-----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, UT7Zpqw0oS7Ma4eZemRYiqXDnnBRA0xX/RLhpOSXvkZ7KhYgP80r5T9E0QHH0Ym0 0pw9KVYK5FNlO3Y5OLnxHg== 0000784961-01-500011.txt : 20010223 0000784961-01-500011.hdr.sgml : 20010223 ACCESSION NUMBER: 0000784961-01-500011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VDC COMMUNICATIONS INC CENTRAL INDEX KEY: 0000784961 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 061524454 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-14281 FILM NUMBER: 1543237 BUSINESS ADDRESS: STREET 1: 75 HOLLY HILL LANE CITY: GREENWICH STATE: CT ZIP: 06830 BUSINESS PHONE: 9736216660 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-Q 1 form10-q.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended December 31, 2000 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period From ________ To ________ VDC COMMUNICATIONS, INC. ------------------------ (Exact name of registrant as specified in its charter) Delaware 001-14281 061524454 -------- --------- --------- (Jurisdiction of Incorporation) (Commission File No.) (IRS Employer Identification No.) 550 Broad Street Newark, New Jersey 07201 (Address of principal executive office) - -------------------------------------------------------------------------------- Registrant's telephone number, including area code: (973) 621-6660 Not applicable (Former name, former address, and former fiscal year if changed since last report) Check whether the Registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of February 8, 2001, the number of shares of registrant's common stock, par value $.0001 per share, outstanding was 24,753,030. 1 VDC COMMUNICATIONS, INC. INDEX PART I FINANCIAL INFORMATION PAGE --------------------- ---- Item 1. Consolidated balance sheets as of June 30, 2000 And December 31, 2000 3 Consolidated statements of operations and comprehensive loss for the three and six month periods ended December 31, 1999 and 2000 4 Consolidated statements of cash flows for the six months ended December 31, 1999 and 2000 5 Notes to consolidated financial statements 6-9 Item 2. Management's discussion and analysis of financial condition and results of operations 9-15 Item 3. Quantitative and qualitative disclosures about market risk 15 PART II OTHER INFORMATION Item 1. Legal Proceedings 15 Item 2. Changes in Securities and Use of Proceeds 15 Item 3. Defaults Upon Senior Securities 15 Item 4. Submission of Matters to a Vote of Security Holders 15-16 Item 5. Other Information 16 Item 6. Exhibits and Reports on Form 8-K 16-17 2 PART 1 - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS VDC COMMUNICATIONS, INC. AND SUBSIDARIES CONSOLIDATED BALANCE SHEETS
December 31, June 30, 2000 2000 (Unaudited) Assets Current: Cash and cash equivalents $ 104,244 $ 772,125 Marketable securities - 51,213 Accounts receivable, net of allowance for doubtful accounts of $1,502 at December 31, 2000 and $504,088 at June 30, 2000 28,819 935,217 Other current assets 125,092 - ------------------------------------ Total current assets 258,155 1,758,555 Property and equipment, less accumulated depreciation 2,212,457 4,286,707 Intangibles, net 2,998,301 3,643,193 Investment in MCC 140,000 140,000 Other assets 55,789 506,058 Net assets of discontinued operations 832,522 - ------------------------------------ Total assets $ 6,497,224 $ 10,334,513 ==================================== Liabilities and Stockholders Equity Current: Accounts payable and accrued expenses $ 3,699,812 $ 3,748,037 Unearned Revenue 476,934 463,585 Current portion of capitalized lease obligations - 178,341 Current portion of long term debt 155,889 71,490 ------------------------------------ Total current liabilities 4,332,635 4,461,453 Long-term portion of capitalized lease obligations - 521,482 Long-term portion of long term debt 111,892 224,077 ------------------------------------ Total liabilities 4,444,527 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 - 26,180,347 and 25,200,347 at December 31, and June 30, 2000, respectively 2,618 2,520 Additional paid-in capital 72,347,459 71,556,305 Accumulated deficit (70,067,206) (65,904,573) Treasury stock at cost, 1,958,543 and 1,875,000 shares at December 31 and June 30, 2000, respectively (230,174) (164,175) Accumulated comprehensive income (loss) - (362,576) ------------------------------------ ------------------------------------ Total stockholders equity 2,052,697 5,127,501 ------------------------------------ ------------------------------------ Total liabilities and stockholders equity $ 6,497,224 $ 10,334,513 ====================================
See accompanying notes to consolidated financial statements. 3 VDC COMMUNICATIONS, INC. AND SUBSIDARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED) -------------------------------------------------
Three Months ended Six-months ended December 31, December 31, 2000 1999 2000 1999 Revenue $ 1,030,110 $ 29,527 $ 2,109,049 $ 62,081 Operating Expenses Costs of services 950,819 12,303 2,242,431 52,028 Selling, general and administrative expenses 661,490 64,420 1,361,922 164,645 Depreciation and amortization 374,998 19,490 749,072 38,204 Non-cash compensation expense 166,250 - 166,250 - ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ Total operating expenses 2,153,557 96,213 4,519,675 254,877 ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ Operating loss (1,123,447) (66,686) (2,410,626) (192,796) Other income (expense): Other income (expense) 289,019 (46,149) (59,320) (8,934) ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ Total other income (expense) 289,019 (46,149) (59,320) (8,934) Loss from continuing operations (834,428) (112,835) (2,469,946) (201,730) ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ Discontinued Operations: Loss from operations of wholesale division to be disposed of (769,387) (578,856) (1,692,687) (1,465,458) Net loss (1,603,815) (691,691) (4,162,633) (1,667,188) Other comprehensive (loss), net of tax: Unrealized (loss) on marketable securities - (12,050) - (33,137) ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ Comprehensive loss (1,603,815) (703,741) (4,162,633) (1,700,325) ============================================================================== ============================================================================== Loss from continuing operations per common share basic and diluted (0.04) (0.00) (0.09) (0.01) Loss from discontinued operations per common share basic and diluted (0.04) (0.03) (0.07) (0.08) Net loss per common share basic and diluted $ (0.08) $ (0.03) $ (0.16) $ (0.09) ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ Weighted average number of shares outstanding 21,180,347 20,580,990 26,002,847 19,377,286 ------------------------------------------------------------------------------ ------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. 4 VDC COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six-months ended December 31, 2000 1999 Cash flows from operating activities: Net loss $(4,162,633) $ (1,667,188) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 749,072 527,141 Non-cash compensation expense 166,250 - Gain on disposal of fixed asset - (54,878) Provision for doubtful accounts - 254,502 Realized loss on marketable securities 347,790 - Changes in operating assets and liabilities: Resticted cash - 475,770 Accounts receivable 92,442 (405,020) Other assets 19,096 5,560 Accounts payable and accrued expenses (3,680) 458,996 Unearned revenue 13,349 - Net assets - discontinued operations 1,327,357 - ----------------------------------- ----------------------------------- Net cash used by operating activities (1,450,957) (405,117) Cash flows from investing activities: Proceeds from repayment of notes receivable - 249,979 Refund of fixed asset acquisition - 210,018 Fixed asset (acquisition) disposals - net 185,862 (105,296) ----------------------------------- ----------------------------------- Net cash flows provided by (used) in investing activities 185,862 354,701 Cash flows from financing activities: Proceeds from issuance of common stock 625,000 1,000,000 Repayment of note payable (27,786) - Repayments on capital lease obligations - (34,849) Proceeds from issuance of short-term debt - 80,000 ----------------------------------- ----------------------------------- Net cash flows provided by financing activities 597,214 1,045,151 ----------------------------------- ----------------------------------- Net increase (decrease) in cash and cash equivalents (667,881) 994,735 Cash and cash equivalents, beginning of period 772,125 317,799 ----------------------------------- ----------------------------------- Cash and cash equivalents, end of period 104,244 $ 1,312,534 =================================== ===================================
