-----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, CLPzoUU3uX6hAT6mJZBNz9vq9KNBADIGkXuq2oxToGogYW0dC9xpWzUyQ3MIJyDO Z7qdH0tIJEiTcHza/fwa3Q== 0000784961-99-000018.txt : 19991109 0000784961-99-000018.hdr.sgml : 19991109 ACCESSION NUMBER: 0000784961-99-000018 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 14 FILED AS OF DATE: 19991108 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VDC COMMUNICATIONS INC CENTRAL INDEX KEY: 0000784961 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 061510832 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-80107 FILM NUMBER: 99743100 BUSINESS ADDRESS: STREET 1: 75 HOLLY HILL LANE CITY: GREENWICH STATE: CT ZIP: 06831 BUSINESS PHONE: 2038695100 MAIL ADDRESS: STREET 1: 75 HOLLY HILL LANE CITY: GREENWICH STATE: CT ZIP: 06831 FORMER COMPANY: FORMER CONFORMED NAME: VDC CORP LTD DATE OF NAME CHANGE: 19960117 S-1/A 1 REGISTRATION NO. 333-80107 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------- AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 -------------------------- VDC COMMUNICATIONS, INC. (Exact name of registrant as specified in its charter) DELAWARE 4813 06-1524454 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.) 75 Holly Hill Lane Greenwich, Connecticut 06830 (203) 869-5100 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) -------------------------- Frederick A. Moran Chief Executive Officer VDC Communications, Inc. 75 Holly Hill Lane Greenwich, Connecticut 06830 (203) 869-5100 (Name, address, including zip code, and telephone number, including area code, of agent for service) -------------------------- COPIES TO: Louis D. Frost, Esq. Stephen M. Cohen, Esq. VDC Communications, Inc. Buchanan Ingersoll Professional Corporation 75 Holly Hill Lane 1835 Market Street Greenwich, Connecticut 06830 14th Floor (203) 869-5100 Philadelphia, PA 19103 (215) 665-3873 -------------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. /X/ If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If the Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / CALCULATION OF REGISTRATION FEE
Title of Each Class Of Securities Amount Proposed Proposed To Be To Be Maximum Offering Maximum Aggregate Amount of Registered Registered Price Per Share(2) Offering Price Registration Fee ---------- ---------- ------------------ -------------- ---------------- Common Stock, $.0001 par value 9,939,245(1) $ 1.3125 $ 13,045,259 $ 3,627(3)
(1) Pursuant to Rule 416 of the Securities Act of 1933, as amended, this Registration Statement also includes additional shares of common stock issuable upon stock splits, stock dividends or similar transactions. (2) Estimated pursuant to Rule 457(c) for the purpose of calculating the registration fee. Based on the average of the high and low prices per share of common stock on November 3, 1999 as reported on the American Stock Exchange. (3) Previously paid by the Company on June 7, 1999. -------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. 2 The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. SUBJECT TO COMPLETION, DATED NOVEMBER , 1999 PRELIMINARY PROSPECTUS VDC COMMUNICATIONS, INC. [Logo] 9,939,245 Shares of Common Stock The Selling Security Holders identified on pages 63 and 64 of this prospectus, may offer and sell, from time to time, up to 9,939,245 shares of common stock of VDC Communications, Inc. The Selling Security Holders may sell all or a portion of their respective shares through public or private transactions, at prevailing market prices, or at privately negotiated prices. We will not receive any part of the proceeds from sales of these shares. Our common stock is listed on the American Stock Exchange under the symbol "VDC". The last reported sale price of our common stock on November 3, 1999 on the American Stock Exchange was $1.438 per share. -------------------- Investing in the common stock involves a high degree of risk. See "Risk Factors" beginning on page 8. -------------------- 3 Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. The date of this prospectus is November_______, 1999 4 VDC COMMUNICATIONS, INC. Table of Contents Page No. -------- About This Prospectus 4 Prospectus Summary 5 About VDC Communications, Inc. 5 The Offering 6 Risk Factors 8 Use Of Proceeds 19 Market Price For The Company's Common Equity 19 Capitalization 20 Selected Financial Data 20 Management's Discussion And Analysis Of Financial Condition And Results Of Operations 21 Quantitative And Qualitative Disclosures About Market Risk 32 Business 32 Management 40 Compliance With Section 16(a) Of The Securities Exchange Act 53 Certain Relationships And Related Transactions 54 Principal Stockholders 57 Description Of Securities 59 Selling Security Holders 63 Plan Of Distribution 66 Where You Can Find More Information 67 Legal Matters 67 Experts 67 Financial Statements F-1 - F-19 5 About This Prospectus You should only rely on information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. The Selling Security Holders are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this or of any sale of common stock. This preliminary prospectus is subject to completion prior to this offering. Among other things, this preliminary prospectus describes our company as we currently expect it to exist at the time of this offering. 6 Prospectus Summary The following information is intended to summarize the detailed information and financial statements (including the notes thereto) appearing elsewhere in this prospectus. This Section is not intended to be a complete description of all aspects of our business or the common stock being offered by the Selling Security Holders. Investors should carefully consider the information set forth under the caption "Risk Factors" beginning at page 8 of this prospectus. About VDC Communications, Inc. VDC Communications, Inc., directly and through its subsidiaries, owns telecommunications equipment and leases telecommunications lines to provide domestic and international long distance telecommunications services. In addition, we connect to other telephone companies and resell their services to destinations where we do not own equipment or lease lines. Our customers are other long distance telephone companies that resell our services to their retail customers or other telecommunications companies. In the future, we may offer our services directly to retail customers in addition to our current wholesale customers. We currently employ state-of-the-art digital switching and transmission technology. This equipment, located in New York and Los Angeles, comprises our operating facilities. Our operating facilities and industry agreements allow us to provide voice and facsimile telecommunications services from the U.S. to most countries in the world. Our current business has only recently commenced as we began developing business strategies and marketing plans during March 1998. During the remainder of 1998, we established the infrastructure necessary to provide voice and facsimile transmission services which became fully operational during the fourth quarter of calendar 1998. Our business strategy is to develop a telecommunications business that focuses on niche segments of the market that are evolving by virtue of the deregulation of the telecommunications industry and the corresponding growth of the international long distance telecommunications markets. We focus upon the international telecommunications carrier business, due to its potential for higher revenue and profit per minute of telephone call, and greater projected growth rate, as compared to the more mature domestic long distance telecommunications market. In particular, we are targeting certain of the less saturated international markets with potential for substantial volumes of traffic, relatively high revenue rates per minute of telephone use and prospects for growth. Management believes that the ongoing trend toward deregulation and privatization can create opportunities for growth in the future. VDC Communications, Inc. ("VDC") was formerly the subsidiary of VDC Corporation Ltd., a Bermuda public company ("VDC Bermuda") that had its shares registered under the Securities Exchange Act of 1934. On November 6, 1998, VDC Bermuda merged with and into VDC (the "Domestication Merger") for the principal purpose of domesticating VDC Bermuda from a Bermuda company to a Delaware corporation. This was done primarily to: (i) facilitate access to the U.S. capital markets; (ii) enhance the profile of VDC Bermuda's securities within the investment community; and (iii) provide access to the comprehensive set of corporate laws available to companies incorporated in Delaware. The Domestication Merger was completed in conjunction with a prior business reorganization of VDC Bermuda. On March 6, 1998, VDC (then a wholly owned and 7 newly formed subsidiary of VDC Bermuda) acquired Sky King Communications, Inc., a development stage telecommunications company. The Sky King acquisition enabled VDC Bermuda to enter the telecommunications business and reflected the culmination of an overall business