix"), a corporation organized and existing under the laws of the State of Colorado, DO HEREBY CERTIFY that: 1. This Certificate is furnished pursuant to Section VIII of the Purchase and Sale Agreement (the "Agreement"), dated as of August ___, 2000, between Omnetrix and VDC Telecommunications, Inc., a Delaware corporation ("VDC"). Unless otherwise defined herein capitalized terms used in this Certificate have the meanings assigned to these terms in the Agreement. 2. The persons named below have been duly elected, have duly qualified as and at all time since [____________] (to and including and date hereof) have been officers of Omnetrix, holding the respective offices below set opposite their names, and the signatures below set opposite their names are their genuine signatures. Name Office Signature ---- ------ --------- William Van Vliet President -------------------------- William Van Vliet Secretary -------------------------- 3. Attached hereto as Attachment A is a copy of the Certificate of Incorporation of Omnetrix, as filed in the Office of the Secretary of State on January 19, 2000, together with all amendments thereto adopted through the date hereof. 4. Attached hereto as Attachment B is a true and correct copy of the By-Laws of Omnetrix, as in effect on January 24, 2000, together with all amendments thereto adopted through the date hereof. 5. Attached hereto as Attachment C is a true and correct copy of resolutions duly adopted by the Board of Directors of Omnetrix at a meeting on __________, 2000, at which a quorum was present and acting throughout, which resolutions have not been revoked, modified, amended or rescinded and are still in full force and effect. No new resolutions have been adopted by the Board of Directors of Omnetrix which deal with the execution, delivery or performance of the Agreement. Page 19 of 32 6. On the date hereof, the representations and warranties contained in Article V of the Agreement are true and correct. IN WITNESS WHEREOF, I have hereunto set my hand this ___ of ________, 2000. OMNETRIX INTERNATIONAL, INC. By ------------------------------- Name: William Van Vliet Title: President I, the undersigned, Secretary of Omnetrix, DO HEREBY CERTIFY that: 1. The Person making the above certifications is the duly elected and qualified President of Omnetrix and the signature above is her genuine signature. 2. The certifications made by William Van Vliet in items 2, 3, 4, 5 and 6 above are true and correct. IN WITNESS WHEREOF, I have hereunto set my hand this ___ of _____, 2000. OMNETRIX INTERNATIONAL, INC. By -------------------------------- Name: William Van Vliet Title: Secretary Page 20 of 32 ATTACHMENT A CERTIFICATE OF INCORPORATION OF OMNETRIX Page 21 of 32 ATTACHMENT B BYLAWS OF OMNETRIX Page 22 of 32 ATTACHMENT C CERTIFICATE OF SECRETARY OF OMNETRIX INTERNATIONAL, INC. I, William Van Vliet, Secretary of OMNETRIX INTERNATIONAL, INC., a Colorado corporation ("Omnetrix"), HEREBY CERTIFY that at a special meeting of the Board of Directors of Omnetrix held on _______, 2000, a corporate resolution was adopted authorizing William Van Vliet, President of Omnetrix to execute on behalf of Omnetrix the Purchase and Sale Agreement (the "Agreement") dated August 26, 2000 between Omnetrix and VDC Telecommunications, Inc., a Delaware corporation ("VDC"), the promissory notes, security agreement, Colorado UCC-1 Financing Statement and any and all documents necessary to give effect to the transactions contemplated by the Agreement. I FURTHER CERTIFY that William Van Vliet , President of Omnetrix has the authority to execute on behalf of Omnetrix the Agreement and any and all documents, including agreements, promissory notes, and security agreements, necessary for Omnetrix to purchase from VDC, subject to the terms and conditions of the Agreement, the Purchased Assets listed in Exhibit "C" of the Agreement, and assume all obligations under the Agreement. I FURTHER CERTIFY that Omnetrix has the necessary authority to execute and deliver, and to perform its obligations under the Agreement. IN WITNESS WHEREOF, the undersigned has subscribed his name and affixed the seal of Omnetrix this ____ day of ______, 2000. By: --------------------------------- Secretary Page 23 of 32 EXHIBIT "C" ----------- A Telecommunications Switch manufactured by Siemens Stromberg Carlson, which includes: - - Rel 15.09 DCO-CS E/W for 2304 ports incl. Toll Free Number Expansion and 4 Digit CIC - - Enhanced SS7 with 800 portability, incl. SS7 backward call indication and circuit ID - - SS7 spares - - Qty.2 additional pairs A-links - - Route by ANI on any 700/800 number - - ISDN transport - - DTF and Digital Interface CUA for ISDN transport - - Digital I/F CUA for ISDN transport - - Qty. 3 Digital Interface Unit PWBA's - - Real Time ANI Page 24 of 32 EXHIBIT "D" ----------- OFFICERS' CERTIFICATE VDC TELECOMMUNICATIONS, INC. I, the undersigned, President of VDC TELECOMMUNICATIONS, INC., ("VDC"), a corporation organized and existing under the laws of the State of Delaware, DO HEREBY CERTIFY that: 1. This Certificate is furnished pursuant to Section VII of the Purchase and Sale Agreement (the "Agreement"), dated as of August 26, 2000, between VDC and Omnetrix International, Inc., a Colorado corporation ("Omnetrix"). Unless otherwise defined herein capitalized terms used in this Certificate have the meanings assigned to these terms in the Agreement. 2. The persons named below have been duly elected, have duly qualified as and at all time since ____________, 19__ (to and including and date hereof) have been officers of VDC, holding the respective offices below set opposite their names, and the signatures below set opposite their names are their genuine signatures. Name Office Signature ---- ------ --------- Frederick A. Moran President ----------------------- Frederick A. Moran Secretary ----------------------- 3. Attached hereto as Attachment A is a copy of the Certificate of Incorporation of VDC, as filed in the Office of the Delaware Secretary of State on _______________, 19__, together with all amendments thereto adopted through the date hereof. 4. Attached hereto as Attachment B is a true and correct copy of the By-Laws of VDC, as in effect on _____________, 19__, together with all amendments thereto adopted through the date hereof. 5. Attached hereto as Attachment C is a true and correct copy of resolutions duly adopted by the Board of Directors of VDC at a meeting on ____________, 2000, at which a quorum was present and acting throughout, which resolutions have not been revoked, modified, amended or rescinded and are still in full force and effect. Except as attached hereto as Attachment C, no resolutions have been adopted by the Board of Directors of VDC which deal with the execution, delivery or performance of the Agreement. Page 25 of 32 6. On the date hereof, the representations and warranties contained in Article IV of the Agreement are true and correct. IN WITNESS WHEREOF, I have hereunto set my hand this ___ of ___________, 2000. VDC TELECOMMUNICATIONS, INC. - ------------------------------------ Name: Frederick A. Moran Title: President I, the undersigned, [Secretary/Assistant Secretary] of VDC, DO HEREBY CERTIFY that: 1. The person making the above certifications is the duly elected and qualified President of VDC and the signature above is his/her genuine signature. 2. The certifications made by Frederick A. Moran in items 2, 3, 4, 5 and 6 above are true and correct. IN WITNESS WHEREOF, I have hereunto set my hand this ___ of _________, 2000. VDC TELECOMMUNICATIONS, INC. By: --------------------------------- Name: Frederick A. Moran Title: Secretary Page 26 of 32 ATTACHMENT A VDC ARTICLES OF INCORPORATION Page 27 of 32 ATTACHMENT B VDC BYLAWS Page 28 of 32 ATTACHMENT C CERTIFICATE OF SECRETARY OF VDC TELECOMMUNICATIONS, INC. I, Frederick A. Moran, Secretary of VDC TELECOMMUNICATIONS, INC., a Delaware corporation ("VDC"), HEREBY CERTIFY that at a special joint meeting of the Board of Directors of VDC held on __________, 2000, a corporate resolution was ratified and adopted authorizing Frederick A. Moran, President of VDC to execute on behalf of VDC the Purchase and Sale Agreement (the "Agreement") dated August 26, 2000 between VDC and Omnetrix International, Inc., a Colorado corporation ("Omnetrix"), and any and all documents necessary to give effect to the transactions contemplated by the Agreement. I FURTHER CERTIFY that Frederick A. Moran, President of VDC has the authority to execute on behalf of VDC the Agreement and any and all documents necessary for VDC to sell and irrevocably and unconditionally assign to Omnetrix, subject to the Agreement, the Purchased Assets listed in Exhibit "C" of the Agreement). I FURTHER CERTIFY that VDC has the necessary authority to execute and deliver, and to perform its obligations under the Agreement. IN WITNESS WHEREOF, the undersigned has subscribed his name and affixed the seal of VDC this ____ day of __________, 2000. By: --------------------------------- Secretary Page 29 of 32 EXHIBIT "E" ----------- PROMISSORY NOTE Page 30 of 32 EXHIBIT "F" ----------- SECURITY AGREEMENT Page 31 of 32 EXHIBIT "G" ----------- UCC-1 Page 32 of 32 EX-10.53 9 0009.txt EX-10.53 PROMISSORY NOTE $182,000.00 August 26, 2000 FOR VALUE RECEIVED,OMNETRIX INTERNATIONAL, INC., a Colorado corporation (the "Maker"), hereby promises to pay to the order of VDC TELECOMMUNICATIONS, INC, a Delaware corporation (the "Payee"), the sum of ONE HUNDRED AND SEVENTY-TWO THOUSAND FIVE HUNDRED DOLLARS ($172,500), together with interest on the principal amount outstanding from time to time at the Risk Adjusted Interest Rate, which is ten percent (10%) per annum at Greenwich, Connecticut or at such other place as the Payee may from time to time hereafter designate to the Maker in writing. Interest shall be computed on the basis of actual days elapsed and a year of 365 or 366 days, as the case may be. THIS NOTE IS ISSUED PURSUANT TO THAT CERTAIN PURCHASE AND SALE AGREEMENT, DATED AS OF AUGUST 26, 2000, (THE "PURCHASE AND SALE AGREEMENT"), BY AND AMONG THE MAKER AND THE PAYEE. The principal hereof and interest hereon is payable in one installment on the 25ht day of November, 2000. Any payments received shall be applied first to interest and the balance to principal. This note may be prepaid by the Maker at any time in whole or from time to time in part without premium or penalty. Any partial prepayment shall be applied first against accrued and unpaid interest and the balance shall be applied against the installments hereon in the inverse order of maturity. This Note is secured pursuant to a Security Agreement (as the same may hereafter be amended, modified or supplemented, or any agreement entered into in substitution or replacement therefor, the "Security Agreement") given