See accompanying notes to consolidated financial statements. 5 VDC Communications, Inc. and Subsidiaries Notes to consolidated financial statements 1. General These consolidated financial statements for the three and six month periods ended December 31, 2000 and 1999 and the related footnote information are unaudited and have been prepared on a basis substantially consistent with the audited consolidated financial statements of VDC Communications, Inc. and its subsidiaries (collectively, "VDC" or the "Company") as of and for the year ended June 30, 2000 included in the Company's Annual Report on Form 10-K as filed with the Securities and Exchange Commission (the "Annual Report"). These financial statements should be read in conjunction with the audited financial statements and the related notes to consolidated financial statements of the Company as of and for the year ended June 30, 2000 included in the Annual Report and the unaudited quarterly consolidated financial statements and related notes to unaudited consolidated financial statements of the Company for the three month period ended September 30, 2000 included in the Company's Form 10-Q for the quarter then ended as filed with the Securities and Exchange Commission. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) which management considers necessary to present fairly the consolidated financial position of the Company at December 31, 2000, the results of its operations for the three and six month periods ended December 31, 2000 and 1999 and its cash flows for the six months ended December 31, 2000 and 1999. The results of operations for the three and six month periods ended December 31, 2000 may not be indicative of the results expected for any succeeding quarter or for the entire year ending June 30, 2001. The Company is predominantly a long distance switchless reseller, and obtains the majority of its switching and long haul transmission of its service from Qwest Communications, Inc. ("Qwest"). The Company pays Qwest bills at contractual per minute rates, which vary depending on the time, distance and type of call, for the combined usage of the Company's nationwide base of customers. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates. Certain prior-year amounts have been reclassified to conform to the expected year ended June 30, 2001 financial statement presentation. The most significant adjustment has been to reclassify the operating results for the three and six months ending December 31, 2000 and 1999 and balance sheet as of December 31, 2000 of VDC Telecommunications, Inc. ("Telecom") as discontinued operations. Loss per common share is calculated by dividing the loss attributable to common shares by the weighted average number of shares outstanding. Outstanding common stock options and warrants are not included in the loss per share calculation as their effect is anti-dilutive. 2. Discontinued Operations Details of Disposal 6 In December 2000, the Company made the decision to discontinue the operations of Telecom, which historically had been unprofitable. Telecom's operations ceased effective December 2000. In accordance with generally accepted accounting principles EITF Issue 95-18, Telecom was treated as a discontinued operation for the three and six months ended December 31, 2000 and the preceding period's Consolidated Financial Statements. The Company is in the process of winding down its Telecom operations and settling certain assets and liabilities relating to the wholesale division. The Company expects that this process will be complete within twelve months and will not result in significant future operating losses. Pre-Measurement Date Operating Results and Loss per Common Share Operating results and Loss per Common Share of Telecom for the six months ended December 31, 2000 are shown separately on the accompanying statement of operations. Revenue From Telecom Telecom's net sales for the three and six months ended December 31, 2000 were $394,341 and $1,337,579, respectively. Telecom's net sales for the three and six months ended December 31, 1999 were $2,279,643 and $4,454,282, respectively. These amounts are not included in revenue in the accompanying statement of operations. Assets and Liabilities to be Disposed Of Telecom's assets and liabilities to be disposed of consisted of the following at December 31, 2000: December 31, 2000 ----------------- Accounts Receivable - net $ 37,069 Notes Receivable 172,500 Property and Equipment - net 1,063,602 Other Assets 261,550 ----------- Total Assets 1,534,721 Accounts Payable and Accruals 89,092 Capital Lease Obligations 613,107 ----------- Net Assets to be Disposed Of $ 832,522 3. Capital Transactions In July 2000, VDC sold 625,000 shares of Company common stock to unrelated investors at $1.00 per share, the public market price at that time. The Company issued 355,000 shares of Company common stock to certain member of management during the six months ended December 31, 2000. The issuance has been recorded as non-cash compensation at the fair market value of the common shares at the date of issuance. 4. Other Matters Approximately $1.1 million of the liabilities reflected in the Company's consolidated financial statements were attributable to a wholly-owned subsidiary of the Company (the "Subsidiary") and were accrued in connection with the Subsidiary's former operations. The Company has elected to reflect the potential liability within its financial statements despite the fact management has reason to believe that the Subsidiary may not be responsible for such potential 7 liability and despite the fact that the Subsidiary has limited assets and would be unable to pay this liability if it were, in fact, liable for it. Moreover, due to the fact that the potential liability would be a liability of the Subsidiary, a separate legal entity, and not of VDC Communications, Inc., the parent company, management believes that the potential liability will not impact the assets of the parent or its subsidiaries, other than the Subsidiary. 5. Commitments and Contingencies Option Repricing In light of the decline in market price of the Company's common stock as of October 2000, 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 2000, the Board of Directors approved an option repricing program under which certain options to acquire shares of common stock that were originally issued with exercise prices above $0.1875 per share were reissued with an exercise price of $0.1875 per share (or $0.20625 in the case of the former CEO 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 2,529,000 shares of Company common stock were affected by the repricing program. Options to purchase 1,345,000 shares of common stock granted to executive officers and members of the Board of Directors were affected by the repricing program. 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. If the exercise price of an option award is reduced, the award shall be accounted for as variable from the date of the modification to the date the award is exercised, forfeited or expires unexercised. 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. 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 8 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 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. 6. Supplemental Disclosure of Cash Flow Information For purposes of the statement of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Six months ended December 31, ------------------------------- 2000 1999 ----- ----- Cash paid during the period for: Interest 16,311 $82,259 Schedule of non-cash financing and investing activities: Equipment exchanged for note receivable $172,500 $- Equipment acquired through capital lease obligation $- $249,335 Cancellation of stock subscription receivable $- $344,700 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995 When used in this Report on Form 10-Q, the words "may," "will," "expect," "anticipate," "continue," "estimate," "intend," "could," "would," and similar expressions are intended to identify 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 regarding events, conditions and financial 9 trends which may affect VDC's future plans of operations, business strategy, operating results and financial position. Such statements are not guarantees of future performance and are subject to risks and uncertainties and actual results may differ materially from those included within the forward-looking statements as a result of various factors. Such risks may relate to, among others: (i) VDC's limited capital and possible bankruptcy; (ii) VDC's ability to operate profitably; (iii) VDC's ability to secure sufficient financing in order to fund its operations; (iv) competitive and other market conditions, including pricing pressure, that may adversely affect the scope of VDC's operations; (v) VDC's dependence on certain key personnel; (vi) VDC's ability to successfully integrate potential mergers and/or acquisitions into VDC, including the retention of certain key personnel; and, (xii) inherent regulatory and licensing requirements. Additional factors are in VDC's other public reports and filings with the Securities and Exchange Commission ("SEC") including a Registration Statement on Form S-3 (No. 333-46694) and a VDC prospectus dated October 27, 2000. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date made. The Company undertakes no obligation to publicly release the result of any revision of these forward-looking statements to reflect events or circumstances after the date they are made or to reflect the occurrence of unanticipated events. General VDC Communications, Inc. (referred to herein as "VDC" "we" or "us") is a predominantly long distance switchless reseller, and obtains the majority of its switching and long haul transmission of its service from Qwest Communications, Inc. ("Qwest"). We pay Qwest bills at contractual per minute rates, which vary depending on the time, distance and type of call, for the combined usage of our nationwide base of customers. We also generate nominal revenues from the management of domestic tower sites that provide transmission and receiver locations for wireless communications companies. During the quarter ended December 2000, VDC undertook substantial expense reductions necessitated by its continuing negative cash flow, its inability to pay operating expenses, its inability to raise additional capital, and its depleted and inadequate cash position. VDC's current liquidity-constrained circumstances result primarily from: (i) the inability of VDC's recently acquired retail long distance operation to sufficiently reduce its cash losses; and , (ii)VDC's inability to raise funds. The cutbacks included an approximate 48% staff and operations reduction at the retail long distance unit, and the discontinuation of its Wholesale operations. In addition, VDC has been in talks with unsecured creditors for months in attempts to settle past due payables. VDC has experienced modest success with certain vendors by finding mutually agreeable compromises. Nevertheless, these settlements have not had a material impact on VDC's balance sheet and, as such, VDC was unable to complete the proposed financing announced on October 27, 2000. As part of its ongoing plan, VDC will continue to seek compromise of its accounts payable in the hope of settling with its creditors. VDC will continue to seek alternatives in regard to improving its balance sheet, including, but not limited to: raising capital, and/or the sale of asset(s). We have, however, thus far been unsuccessful in raising capital and it is unlikely the sale of asset(s) will satisfactorily address VDC's current liquidity situation. VDC is also considering merger and acquisition possibilities. 