reorganization in which VDC Bermuda curtailed its prior lines of business. (As used in this document, the terms "the Company", "we" and "us" include both VDC and VDC Bermuda. The use of these terms reflects the fact that through November 6, 1998, the publicly held company was VDC Bermuda. Thereafter, due to the Domestication Merger, the publicly held company was VDC.) Our executive offices are located at 75 Holly Hill Lane, Greenwich, Connecticut, 06830, and our telephone number is (203) 869-5100. The Offering Common stock outstanding 21,506,917 shares (1) Common stock offered by the Selling Security Holders: 9,939,245 shares Common stock to be outstanding after the Offering: 22,570,998 shares (2) Proceeds: The Company will not receive any of the proceeds of the sale of shares of common stock by the Selling Security Holders. Trading Symbol: VDC - ----------------------------- (1) The Company has 21,506,917 shares of common stock outstanding as of November 3, 1999. The number of shares outstanding does not include 775,500 shares of common stock reserved for issuance upon the exercise of stock options outstanding as of November 3, 1999, nor does it include outstanding warrants to purchase 1,064,081 shares of common stock (the "Warrants"). (2) This gives effect to the possible issuance of 1,064,081 shares of common stock upon exercise of the Warrants. If the Warrants are exercised, then the Company will receive the exercise price for the Warrants. - ----------------------------- 8 Summary Consolidated Financial Data The following is qualified by reference to, and should be read in conjunction with, the Company's Consolidated Financial Statements and the Notes thereto included elsewhere in this prospectus. The following summary consolidated financial data for each of the periods ended June 30, 1999, 1998, 1997 and 1996 are derived from the Company's audited Consolidated Financial Statements. Our auditors have raised the issue that we may not continue as a going concern as a result of recurring losses from operations. Since, as a result of the March 6, 1998 merger, the former stockholders of Sky King acquired a controlling interest in VDC Bermuda, the acquisition has been accounted for as a "reverse acquisition". Accordingly, for financial statement presentation purposes, Sky King was, for periods prior to March 6, 1998, viewed as the continuing entity and the related business combination was viewed as a recapitalization of Sky King, rather than an acquisition by VDC Bermuda. The summary consolidated financial data presented below, for accounting purposes, reflects the relevant Statement of Operations data and Balance Sheet data of Sky King for periods before the merger on March 6, 1998 and reflect the consolidated results of Sky King, VDC Bermuda, and VDC Bermuda's wholly owned subsidiaries after the merger. On November 6, 1998, the Domestication Merger, whereby VDC Bermuda merged with and into VDC, was consummated. The Domestication Merger has been accounted for as a reorganization, which has been given retroactive effect in the financial statements for all periods presented.
January 3, 1996 Years ended (inception) through ----------------------------------------------------- June 30, 1996 June 30, 1997 June 30, 1998 June 30, 1999 ---------------------------------------------------------------------------- Statement of Operations Data: Revenues $ 4,850 $ 43,248 $ 99,957 $ 3,298,357 Costs of services 1,091 22,020 28,460 5,155,752 Selling, general and administrative 30,461 53,657 1,167,429 4,636,230 Non-cash compensation - - 2,254,000 16,146,000 Asset impairment charges - - - 1,644,385 ---------------------------------------------------------------------------- Operating (loss) (26,702) (32,429) (3,349,932) (24,284,010) Writedown of investment - MCC - - - (21,328,641) (Loss) on note restructuring - - - (1,598,425) Other income (expense) - - 195,122 (63,637) Equity in (loss) of affiliate - - - (867,645) ---------------------------------------------------------------------------- Net loss (26,702) (32,429) (3,154,810) (48,142,358) ============================================================================= Net loss per share - basic and diluted $ (0.01) $ (0.01) $ (0.72) $ (2.72) ---------------------------------------------------------------------------- Weighted average shares outstanding 3,699,838 3,699,838 4,390,423 17,678,045 ---------------------------------------------------------------------------- Balance Sheet data: Investment in MCC $ - $ - $ 37,790,877 $ 2,400,000 ---------------------------------------------------------------------------- Total assets $ 16,499 $ 15,000 $ 45,823,684 $ 10,002,061 ---------------------------------------------------------------------------- Stockholders' equity $ 16,249 $ 14,750 $ 45,667,499 $ 6,567,532 ---------------------------------------------------------------------------- Other Operating data: 9 EBITDA - Adjusted (1) $ (25,162) $ (29,039) $ (1,089,726) $ (5,386,607) ---------------------------------------------------------------------------- Cash flows used by operating activities $ (25,378) $ (28,573) $ (859,390) $ (4,253,532) ---------------------------------------------------------------------------- Cash flows used by investing activities $ - $ - $ (3,201,433) $ (2,492,484) ---------------------------------------------------------------------------- Cash flows from financing activities $ 27,551 $ 27,830 $ 6,271,504 $ 4,851,704 ---------------------------------------------------------------------------- Minutes of Use - - - 12,155,801 ---------------------------------------------------------------------------- Revenue per Minute of Use $ - $ - $ - $ 0.23 ----------------------------------------------------------------------------
(1) EBITDA-Adjusted represents earnings (losses) before interest expense, income taxes, depreciation, amortization, other income (expense) and non-recurring charges including non-cash compensation and asset impairment charges. EBITDA does not represent cash flows as defined by generally accepted accounting principles. EBITDA is a financial measure commonly used in our industry and should not be considered in isolation or as a substitute for net income (loss), cash flow from operating activities or other measures of liquidity determined in accordance with generally accepted accounting principles. Risk Factors An investment in the shares of common stock offered by this prospectus involves a high degree of risk. Prospective purchasers of the shares of common stock offered hereby should carefully review the following risk factors as well as the other information set forth in this prospectus. This prospectus contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this prospectus, the words "may," "will," "expect," "anticipate," "continue," "estimate," "intend," 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 trends which may affect the Company's future plans of operations, business strategy, operating results and financial position. Pro forma information contained within this prospectus, to the extent it is predictive of the financial condition and results of operations that would have occurred on the basis of certain stated assumptions, may also be characterized as forward-looking statements. Although forward-looking statements are based on assumptions made, and information believed, by management to be reasonable, no assurance can be given that such statements will prove to be correct. Such statements are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, projected or expected. Some, but not all, of such risks and uncertainties are described in the risk factors set forth below. We Are a Company in the Early Stages of Development We have only recently commenced our present operations, and therefore, have only a limited operating history upon which you can evaluate our business and performance. We have strategically placed telecommunications equipment in cities that we believe will enable us to efficiently transport telecommunications services. Now we are trying to build our customer base in order to achieve greater revenues and market penetration. We expect to add additional telecommunications equipment in other areas of the world. We have not yet determined, with certainty, where those areas will be. 10 We Are Losing Money We have not yet experienced a profitable quarter and may not ever achieve profitability. By virtue of the early stage of our development, we have yet to build sufficient volume of telecommunications voice and facsimile traffic to reach profitability. Our current expenses are greater than our revenues. This will probably continue until we reach a greater level of maturity and it is possible that our revenues may never exceed our expenses. If operating losses continue beyond the short term, our operations will be in jeopardy. Going Concern Qualification to Financial Statements Our auditors have raised the issue that we may not be able to continue as a going concern as a result of a lack of profits. We have used substantial amounts of working capital