by the Maker to the Payee. The occurrence of any one or more of the following events shall constitute an Event of Default, and upon the occurrence of any Event of Default the Payee may declare this Note to be, and the same shall forthwith become, immediately due and payable and the Payee may exercise all rights and remedies under the Security Agreement and as may otherwise be allowed by law: (1) The Maker or guarantor shall fail to make any payment of principal or interest hereon when due and such failure shall continue for 30 days after the due date thereof. (2) The Maker or guarantor shall become insolvent or shall generally not pay its debts as they mature or shall apply for, shall consent to, or shall acquiesce in the appointment of a custodian, trustee or receiver for the Maker or for a substantial part of the property thereof or, in the absence of such application, consent or acquiescence, a custodian, trustee or receiver shall be appointed for the Maker or for a substantial part of the property thereof; or any bankruptcy, reorganization, debt arrangement or other proceedings under any bankruptcy or insolvency law shall be instituted by or against the Maker and, if instituted against the Maker, shall have been consented to or acquiesced in by the Maker or shall remain undismissed for 90 days, or an order for relief shall have been entered against the Maker. (3) Any default shall occur under the terms of the Security Agreement and shall continue for more than the period of grace, if any, applicable thereto. The validity, construction and enforceability of this note shall be governed by the internal laws of the State of Colorado. The Maker and the guarantor hereby waive presentment for payment, notice of dishonor, protest and notice of protest. This Note shall be the joint and several obligation of the Maker and the guarantor. This Note is negotiable and may be assigned. Upon the occurrence of an Event of Default, the Maker shall pay all of the Payee's costs of collection including reasonable attorneys' fees. OMNETRIX INTERNATIONAL, INC By:/s/ William Van Vliet ----------------------------------------- William Van Vliet President 2 GUARANTY For value received, the undersigned hereby unconditionally guarantees the payment of the within note executed by OMNETRIX INTERNATIONAL, INC. according to its terms. This is a guarantee of payment and not of collection. The undersigned acknowledges that this is the joint and several obligation of the undersigned and the Maker. The obligations of the undersigned are independent of the obligations of Maker and a separate action or actions may be brought and prosecuted against the undersigned, whether an action is brought against the maker or whether Maker is jointly named in any such action or actions. The undersigned authorizes the payee without notice or demand and without affecting the undersigned's liability hereunder from time to time to renew, compromise, extend, accelerate or otherwise change the time for payment of, or otherwise change the terms of the indebtedness or any part thereof. The undersigned waives any right to require the Payee to proceed against the Maker, proceed against or exhaust any security now held or subsequently pledged to the Payee of the within note, or to pursue any other remedy in the Payee's power whatsoever. The undersigned waives any defense arising by reason of any disability or other defense of the Maker, or by reason of the cessation from any cause whatsoever of the liability of the Maker. /s/ William Van Vliet -------------------------------------------- William Van Vliet 1 EX-10.54 10 0010.txt EX-10.54 SECURITY AGREEMENT THIS SECURITY AGREEMENT, dated as of August 25, 2000, is made and given by OMNETRIX INTERNATIONAL, INC.., a Colorado corporation (the "Grantor"), to VDC TELECOMMUNICATIONS, INC, a Delaware corporation (the "Secured Party"). RECITALS -------- A. The Grantor and the Secured Party have entered into a Purchase and Sale Agreement dated as of August 25, 2000 (the "Purchase and Sale Agreement") pursuant to which the Secured Party has agreed to extend to the Grantor certain credit accommodations consisting of a loan evidenced by a Promissory Note (the "Note") for Grantor's purchase of the Secured Party's Purchased Assets, as described in Exhibit "C" of the Purchase and Sale Agreement (the "Assets"). B. It is a condition precedent to the obligation of the Secured Party to extend credit accommodations pursuant to the terms of the Purchase and Sale Agreement that this Agreement be executed and delivered by the Grantor. C. The Grantor finds it advantageous, desirable and in its best interests to comply with the requirement that it execute and deliver this Agreement to the Secured Party. NOW, THEREFORE, in consideration of the promises and commitments herein and in order to induce the Secured Party to enter into the Purchase and Sale Agreement and to extend credit accommodations to the Grantor thereunder, the Grantor hereby agrees with the Secured Party for its benefit as follows: Section 1. Defined Terms. ------------- 1(a) The following terms which are defined in the Uniform Commercial Code in effect in the State of Colorado ("Uniform Commercial Code" or "UCC") on the date hereof are used herein as so defined: Account, Account Debtor, Chattel Paper, Document, Equipment, General Intangibles, Instrument, Inventory and Proceeds. 1(b) As used in this Agreement, the following terms shall have the meanings indicated: "Collateral" shall mean all property and rights in property ----------- now owned or hereafter at any time acquired by the Grantor, including rights in the Assets, in or upon which a Security Interest is hereby granted to the Secured Party by the Grantor under this Agreement. To the extent not otherwise included, the Collateral shall include (i) all substitutions and replacements for and proceeds and products of any and all of the foregoing property, and, in the case of all goods, all accessions, accessories, attachments, parts, equipment and repairs now or hereafter attached or affixed to or used in connection with any such goods, (ii) all warehouse receipts, bills of lading and other documents of title now or hereafter covering such goods, (iii) all insurance policies covering any Collateral and all claims to payment under, and proceeds of any insurance policies, and (iv) all books, records, manuals, programs, software, systems and storage media relating to any of the foregoing property. "Event of Default" shall have the meaning given to such term ----------------- in Section 16 hereof. "Financing Statement" shall have the meaning given to such --------------------- term in Section 4 hereof. "Lien" shall mean any security interest, mortgage, pledge, ----- lien, charge, encumbrance, title retention agreement or analogous instrument or device in, of or on any assets or properties of the Person referred to. "Obligations" shall mean all indebtedness, liabilities and ------------ obligations of the Grantor under the Purchase and Sale Agreement and the Note to the Secured Party, whether for performance, principal, interest, fees, out-of-pocket costs and expenses of the Secured Party including the reasonable fees and expenses of counsel to the Secured Party, costs and expenses of perfecting and maintaining security interests, costs of collection, reimbursement of funds advanced to protect Collateral, or otherwise, including the Grantor's obligations on the Note, the Purchase and Sale Agreement, all liabilities of the Grantor under this Agreement, and in all cases whether due or to become due, and whether now existing or hereafter arising or incurred. "Person" shall mean any individual, corporation, partnership, ------- joint venture, firm, association, trust, unincorporated organization, government or governmental agency or political subdivision or any other entity, whether acting in an individual, fiduciary or other capacity. "Security Interest" shall have the meaning given such term in ------------------- Section 2 hereof. Section 2. Grant of Security Interest. As security for the payment and -------------------------- performance of all of the Obligations, the Grantor hereby grants to the Secured Party a security interest (the "Security Interest") in all of the Grantor's rights, title, and interests in and to the Collateral, including all personal property and fixtures of the Grantor, whether now or hereafter owned, existing, arising or acquired and wherever located, including, without limitation, all Accounts, all Chattel Paper, all Contracts, all documents, all Equipment, all General Intangibles, all Instruments, all Inventory; and, to the extent not otherwise included, all Proceeds and products of any and all of the foregoing. Section 3. Title to Collateral. The Grantor has (or will have at the -------------------- time it acquires rights in Collateral hereafter acquired or arising) and will maintain so long as the Security Interest may remain outstanding, title to each item of Collateral (including the Proceeds and products thereof), free and clear of all Liens except the Security Interest and except Liens permitted by the Purchase and Sale Agreement. The Grantor will defend the Collateral against all claims or demands of all Persons (other than the Secured Party) claiming the Collateral or any interest therein. To the best of the Secured Party's knowledge, as of the date of execution of this Security Agreement, no effective 2 financing statement or other similar document used to perfect and preserve a security interest under the laws of any jurisdiction (a "Financing Statement") covering all or any part of the Collateral is on file in any recording office, except such as may have been filed in favor of the Secured Party relating to this Agreement or to perfect Liens permitted by the Purchase and Sale Agreement. Section 4. Disposition of Collateral. The Grantor will not sell, lease ------------------------- or otherwise dispose of, or discount or factor with or without recourse, any Collateral, except, as may be conducted in the ordinary course of business, sale of items of Inventory, or the replacement of furniture, fixtures and equipment, with furniture, fixtures, and equipment of like kind and equal value. Notwithstanding this Section, Grantor will not sell, lease, pledge or otherwise dispose of the Assets. Section 5. Name, Offices, Location of Collateral. The Grantor will not ------------------------------------- permit the Collateral to be located in any state or area in which, in the event of such location, a financing statement covering such Collateral would be required to be, but has not in fact been, filed in order to perfect the Security Interest. The Grantor will not change the name of its business or corporation or the location of its place of business