10 In December, 2000, Frederick A. Moran, VDC's former Chairman and C.E.O and Clayton F. Moran, VDC's former CFO resigned in order to maximize expense reductions. Anthony DeJesus, C.P.A., was appointed Chairman, CEO and CFO by VDC's Board of Directors. Mr. DeJesus joined VDC in July 1998. Since then, he has been an integral part of VDC's management team. The employment agreements of Frederick A. Moran and Clayton F. Moran provide for severance payments of approximately $145,000. We may attempt to renegotiate any such payments as part of severance agreements. We are currently uncertain whether we will be obligated to make such payments and whether any eventual payments will have a material adverse effect on our liquidity and capital resources. In January 2001, another executive officer, Edwin B. Read, resigned. His severance agreement did not include a material cash component. It is management's hope that this large cutback in operating expenses will prove sufficient to permit VDC to achieve positive operating cash flow. In order to maximize expense reductions, VDC has curtailed its marketing staff by approximately 57%. Our recent marketing staff cuts will likely have a material adverse effect on our customer base. In addition, in light of our liquidity position, among other things, we may further reduce our marketing staff and rely upon commissioned agents. We are uncertain about the effect this might have on our marketing efforts and customer base. We acquire residential customers through direct marketing via the telephone. We currently have over 10,000 retail subscribers with over 8,500 currently connected to our network and over 1,500 having ordered service and awaiting connection to the network. We have two products that we offer to residential phone users. They provide the customer a competitive termination rate for long distance calls within the United States. Both of these services are paid for in advance by the customer, which reduces our exposure to bad debts and enhances liquidity. In December 2000, we made the decision to discontinue the operations of our wholesale segment whose operations were conducted through our wholly-owned subsidiary, VDC Telecommunications, Inc. ("Telecom"). Telecom had historically been unprofitable and its prospects diminished in the low-growth, margin squeezed international wholesale market as it accumulated significant arrearages. Additionally, we cancelled all plans related to the VoIP program and are attempting to return the equipment to the respective vendors. Telecom's operations ceased effective December 2000. Telecom was treated as a discontinued operation for the three and six months ended December 31, 2000 and the preceding period's Consolidated Statement of Operations. We earn revenue from residential long distance services which are paid for in advance by the customer. Nominal revenue is generated from the management of domestic tower sites that provide transmission and receiver locations for wireless communications companies. This revenue is generated and billed on a month-to-month basis. Our costs of services consist largely of telemarketing salaries, carrier costs and customer rebates. Selling, general, and administrative expenses ("SG&A") consist primarily of personnel costs, professional fees, bank and credit card processing charges, office rental, printing and postage. The Consolidated Financial Statements of VDC have been prepared on the basis that it 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 VDC's recurring losses from operations and significant arrearages on trade payables, such realization of assets and satisfaction of liabilities is subject to significant uncertainties. 11 The Consolidated Financial Statements do not include any adjustments that might result from the outcome of these uncertainties. Furthermore, VDC's ability to continue as a going concern is highly dependent in the near term on its ability to raise capital, obtain additional retail customers, achieve profitable operations and to generate sufficient cash flow from operations and financing sources to meet obligations. Results of Operations For the Three Months Ended December 31, 2000 Compared to the Three Months Ended December 31, 1999 Revenues: We began providing retail long distance services in June 2000. We generated revenue of approximately $1.0 million in the three months ended December 31, 2000 ("Current Quarter"). We generated the majority of our revenue by providing retail long distance services during the Current Quarter. Additional revenue of approximately $29,000 was generated from domestic site tower management during the Current Quarter as compared to approximately $30,000 during the three months ending December 31, 1999 ("Prior Period Quarter"). Costs of Services: Our costs of services were approximately $950,000 during the Current Quarter. Telemarketing salaries and carrier costs accounted for approximately 46% and 32% of these costs, respectively. Other less significant costs included customer rebates, telemarketing phone costs, and FCC mandated independent verification procedures. Prior Period costs of services of approximately $12,000 were attributable to site rental costs associated with domestic site tower management. SG&A: SG&A expenses were approximately $661,000 during the Current Quarter as compared to approximately $64,000 during the Prior Period Quarter. Salaries accounted for approximately 70% of these costs in the Current Quarter. Other less significant SG&A expenses included bank and credit card processing fees, rent, advertising, printing and postage. Prior Period Quarter SG&A costs were mostly attributable to salaries. Depreciation and Amortization ("D&A"): D&A expenses were approximately $375,000 in the Current Quarter. The June 2000 acquisition of the retail subsidiary generated goodwill of approximately $3.3 million, which is being amortized over 36 months, or approximately $274,000 per quarter. Other D&A consists of amortization of internally developed billing software, amortization attributable to the costs of acquiring tariffs and licenses necessary to provide retail long distance services nationally and the depreciation of office equipment and furniture. D&A expense of approximately $19,000 for the Prior Period Quarter was mostly attributable to office equipment and furniture. Non-Cash Compensation: Non-cash compensation of approximately $166,000 was attributable to the issuance of stock awards to certain members of our management. We issued 355,000 shares of common stock which has been recorded as non-cash compensation at the fair market value of the common shares at the date of issuance. Other income (expense): Other income (expense) was approximately $289,000 for the three months ended December 31, 2000, which was mostly attributable to 12 settlement with certain vendors and/or prior period overaccruals. Other income (expense) of approximately $(46,000) for the three months ended December 31, 1999 was due to miscellaneous charges and interest expense offset by interest income. For the Six Months Ended December 31, 2000 Compared to the Six Months Ended December 31, 1999 Revenues: We generated revenue of approximately $2.1 million in the six months ended December 31, 2000 ("Current Period") as compared to approximately $62,000 for the six months ended December 31, 1999 ("Prior Period"). We generated the majority of our revenue by providing retail long distance customer services during the Current Quarter. Additional revenue of approximately $57,000 was generated from domestic site tower management during the Current Period as compared to approximately $62,000 during the Prior Period. Costs of Services: Our costs of services were approximately $2.2 million during the Current Period. In the Current Period telemarketing salaries and carrier costs accounted for approximately 56% and 20% of these costs, respectively. Other less significant costs included customer rebates, telemarketing phone costs, and FCC mandated independent verification procedures. Prior Period costs of services of $52,000 were attributable to salaries and site rental costs associated with domestic site tower management. SG&A: SG&A expenses were approximately $1.4 million during the Current Period. Salaries accounted for approximately 67% of these costs. Other less significant SG&A expenses included bank and credit card processing fees, rent, advertising, printing and postage. Prior Period SG&A costs of approximately $165,000 were mostly attributable to salaries. Depreciation and Amortization : D&A expenses were approximately $749,000 in the Current Period. The June 2000 acquisition of the retail subsidiary generated goodwill of approximately $3.3 million, which is being amortized over 36 months. Other D&A consists of amortization of internally developed billing software, amortization attributable to the costs of acquiring tariffs and licenses necessary to provide retail long distance services nationally and the depreciation of office equipment and furniture. Prior Period D&A of approximately $38,000 is mostly attributable to office furniture and equipment. Non-Cash Compensation: Non-cash compensation of approximately $166,000 in the Current Period was attributable to stock awards to certain members of the Company's management. Other income (expense): Other income (expense) was approximately $(59,000) for the six months ended December 31, 2000, which was mostly attributable to settlement with certain vendors and/or prior period overaccruals. Other (expense) of $(8,934) was mostly due to interest expense offset by interest income. Liquidity and Capital Resources Net cash used by operating activities was approximately $(1,450,957) in the six months ended December 31, 2000, or Current Period. Most of the cash was used to fund the net loss which was reduced by non-cash charges and the net assets of the discontinued operations. Net cash used by operating activities was approximately $(405,000) in the Prior Period. We collected approximately $4.1 million from customers while paying approximately $4.5 million to carriers, other vendors and employees. 