in our operations and have sustained significant operating losses. As of June 30, 1999, current liabilities exceeded current assets by approximately $200,000. We have recently instituted significant cost-cutting measures and raised $1,000,000 in equity financing and borrowed $80,000 on a short term basis from an officer of the Company. While this capital may allow us to operate in the short term, we may not be able to continue as a going concern thereafter if we do not generate profits or secure additional financing. We Have Limited Capital Being a relatively small company in a capital intensive industry, our limited capital is a significant risk to our future profitability and viability. We may sell additional shares of our stock, or engage in other financing activities, in order to provide capital that may be needed for our operations. There is no guarantee that market conditions will permit us to do this. Additional Shares Will be Available for Sale in the Public Market Which Could Cause the Market Price of Our Stock to Drop Significantly We estimate that approximately 10.7 million shares of our common stock are currently eligible for resale under applicable securities laws. In addition, this prospectus will permit the resale of up to an additional 9,939,245 shares of Company common stock into the public trading market, including 6,931,046 shares on behalf of Frederick A. Moran and certain members of Mr. Moran's immediate family. Finally, contractual restrictions on the resale of 750,000 shares of Company common stock held by a t rust affiliated with a former executive officer and director of the Company will lapse in November 1999. These expected events will have the effect of significantly increasing the number of shares eligible for public trading. Sales of substantial amounts of the stock in the public market could have an adverse effect on the price of the stock and may make it more difficult for us to sell stock in the future. Although it is impossible to predict market influences and prospective values for securities, it is possible that the substantial increase in the number of shares available for sale, in and of itself, could have a depressive effect on the price of our stock. We May Not be Able to Compete Successfully with Other Long Distance Carriers AT&T, MCI WorldCom and Sprint Corporation dominate the U.S.-based international telecommunications services market. We also compete with Pacific Gateway Exchange, Inc., Star Telecommunications, Inc. and other foreign and U.S.-based long distance providers, including the Regional Bell Operating 11 Companies, which have authority from the Federal Communications Commission to resell and terminate international telecommunication services. Many of these competitors have considerably greater financial and other resources and more extensive domestic and international communications networks than we do. If we compete with them for the same markets, their financial strength could prevent us from obtaining business there. For example, our larger competitors could discount services to attract or maintain customers. We may not have the financial resources to effectively compete with them on that level. We also may compete abroad with a number of dominant telecommunications operators that previously held various monopolies established by law over the telecommunications traffic in their countries. International wholesale switched service providers compete on the basis of transmission quality, price, customer service, and breadth of service offerings. Further, the number of our competitors is likely to increase as a result of the competitive opportunities created by a new Basic Telecommunications Agreement concluded by members of the World Trade Organization in April 1997. Under the terms of the WTO agreement, starting February 5, 1998, the United States and 68 countries have committed to open their telecommunications markets to competition, increase foreign ownership and adopt measures to protect against anti-competitive behavior. As a result, we believe that competition will continue to increase, placing downward pressure on prices. Such pressure could adversely affect our gross margins if we are not able to reduce our costs commensurate with such price reductions. Technical Advancement Could Render Our Equipment Obsolete The telecommunications industry is in a period of rapid technological evolution, marked by the introduction of competitive product and service offerings, such as the utilization of the Internet for international voice and data communications. We are unable to predict which technological developments will challenge our competitive position or the amount of expenditures that will be required to respond to a rapidly changing technological environment. We expect that the future will bring significant technological change. It is possible that these changes could result in more advanced telecommunications equipment that could render our current equipment obsolete. If this were to happen, we would most likely have to invest significant capital in this new technology, which could have a material adverse effect on our business, operating results and financial condition. Customer Concentration A small number of customers historically have accounted for a significant percentage of our total sales. For the year ended June 30, 1999, two customers accounted for approximately 65% of our total sales. Our customers typically are not obligated contractually to purchase any quantity of services in any particular period. The loss of, or a material reduction in orders by, one or more of our key customers could have a material adverse effect on business, financial condition and results of operations. One or More of Our Customers Could Fail to Pay Us We must assume a certain level of credit risk with our customers in order to do business. It is possible that one or more of our customers could fail or refuse to pay us in a timely manner, or at all. If that happened, it could have a material adverse effect on business, cash flow and financial condition. We try to minimize the risk by checking the credit background of our customers. 12 The Year 2000 Problem Could Have a Material Adverse Effect on Us We are continuing to respond to year 2000 issues. Year 2000 issues are the result of computer programs being written using two digits rather than four to define the applicable year associated with the program or an associated computation. Any such two-digit computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. A significant portion of the devices that we use to provide our basic services use date-sensitive processing which affect functions such as service activation, service assurance and billing processes. We are continually evaluating the year 2000 readiness of our computer systems, software applications and telecommunications equipment. We are sending year 2000 compliance inquiries to certain third parties (i.e. vendors, customers, outside contractors) with whom we have a relationship. These inquiries include, among other things, requests to provide documentation regarding the third party's year 2000 programs, and questions regarding how the third party specifically examined the year 2000 effect on their equipment and operations and what remedial actions will be taken with regard to these problems. We send follow up letters as necessary providing our vendors a format to disclose any new discoveries. We have conducted our investigations through a discovery process undertaken by VDC and each of its operating subsidiaries. At the current time, we believe year 2000 risk is minimal to us and the following subsidiaries: Masatepe Communications, U.S.A., L.L.C., Sky King Communications, Inc., Voice & Data Communications (Hong Kong), Limited, WorldConnectTelecom.com, Inc. and Voice & Data Communications (Latin America), Inc. The biggest risk from the year 2000 is to our subsidiary, VDC Telecommunications, Inc. This subsidiary operates most of our software and processing systems and is interconnected with many telecommunications service suppliers. We will continue our efforts to minimize risk associated with VDC Telecommunications. VDC Telecommunications produces the vast majority of our revenues. Since we are a new company, our key systems have just recently been implemented. Most of the vendors of such systems have represented to us that the systems are compliant with the year 2000 issues. We will, however, continue to require confirmation of year 2000 compliance in our future requests for proposals from equipment and software vendors. The failure of our computer systems and software applications to accommodate the year 2000 issues could have a material adverse effect on our business, financial condition and results from operations. Further, if the software and equipment of those on whose services we depend are not year 2000 functional, it could have a material adverse effect on our operations. While most major domestic telecommunications companies have announced that they expect all of their network and