or the Collateral. The chief place of business and chief executive office and the office where it keeps its books and records concerning the Accounts and General Intangibles and the originals of all Chattel Paper, Documents and Instruments are located at its address set forth on the signature page hereof. All of the Assets, Equipment and Inventory is and shall be located within the state of Colorado. The Grantor will immediately notify the Secured Party of any additional state in which any item of Inventory or Equipment is hereafter located. The Grantor will from time to time at the request of the Secured Party provide the Secured Party with current lists as to the locations of the Equipment and Inventory. The Grantor will not change its name or the location of it chief place of business and chief executive office, or use any trade name or style in any state other than the state of Colorado, unless the Secured Party has been given at least 30 days prior written notice thereof and the Grantor has executed and delivered to the Bank such Financing Statements and other instruments required or appropriate to continue the perfection of the Security Interest. Section 6. Rights to Payment. Except as the Grantor may otherwise ------------------ advise the Secured Party in writing, each Account, Chattel Paper, Document, General Intangible, and Instrument constituting or evidencing Collateral is (or, in the case of all future Collateral, will be when arising or issued) the valid, genuine and legally enforceable obligation of the Account Debtor or other obligor named therein or in the Grantor's records pertaining thereto as being obligated to pay or perform such obligation. Without the Secured Party's prior written consent, the Grantor will not agree to any modifications, amendments, subordinations, cancellations or terminations of the obligations of any such Account Debtors or other obligors except in the ordinary course of business. The Grantor will perform and comply in all material respects with all its obligations under its Contracts and exercise promptly and diligently its rights thereunder. Section 7. Further Assurances. ------------------ 3 7(a) The Grantor agrees that from time to time, at its expense, it will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or that the Secured Party may reasonably request, in order to perfect and protect the Security Interest granted or purported to be granted hereby or to enable the Secured Party to exercise and enforce its rights and remedies hereunder with respect to any Collateral (but any failure to request or assure that the Grantor execute and deliver such instrument or documents or to take such action shall not affect or impair the validity, sufficiency or enforceability of this Agreement and the Security Interest, regardless of whether any such item was or was not executed and delivered or action taken in a similar context or on a prior occasion). Without limiting the generality of the foregoing, the Grantor will: (i) deliver and pledge to the Secured Party, all Instruments and Documents, duly indorsed or accompanied by duly executed instruments of transfer or assignment, with full recourse to the Grantor, all in form and substance satisfactory to the Secured Party; (ii) execute and file such Financing Statements or continuation statements in respect thereof, or amendments thereto, and such other instruments or notices, as may be necessary or desirable, or as the Secured Party may request, in order to perfect, preserve, and enhance the Security Interest granted or purported to be granted hereby; and (iii) obtain waivers, in form satisfactory to the Secured Party, of any claim to any Collateral from any landlords or mortgagees of any property where any Inventory or Equipment is located. 7(b) The Grantor hereby authorizes the Secured Party to file one or more Financing Statements or continuation statements in respect thereof, and amendments thereto, relating to all or any part of the Collateral without the signature of the Grantor where permitted by law. A photocopy or other reproduction of this Agreement or any Financing Statement covering the Collateral or any part thereof shall be sufficient as a Financing Statement where permitted by law. 7(c) The Grantor will furnish to the Secured Party from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Secured Party may reasonably request, all in reasonable detail and in form and substance reasonably satisfactory to the Secured Party. Section 8. Taxes and Claims. The Grantor will promptly pay all taxes ---------------- and other governmental charges levied or assessed upon or against any Collateral or upon or against the creation, perfection or continuance of the Security Interest, as well as all other claims of any kind (including claims for labor, material and supplies) against or with respect to the Collateral, except to the extent (a) such taxes, charges or claims are being contested in good faith by appropriate proceedings, (b) such proceedings do not involve any material danger of the sale, forfeiture or loss of any of the Collateral or any interest therein and (c) such taxes, charges or claims are adequately reserved against on the Grantor's books in accordance with generally accepted accounting principles. Section 9. Books and Records. The Grantor will keep and maintain at its ----------------- own cost and expense satisfactory and complete records of the Collateral, including a record of all payments received and credits granted with respect to the Collateral. 4 Section 10. Inspection, Reports, Verifications. The Grantor will upon ----------------------------------- notice and at all reasonable times permit the Secured Party or her representatives to examine or inspect any Collateral, any evidence of Collateral and the Grantor' books and records concerning the Collateral, wherever located. The Secured Party or her designee is authorized to contact Account Debtors and other Persons obligated on any such Collateral from time to time to verify the existence, amount and/or terms of such Collateral. Section 11. Notice of Loss. The Grantor will promptly notify the -------------- Secured Party of any loss of or material damage to any material item of Collateral or of any substantial adverse change, known to Grantor, in any material item of Collateral or the prospect of payment or performance thereof. Section 12. Insurance. The Grantor will keep the Equipment and --------- Inventory insured against "all risks" for the full replacement cost or $370,000, whichever is greater, with no deductible and with an insurance company or companies satisfactory to the Secured Party, the policies to protect the Secured Party as her interests may appear and name the Secured Party as loss payee and additional insured, with such policies or certificates with respect thereto to be delivered to the Secured Party. Each such policy or the certificate with respect thereto shall provide that such policy shall not be cancelled or allowed to lapse unless at least 30 days prior written notice is given to the Secured Party. Section 13. Action by the Secured Party. If the Grantor at any time ---------------------------- fails to perform or observe any of the foregoing agreements, the Secured Party shall have (and the Grantor hereby grants to the Secured Party) the right, power and authority (but not the duty) upon ten (10) days written notice to Grantor to perform or observe such agreement on behalf and in the name, place and stead of the Grantor (or, at the Secured Party's option, in the Secured Party's name) and to take any and all other actions which the Secured Party may reasonably deem necessary to cure or correct such failure (including, without limitation, the payment of taxes, the satisfaction of Liens, the procurement and maintenance of insurance, the execution of assignments, security agreements and Financing Statements, and the indorsement of instruments); and the Grantor shall thereupon pay to the Secured Party on demand the amount of all monies expended and all costs and expenses (including reasonable attorneys' fees and legal expenses) incurred by the Secured Party in connection with or as a result of the performance or observance of such agreements or the taking of such action by the Secured Party, together with interest thereon from the date expended or incurred at the highest lawful rate then applicable to any of the Obligations, and all such monies expended, costs and expenses and interest thereon shall be part of the Obligations secured by the Security Interest. Section 14. Insurance Claims. As additional security for the payment ----------------- and performance of the Obligations, the Grantor hereby assigns to the Secured Party any and all monies (including proceeds of insurance and refunds of unearned premiums) due or to become due under, and all other rights of the Grantor with respect to, any and all policies of insurance now or at any time hereafter covering the Collateral or any evidence thereof or any business records or valuable papers pertaining thereto. At any time, whether before or after the occurrence of any Event of Default, the Secured Party may (but need not), in the Secured Party's name or in Grantor's name, execute and deliver 5 proofs of claim, receive all such monies, indorse checks and other instruments representing payment of such monies, and adjust, litigate, compromise or release any claim against the issuer of any such policy. Notwithstanding any of the foregoing, so long as no Event of Default exists the Grantor shall be entitled to all insurance proceeds with respect to Equipment or Inventory provided that such proceeds are applied to the cost of replacement Equipment or Inventory. Section 15. The Secured Party's Duties. The powers conferred on the ---------------------------- Secured Party hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such powers. The Secured Party shall be deemed to have exercised reasonable care in the safekeeping of any Collateral in her possession if such Collateral is accorded treatment substantially equal to the safekeeping which the Secured Party accords her own property of like kind. Except for the safekeeping of any Collateral in her possession and the accounting for monies and for other properties actually received by her hereunder, the Secured Party shall have no duty, as to any Collateral, as to ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Collateral, whether or not the Secured Party has or is deemed to have knowledge of such matters, or as to the taking of any necessary steps to preserve rights against any Persons or any other rights pertaining to any Collateral. The Secured Party will take action in the nature of exchanges, conversions, redemption, tenders and the like requested in writing by the Grantor with