13 Net cash provided by investing activities was approximately $186,000 in the six months ended December 31, 2000. Cash was provided by proceeds from the sale of equipment. Net cash provided by investing activities of approximately $356,000 in the six months ended December 31, 1999 was from the collection of notes receivable and a sales tax refund on previously acquired switching equipment less cash used for the acquisition of fixed assets. Net cash provided by financing activities was approximately $597,000 in the six months ended December 31, 2000. This reflects proceeds from the issuance of common stock less repayments on long term debt. Net cash provided by financing activities was approximately $1 million during the six months ended December 31, 1999. This reflects proceeds from the issuance of common stock and short-term borrowings less repayments on capital lease obligations. As part of the June 30, 2000 audit, our auditors 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 cash needs. A significant amount of capital has been expended towards operations and in connection with certain acquisitions. In December 2000, the American Stock Exchange (the "Exchange") notified us that they intended to proceed with the filing of an application with the Securities and Exchange Commission to strike our common stock from the Exchange. On January 26, 2001, we announced the decision not to appeal the Exchange's decision to delist and consented to the removal of our common stock from the Exchange. This action became necessary because we no longer fully satisfied all the guidelines of the Exchange for continued listing. Our common stock is now qualified for trading on the OTC Bulletin Board under the symbol "VDCI." Our liquidity requirements arise primarily from cash used in operating activities. To date, we have financed ourselves mostly through equity financing. Since the quarter ending September 30, 2000, we have financed operations primarily through: (i) revenues from operations, and (ii) extending payables to vendors and certain other parties beyond payment terms. The retail business is currently operating at approximately $20,000 loss per month from a cash flow perspective. To address our short term liquidity issue, we are pursuing the sale of certain of our assets not associated with the retail long distance business. There can be no assurance that any such transaction will be consummated. Additionally, one of our wholly-owned subsidiaries has filed lawsuits against certain of its debtors to collect indebtedness of approximately $625,000 plus certain other fees, claims and costs. Even if we are successful in these lawsuits, however, our ability to collect on the indebtedness at issue is uncertain because certain of the defendants have limited assets. Moreover, even if we are successful in selling certain assets and in our lawsuits, the issue remains that we have significant arrearages. Additionally, real estate leases and other less significant expenses associated with the discontinued operations of Telecom and our former Connecticut administrative office location need to be addressed. We will continue to work with creditors in an attempt to settle its significant arrearages and contingencies. Additionally, VDC will continue to explore merger and acquisition possibilities and opportunities to raise capital. Recent efforts along these lines have been unsuccessful. If we are unable to resolve these liquidity issues, we may have to file for bankruptcy protection. Our long term objective is to build our retail customer base to the point of critical mass. To accomplish this, however, we will most likely need funding from outside sources. We are currently pursuing funding and thus far, have been unsuccessful. If we reach critical mass, our ongoing gross profit should be sufficient to generate sufficient cash flow to settle arrearages, address 14 contingencies and grow through strategic acquisitions. Reaching critical mass is mostly a function of our marketing efforts. Our recent sales staff cuts, however, will likely have a material adverse effect on our customer base. Maintaining our customers is also a priority and depends mostly on the competitiveness of our long distance services. Item 3. 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 long term debt are a reasonable approximation of their fair value. Part II - Other Information Item 1. 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. The parties to the Action are presently in settlement negotiations. Based upon the negotiations, VDC does not expect that any settlement agreement would have a material adverse effect on VDC's assets or operations. However, there can be no assurance that any settlement agreement will be executed. 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 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 a year and a half 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 2. Changes in Securities and Use of Proceeds Item not applicable. Item 3. Defaults Upon Senior Securities Item not applicable. Item 4. Submission of Matters to a Vote of Securities Holders VDC's annual meeting of stockholders was held on December 11, 2000. The following table sets forth information regarding the number of votes for, against, withheld, or abstaining and broker non-votes, with respect to each matter presented at the meeting. 1. The nominee for Class II director was elected as follows: NOMINEES FOR WITHHOLD Dr. Leonard Hausman 20,010,973 245,823 2. The proposal to amend the Company's 1998 Stock Incentive Plan, as amended to increase the number of shares of common stock VDC is authorized to issue under the 1998 Plan from 5,000,000 to 8,000,000 shares was approved as follows: BROKER FOR AGAINST ABSTAIN NON-VOTE 15 10,733,018 665,402 92,810 8,765,566 3. The selection of BDO Seidman, LLP as VDC's independent auditors for the fiscal year ending June 30, 2001 was approved as follows: BROKER FOR AGAINST ABSTAIN NON-VOTE 19,972,248 162,008 122,540 0 Item 5. Other Information Item not applicable. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits
Exhibit No. Description Method of Filing 10.65 Form of Promissory Note executed by Rare Telephony, Inc. for (1) November and December 2000, and January and February 2001 10.66 Settlement, Release and Separation Agreement by and between VDC (1) Communications, Inc. and Edwin B. Read, dated January 5, 2001 10.67 Amendment to Employment Agreement by and between VDC (1) Communications, Inc. and Frederick A. Moran, dated November 14, 2000 10.68 Form of Amendment to Employment Agreement for November 2000 (1) 27.1 Financial Data Schedule (1)
(1) Filed herewith. (b) Reports on Form 8-K Report on Form 8-K dated January 26, 2001 reporting VDC Communications, Inc. consenting to removal of its common stock from the American Stock Exchange. Report on Form 8-K dated December 29, 2000 reporting the initiation by VDC Communications, Inc. of massive expense reductions, including the resignation of the CEO and CFO. 16 Report on Form 8-K dated December 7, 2000 reporting the commencement by the American Stock Exchange of the process to strike VDC Communications, Inc. common stock from listing and registration on the American Stock Exchange. 17 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized. VDC COMMUNICATIONS, INC. By:/s/ Anthony F. DeJesus Dated: February 12, 2001 -------------------------------------------------- Anthony F. DeJesus Chairman, Chief Financial Officer, Chief Executive Officer, and Director 18
Exhibit Index Exhibit Number Page Number in (Referenced to Rule 0-3(b) Item 601 of Sequential Reg. S-K Numbering System Where Exhibit Can Be Found 10.65 Form of Promissory Note executed by Rare Telephony, Inc. for November and December 2000, and January and February 2001 10.66 Settlement, Release and Separation Agreement by and between VDC Communications, Inc. and Edwin B. Read, dated January 5, 2001 10.67 Amendment to Employment Agreement by and between VDC Communications, Inc. and Frederick A. Moran, dated November 14, 2000 10.68 Form of Amendment to Employment Agreement for November 2000 27.1 Financial Data Schedule
EX-99.77Q1 2 form10-65.txt 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 December 11, 2000 $10,000 December 19, 2000 $5,000 FORM OF PROMISSORY NOTE $ 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 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: (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 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 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. (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: ---------------------------------------------------------- EX-99.77Q1 3 form10-66.txt SETTLEMENT, RELEASE AND SEPARATION AGREEMENT THIS SETTLEMENT, RELEASE AND SEPARATION AGREEMENT (the "Agreement"), made this 5th day of January, 2001, (the "Date of this Agreement") by and among VDC COMMUNICATIONS, INC. (the "Company"), a Delaware corporation and EDWIN B. READ (the "Employee"), an adult individual presently residing within the State of Connecticut (the Company and the Employee are collectively referred to as the "Parties"). RECITALS: WHEREAS, the Parties wish to come to an agreement regarding certain employment issues and related matters. NOW, THEREFORE, for and in consideration of the mutual premises, covenants, and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto, intending to be legally bound hereunder, agree as follows: 1. Certain Transfer. The Company hereby transfers to the Employee ownership of the one (1) desk top computer the Employee used in the Employee's office in the Company's Greenwich, Connecticut office (the "Computer"). The Employee explicitly recognizes that the Computer is being transferred as is, where is, and in its current condition. The Company makes no representations or warranties of any kind with regard to the Computer. The Employee acknowledges that, but for the execution of this Agreement, the Company is not otherwise required to transfer the Computer to the Employee. 