support systems to be year 2000 functional, other domestic and international carriers may not be year 2000 functional. We intend to continue to monitor the performance of our accounting, information and other systems and software applications to identify and resolve any year 2000 issues. Currently, through our discovery process, we have identified and remedied an estimated $84,000 of expenditures associated with updating systems to be year 2000 compliant. However, we expect we will continue to find expenses pending the finalization of our year 2000 investigation, which will not occur until all "trouble dates" have passed. Carriers in other 13 countries with whom we may do business may not be year 2000 compliant, possibly having an adverse impact upon our ability to transmit or terminate telecommunications traffic. Year 2000 problems could affect the purchasing power of our current or potential customers if they incur significant year 2000 remediation costs or liabilities. This could result in fewer funds available to purchase our services, which in turn could have a material adverse effect on our business, financial condition and results of operations. We believe that the most reasonably likely worst case scenario resulting from the century change could be the inability to efficiently send voice and facsimile calls at market rates to desired locations. We do not know how long this might last. This could have a material adverse effect on our results from operations. Limited Long-Term Purchase and Resale Agreements and Pricing Pressures for Transmission Capacity Could Adversely Affect Our Gross Margins A substantial portion of transmission capacity is obtained on a variable, per minute and short-term basis, subjecting us to the possibility of unanticipated price increases and service cancellations. Since we do not generally have long-term arrangements for the purchase or resale of international long distance services, and since rates fluctuate significantly over short periods of time, our gross margins are subject to significant fluctuations over short periods of time. Our gross margins also may be negatively impacted in the longer term by competitive pricing pressures. Our Ability to Implement Our Plan Successfully is Dependent on a Key Person We are particularly dependent upon Frederick A. Moran, the Chief Executive Officer and Chief Financial Officer of the Company. Mr. Moran is also a significant shareholder and Chairman of the Board of Directors of the Company. The Company has an employment agreement with Mr. Moran through March 2003. We believe the combination of his employment agreement and equity interest in the Company keeps Mr. Moran highly motivated to remain with the Company. Moreover, in light of recent personnel cutbacks and the recent resignation of two executive officers, more emphasis than ever is placed upon this key employee. The resignation, termination or disability of this key employee could have a material adverse effect on us. Numerous Contingencies Could Have a Material Adverse Effect on Us Because we are in the early stages of development and because of the nature of the industry in which we operate, there are numerous contingencies over which we have little or no control, any one of which could have a material adverse effect on us. The contingencies include, but are not limited to, the addition or loss of major customers, whether through competition, merger, consolidation or otherwise; the loss of economically beneficial routing options for telecommunications traffic termination; financial difficulties of major customers; pricing pressure resulting from increased competition; credit risk; and technical difficulties with or failures of portions of our network that could impact our ability to provide service to or bill our customers. 14 Government Involvement in Industry Could Have a Material Adverse Effect on Us We are subject to various U.S. and foreign laws, regulations, agency actions and court decisions. Our U.S. international telecommunications service offerings are subject to regulation by the FCC. The FCC requires international carriers to obtain authorization prior to acquiring international facilities by purchase or lease, or providing international telecommunications service to the public. Prior FCC approval is also required, in most cases, to transfer control of certificated carriers such as our subsidiaries. We must file certain reports, notifications, contracts, and other documents with the FCC and must pay regulatory and other fees, which are subject to change. We are also subject to FCC policies and rules. The FCC could determine, by its own actions or in response to a third party's filing, that certain of our services, termination arrangements, agreements with foreign carriers, or reports did not comply with FCC policies and rules. If this occurred, the FCC could impose various sanctions, including ordering us to discontinue such arrangements, fining us or revoking our authorizations. Any of these actions could have a material adverse effect on our business, operating results and financial condition. Recent and Potential FCC Actions May Adversely Affect Our Business by Increasing Competition, Disrupting Transmission Arrangements and Increasing Costs Regulatory action that may be taken in the future by the FCC may intensify the competition which we face, impose additional operating costs upon us, disrupt certain of our transmission arrangements or otherwise require us to modify our operations. Recent FCC rulemaking orders and other actions have lowered the entry barriers for new facilities-based and resale international carriers by streamlining the processing of new applications and granting non-dominant carriers greater flexibility in establishing non-standard settlement arrangements with non-dominant foreign carriers, including the non-dominant U.S. affiliates of such carriers. In addition, the FCC's rules implementing the WTO Basic Telecommunications Agreement presume that competition will be advanced by the U.S. entry of facilities-based and resale carriers from WTO member countries, thus further increasing the number of potential competitors in the U.S. market and the number of carriers which may also offer end-to-end services. The FCC has also sought to reduce the foreign termination costs of U.S. international carriers by prescribing maximum or benchmark settlement rates which foreign carriers may charge U.S. carriers for terminating switched telecommunications traffic. The FCC has not stated how it will enforce its settlement benchmarks if U.S. carriers are unsuccessful in negotiating settlement rates at or below the prescribed benchmarks. If the FCC implements the reduced benchmarks, our transmission arrangements to certain countries may need to be modified. The Telecommunications Act of 1996 permits the FCC to forbear enforcement of the tariff provisions in such act, which apply to all interstate and international carriers, and the U.S. Court of Appeals is currently reviewing an FCC order directing all domestic interstate carriers to de-tariff their offerings. While the court reviews the FCC's order all international and domestic carriers must continue to file tariffs. The FCC routinely reviews the contribution rate for various levels of regulatory fees, including the rate for fees levied to support universal service, which fees may be increased in the future for various reasons, including the need to support the universal service programs mandated by the Telecommunications Act of 1996, the total costs for which are still under review by the FCC. We cannot predict the net effect of these or other possible future FCC actions on our business, operating results and financial condition, although the net effect could be material. 