respect to the Collateral in the Secured Party's possession if the Secured Party in its reasonable judgment determines that such action will not impair the Security Interest or the value of the Collateral, but a failure of the Secured Party to comply with any such request shall not of itself be deemed a failure to exercise reasonable care. Section 16. Default. Each of the following occurrences shall constitute ------- an Event of Default under this Agreement: (a) the Grantor shall fail to observe or perform and failure to cure any covenant or agreement applicable to the Grantor under this Agreement; or (b) any representation or warranty made by the Grantor in this Agreement or in any financial statements, or reports or certificates heretofore or at any time hereafter submitted by or on behalf of the Grantor to the Secured Party shall prove to have been false or materially misleading when made; or (c) the Grantor shall fail to observe or perform and failure to cure any covenant or agreement applicable to the Grantor under the Purchase and Sale Agreement; or (d) any failure by the Grantor to perform and failure to cure under the Promissory Note identified in the Purchase and Sale Agreement. Section 17. Remedies on Default. Upon the occurrence of an Event --------------------- of Default and at any time thereafter: 17(a) The Secured Party may exercise and enforce any and all rights and remedies available upon default under the Uniform Commercial Code. 17(b) The Secured Party shall have the right to enter upon and into and take possession of all or such part or parts of the properties of the Grantor, as may be necessary or appropriate in the judgment of the Secured Party to permit or enable the Secured Party to store or sell all or any part of the Collateral, as the Secured Party may elect, and to use and operate said properties for said purposes and for such length of time as the Secured Party may deem necessary or appropriate 6 for said purposes without the payment of any compensation to Grantor therefor. The Secured Party may require the Grantor to, and the Grantor hereby agrees that it will, at its expense and upon request of the Secured Party forthwith, assemble all or part of the Collateral as directed by the Secured Party and make it available to the Secured Party at a place or places to be designated by the Secured Party. 17(c) If notice to the Grantor of any intended disposition of Collateral or any other intended action is required by law in a particular instance, such notice shall be deemed commercially reasonable if given in the manner specified for the giving of notice in Section 22 hereof at least ten calendar days prior to the date of intended disposition or other action, and the Secured Party may exercise or enforce any and all other rights or remedies available by law or agreement against the Collateral, against the Grantor, or against any other Person or property. Section 18. Remedies as to Certain Rights to Payment. Upon the --------------------------------------------- occurrence of an Event of Default and failure to cure and at any time thereafter the Secured Party may notify any Account Debtor or other Person obligated on any Accounts or other Collateral that the same have been assigned or transferred to the Secured Party and that the same should be performed as requested by, or paid directly to, the Secured Party, as the case may be. The Grantor shall join in giving such notice, if the Secured Party so requests. The Secured Party may, in the Secured Party's name or in the Grantor's name, demand, sue for, collect or receive any money or property at any time payable or receivable on account of, or securing, any such Collateral or grant any extension to, make any compromise or settlement with or otherwise agree to waive, modify, amend or change the obligation of any such Account Debtor or other Person. If any payments on any such Collateral are received by the Grantor after an Event of Default has occurred, such payments shall be held in trust by the Grantor as the property of the Secured Party and shall not be commingled with any funds or property of the Grantor and shall be forthwith remitted to the Secured Party for application on the Obligations. Section 19. Application of Proceeds. All cash proceeds received by the ----------------------- Secured Party in respect of any sale of, collection from, or other realization upon all or any part of the Collateral may, in the discretion of the Secured Party, be held by the Secured Party as collateral for, or then or at any time thereafter be applied in whole or in part by the Secured Party against, all or any part of the Obligations (including, without limitation, any expenses of the Secured Party payable pursuant to Section 20 hereof). Section 20. Costs and Expenses; Indemnity. The Grantor will pay or ------------------------------- reimburse the Secured Party on demand for all out-of-pocket expenses (including in each case all filing and recording fees and taxes and all reasonable fees and expenses of counsel and of any experts and agents) incurred by the Secured Party in connection with the creation, perfection, protection, satisfaction, foreclosure or enforcement of the Security Interest and the preparation, administration, continuance, amendment or enforcement of this Agreement, and all such costs and expenses shall be part of the Obligations secured by the Security Interest. The Grantor shall indemnify and hold the Secured Party harmless from and against any and all claims, losses and liabilities (including reasonable attorneys' fees) growing out of or resulting from this Agreement (including, without limitation, enforcement of this Agreement) or the Secured Party's 7 actions pursuant hereto. Any liability of the Grantor to indemnify and hold the Secured Party harmless pursuant to the preceding sentence shall be part of the Obligations secured by the Security Interest. The obligations of the Grantor under this Section 20 shall survive any termination of this Agreement. Section 21. Waivers; Remedies. This Agreement can be waived, modified, ------------------ amended, terminated or discharged, and the Security Interest can be released, only explicitly in a writing signed by the Secured Party. A waiver so signed shall be effective only in the specific instance and for the specific purpose given. Mere delay or failure to act shall not preclude the exercise or enforcement of any rights and remedies available to the Secured Party. All rights and remedies of the Secured Party shall be cumulative and may be exercised singly in any order or sequence, or concurrently, at the Secured Party's option, and the exercise or enforcement of any such right or remedy shall neither be a condition to nor bar the exercise or enforcement of any other. Section 22. Notices. Any notice or other communication to any party in ------- connection with this Agreement shall be in writing and shall be sent by manual delivery, telegram, telex, facsimile transmission, overnight courier or United States mail (postage prepaid) addressed to such party at the address specified on the signature page hereof, or at such other address as such party shall have specified to the other party hereto in writing. All periods of notice shall be measured from the date of delivery thereof if manually delivered, from the date of sending thereof if sent by telegram, telex or facsimile transmission, from the first business day after the date of sending if sent by overnight courier, or from four days after the date of mailing if mailed. Section 23. Grantor Acknowledgments. The Grantor hereby acknowledges ------------------------ that (a) it has been advised by its counsel in the negotiation, execution and delivery of this Agreement, (b) the Secured Party has no fiduciary relationship to the Grantor, the relationship being solely that of debtor and creditor, and (c) no joint venture exists between the Grantor and the Secured Party. Section 24. Continuing Security Interest; Assignments under Purchase ----------------------------------------------------------- and Sale Agreement. This Agreement shall (a) create a continuing security - ------------------- interest in the Collateral and shall remain in full force and effect until payment in full of the Obligations and the expiration of the obligations, if any, of the Secured Party to extend credit accommodations to the Grantor, (b) be binding upon the Grantor, their successors and assigns, and (c) inure to the benefit of, and be enforceable by, the Secured Party and her successors, transferees, and assigns. Upon payment in full of the Obligations and the expiration of any obligation of the Secured Party to extend credit accommodations to the Grantor, the Security Interest granted hereby shall terminate and all rights to the Collateral shall revert to the Grantor, its successors and assigns. Upon any such termination, the Secured Party will return to the Grantor, its successors or assigns, such of the Collateral as shall not have been sold or otherwise applied pursuant to the terms hereof and execute and deliver to the Grantor, its successors or assigns, such documents as the Grantor, its successors or assigns shall reasonably request to evidence such termination. Any reversion or return of Collateral upon termination of this Agreement and any instruments of transfer or termination shall be at the expense of the Grantor, its successors and assigns and shall be without warranty by, or recourse on, the Secured Party. 8 Section 25. Governing Law and Construction. THE VALIDITY, CONSTRUCTION ------------------------------ AND ENFORCEABILITY OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF COLORADO, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES THEREOF, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE MANDATORILY GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF COLORADO. Whenever possible, each provision of this Agreement and any other statement, instrument or transaction contemplated hereby or relating hereto shall be interpreted in such manner as to be effective and valid under such applicable law, but, if any provision of this Agreement or any other statement, instrument or transaction contemplated hereby or relating hereto shall be held to be prohibited or invalid under such applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement or any other statement, instrument or transaction contemplated hereby or relating hereto. Section 26. Consent to Jurisdiction and Venue. AT THE OPTION OF THE ----------------------------------- SECURED PARTY, THIS AGREEMENT MAY BE ENFORCED IN ANY FEDERAL COURT OR COLORADO STATE COURT SITTING IN THE CITY AND COUNTY OF DENVER, COLORADO; AND THE GRANTOR CONSENT TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVE ANY ARGUMENT THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT OR PROPER. Section 27. Counterparts. This Agreement may be executed in any number ------------ of counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. Section 28. General. All representations and warranties contained in ------- this Agreement or in any other agreement between the Grantor and the Secured Party shall survive the execution, delivery and performance of this Agreement and the creation and payment of the Obligations. The Grantor waive notice of the acceptance of this Agreement by the Secured Party. Captions in this Agreement are for reference and convenience only and shall not affect the interpretation or meaning of any provision of this Agreement. Section 29. Guaranty by Shareholders. All of the Grantor's commitments ------------------------ and obligations hereunder have been unconditionally guaranteed pursuant to the terms of a written guaranty made and executed by William Van Vliet. 