2. Certain Benefits. Except as provided for in this Agreement, as of the Termination Date, as defined below, the Employee shall cease to be eligible to participate under any stock option, bonus, incentive compensation, commission, medical, and other compensation or benefit plans of the Company. After the Termination Date, the Employee shall have no rights under any of those plans, except as follows: 2.1 The Employee shall have the right to COBRA continuation coverage as to any Company medical plan in which the Employee participated, which means that the Employee will be entitled to buy continued health plan coverage under the normal COBRA health care continuation rules. 2.2 As of the Termination Date, the Employee's employment with the Company has been terminated "without cause." Therefore, the Employee is entitled to vesting and receipt of a restricted stock award the Company previously granted to him. 2.3 The Company shall cause all outstanding stock options issued to the Employee under the Company's 1998 Stock Incentive Plan, as amended (the "Options"), to vest in full. Additionally, the Company shall extend the life of the Options for two (2) years following the Date of this Agreement. 3. Reimbursement of Business Expenses. The Company shall reimburse all reasonable and necessary out-of-pocket business expenses, pre-approved by the Company incurred by the Employee prior to the Termination Date and properly documented to the Company. 4. Resignation and Termination of Services. 4.1 Employee's employment with the Company and its affiliates is terminated "without cause" as of the Date of this Agreement (the "Termination Date"). 4.2 Employee hereby voluntarily resigns from and surrenders any and all positions he currently holds, or has held, with the VDC Entities (as defined below). In that regard, the Employee shall immediately execute such letters of resignation as are provided to him by the VDC Entities. For purposes of this Agreement, "VDC Entities" shall mean any one or more of the following: the Company, VDC Telecommunications, Inc. ("VDC"), Masatepe Communications, U.S.A., L.L.C., Sky King Communications, Inc., Voice & Data Communications (Hong Kong) Limited, WorldConnectTelecom.com, Inc., Voice & Data Communications (Latin America), Inc., the Company, Cash Back Rebates LD.com, Inc., Free dot Calling.com, Inc. and all of the foregoing's successors, predecessors and assigns. 4.3 The Employment Agreement, as amended (the "Employment Agreement"), by and between the Company and the Employee dated April 1, 1998 is hereby terminated. Without limitation, and without limiting the generality of the release contained in Section 7, the Employee waives the right to any severance pay provided for in the Employment Agreement. 5. Confidentiality and Nonsolicitation. 5.1 Employee shall not disclose Confidential Information of or about the VDC Entities to any other person, entity, corporation, trust, association or partnership. For the purposes of this Agreement, the term "Confidential Information" shall include, without limitation, information obtained while Employee was employed by the VDC Entities as an officer or in any other capacity, relating to the VDC Entities' financial condition, systems, know-how, designs, formulas, processes, devices, intellectual property (pending or otherwise), inventions, research and development, projects, technologies, communications with third parties such as governmental agencies, customers, suppliers, or vendors, methods of doing business, agreements with customers, suppliers, or vendors or other aspects of the VDC Entities' business which information is generally not available outside of the VDC Entities. 5.2 Employee shall not solicit for employment, directly or indirectly, any person who is, or within one (1) year prior to the Date of this Agreement was, an officer, director, manager, employee, or consultant of the VDC Entities. 6. Taxes. The Employee shall be solely responsible for paying any taxes on amounts he receives pursuant to this Agreement. The Employee agrees that the Company is to withhold all taxes it determines it is legally required to withhold. The Employee shall indemnify the Company for all expenses, penalties, or interest charges it incurs as a result of not paying payroll taxes on, or withholding taxes from, amounts paid under this Agreement. The Employee shall not make any claim against the Company or any other person or entity based on how the Company reports amounts paid under this Agreement to tax authorities or if an adverse determination is made as to the tax treatment of any amounts payable under this Agreement. In addition, the Employee understands and agrees that the Company has no duty to try to prevent such an adverse determination. 7. Release. 7.1 Except for the Company's obligations set forth in this Agreement and the limitation in Section 7.7, the Employee and his assigns, heirs, executors, administrators, and representatives (collectively the "Releasors") for and in consideration of the undertakings set forth in this Agreement and intending to be legally bound, do hereby REMISE, RELEASE AND FOREVER DISCHARGE the Company, VDC, and their subsidiaries, affiliates, component entities, predecessors, successors and assigns, individually and collectively, and all of the foregoing's past and present members, managers, principals, partners, trustees, officers, directors, employees, agents, representatives, attorneys, shareholders, and their respective spouses, successors, heirs, estates, executors, administrators, representatives and agents (collectively the "VDC Released Parties"), of and from any and all manner of actions and causes of actions, suits, debts, claims and demands whatsoever in law, in equity or otherwise, which the Releasors ever had, now have or hereafter may have by reason of any matter, cause or thing whatsoever from the beginning of the world to the Date of this Agreement. 7.2 The Employee explicitly understands, acknowledges and agrees that by virtue of executing this Agreement he is releasing claims that might arise under many different laws (including statutes, regulations, other administrative guidance, and common law doctrines) such as the following: (a) Anti-discrimination statutes, such as the Age Discrimination in Employment Act and Executive Order 11,141, which prohibit age discrimination in employment, Title VII of the Civil Rights Act of 1964, Section 1981 of the Civil Rights Act of 1966, and Executive Order 11,246, which prohibit discrimination based on race, color, national origin, religion, or sex; the Equal Pay Act, which prohibits paying men and women unequal pay for equal work; the Americans With Disabilities Act and Sections 503 and 504 of the Rehabilitation Act of 1973, which prohibit discrimination based on disability; and any other federal, state, or local laws prohibiting employment discrimination. (b) Federal employment statues, such as the WARN Act, which requires that advance notice be given of certain work force reductions; the Employee Retirement Income Security Act of 1974, which, among other things, protects employee benefits; the Fair Labor Standards Act of 1938, which regulates wage and hour matters; the Family and Medical Leave Act of 1993, which requires employers to provide leaves of absence under certain circumstances; and any other federal laws relating to employment, such as veterans' reemployment rights laws; and (c) Other laws, such as any federal, state, or local laws providing workers'compensation benefits, restricting an employer's right to terminate employees, or otherwise regulating employment; and federal, state, or local law enforcing express or implied employment contracts or requiring an employer to deal with employees fairly or in good faith; any other federal, state, or local laws providing recourse for alleged wrongful discharge, tort, physical or personal injury, emotional distress, fraud, negligent misrepresentation, defamation, and similar or related claims. 7.3 The Employee explicitly understands, acknowledges and agrees that examples of claims he is releasing include, but are not limited to: (i) claims that in any way relate to his employment with the Company or VDC, or the termination of that employment, such as claims for compensation, bonuses, commissions, lost wages, or unused accrued vacation or sick pay; (ii) claims that in any way relate to the design or administration of any employee benefit program; (iii) claims that he has irrevocable or vested rights to severance or similar benefits or to group insurance benefits. 7.4 The Employee explicitly understands, acknowledges and agrees that he is releasing claims that he may not know about. The Employee explicitly understands, acknowledges and agrees that this is his knowing and voluntary intent, even though he recognizes that someday he might learn that some or all of the facts he currently believes to be true are untrue and even though he might then regret having signed this Agreement. Nevertheless, the Employee explicitly understands, acknowledges and agrees that he is assuming that risk and further agrees that this Agreement shall remain effective in all respects in any such case. The Employee expressly waives all rights he might have under any law that is intended to protect the Employee from waiving unknown claims. The Employee understands the significance of doing so. 7.5 Employee further agrees and covenants that neither he, nor any person, organization or other entity on his behalf, will file, charge, claim, sue or cause or permit to be filed, charged or claimed any action for legal or equitable relief (including damages, injunctive, declaratory, monetary or other relief) involving any matter within the scope of the release set forth in Section 7. Employee agrees that he will not provide any assistance or advisory services efforts (unless required by law or compelled by legal process) to any third parties in connection with any disputes, claims or legal proceedings between such third parties and the VDC Entities. 