15 Regulation of Customers May Materially Adversely Affect Our Revenues by Decreasing the Volume of Traffic We Receive from Major Customers Our customers are also subject to actions taken by domestic or foreign regulatory authorities that may affect the ability of customers to deliver traffic to us. Future regulatory actions could materially adversely affect the volume of traffic received from a major customer, which could have a material adverse effect on our business, financial condition and results of operations. Certain of Our Arrangements With Foreign Operators May be Inconsistent with FCC Policies The FCC's international private line resale policy limits the conditions under which a carrier may connect international private lines to the public switched telephone network at one or both ends to provide switched services, commonly known as International Simple Resale. Certain of our termination arrangements with foreign operators may be inconsistent with the FCC's international private line resale policy and our existing FCC authorizations. In summary, a carrier generally may only offer International Simple Resale services to a foreign country if the FCC has found (a) the country is a member of the WTO and at least 50% of the U.S. billed and settled traffic to that country is settled at or below the FCC's benchmark settlement rate or (b) the country is not a WTO member, but it offers U.S. carriers equivalent opportunities to engage in International Simple Resale and at least 50% of the U.S. billed and settled traffic is settled at or below the applicable benchmark. However, in connection with its changes to its International Settlements Policy, the FCC now permits U.S. private line resellers to enter into International Simple Resale arrangements with non-dominant carriers on any route. The FCC's International Settlements Policy limits the arrangements which U.S. international carriers may enter into with foreign carriers for exchanging public switched telecommunications traffic, which the FCC terms International Message Telephone Service. This policy does not apply to International Simple Resale services. The International Settlements Policy requires that U.S. carriers receive an equal share of the service rate and receive inbound traffic in proportion to the volume of U.S. outbound traffic, which they generate. The International Settlements Policy and other FCC policies also prohibit a U.S. carrier and a foreign carrier which possesses sufficient market power on the foreign end of the route to affect competition adversely in the U.S. market by entering into an exclusive arrangement involving services, facilities or functions on the foreign end of a U.S. international route which are necessary for providing basic telecommunications and which are not offered to similarly situated U.S. carriers. It is possible that the FCC could find that certain of our arrangements with foreign operators are inconsistent with the International Settlements Policy. We may use both transit and refile arrangements, which provide indirect termination service through an alternative location, to terminate our international traffic. The FCC currently permits transit arrangements by U.S. international carriers. The FCC's rules also permit carriers in many cases to use International Simple Resale facilities to route traffic via a third country for refile through the public switched telephone network. The extent to which U.S. carriers may enter into refile arrangements consistent with the International Settlements Policy is currently under review by the FCC. Certain transit or refile arrangements may violate the International Settlements Policy or other FCC rules, regulations or policies. 16 The International Telecommunications Market is Risky The international nature of our operations involves certain risks, such as changes in U.S. and foreign government regulations and telecommunications standards, dependence on foreign partners, tariffs, taxes and other trade barriers, the potential for nationalization and economic downturns and political instability in foreign countries. Moreover, our international operations are subject to the Foreign Corrupt Practices Act, which generally prohibits U.S. companies and their intermediaries from bribing foreign officials for the purpose of obtaining or keeping business. Failure by our agents, strategic partners and other intermediaries, whether past or future, to comply with the FCPA could result in our facing liability. In addition, our business could be adversely affected by a reversal in the current trend toward the deregulation of the telecommunications industry. We will be increasingly subject to these risks to the extent that we proceed with the planned expansion of international operations. International sales are subject to inherent risks, including: (1) unexpected changes in regulatory requirements, tariffs or other barriers; (2) difficulties in staffing and managing foreign operations; (3) longer payment cycles; (4) unstable political environments; (5) dependence on foreign partners; (6) greater difficulty in accounts receivable collection; and (7) potentially adverse tax consequences. We may rely on foreign partners to terminate traffic in foreign countries and to assist in installing transmission facilities and network switches, complying with local regulations, obtaining required licenses and assisting with customer and vendor relationships. We may have limited recourse if our foreign partners do not perform under their contractual arrangements. Our arrangements with foreign partners may expose us to significant legal, regulatory or economic risks over which we may have little control. We May Lose Revenue or Incur Additional Costs Because of Network Failure Any system or network failure that causes interruptions in our operations could have a material adverse effect on our business, financial condition or results of operations. Our services are dependent on our own and other companies' abilities to successfully integrate technologies and equipment. In connecting with other companies' equipment, we take the risk of not being able to provide service due to their error. In addition, there is the risk that our equipment may malfunction or that we could make an error, which may negatively affect our customers' service and/or our ability to accurately bill our customers for services. Our hardware and other equipment may also suffer damage from natural disasters such as fires, floods, hurricanes and earthquakes, other catastrophic events such as civil unrest, terrorism and war and other sources of power loss and telecommunications failures. We have taken a number of steps to prevent our service from being affected by natural disasters, fire and 17 the like. We have built redundant systems for power supply to our equipment. Nevertheless, there can be no assurance that any such systems will prevent the switches from becoming disabled in the event of an earthquake, power outage or otherwise. The failure of our network, or a significant decrease in telephone traffic resulting from effects of a natural or man-made disaster, could have a material adverse effect on our relationship with our customers and our business, operating results and financial condition. Government Regulatory Policies May Increase Pricing Pressures in Our Industry We expect that government regulatory policies are likely to continue to have a major impact on the pricing of network services and possibly accelerate the entrance of new competitors and consolidation of the industry. These trends may affect demand for such services. Tariff rates, whether determined autonomously by telecommunications service providers or in response to regulatory directives, may affect the cost effectiveness of deploying network services. Tariff policies are under continuous review and are subject to change. User uncertainty regarding future policies may also negatively affect demand for our services. Our Cost of Services and Operating Expenses May Fluctuate Significantly Our cost of services and operating expenses in any given period can vary due to factors including, but not limited to: (1) fluctuations in rates charged by carriers to terminate our telecommunications traffic; (2) increases in bad debt expense and reserves; (3) the timing of capital expenditures and other costs associated with acquiring or obtaining other rights to switching and other transmission facilities; (4) costs associated with changes in staffing levels of sales, marketing, technical support and administrative personnel; (5) changes in routing due to variations in the quality of vendor transmission capability; (6) loss of favorable routing options; (7) actions by domestic or foreign regulatory entities; (8) financial difficulties of major customers; (9) pricing pressure resulting from increased competition; (10) the level, timing and pace of our expansion in international and commercial markets; and 18 (11) general domestic and international economic and political conditions. We May not be Able to Continue to Obtain Sufficient Transmission Facilities on a Cost-Effective Basis The failure to obtain telecommunications facilities that are sufficient to support our network traffic in a manner that ensures the reliability and quality of our telecommunications services may have a material adverse effect on our business, financial condition or results of operations. Our business depends in part, on our ability to obtain transmission facilities on a cost-effective basis. Foreign Governments May not Provide Us with Practical Opportunities to Compete in Their Telecommunications Markets We may be subject to regulation in foreign countries in connection with certain of our business activities. For example, laws or regulations in either the transmitting or terminating foreign jurisdiction may affect our use of transit, resale or other routing arrangements. In addition, our operations may be affected by foreign countries, either independently or jointly as members of national organizations such as the World Trade Organization, may have adopted or may adopt laws or regulatory requirements regarding such services for which compliance would be difficult or expensive and that could force us to choose less cost-effective routing alternatives and that could adversely affect our business, operating results