9 IN WITNESS WHEREOF, the Grantor has caused this Security Agreement to be duly executed and delivered as of the date first above written. GRANTOR: OMNETRIX INTERNATIONAL, INC., a Colorado corporation By: /s/ William Van Vliet ----------------------------------------- William Van Vliet President 10 EX-10.55 11 0011.txt EX-10.55 THIS PROMISSORY NOTE SUPERSEDES AND RENDERS NULL AND VOID THE FOLLOWING PROMISSORY NOTES: (1) PROMISSORY NOTE, DATED APRIL 20, 2000, IN THE PRINCIPAL AMOUNT OF $200,000 MADE BY RARE TELEPHONY, INC. ("RARE") AND CASH BACK REBATES LD.COM, INC. ("CASH BACK") WITH VDC COMMUNICATIONS, INC. ("VDC") AS HOLDER; (2) PROMISSORY NOTE, DATED MAY 4, 2000, IN THE PRINCIPAL AMOUNT OF $100,000 MADE BY RARE AND CASH BACK WITH VDC AS HOLDER; (3) PROMISSORY NOTE, DATED MAY 10, 2000, IN THE PRINCIPAL AMOUNT OF $100,000 MADE BY RARE AND CASH BACK WITH VDC AS HOLDER; (4) PROMISSORY NOTE, DATED MAY 25, 2000, IN THE PRINCIPAL AMOUNT OF $100,000 MADE BY RARE AND CASH BACK WITH VDC AS HOLDER; AND (5) PROMISSORY NOTE, DATED JUNE 2, 2000, IN THE PRINCIPAL AMOUNT OF $100,000 MADE BY RARE AND CASH BACK WITH VDC AS HOLDER. PROMISSORY NOTE --------------- $600,000 June 14, 2000 Passaic, New Jersey FOR VALUE RECEIVED, the undersigned Voice & Data Communications (Latin America), Inc., a Delaware corporation ("Maker"), promises to pay to the order of VDC Communications, Inc., a Delaware corporation ("Holder"), which term shall include any subsequent holder of this Note, at 75 Holly Hill Lane, Greenwich, CT 06830 (or at such other place as Holder shall designate in writing) in lawful money of the United States of America, the aggregate principal sum of Six Hundred Thousand Dollars ($600,000), with interest thereon at the rate (the "Interest Rate") described below. 1. Interest Rate. The Interest Rate shall be eight percent (8%) per ------------- annum. 2. Outstanding Principal Balance. All references to the "Outstanding ----------------------------- Principal Balance" shall mean the amount of Six Hundred Thousand Dollars ($600,000), less any principal repaid. 3. Payments. This note shall be payable in full on June 14, 2004 -------- (the "Maturity Date") when the entire Outstanding Principal Balance, and any accrued but unpaid interest, shall be due and payable. 4. Application of Payments. All payments on this Note shall be ------------------------- applied first to the payment of accrued and unpaid interest, and then to the reduction of the Outstanding Principal Balance. 5. Prepayment Right. Maker shall have the right to prepay at any ----------------- time, in whole or in part, the Outstanding Principal Balance of this Note, without premium or penalty. 1 6. Accelerated Maturity. Notwithstanding anything in this Note to the -------------------- contrary and irrespective of the Maturity Date, the entire Outstanding Principal Balance and accrued interest shall become immediately due and payable upon the earliest to occur of the following (the "Accelerated Maturity Date"): (a) the sale of all or substantially all of the assets of the Maker or the common stock of the Maker to a third party; or (b) the issuance of the securities of Maker on the public market. 7. Modifications. From time to time, without affecting the obligation ------------- of Maker to pay the Outstanding Principal Balance or to observe the covenants of Maker contained herein, and without giving notice to or obtaining the consent of Maker, Holder may, at the option of Holder, extend the time for payment of the Outstanding Principal Balance or any part thereof, reduce the payments hereunder, release any person liable hereunder, accept a renewal or extension of this Note, join in any extension or subordination agreement, release any security given herefor, take or release security, or agree in writing with Maker to modify the Interest Rate or any other provision of this Note. 8. Events of Default. Time is of the essence hereof. Upon the ------------------- occurrence of any of the following events (the "Events of Default"), payment of the entire Outstanding Principal Balance and accrued interest of this Note shall, at the option of the Holder, be accelerated and shall be immediately due and payable without notice or demand: (a) Failure of Maker to pay the Outstanding Principal Balance and accrued interest in full on the Maturity Date or the Accelerated Maturity Date; or (b) All or the majority of the value of the assets of Maker is seized or levied upon by writ of attachment, garnishment, execution or otherwise, and such seizure or levy is not released within thirty (30) calendar days thereafter; or (c) Maker executes a general assignment for the benefit of its creditors, convenes any meeting of its creditors, becomes insolvent, admits in writings its insolvency or inability to pay its debts, or is unable to pay or is generally not paying its debts as they become due; or (d) A receiver, trustee, custodian or agent is appointed to take possession of all or any substantial portion of Maker's assets; or (e) Any case or proceeding is voluntarily commenced by Maker under any provision of the federal Bankruptcy Code or any other federal or state law relating to debtor rehabilitation, insolvency, bankruptcy, liquidation or reorganization, or any such case or proceeding is involuntarily commenced against Maker and not dismissed within thirty (30) calendar days thereafter; or (f) Any representation made by Maker in this Note or in any of the other documents delivered in connection therewith, shall have been untrue or incorrect in any material respect when made. 2 9. Default Rate. In the event that Maker fails to pay the Outstanding ------------ Principal Balance and all accrued interest in full on the Maturity Date or the Accelerated Maturity Date, the amount past due (including any acceleration of the Outstanding Principal Balance), and unpaid shall bear interest at an annual rate equal to the lesser of (i) fifteen percent (15%), or (ii) the maximum amount permitted by law (the "Default Rate"), computed from the date on which said amount was due and payable until paid. The charging or collecting of interest at the Default Rate shall not limit any of Holder's other rights or remedies under this Note. 10. Governing Law. Maker, and each endorser and cosigner of this Note, ------------- acknowledges and agrees that this Note is made and is intended to be paid and performed in the State of New Jersey and the provisions hereof will be construed in accordance with the laws of the State of New Jersey and, to the extent that federal law may preempt the applicability of state laws, federal law. Maker, and each endorser and cosigner of this Note further agree that upon the occurrence of an Event of Default, this Note may be enforced in any court of competent jurisdiction in the State of New Jersey, and they do hereby submit to the jurisdiction of such courts regardless of their residence. 11. Remedies Cumulative: Waiver. The remedies of Holder as provided ----------------------------- herein shall be cumulative and concurrent, and may be pursued singularly, successively or together, in the sole discretion of Holder, and may be exercised as often as occasion therefor shall arise. No act of omission or commission of Holder, including specifically any failure to exercise any right, remedy or recourse, shall be deemed to be a waiver or release of the same; such waiver or release to be affected only through a written document executed by Holder and then only to the extent specifically recited therein. Without limiting the generality of the preceding sentence, acceptance by Holder of any payment with knowledge of the occurrence of an Event of Default by Maker shall not be deemed a waiver of such Event of Default, and acceptance by Holder of any payment in an amount less than the amount then due hereunder shall be an acceptance on account only and shall not in any way affect the existence of an Event of Default hereunder. A waiver or release with reference to any one event shall not be construed as continuing, as a bar to, or as a waiver or release of, any subsequent right, remedy or recourse as to a subsequent event. 12. No Usury Intended. All agreements between Maker and Holder are ------------------ expressly limited so that in no contingency or event whatsoever, whether by reason of: error of fact or law; payment, prepayment or advancement of the proceeds hereof; acceleration of maturity of the Outstanding Principal Balance, or otherwise, shall the amount paid or agreed to be paid to Holder hereof for the use, forbearance or retention of the money to be advanced hereunder, including any charges collected or made in connection with the indebtedness evidenced by this Note which may be treated as interest under applicable law, if any, exceed the maximum legal limit (if any such limit is applicable) under United States 3 federal law or state law (to the extent not preempted by federal law, if any), now or hereafter governing the interest payable in connection with such agreements. If, from any circumstances whatsoever, fulfillment of any provision hereof at the time performance of such provision shall be due shall involve transcending the limit of validity (if any) prescribed by law which a court of competent jurisdiction may deem applicable hereto, then ipso facto, the obligation to be fulfilled shall be reduced to the limit of such validity, and if from any circumstances, Holder shall ever receive as interest an amount which would exceed the maximum legal limit (if any such limit is applicable), such amount which would be excessive interest shall be applied to the reduction of the Outstanding Principal Balance due hereunder and not to the payment of interest or, if necessary, rebated to Maker. This provision shall control every other provision of all agreements between Maker and Holder. 