7.6. This Agreement does not prevent the Employee from filing a charge of discrimination with the Equal Employment Opportunity Commission, although by signing this Agreement the Employee waives his right to recover any damages or other relief in any claim or suit brought by or through the Equal Employment Opportunity Commission or any other state or local agency on his behalf under any federal or state discrimination law, except where prohibited by law. Employee agrees to release and discharge the VDC Released Parties not only from any and all claims which he could make on his own behalf but also specifically waives any right to become, and promises not to become, a member of any class in any proceeding or case in which a claim or claims against the VDC Released Parties may arise, in whole or in part, from any event which occurred as of the Date of this Agreement. 7.7 By executing this Agreement, the Employee is not waiving his right to: (a) indemnification on the terms set forth in the Company's Certificate of Incorporation, as amended; or (b) coverage on the terms set forth in the Company's Directors and Officers Insurance Policy. 8. Certain Additional Covenants. 8.1 Employee agrees that he shall not make or publish, or assist anyone else to make or publish, any negative, critical, disparaging, slanderous, or libelous statements about the VDC Entities or any of their respective officers, directors, agents, employees, or representatives, and (unless and then only to the extent required by law), shall not disclose the terms and provisions of the Agreement to any third party without the Company's written consent. 8.2 The Company agrees that neither it nor its officers, directors, agents, employees, or representatives shall make or publish any negative, critical, disparaging, slanderous, or libelous statements about Employee. 8.3 At any time and from time to time, each Party agrees, without further consideration, to take such actions and to execute and deliver such documents as are necessary or reasonable to effectuate the terms, conditions, and purposes of this Agreement. 8.4 The Employee shall not incur any expenses, obligations, or liabilities on behalf of the VDC Entities. 8.5 The Employee shall, as requested by the Company, at times mutually agreeable to the Employee and the Company cooperate in effecting a smooth transition of the Employee's responsibilities to others. To the extent the Employee incurs out-of-pocket expenses (such as postage costs or telephone charges) in assisting the VDC Entities at their request, the Company will mail the Employee a reimbursement check for those expenses within fifteen (15) calendar days after it receives the Employee's request for payment with satisfactory written substantiation of the claimed expenses. 8.6 In addition to the provisions of Section 8.5, if requested by the Company or any VDC Entity, the Employee shall serve as a witness for the Company or any VDC Entity and otherwise assist and cooperate with the Company or any VDC Entity in any litigation, arbitration or other legal proceeding involving any VDC Entity. The Company shall reimburse the Employee for any out-of-pocket expenses, preapproved by the Company, incurred by the Employee in complying with the terms of this Section 8.6. Moreover, the Company shall pay the Employee a per diem rate of $300 for each day during which the Employee, at the request of the Company or VDC, spends at least five (5) hours preparing to serve as a witness (including travel associated therewith) or serving as a witness in accordance with the provisions of this Section 8.6. 8.7 The Employee shall comply with all federal, state, and local securities laws as they relate to the VDC Entities following the Date of this Agreement. 8.8 The Employee shall not interfere with the telecommunications or computer networks of any VDC Entity or otherwise seek to obtain unauthorized benefits or perquisites therefrom. 9. Representations and Warranties of Employee. 9.1 The Employee has not filed or caused to be filed any lawsuit, complaint, or charge with respect to any claim within the scope of this Agreement. 9.2 The Employee has not suffered any discrimination on account of his age, sex, race, national origin, marital status, sexual orientation, or any other protected status, and none of these ever has been an adverse factor used against the Employee by any VDC Released Party. 9.3 Other than property transferred to the Employee in this Agreement, the Employee has returned to the Company all discs, contracts, notes, files, memoranda, documents, records, commercial paper, negotiable instruments, bank records, licenses, employee files, (including copies of the foregoing), of or regarding the VDC Entities, Internet or voice mail passwords or other passwords, credit cards, checks, instruments, keys, equipment, telephones, computer hardware, computer software, computer apparatus, and any other property of any one of the VDC Entities in his possession or that he removed or had removed from the offices of any one of the VDC Entities. 10. Representations and Warranties of the Company. 10.1 The Company has taken, or will in a timely manner take, all corporate action necessary to authorize and effectuate the terms and conditions of this Agreement. 11. Representations and Warranties of Both Parties. Each Party represents and warrants that: 11.1 It has (i) carefully read and understands this Agreement, (ii) had the assistance of legal counsel of its choosing (and such other professionals and advisors as it has deemed necessary) in the review and execution hereof, (iii) had the meaning and effect of the various terms and provision hereof have been fully explained to it by such counsel, (iv) conducted such investigation, review and analysis as it has deemed necessary to understand the provisions of this Agreement and the transactions contemplated hereby, and (v) it has executed this Agreement of its own free will. 11.2 In deciding to enter into this Agreement, it has not relied on any statements, representations, promises or undertaking or inducements except as set forth in the Agreement. 11.3 It has entered into this Agreement voluntarily and of its own volition without any pressure or influence whatsoever by any individual or entity. 11.4 It has not sold, assigned, transferred, conveyed, or otherwise disposed of any of the claims settled by this Agreement. 12. Certain Additional Agreements. 12.1 The Employee agrees to pay the reasonable attorneys' fees (including, without limitation, an allocable portion of in-house attorneys' fees) and any damages VDC Released Parties, or any one of them, may incur as a result of the Employee breaching this Agreement (such as by suing a VDC Released Party over a released claim) or if any representation made by the Employee in this Agreement was false when made. The Employee further agrees that the Company would be irreparably harmed by any actual or threatened violation of Section 8.1 that involves making negative remarks and the disclosure of the existence, terms, or amount payable under this Agreement, or Section 5 that involves disclosure or use of confidential information or trade secrets or solicitation of employees, and that the Company will be entitled to an injunction prohibiting the Employee from committing any such violation. 13. Miscellaneous 13.1 All controversies or claims arising out of or relating to this Agreement or the documents referenced herein shall be determined by binding arbitration applying the laws of the State of Connecticut. Any such arbitration shall be conducted at the Company's offices in Newark, New Jersey, or such other location designated by the Company, before the American Arbitration Association (the "AAA"). Each party to the arbitration 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 thereto unless the award otherwise provides. Nothing in this section will prevent any party to such arbitration 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. 13.2 All notices, requests, instructions, consents and other communications to be given pursuant to this Agreement shall be in writing and shall be deemed received (i) on the same day if delivered in person, by same-day courier or by telegraph, telex or facsimile transmission (provided that telegraph, telex or facsimile notice shall be deemed received on the next business day if received after 5:00 p.m. local time), (ii) on the next day if delivered by overnight mail or courier, or (iii) on the date indicated on the return receipt, or if there is no such receipt, on the third calendar day (excluding Sundays) if delivered by certified or registered mail, postage prepaid. 13.3 This Agreement shall be construed in accordance with the laws of the State of Connecticut without regard to principles of conflict of laws. 13.4 This Agreement contains the entire agreement of the Parties with respect to the subject matter hereof and supersedes all existing agreements among them concerning such subject matter. The Agreement may not be changed orally but only by an agreement in writing signed by the Party against whom enforcement of any waiver, change, modification, extension or discharge is sought. 13.5 No rule of construction requiring interpretation against the drafting party shall apply to the interpretation of this Agreement. 13.6 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. 13.7 Employee acknowledges that he has been informed that he has the right to consider this Agreement for a period of at least forty-five (45) calendar days prior to entering this Agreement. He also understands that he has the right to revoke this Agreement for a period of seven (7) calendar days following his execution of the Agreement by giving written notice to the Chief Executive Officer of the Company at its principal offices. Prior to the Company being obligated to provide the Options amendment provided for in Section 2.3, the Employee shall execute and deliver to the Company the Certification attached hereto as Exhibit "A" and incorporated herein by reference. The Parties understand and agree that any changes to this Agreement, whether material or immaterial, did not restart the running of the forty-five (45) calendar day review period. 