and financial condition. To the extent that we seek to provide telecommunications services in other non-U.S. markets, we are subject to the developing laws and regulations governing the competitive provision of telecommunications services in those markets. We currently plan to expand our operations as these markets implement scheduled liberalization to permit competition in the full range of telecommunications services in the next several years. The nature, extent and timing of the opportunity for us to compete in these markets will be determined, in part, by the actions taken by the governments in these countries to implement competition and the response of incumbent carriers to these efforts. The regulatory regimes in these countries may not provide us with practical opportunities to compete in the near future, or at all, and we may not be able to take advantage of any such liberalization in a timely manner. Governments of many countries exercise substantial influence over various aspects of their countries' telecommunications markets. In some cases, the government owns or controls companies that are or may become competitors with us and/or our partners, such as national telephone companies, upon which our foreign partners may depend for required interconnections to local telephone networks and other services. Certain actions of these foreign governments could have a material adverse effect on our operations. In highly regulated countries in which we are not dealing directly with the dominant local exchange carrier, the dominant carrier may have the ability to terminate service to us or our foreign partner and, if this occurs, we may have limited or no recourse. In countries where competition is not yet fully established and we are dealing with an alternative operator, foreign laws may prohibit or impede new operators from offering services. Our Stock is Highly Volatile Our stock price fluctuates significantly. We believe that this will most likely continue. Historically, the market prices for securities of emerging companies in the telecommunications industry have been highly volatile. Future 19 announcements concerning us or our competitors, including results of operations, technological innovations, government regulations, the gain or loss of significant customers, general trends in the industry, market conditions, analysts' estimates, proprietary rights, significant litigation, and other events in our industry, may have a significant impact on the market price of our stock. In addition, the stock market has experienced extreme price and volume fluctuations that have particularly affected the market price for many technology and telecommunications companies and that have often been unrelated to the operating performance of these companies. These broad market fluctuations may adversely affect the market price of our common stock. Anti-Takeover Provisions May Deter Change in Control Transactions Certain provisions of our Certificate of Incorporation, as amended, and Bylaws, as amended, and the General Corporation Law of the State of Delaware (the "GCL") could deter a change in our management or render more difficult an attempt to obtain control of us, even if such transactions would be beneficial to our shareholders. For example, we are subject to the provisions of the GCL that prohibit a public Delaware corporation from engaging in a broad range of business combinations with a person who, together with affiliates and associates, owns 15% or more of the corporation's outstanding voting shares (an "Interested Stockholder") for three years after the person became an Interested Stockholder, unless the business combination is approved in a prescribed manner. The Certificate of Incorporation includes undesignated preferred stock, which may enable the Board to discourage an attempt to obtain control of us by means of a tender offer, proxy contest, merger or otherwise. In addition, the Certificate of Incorporation provides for a classified Board of Directors such that approximately only one-third of the members of the Board will be elected at each annual meeting of stockholders. Classified boards may have the effect of delaying, deferring or discouraging changes in control of us. Further, certain other provisions of the Certificate of Incorporation and Bylaws and of the GCL could delay or make more difficult a merger, tender offer or proxy contest involving us. Additionally, certain federal regulations require prior approval of certain transfers of control of telecommunications companies, which could also have the effect of delaying, deferring or preventing a change in control. Risk of Impairment of Significant Asset We own a minority interest in a private company, Metromedia China Corporation ("MCC"), that constitutes one of our principal assets. As of June 30, 1999, the carrying value of our ownership interest in MCC equaled $2.4 million, or approximately 24% of our total assets of approximately $10 million as of that date. During the year ended June 30, 1999, we recorded a $21,328,641 write down of our investment in MCC. The value of our interest in MCC may change further in the future. The value of MCC may be unfavorably influenced by negative operating results, the Chinese Internet and telecommunications markets and/or other factors. Furthermore, changes in governmental policy towards foreign investment in China could also adversely affect the value of our investment. MCC has recently been notified that the supervisory departments of the Chinese government had requested MCC's local Chinese partner to terminate two of its four telecommunications joint ventures. MCC expects that the remaining two joint ventures will also be terminated due to regulatory policies of the Chinese government. 20 We Have a Significant Investment in a Private Company that We Do Not Control Through Masatepe Communications, U.S.A., L.L.C. ("Masatepe"), we have a non-controlling investment in Masatepe Comunicaciones, S.A., a private Nicaraguan telecommunications company ("Masacom"). We have loaned funds and telecommunications equipment to Masacom. This equipment is located in Nicaragua. The recoverability of our loans and equipment is not assured. As of the date of this filing, there are no services being provided by Masatepe. As a result, we have written off the goodwill associated with the Masatepe acquisition and operating equipment located in Nicaragua. We Have Not Paid Any Dividends to Our Stockholders and Do Not Expect to Anytime in the Near Future Instead, we plan to retain future earnings, if any, for investment back into the Company. Use Of Proceeds The Company will not receive any proceeds from the sale of the common stock offered by the Selling Security Holders. Market Price For The Company's Common Equity The Company's common stock has traded on the American Stock Exchange, Inc. ("AMEX") since July 7, 1998. Commencing in 1993 until November 26, 1997, the Company's common stock traded on the NASDAQ stock market under the trading symbol "VDCLF". On November 26, 1997, NASDAQ imposed a trading halt on the Company's common stock, which was subsequently delisted from trading on NASDAQ on March 2, 1998. From March 2, 1998 to July 7, 1998, the Company's common stock was traded on the OTC Bulletin Board under the trading symbol "VDCLF." The following table sets forth certain information with respect to the high and low bid or closing prices of the Company's common stock for the periods indicated below:
Fiscal 1999 High Low First Quarter $7.88 $4.13 Second Quarter $4.50 $3.50 Third Quarter $5.63 $3.63 Fourth Quarter $4.00 $2.88 Fiscal 1998 First Quarter $5.38 $3.88 Second Quarter $6.50 $4.50 Third Quarter $6.50 $3.75 Fourth Quarter $8.63 $5.88
On November 4, 1999, the last reported sale price of the common stock on AMEX was $1.44 per share. 21 The high and low bid and closing prices for the Company's common stock are rounded to the nearest 1/8th. Such prices are inter-dealer prices without retail mark-ups or commissions and may not represent actual transactions. Record Holders As of November 3, 1999, the approximate number of holders of record of the Company's common stock was 671. The Company believes the number of beneficial owners of the common stock exceeds 2,046. Dividends The Company has not paid any cash dividends to date, and has no intention of paying any cash dividends on its common stock in the foreseeable future. The declaration and payment of dividends is subject to the discretion of the Board of Directors and to certain limitations under the General Corporation Law of the State of Delaware. The timing, amount and form of dividends, if any, will depend, among other things, on the Company's results of operations, financial condition, cash requirements and other factors deemed relevant by the Board of Directors. Capitalization The following table sets forth the capitalization of the Company as of June 30, 1999. This table should be read in conjunction with the Company's Consolidated Financial Statements and related notes appearing elsewhere in the prospectus.