13. Guaranty. Not applicable. -------- 14. Purpose of Loan. Maker certifies that the loan evidenced by this --------------- Note is obtained for business or commercial purposes and that the proceeds thereof shall not be used for personal, family, household, or agricultural purposes. 15. Miscellaneous Provisions. ------------------------ (a) Maker, and each endorser and cosigner of this Note expressly grants to Holder the right to release or to agree not to sue any other person, or to suspend the right to enforce this Note against such other person or to otherwise discharge such person; and Maker, and each endorser and cosigner agrees that the exercise of such rights by Holder will have no effect on this liability of any other person, primarily or secondarily liable hereunder. Maker, and each endorser and cosigner of this Note waives, to the fullest extent permitted by law, demand for payment, presentment for payment, protest, notice of protest, notice of dishonor, notice of nonpayment, notice of acceleration of maturity, diligence in taking any action to collect sums owing hereunder, any duty or obligation of Holder to effect, protect, perfect, retain or enforce any security for the payment of this Note or to proceed against any collateral before otherwise enforcing this Note, and the right to plead as a defense to the payment hereof any statute of limitations. (b) This Note and each payment of principal and interest hereunder shall be paid when due without deduction or setoff of any kind or nature whatsoever. (c) Maker agrees to reimburse Holder for all costs, including, without limitation, reasonable attorneys' fees (including an allocable portion of in-house counsel fees), incurred to collect this Note if this Note is not paid when due, including, but not limited to, attorneys' fees (including an allocable portion of in-house counsel fees) incurred in 4 connection with any bankruptcy proceedings instituted by or against Maker (including relief from stay litigation). (d) If any provision hereof is for any reason and to any extent, invalid or unenforceable, then neither the remainder of the document in which such provision is contained, nor the application of the provision to other persons, entities or circumstances shall be affected thereby, but instead shall be enforceable to the maximum extent permitted by law. (e) This Note shall be a joint and several obligation of Maker, and of all endorsers and cosigners hereof and shall be binding upon them and their respective heirs, personal representatives, successors and assigns. (f) This Note may not be modified or amended orally, but only by a modification or amendment in writing signed by Holder and Maker. (g) When the context and construction so require, all words used in the singular herein shall be deemed to have been used in the plural and the masculine shall include the feminine and neuter and vice versa. The word "person" as used herein shall include any individual, company, firm, association, partnership, corporation, trust or other legal entity of any kind whatsoever. (h) The headings of the paragraphs and sections of this Note are for convenience or reference only, are not to be considered a part hereof and shall not limit or otherwise affect any of the terms hereof. (i) In the event that at any time any payment received by Holder hereunder shall be deemed by final order of a court of competent jurisdiction to have been a voidable preference or fraudulent conveyance under the bankruptcy or insolvency laws of the United States, or shall otherwise be deemed to be due to any party other than Holder, then, in any such event, the obligation to make such payment shall survive any cancellation of this Note and/or return thereof to Maker and shall not be discharged or satisfied by any prior payment thereof and/or cancellation of this Note, but shall remain a valid and binding obligation enforceable in accordance with the terms and provisions hereof, and the amount of such payment shall bear interest at the Default Rate from the date of such final order until repaid hereunder. IN WITNESS WHEREOF Maker has executed this Promissory Note as of the day and year first above written. "Maker" VOICE & DATA COMMUNICATIONS (LATIN AMERICA), INC. 5 By /s/ Frederick A. Moran ---------------------------------- Frederick A. Moran CEO 6 EX-10.56 12 0012.txt EX-10.56 PROMISSORY NOTE --------------- $500,000 June 14, 2000 Passaic, New Jersey FOR VALUE RECEIVED, the undersigned Voice & Data Communications (Latin America), Inc., a Delaware corporation ("Maker"), promises to pay to the order of VDC Communications, Inc., a Delaware corporation ("Holder"), which term shall include any subsequent holder of this Note, at 75 Holly Hill Lane, Greenwich, CT 06830 (or at such other place as Holder shall designate in writing) in lawful money of the United States of America, the aggregate principal sum of Five Hundred Thousand Dollars ($500,000), with interest thereon at the rate (the "Interest Rate") described below. 1. Interest Rate. The Interest Rate shall be eight percent (8%) per ------------- annum. 2. Outstanding Principal Balance. All references to the "Outstanding ----------------------------- Principal Balance" shall mean the amount of Five Hundred Thousand Dollars ($500,000), less any principal repaid. 3. Payments. This note shall be payable in full on June 14, 2004 -------- (the "Maturity Date") when the entire Outstanding Principal Balance, and any accrued but unpaid interest, shall be due and payable. 4. Application of Payments. All payments on this Note shall be ------------------------- applied first to the payment of accrued and unpaid interest, and then to the reduction of the Outstanding Principal Balance. 5. Prepayment Right. Maker shall have the right to prepay at any ----------------- time, in whole or in part, the Outstanding Principal Balance of this Note, without premium or penalty. 6. Accelerated Maturity. Notwithstanding anything in this Note to the -------------------- contrary and irrespective of the Maturity Date, the entire Outstanding Principal Balance and accrued interest shall become immediately due and payable upon the earliest to occur of the following (the "Accelerated Maturity Date"): (a) the sale of all or substantially all of the assets of the Maker or the common stock of the Maker to a third party; or (b) the issuance of the securities of Maker on the public market. 7. Modifications. From time to time, without affecting the ------------- obligation of Maker to pay the Outstanding Principal Balance or to observe the covenants of Maker contained herein, and without giving notice to or obtaining the consent of Maker, Holder may, at the option of Holder, extend the time for payment of the Outstanding Principal Balance or any part thereof, reduce the 1 payments hereunder, release any person liable hereunder, accept a renewal or extension of this Note, join in any extension or subordination agreement, release any security given herefor, take or release security, or agree in writing with Maker to modify the Interest Rate or any other provision of this Note. 8. Events of Default. Time is of the essence hereof. Upon the ------------------- occurrence of any of the following events (the "Events of Default"), payment of the entire Outstanding Principal Balance and accrued interest of this Note shall, at the option of the Holder, be accelerated and shall be immediately due and payable without notice or demand: (a) Failure of Maker to pay the Outstanding Principal Balance and accrued interest in full on the Maturity Date or the Accelerated Maturity Date; or (b) All or the majority of the value of the assets of Maker is seized or levied upon by writ of attachment, garnishment, execution or otherwise, and such seizure or levy is not released within thirty (30) calendar days thereafter; or (c) Maker executes a general assignment for the benefit of its creditors, convenes any meeting of its creditors, becomes insolvent, admits in writings its insolvency or inability to pay its debts, or is unable to pay or is generally not paying its debts as they become due; or (d) A receiver, trustee, custodian or agent is appointed to take possession of all or any substantial portion of Maker's assets; or (e) Any case or proceeding is voluntarily commenced by Maker under any provision of the federal Bankruptcy Code or any other federal or state law relating to debtor rehabilitation, insolvency, bankruptcy, liquidation or reorganization, or any such case or proceeding is involuntarily commenced against Maker and not dismissed within thirty (30) calendar days thereafter; or (f) Any representation made by Maker in this Note or in any of the other documents delivered in connection therewith, shall have been untrue or incorrect in any material respect when made. 9. Default Rate. In the event that Maker fails to pay the Outstanding ------------ Principal Balance and all accrued interest in full on the Maturity Date or the Accelerated Maturity Date, the amount past due (including any acceleration of the Outstanding Principal Balance), and unpaid shall bear interest at an annual rate equal to the lesser of (i) fifteen percent (15%), or (ii) the maximum amount permitted by law (the "Default Rate"), computed from the date on which said amount was due and payable until paid. The charging or collecting of interest at the Default Rate shall not limit any of Holder's other rights or remedies under this Note. 10. Governing Law. Maker, and each endorser and cosigner of this Note, ------------- acknowledges and agrees that this Note is made and is intended to be paid and performed in the State of New Jersey and the provisions hereof will be construed in accordance with the laws of 2 the State of New Jersey and, to the extent that federal law may preempt the applicability of state laws, federal law. Maker, and each endorser and cosigner of this Note further agree that upon the occurrence of an Event of Default, this Note may be enforced in any court of competent jurisdiction in the State of New Jersey, and they do hereby submit to the jurisdiction of such courts regardless of their residence. 11. Remedies Cumulative: Waiver. The remedies of Holder as provided ----------------------------- herein shall be cumulative and concurrent, and may be pursued singularly, successively or together, in the sole discretion of Holder, and may be exercised as often as occasion therefor shall arise. No act of omission or commission of Holder, including specifically any failure to exercise any right, remedy or recourse, shall be deemed to be a waiver or release of the same; such waiver or release to be affected only through a written document executed by Holder and then only to the extent specifically recited therein. Without limiting the generality of the preceding sentence, acceptance by Holder of any payment with knowledge of the occurrence of an Event of Default by Maker shall not be deemed a waiver of such Event of Default, and acceptance by Holder of any payment in an amount less than the amount then due hereunder shall be an acceptance on account only and shall not in any way affect the existence of an Event of Default hereunder. A waiver or release with reference to any one event shall not be construed as continuing, as a bar to, or as a waiver or release of, any subsequent right, remedy or recourse as to a subsequent event. 