13.8 This Agreement may be executed in multiple counterparts and by facsimile signature, each of which shall constitute an original, but all of which counterparts taken together shall constitute one and the same instrument. 13.9 The captions or headings of the paragraphs or other subdivisions hereof are inserted only as a matter of convenience or for other reference and shall have no affect on the meaning of the provisions hereof. 13.10 The invalidity or unenforceability of any term of this Agreement shall not affect the validity or enforceability of this Agreement or any of its other terms; in the event that any court of equity or arbitrator determines that the time period and/or scope of any paragraph or section of this Agreement is unenforceably long or broad, 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 the section shall be revised by the court or arbitrator as little as possible to make the 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, unless the effect would be to vitiate the Parties' fundamental purposes of entering into this Agreement. 13.11 In connection with the execution of this Agreement, the Company has prepared the letter attached hereto as Exhibit "B" and incorporated herein by reference. The Company may use this letter in its discretion. 13.12 This Agreement shall be binding on and inure to the benefit of the Parties hereto and their respective heirs, representatives, successors and assigns. 13.13 This Agreement shall not be construed as an admission of guilt or wrongdoing by either Party. 13.14 Any waiver by any Party of a breach of any provision of this Agreement shall not operate or be construed to be a waiver of any other breach of that provision or of any other provision. The failure of any Party to insist upon strict adherence to any term of this Agreement on one or more occasions shall not be considered a waiver or deprive that Party of the right to insist upon strict adherence in the future. Any waiver must be in writing. - -------------------------------------------------------------------------------- TAKE THIS AGREEMENT HOME, READ IT, AND CAREFULLY CONSIDER ALL OF ITS PROVISIONS BEFORE SIGNING IT: IT INCLUDES A RELEASE OF KNOWN AND UNKNOWN CLAIMS. IF YOU WISH, YOU SHOULD TAKE ADVANTAGE OF THE FULL CONSIDERATION PERIOD AFFORDED BY SECTION 13.7 AND YOU SHOULD CONSULT YOUR ATTORNEY. - -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the Parties have executed this Agreement the day and year first above written. ATTEST: VDC COMMUNICATIONS, INC. /s/ Debra Santa Lucia By:/s/ Anthony F. DeJesus - ------------------------------------ --------------------------------------- Anthony F. DeJesus Chairman and CEO WITNESS: Mary Read /s/ Edwin B. Read - ------------------------------------ ----------------------------------- Print Name Edwin B. Read /s/ Mary Read Signature EXHIBIT "A" CERTIFICATION I, Edwin B. Read, hereby certify that I have not revoked or attempted to revoke the Settlement, Release and Separation Agreement by and between me and VDC Communications, Inc., dated January 5, 2001 (the "Agreement"), as of January 13, 2001. VDC Communications, Inc. may rely upon this Certification in forwarding to me certain consideration provided for in the Agreement. Edwin B. Read Dated State of ----------------------------------- County of ---------------------------------- Before me, the undersigned, personally appeared Edwin B. Read, known to me (or satisfactorily proven) to be the person who executed the foregoing Certification and acknowledged that the Certification was true and accurate. In witness whereof, I hereunto set my hand. (Notary Public) Dated: -------------------------------------- VDC COMMUNICATIONS, INC. [OBJECT OMITTED] EX-99.77Q1 4 form10-67.txt AMENDMENT TO EMPLOYMENT AGREEMENT THIS AMENDMENT TO EMPLOYMENT AGREEMENT (the "Amendment") is dated as of the 14th day of November, 2000 (the "Date of this Amendment"), by and among VDC COMMUNICATIONS, INC., a Delaware corporation (successor to VDC Corporation Ltd., a Bermuda company) (the "Company") and Frederick A. Moran (the "Executive"). WITNESSETH: WHEREAS, the Company and the Executive entered into an Employment Agreement (the "Original Employment Agreement") dated as of March 3, 1998; WHEREAS, the Company and the Executive have amended the Original Employment Agreement (the Original Employment Agreement as amended is the "Employment Agreement"); and WHEREAS, the parties wish to further amend the Employment Agreement as set forth herein. NOW THEREFORE, for and in consideration of TEN DOLLARS ($10.00), the premises and the mutual covenants and agreements set forth in this Amendment and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties agree as follows: 1. The following provision is hereby added to Section 1 of the Employment Agreement: f. The principal place of employment (the "Employment Place") of Executive shall be within a fifty-five (55) mile radius of Greenwich, Connecticut or such other location as is consented to in writing by the Executive. It is, however, distinctly understood and agreed that Executive may be required, in connection with the performance of his duties, to work from time to time (for up to 2 months a calendar year) at other locations designated by the Company's Board of Directors. When required to travel to and/or spend time at such other locations, Executive's reasonable traveling and temporary living expenses shall be reimbursed to him by the Company. 2. The following provision is hereby added to Section 2 of the Employment Agreement: d. If a Change in Control Event (as defined in the Company's 1998 Stock Incentive Plan, as amended, as it exists on the Date of this Amendment) occurs after the Date of this Amendment, then at any time thereafter upon fifteen (15) calendar days of a written request to the Company from the Executive, the Company shall prepare, at the Company's expense, execute, and deliver to the Executive for his execution, an amendment to all of the Executive's outstanding Company stock option agreements (the "Option Amendment"). The Option Amendment shall provide that the Company shall promptly take all action necessary, at the Company's expense, to extend the post-employment termination option period of the Executive's then vested Company stock options for two years from the date of the termination of the Executive's employment with the Company. Notwithstanding any other provision of this Agreement, the Executive shall have the right to demand the Option Amendment for up to sixty (60) calendar days from the date of the termination of the Executive's employment with the Company. The Executive shall not have the right to make the demand referenced in this Section 2.e. at any time after the termination of the Executive's employment for "cause" as provided for in Section 5.a. 3. The following provision is hereby added to Section 5 of the Employment Agreement: f. Termination by Executive. At any time, the Executive may terminate this Agreement by giving at least sixty (60) days' prior written notice to the Company. 4. The following provision is hereby added to Section 5 of the Employment Agreement: g. Constructive Termination. If a Change in Control Event (as defined in the Company's 1998 Stock Incentive Plan, as amended, as it exists on the Date of this Amendment) occurs after the Date of this Amendment, and if, after the Date of this Amendment, the Company changes the Executive's Place of Employment (without the Executive's prior written consent) or substantially changes the Executive's duties (without the Executive's prior written consent), then the employment of the Executive, as his option, exercisable by written notice to the Company at any time within ninety (90) calendar days from the change of the Executive's Place of Employment or change in the Executive's duties, shall be deemed to have been constructively terminated (a "Constructive Termination") by the Company hereunder, as of the date of the Executive's notice. Upon a Constructive Termination, the Company shall pay to the Executive: (i) an amount equal to the Executive's Base Salary accrued through the effective date of Constructive Termination at the rate in effect at the time of termination, payable at the time such payment is due; (ii) a lump sum payment at the time of Constructive Termination equal to one year's Base Salary, payable on the effective date of Constructive Termination; and (iii) any expense reimbursement amounts previously approved by the Company in writing, accrued to the date of Constructive Termination. 5. The following provision is hereby added to Section 5 of the Employment Agreement: h. Opportunity to Resign or Declare Constructive Termination. If a Change in Control Event (as defined in the Company's 1998 Stock Incentive Plan, as amended, as it exists on the Date of this Amendment) occurs after the Date of this Amendment, and if, after the Date of this Amendment the Company provides the Executive with written notice of the facts and circumstances constituting the basis for a for "cause" termination, then prior to the cure period provided for in Section 5.a. beginning, the Executive shall have ten (10) calendar days (the "Declaration Period") within which to either give notice of resignation (as provided for in Section 5.f.) or to provide notice of Constructive Termination (as provided for in Section 5.g.). If the Executive gives notice of resignation or notice of Constructive Termination, and the Executive's employment is accordingly terminated, then the notice of termination with "cause" shall be without force or effect. However, if the Executive has not given notice of resignation or notice of Constructive Termination during the Declaration Period, then at the end of the Declaration Period the cure period provided for in Section 5.a. shall commence. 