capitalized lease obligations-long term portion $ 847,334 -------------------- Shareholders' equity: preferred stock, $.0001 par value; 10 million shares authorized, and no shares issued and outstanding - common stock. $.0001 par value; 50 million shares authorized, 20,186,462 shares issued and outstanding 2,018 additional paid in capital 67,737,195 accumulated deficit (60,339,393) stock subscription receivable (344,700) accumulated comprehensive loss (323,413) -------------------- 6,731,707 treasury stock - 1,875,000 shares at cost (164,175) -------------------- total shareholders' equity 6,567,532 -------------------- Total $ 7,414,866 ====================
Selected Financial Data The following selected consolidated financial data as of and for each of the years ended June 30, 1999, 1998, and 1997 have been derived from the audited Consolidated Financial Statements of the Company. Selected consolidated financial data as of and for the period ended June 30, 1996 has been derived from the previously audited Consolidated Financial Statements of the Company. 22 Since, as a result of the March 6, 1998 merger, the former stockholders of Sky King Communications, Inc., a Connecticut corporation ("Sky King Connecticut") acquired a controlling interest in VDC Bermuda, the acquisition has been accounted for as a "reverse acquisition". Accordingly, for financial statement presentation purposes, Sky King Connecticut was, for periods prior to March 6, 1998, viewed as the continuing entity and the related business combination was viewed as a recapitalization of Sky King Connecticut, rather than an acquisition by VDC Bermuda. The financial data presented below, for accounting purposes, reflects the relevant Statement of Operations data and Balance Sheet of Sky King Connecticut for periods before the merger on March 6, 1998 and reflect the consolidated results of Sky King Connecticut, VDC Bermuda, and VDC Bermuda's wholly owned subsidiaries after the merger. On November 6, 1998, the Domestication Merger, whereby VDC Bermuda merged with and into VDC, was consummated. The Domestication Merger has been accounted for as a reorganization, which has been given retroactive effect in the financial statements for all periods presented. The following data should be read in conjunction with the Consolidated Financial Statements and the notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included herein.
Period from January 3, 1996 Year ended (inception) through ---------------------------------------------------- June 30, 1996 June 30, 1997 June 30, 1998 June 30, 1999 -------------------------------------------------------------------------- Statement of Operations Data: Revenues $ 4,850 $ 43,248 $ 99,957 $ 3,298,357 -------------------------------------------------------------------------- Operating (loss) (1) $ (26,702) $ (32,429) $ (3,349,932) $ (24,284,010) -------------------------------------------------------------------------- Operating loss per common share $ (0.01) $ (0.01) $ (0.76) $ (1.37) -------------------------------------------------------------------------- Balance Sheet data: Total assets $ 16,499 $ 15,000 $ 45,823,684 $ 10,002,061 -------------------------------------------------------------------------- Long-term liabilities, net of current portion $ - $ - $ - $ 847,334 -------------------------------------------------------------------------- Stockholders' equity $ 16,249 $ 14,750 $ 45,667,499 $ 6,567,532 --------------------------------------------------------------------------
(1) The loss from operations of $24,284,010 incurred during the year ended June 30, 1999 includes a non-cash compensation charge of $16,146,000 (See Note 3 to the Consolidated Financial Statements) and asset impairment charges of $1,644,385. The loss from operations of $3,349,932 incurred during the year ended June 30 1998 includes a non-cash compensation charge of $2,254,000 (See Note 3 to the Consolidated Financial Statements). Management's Discussion And Analysis Of Financial Condition And Results Of Operations General As used in this document, the terms "the Company", "we" and "us" include both VDC and VDC Bermuda. The use of these terms reflects the fact that through November 6, 1998, the publicly held company was VDC Bermuda. Thereafter, due to the Domestication Merger, the publicly held company was VDC. We own telecommunications equipment and lease telecommunications lines to provide domestic and international long distance telecommunications services. In addition, we connect to other telephone companies and resell their services to 23 destinations where we do not own equipment or lease lines. Our customers are other long distance telephone companies that resell our services to their retail customers or other telecommunications companies. In the future, we anticipate offering our services directly to retail customers in addition to our current wholesale customers. We currently employ state-of-the-art digital switching and transmission technology. This equipment, located in New York and Los Angeles, comprises our operating facilities. Our facilities and industry agreements allow us to provide voice and facsimile telecommunications services to most countries in the world. We believe the telecommunications industry is attractive given its current size and future growth potential. Furthermore, we believe the international telecommunications market provides greater opportunity for growth than the domestic market, due to the relatively limited capacity in certain markets and potentially greater gross margin per minute of traffic. Our objective is to become an international telecommunications company with strategic assets and transmission capability in many attractive markets worldwide. Management believes that in order to achieve this goal, we must provide our customers with long distance and international voice and facsimile transmission at competitive prices. We strive to provide competitive rates, while maintaining carrier grade toll quality to destinations worldwide. We believe that our current facilities are sufficient to handle significantly more traffic than we are currently experiencing. In order to make better use of this capacity, we need to build a reputation for high quality transmission within our industry and provide competitive pricing. We began the development of our long-distance telecommunications business on March 6, 1998 and have since developed our infrastructure and industry relations. During pre-operating phases we focused upon: fund raising; developing a strategic business plan; purchasing telecommunications switches; developing corporate infrastructure; and developing and commencing marketing programs. Effectively, operations began when our telecommunications network was activated and our marketing efforts commenced in January 1999. Since then we have had modest success generating traffic over our infrastructure. During the year ended June 30, 1999, ("Fiscal 1999") we made significant advancements in our strategic business plan. Some of the more important events during Fiscal 1999 include: (1) listed on the American Stock Exchange in July 1998; (2) completed Domestication Merger in November 1998, thereby domesticating the publicly held company in Delaware, United States; (3) added three members to the Board of Directors, all of whom were previously independent of the Company; (4) completed initial facilities and network development; (5) started marketing world-wide network January 1, 1999; (6) raised additional funds of approximately $4.3 million; (7) wrote-down investment in Metromedia China Corporation; and 24 (8) revenues increased from an approximate run rate of $175,000/month at mid-fiscal year to an approximate run rate of $725,000/month at fiscal year end. We earn revenue from three sources. The main source is from our domestic and international telecommunications long distance services which is earned based on the number of minutes billable to our customers, which are other telephone companies. These minutes are generally billed on a monthly basis. Bills are generally due within three to thirty days. Our second source of revenues is derived from the rental of telecommunications equipment at our telecommunications facilities and telecommunications circuits to other telephone companies. This revenue is generated and billed on a month-to-month basis. Wholesale telecommunications services such as long distance, international long distance, and switching equipment and capacity rental represented approximately 97% of our revenues during Fiscal 1999. Additionally, we derive minimal revenues from the