12. No Usury Intended. All agreements between Maker and Holder are ------------------ expressly limited so that in no contingency or event whatsoever, whether by reason of: error of fact or law; payment, prepayment or advancement of the proceeds hereof; acceleration of maturity of the Outstanding Principal Balance, or otherwise, shall the amount paid or agreed to be paid to Holder hereof for the use, forbearance or retention of the money to be advanced hereunder, including any charges collected or made in connection with the indebtedness evidenced by this Note which may be treated as interest under applicable law, if any, exceed the maximum legal limit (if any such limit is applicable) under United States federal law or state law (to the extent not preempted by federal law, if any), now or hereafter governing the interest payable in connection with such agreements. If, from any circumstances whatsoever, fulfillment of any provision hereof at the time performance of such provision shall be due shall involve transcending the limit of validity (if any) prescribed by law which a court of competent jurisdiction may deem applicable hereto, then ipso facto, the obligation to be fulfilled shall be reduced to the limit of such validity, and if from any circumstances, Holder shall ever receive as interest an amount which would exceed the maximum legal limit (if any such limit is applicable), such amount which would be excessive interest shall be applied to the reduction of the Outstanding Principal Balance due hereunder and not to the payment of interest or, if necessary, rebated to Maker. This provision shall control every other provision of all agreements between Maker and Holder. 3 13. Guaranty. Not applicable. -------- 14. Purpose of Loan. Maker certifies that the loan evidenced by this --------------- Note is obtained for business or commercial purposes and that the proceeds thereof shall not be used for personal, family, household, or agricultural purposes. 15. Miscellaneous Provisions. ------------------------ (a) Maker, and each endorser and cosigner of this Note expressly grants to Holder the right to release or to agree not to sue any other person, or to suspend the right to enforce this Note against such other person or to otherwise discharge such person; and Maker, and each endorser and cosigner agrees that the exercise of such rights by Holder will have no effect on this liability of any other person, primarily or secondarily liable hereunder. Maker, and each endorser and cosigner of this Note waives, to the fullest extent permitted by law, demand for payment, presentment for payment, protest, notice of protest, notice of dishonor, notice of nonpayment, notice of acceleration of maturity, diligence in taking any action to collect sums owing hereunder, any duty or obligation of Holder to effect, protect, perfect, retain or enforce any security for the payment of this Note or to proceed against any collateral before otherwise enforcing this Note, and the right to plead as a defense to the payment hereof any statute of limitations. (b) This Note and each payment of principal and interest hereunder shall be paid when due without deduction or setoff of any kind or nature whatsoever. (c) Maker agrees to reimburse Holder for all costs, including, without limitation, reasonable attorneys' fees (including an allocable portion of in-house counsel fees), incurred to collect this Note if this Note is not paid when due, including, but not limited to, attorneys' fees (including an allocable portion of in-house counsel fees) incurred in connection with any bankruptcy proceedings instituted by or against Maker (including relief from stay litigation). (d) If any provision hereof is for any reason and to any extent, invalid or unenforceable, then neither the remainder of the document in which such provision is contained, nor the application of the provision to other persons, entities or circumstances shall be affected thereby, but instead shall be enforceable to the maximum extent permitted by law. (e) This Note shall be a joint and several obligation of Maker, and of all endorsers and cosigners hereof and shall be binding upon them and their respective heirs, personal representatives, successors and assigns. 4 (f) This Note may not be modified or amended orally, but only by a modification or amendment in writing signed by Holder and Maker. (g) When the context and construction so require, all words used in the singular herein shall be deemed to have been used in the plural and the masculine shall include the feminine and neuter and vice versa. The word "person" as used herein shall include any individual, company, firm, association, partnership, corporation, trust or other legal entity of any kind whatsoever. (h) The headings of the paragraphs and sections of this Note are for convenience or reference only, are not to be considered a part hereof and shall not limit or otherwise affect any of the terms hereof. (i) In the event that at any time any payment received by Holder hereunder shall be deemed by final order of a court of competent jurisdiction to have been a voidable preference or fraudulent conveyance under the bankruptcy or insolvency laws of the United States, or shall otherwise be deemed to be due to any party other than Holder, then, in any such event, the obligation to make such payment shall survive any cancellation of this Note and/or return thereof to Maker and shall not be discharged or satisfied by any prior payment thereof and/or cancellation of this Note, but shall remain a valid and binding obligation enforceable in accordance with the terms and provisions hereof, and the amount of such payment shall bear interest at the Default Rate from the date of such final order until repaid hereunder. IN WITNESS WHEREOF Maker has executed this Promissory Note as of the day and year first above written. "Maker" VOICE & DATA COMMUNICATIONS (LATIN AMERICA), INC. By /s/ Frederick A. Moran ---------------------------------- Frederick A. Moran CEO 5 EX-10.57 13 0013.txt EX-10.57 The following Form of Promissory Note was executed by Rare Telephony, Inc. in the following amounts on the following dates to document loans from VDC Communications, Inc. to Rare Telephony, Inc.:
Date Amount - ---- ------ July 6, 2000 $100,000 July 11, 2000 $150,000 July 13, 2000 $30,000 July 17, 2000 $50,000 July 21, 2000 $50,000 July 28, 2000 $50,000 August 3, 2000 $50,000 August 7, 2000 $50,000 August 9, 2000 $50,000 August 16, 2000 $68,000 August 21, 2000 $50,000 August 25, 2000 $100,000 August 29, 2000 $50,000 September 12, 2000 $75,000
FORM OF PROMISSORY NOTE ----------------------- $ --------------- , 2000 ---------------- Greenwich, Connecticut FOR VALUE RECEIVED, the undersigned RARE TELEPHONY, INC., a Delaware corporation (f/k/a Voice & Data Communications (Latin America), Inc.) ("Maker"), promises to pay to the order of VDC Communications, Inc., a Delaware corporation ("Holder"), which term shall include any subsequent holder of this Note, at 75 Holly Hill Lane, Greenwich, CT 06830 (or at such other place as Holder shall designate in writing) in lawful money of the United States of America, the aggregate 1 principal sum of Thousand Dollars ($ ), with interest thereon at the ------- ----- rate (the "Interest Rate") described below. 1. Interest Rate. The Interest Rate shall be eight percent (8%) per ------------- annum. 2. Outstanding Principal Balance. All references to the "Outstanding ----------------------------- Principal Balance" shall mean the amount of Thousand Dollars ($ ), less any principal repaid. ------ -------- 3. Payments. This Note shall be payable in full on , 2001 -------- ----------- (the "Maturity Date") when the entire Outstanding Principal Balance, and any accrued but unpaid interest, shall be due and payable. 4. Application of Payments. All payments on this Note shall be ------------------------- applied first to the payment of accrued and unpaid interest, and then to the reduction of the Outstanding Principal Balance. 5. Prepayment Right. Maker shall have the right to prepay at any ----------------- time, in whole or in part, the Outstanding Principal Balance of this Note, without premium or penalty. 6. Accelerated Maturity. Notwithstanding anything in this Note to the -------------------- contrary and irrespective of the Maturity Date, the entire Outstanding Principal Balance and accrued interest shall become immediately due and payable upon the earliest to occur of the following (the "Accelerated Maturity Date"): (a) the sale of all or substantially all of the assets of the Maker or the common stock of the Maker to a third party; or (b) the issuance of the securities of Maker on the public market. 