6. ARBITRATION PROVISION. Section 10 of the Employment Agreement is hereby amended to provide: All controversies which may arise between the parties including, but not limited to, those arising out of or related to this Agreement shall be determined by binding arbitration applying the laws of the State of Delaware and the rules of the American Arbitration Association applicable to the Commercial Panel, except that there shall only be one (1) arbitrator. Any arbitration between the parties shall be conducted at the Company's offices in Greenwich, Connecticut, or at such other location in Greenwich, Connecticut designated by the Company. The decision of the arbitrator 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, 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 Delaware 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. 7. MISCELLANEOUS. (a) Scope of Amendment. Other than as modified by this Amendment, the Employment Agreement shall remain in full force and effect. (b) Governing Law. This Amendment will be governed by the laws of the State of Delaware without regard to conflict of law principles. (c) Counterparts. This Amendment may be executed in one or more counterparts, each of which will be deemed to be an original of this Amendment and all of which, when taken together, will be deemed to constitute one and the same Amendment. (d) Facsimile Signature. This Amendment, and the counterparts thereof, may be executed by facsimile signature. (e) Rule of Construction. No rule of construction regarding interpretation against the drafting party shall apply to the interpretation of this Amendment. (f) Amendment 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 Amendment and that they, or their designated agents, have read and understand this Amendment. (g) Modifications. This Amendment may be modified only by an agreement by the parties in writing. IN WITNESS WHEREOF, the parties have executed and delivered this Amendment as of the date first above written. Attest: VDC COMMUNICATIONS, INC. /s/ Louis D. Frost By:/s/ Clayton F. Moran - ------------------------------ ----------------------------- Clayton F. Moran Chief Financial Officer Witness: /s/ Edwin B. Read /s/ Frederick A. Moran - --------------------------- ------------------------------------ Frederick A. Moran EX-99.77Q1 5 form10-68.txt 1 The following Form of Amendment to Employment Agreement was entered into with Edwin B. Read and Clayton F. Moran in November, 2000. FORM OF AMENDMENT TO EMPLOYMENT AGREEMENT THIS AMENDMENT TO EMPLOYMENT AGREEMENT (the "Amendment") is dated as of the day of November, 2000 (the "Date of this Amendment"), by and among VDC COMMUNICATIONS, INC., a Delaware corporation (successor to VDC Corporation Ltd., a Bermuda company) (the "Company") and (the "Executive"). WITNESSETH: WHEREAS, the Company and the Executive entered into an Employment Agreement (the "Original Employment Agreement") dated as of ; WHEREAS, the Company and the Executive have amended the Original Employment Agreement (the Original Employment Agreement as amended is the "Employment Agreement"); and WHEREAS, the parties wish to further amend the Employment Agreement as set forth herein. NOW THEREFORE, for and in consideration of TEN DOLLARS ($10.00), the premises and the mutual covenants and agreements set forth in this Amendment and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties agree as follows: 1. The following provision is hereby added to Section 1 of the Employment Agreement: f. The principal place of employment (the "Employment Place") of Executive shall be within a fifty-five (55) mile radius of Greenwich, Connecticut or such other location as is consented to in writing by the Executive. It is, however, distinctly understood and agreed that Executive may be required, in connection with the performance of his duties, to work from time to time (for up to 2 months a calendar year) at other locations designated by the Company's Chairman or Chief Executive Officer. When required to travel to and/or spend time at such other locations, Executive's reasonable traveling and temporary living expenses shall be reimbursed to him by the Company. 2. The following provision is hereby added to Section 2 of the Employment Agreement: d. If a Change in Control Event (as defined in the Company's 1998 Stock Incentive Plan, as amended, as it exists on the Date of this Amendment) occurs after the Date of this Amendment, then at any time thereafter upon fifteen (15) calendar days of a written request to the Company from the Executive, the Company shall prepare, at the Company's expense, execute, and deliver to the Executive for his execution, an amendment to all of the Executive's outstanding Company stock option agreements (the "Option Amendment"). The Option Amendment shall provide that the Company shall promptly take all action necessary, at the Company's expense, to extend the post-employment termination option period of the Executive's then vested Company stock options for two years from the date of the termination of the Executive's employment with the Company. Notwithstanding any other provision of this Agreement, the Executive shall have the right to demand the Option Amendment for up to sixty (60) calendar days from the date of the termination of the Executive's employment with the Company. The Executive shall not have the right to make the demand referenced in this Section 2.e. at any time after the termination of the Executive's employment for "cause" as provided for in Section 5.a. 3. The following provision is hereby added to Section 5 of the Employment Agreement: g. Constructive Termination. If a Change in Control Event (as defined in the Company's 1998 Stock Incentive Plan, as amended, as it exists on the Date of this Amendment) occurs after the Date of this Amendment, and if, after the Date of this Amendment, the Company changes the Executive's Place of Employment (without the Executive's prior written consent) or substantially changes the Executive's duties (without the Executive's prior written consent), then the employment of the Executive, as his option, exercisable by written notice to the Company at any time within ninety (90) calendar days from the change of the Executive's Place of Employment or change in the Executive's duties, shall be deemed to have been constructively terminated (a "Constructive Termination") by the Company hereunder, as of the date of the Executive's notice. Upon a Constructive Termination, the Company shall pay to the Executive: (i) an amount equal to the Executive's Base Salary accrued through the effective date of Constructive Termination at the rate in effect at the time of termination, payable at the time such payment is due; (ii) a lump sum payment at the time of Constructive Termination equal to three month's Base Salary, payable on the effective date of Constructive Termination; and (iii) any expense reimbursement amounts previously approved by the Company in writing, accrued to the date of Constructive Termination. 4. The following provision is hereby added to Section 5 of the Employment Agreement: h. Opportunity to Resign or Declare Constructive Termination. If a Change in Control Event (as defined in the Company's 1998 Stock Incentive Plan, as amended, as it exists on the Date of this Amendment) occurs after the Date of this Amendment, and if, after the Date of this Amendment the Company provides the Executive with written notice of the facts and circumstances constituting the basis for a for "cause" termination, then prior to the cure period provided for in Section 5.a. beginning, the Executive shall have ten (10) calendar days (the "Declaration Period") within which to either give notice of resignation (as provided for in Section 5.e.) or to provide notice of Constructive Termination (as provided for in Section 5.g.). If the Executive gives notice of resignation or notice of Constructive Termination, and the Executive's employment is accordingly terminated, then the notice of termination with "cause" shall be without force or effect. However, if the Executive has not given notice of resignation or notice of Constructive Termination during the Declaration Period, then at the end of the Declaration Period the cure period provided for in Section 5.a. shall commence. 5. Section 10 of the Employment Agreement is hereby amended to provide: All controversies which may arise between the parties including, but not limited to, those arising out of or related to this Agreement shall be determined by binding arbitration applying the laws of the State of Delaware and the rules of the American Arbitration Association applicable to the Commercial Panel, except that there shall only be one (1) arbitrator. Any arbitration between the parties shall be conducted at the Company's offices in Greenwich, Connecticut, or at such other location in Greenwich, Connecticut designated by the Company. The decision of the arbitrator 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, 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 Delaware 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. 6. MISCELLANEOUS. (a) Scope of Amendment. Other than as modified by this Amendment, the Employment Agreement shall remain in full force and effect. (b) Governing Law. This Amendment will be governed by the laws of the State of Delaware without regard to conflict of law principles. (c) Counterparts. This Amendment may be executed in one or more counterparts, each of which will be deemed to be an original of this Amendment and all of which, when taken together, will be deemed to constitute one and the same Amendment. (d) Facsimile Signature. This Amendment, and the counterparts thereof, may be executed by facsimile signature. (e) Rule of Construction. No rule of construction regarding interpretation against the drafting party shall apply to the interpretation of this Amendment. (f) Amendment 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 Amendment and that they, or their designated agents, have read and understand this Amendment. (g) Modifications. This Amendment may be modified only by an agreement by the parties in writing. IN WITNESS WHEREOF, the parties have executed and delivered this Amendment as of the date first above written. Attest: VDC COMMUNICATIONS, INC. By: - ------------------------------------ -------------------------------- Witness: -----END PRIVACY-ENHANCED MESSAGE-----