7. Modifications. From time to time, without affecting the obligation ------------- of Maker to pay the Outstanding Principal Balance or to observe the covenants of Maker contained herein, and without giving notice to or obtaining the consent of Maker, Holder may, at the option of Holder, extend the time for payment of the Outstanding Principal Balance or any part thereof, reduce the payments hereunder, release any person liable hereunder, accept a renewal or extension of this Note, join in any extension or subordination agreement, release any security given herefor, take or release security, or agree in writing with Maker to modify the Interest Rate or any other provision of this Note. 8. Events of Default. Time is of the essence hereof. Upon the ------------------- occurrence of any of the following events (the "Events of Default"), payment of the entire Outstanding Principal Balance and accrued interest of this Note shall, at the option of the Holder, be accelerated and shall be immediately due and payable without notice or demand: 2 (a) Failure of Maker to pay the Outstanding Principal Balance and accrued interest in full on the Maturity Date or the Accelerated Maturity Date; or (b) All or the majority of the value of the assets of Maker is seized or levied upon by writ of attachment, garnishment, execution or otherwise, and such seizure or levy is not released within thirty (30) calendar days thereafter; or (c) Maker executes a general assignment for the benefit of its creditors, convenes any meeting of its creditors, becomes insolvent, admits in writings its insolvency or inability to pay its debts, or is unable to pay or is generally not paying its debts as they become due; or (d) A receiver, trustee, custodian or agent is appointed to take possession of all or any substantial portion of Maker's assets; or (e) Any case or proceeding is voluntarily commenced by Maker under any provision of the federal Bankruptcy Code or any other federal or state law relating to debtor rehabilitation, insolvency, bankruptcy, liquidation or reorganization, or any such case or proceeding is involuntarily commenced against Maker and not dismissed within thirty (30) calendar days thereafter; or (f) Any representation made by Maker in this Note or in any of the other documents delivered in connection therewith, shall have been untrue or incorrect in any material respect when made. 9. Default Rate. In the event that Maker fails to pay the Outstanding ------------ Principal Balance and all accrued interest in full on the Maturity Date or the Accelerated Maturity Date, the amount past due (including any acceleration of the Outstanding Principal Balance), and unpaid shall bear interest at an annual rate equal to the lesser of (i) fifteen percent (15%), or (ii) the maximum amount permitted by law (the "Default Rate"), computed from the date on which said amount was due and payable until paid. The charging or collecting of interest at the Default Rate shall not limit any of Holder's other rights or remedies under this Note. 10. Governing Law. Maker, and each endorser and cosigner of this Note, ------------- acknowledges and agrees that this Note is made and is intended to be paid and performed in the State of Connecticut and the provisions hereof will be construed in accordance with the laws of the State of Connecticut and, to the extent that federal law may preempt the applicability of state laws, federal law. Maker, and each endorser and cosigner of this Note further agree that upon the occurrence of an Event of Default, this Note may be enforced in any court of competent jurisdiction in the State of Connecticut, and they do hereby submit to the jurisdiction of such courts regardless of their residence. 11. Remedies Cumulative: Waiver. The remedies of Holder as provided ----------------------------- herein shall be cumulative and concurrent, and may be pursued singularly, successively or together, in the sole discretion of Holder, and may be exercised as often as occasion therefor shall arise. No act of omission or commission of Holder, including 3 specifically any failure to exercise any right, remedy or recourse, shall be deemed to be a waiver or release of the same; such waiver or release to be affected only through a written document executed by Holder and then only to the extent specifically recited therein. Without limiting the generality of the preceding sentence, acceptance by Holder of any payment with knowledge of the occurrence of an Event of Default by Maker shall not be deemed a waiver of such Event of Default, and acceptance by Holder of any payment in an amount less than the amount then due hereunder shall be an acceptance on account only and shall not in any way affect the existence of an Event of Default hereunder. A waiver or release with reference to any one event shall not be construed as continuing, as a bar to, or as a waiver or release of, any subsequent right, remedy or recourse as to a subsequent event. 12. No Usury Intended. All agreements between Maker and Holder are ------------------ expressly limited so that in no contingency or event whatsoever, whether by reason of: error of fact or law; payment, prepayment or advancement of the proceeds hereof; acceleration of maturity of the Outstanding Principal Balance, or otherwise, shall the amount paid or agreed to be paid to Holder hereof for the use, forbearance or retention of the money to be advanced hereunder, including any charges collected or made in connection with the indebtedness evidenced by this Note which may be treated as interest under applicable law, if any, exceed the maximum legal limit (if any such limit is applicable) under United States federal law or state law (to the extent not preempted by federal law, if any), now or hereafter governing the interest payable in connection with such agreements. If, from any circumstances whatsoever, fulfillment of any provision hereof at the time performance of such provision shall be due shall involve transcending the limit of validity (if any) prescribed by law which a court of competent jurisdiction may deem applicable hereto, then ipso facto, the obligation to be fulfilled shall be reduced to the limit of such validity, and if from any circumstances, Holder shall ever receive as interest an amount which would exceed the maximum legal limit (if any such limit is applicable), such amount which would be excessive interest shall be applied to the reduction of the Outstanding Principal Balance due hereunder and not to the payment of interest or, if necessary, rebated to Maker. This provision shall control every other provision of all agreements between Maker and Holder. 13. Guaranty. Not applicable. -------- 14. Purpose of Loan. Maker certifies that the loan evidenced by this --------------- Note is obtained for business or commercial purposes and that the proceeds thereof shall not be used for personal, family, household, or agricultural purposes. 15. Miscellaneous Provisions. ------------------------ (a) Maker, and each endorser and cosigner of this Note expressly grants to Holder the right to release or to agree not to sue any other person, or to suspend the right to enforce this Note 4 against such other person or to otherwise discharge such person; and Maker, and each endorser and cosigner agrees that the exercise of such rights by Holder will have no effect on this liability of any other person, primarily or secondarily liable hereunder. Maker, and each endorser and cosigner of this Note waives, to the fullest extent permitted by law, demand for payment, presentment for payment, protest, notice of protest, notice of dishonor, notice of nonpayment, notice of acceleration of maturity, diligence in taking any action to collect sums owing hereunder, any duty or obligation of Holder to effect, protect, perfect, retain or enforce any security for the payment of this Note or to proceed against any collateral before otherwise enforcing this Note, and the right to plead as a defense to the payment hereof any statute of limitations. (b) This Note and each payment of principal and interest hereunder shall be paid when due without deduction or setoff of any kind or nature whatsoever. (c) Maker agrees to reimburse Holder for all costs, including, without limitation, reasonable attorneys' fees (including an allocable portion of in-house counsel fees), incurred to collect this Note if this Note is not paid when due, including, but not limited to, attorneys' fees (including an allocable portion of in-house counsel fees) incurred in connection with any bankruptcy proceedings instituted by or against Maker (including relief from stay litigation). (d) If any provision hereof is for any reason and to any extent, invalid or unenforceable, then neither the remainder of the document in which such provision is contained, nor the application of the provision to other persons, entities or circumstances shall be affected thereby, but instead shall be enforceable to the maximum extent permitted by law. (e) This Note shall be a joint and several obligation of Maker, and of all endorsers and cosigners hereof and shall be binding upon them and their respective heirs, personal representatives, successors and assigns. (f) This Note may not be modified or amended orally, but only by a modification or amendment in writing signed by Holder and Maker. (g) When the context and construction so require, all words used in the singular herein shall be deemed to have been used in the plural and the masculine shall include the feminine and neuter and vice versa. The word "person" as used herein shall include any individual, company, firm, association, partnership, corporation, trust or other legal entity of any kind whatsoever. (h) The headings of the paragraphs and sections of this Note are for convenience or reference only, are not to be considered a part hereof and shall not limit or otherwise affect any of the terms hereof. 5 (i) In the event that at any time any payment received by Holder hereunder shall be deemed by final order of a court of competent jurisdiction to have been a voidable preference or fraudulent conveyance under the bankruptcy or insolvency laws of the United States, or shall otherwise be deemed to be due to any party other than Holder, then, in any such event, the obligation to make such payment shall survive any cancellation of this Note and/or return thereof to Maker and shall not be discharged or satisfied by any prior payment thereof and/or cancellation of this Note, but shall remain a valid and binding obligation enforceable in accordance with the terms and provisions hereof, and the amount of such payment shall bear interest at the Default Rate from the date of such final order until repaid hereunder. (j) Maker understands and agrees that Holder has no obligation to loan additional funds to Maker or its subsidiaries and that any future loans made to Maker by Holder, if any, shall be in the sole discretion of Holder. IN WITNESS WHEREOF Maker has executed this Promissory Note as of the day and year first above written. "Maker" RARE TELEPHONY, INC. (f/k/a Voice & Data Communications (Latin America), Inc.) By: ----------------------------------------- Its: ---------------------------------------- 6 EX-21 14 0014.txt EX-21 SUBSIDIARES OF REGISTRANT 1. Cash Back Rebates LD.com, Inc., a Delaware corporation 2. Free dot Calling.com, Inc., a Nevada corporation 3. Masatepe Communications, U.S.A., L.L.C., a Delaware limited liability company 4. Rare Telephony, Inc. (f/k/a Voice & Data Communications (Latin America), Inc.), a Delaware corporation 5. Sky King Communications, Inc., a Delaware corporation 6. VDC Telecommunications, Inc., a Delaware corporation (d/b/a Voice and Data Communications) 7. Voice & Data Communications (Hong Kong) Limited, a Hong Kong corporation 8. WorldConnectTelecom.com, Inc., a Delaware corporation EX-27 15 0015.txt FINANCIAL DATA SCHEDULE
5 This schedule contains Summary Financial information extracted from the financial statements for the year ended June 30, 2000 and is qualified in its entirety by reference to such financial statements. 1,000 12-mos JUN-30-2000 JUN-30-2000 772 51 1,439 505 0 1,759 5,840 1,553 10,335 4,461 995 0 0 3 5,125 10,335 8,529 8,529 8,722 8,722 0 497 133 (2,675) 0 (2,675) 0 0 0 (5,246) (0.26) (0.26)
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