management of domestic tower sites that provide transmission and receiver locations for wireless communications companies. This revenue is also generated and billed on a month-to-month basis. Revenue from site tower management represented approximately 3% of our total revenues during Fiscal 1999. Revenue derived through the per-minute transmission of voice and facsimile is normally in accordance with contracts with other telecommunications companies. These contracts are often for a year or more, but can generally be amended with a few days notice. Costs of services include: (1) terminating domestic long distance traffic in the United States; (2) terminating overseas-originated traffic in the United States and internationally; and (3) terminating domestic originated, international traffic outside the United States. We use other telecommunications companies' services in the same manner that they use ours. Therefore, our costs include significant payments to other telecommunications companies, including variable per minute costs for them to provide voice and facsimile services to us, which we resell to our customers. In addition, our costs of services include: (4) the allocable personnel and overhead associated with operations; and, (5) depreciation of telecommunications equipment. We depreciate long distance telecommunications equipment over a period of five years. Our costs also include selling, general, and administrative expenses ("SG&A"). SG&A consists primarily of personnel costs, professional fees, travel, office rental and business development related costs. We incur costs on a regular basis associated with international market research and due diligence regarding potential projects inside and outside of the U.S. Background VDC is the successor to its former parent, VDC Bermuda, by virtue of the Domestication Merger that occurred on November 6, 1998. The effect of the Domestication Merger was that members/stockholders of VDC Bermuda became 25 stockholders of VDC. The primary reason for the Domestication Merger was to reorganize VDC Bermuda as a publicly traded United States corporation domesticated in the State of Delaware. In connection with the Domestication Merger, 11,810,862 issued and outstanding shares of common stock of VDC Bermuda, $2.00 par value per share, were exchanged, and 8,487,500 issued and outstanding shares of preferred stock of VDC, $.0001 par value per share, were converted, on a one-for-one basis, into an aggregate 20,298,362 shares of common stock of VDC. The Domestication Merger has been accounted for as a reorganization which has been given retroactive effect in the financial statements for all periods presented. The Domestication Merger reflects the completion of a series of transactions that commenced on March 6, 1998, when VDC (then a wholly-owned subsidiary of VDC Bermuda) acquired Sky King Connecticut by merger. This merger transaction was accounted for as a reverse acquisition whereby Sky King Connecticut was treated as the acquirer for accounting purposes. Accordingly, the historical financial statements presented are those of Sky King Connecticut before the merger on March 6, 1998 and reflect the consolidated results of Sky King Connecticut and VDC Bermuda, and other wholly-owned subsidiaries after the March 6, 1998 merger. The Sky King Connecticut acquisition (the "Sky King Connecticut Acquisition") enabled VDC Bermuda to enter into the telecommunications business and reflected the culmination of an overall business reorganization in which VDC Bermuda curtailed its prior lines of business. From its inception in 1980 through 1992, the principal business of VDC Bermuda had involved the acquisition and exploration of North American mineral resource properties. In recognition, however, of the decreasing mineral prices and increasing drilling and exploration costs, during the early 1990's, it elected to phase out of the mining business, and, by 1994, effectively suspended any further efforts in connection with its former mining business. Following a brief period in which it owned farm and ranch properties, the principal business of VDC Bermuda through 1996 consisted of the acquisition and development of commercial properties in and around the Isle of Man, British Isles, where the executive offices of VDC Bermuda were located at that time. In view, however, of unanticipated development costs and delays in zoning approvals, among others, management thereafter concluded that VDC Bermuda would be unable to complete the development of these properties in the manner originally intended. With returns on investment likely to be below management's expectations, during 1995 and 1996, VDC Bermuda commenced the sale of its real estate holdings, while attempting to devise plans for the redeployment of its capital resources. Finally, during the year ended June 30, 1997 ("Fiscal 1997"), VDC Bermuda made equity investments in an aggregate amount of approximately $5 million in two early stage ventures. When expected yields from these investments failed to materialize, management concluded that it was in the best interest of VDC Bermuda to: (i) suspend its venture capital operations; (ii) dispose of its investment assets; and (iii) select new management who would be in a better position to identify business opportunities that would more fully benefit from VDC Bermuda's attributes as a public corporation. During the remainder of Fiscal 1997, management reviewed several possibilities and ultimately identified Sky King Connecticut for acquisition in recognition of a number of factors, including its belief in the growth opportunities available within the national and international telecommunications industries, and the 26 significant collective experiences of the Sky King Connecticut's management within the telecommunications industry. Results of Operations For the Year-Ended June 30, 1999 Compared to the Year-Ended June 30, 1998 Revenues: Total revenues in the year ended June 30, 1999 ("Fiscal 1999") increased to approximately $3.3 million from approximately $100,000 for the year ended June 30, 1998 ("Fiscal 1998" or "corresponding prior year period"). This is the initial result of the implementation of our telecommunications services. During Fiscal 1999, our international network for telecommunications services became operational and commercial. During the latter months of Fiscal 1999, we experienced a steady increase in minutes of usage of telecommunications services as customers came on line and began utilizing our services. Revenues were generated during the period by the transmission of minutes domestically and internationally, the rental of telecommunications facilities, and tower management. Revenue for the corresponding prior year period was attributable to tower management and consulting. Costs of services: Costs of services of approximately $5.2 million during Fiscal 1999 were the result of a combination of per minute fees and leased line fees associated with the traffic carried in the period, salaries, depreciation of telecommunications equipment, and other operating expenses. Costs of services of approximately $28,500 for the corresponding prior year period reflected site leasing expenses. Selling, general & administrative: SG&A expenses increased to approximately $4.6 million during Fiscal 1999 from approximately $1.2 million for the corresponding prior year period. This increase was attributable to: (1) an overall increase in operational and corporate activity, including salaries and development costs necessary for the development and operation of new telecommunications services, including our telecommunications infrastructure; (2) professional fees, including consulting, legal and accounting expenses associated with the redeployment of our assets; (3) amortization of approximately $500,000 associated with the acquisition of Masatepe; and (4) non-recurring items: one-time write-off related to the purchase of a telecommunications route of $135,000 and non-cash severance expense totaling $391,875. Had the non-recurring items not occurred during the period, SG&A expenses would have been approximately $4.1 million for Fiscal 1999. We believe that our recurring SG&A costs will begin to level off as we reach a mature operating level. It is, however, possible that as new opportunities, or as mergers and acquisitions are completed, or if we fail to accurately estimate future expenses, SG&A could increase significantly. 27 Non-cash Compensation Expense: Non-cash compensation expense was $16,146,000 for Fiscal 1999 compared to $2,254,000 for the corresponding prior year period. During Fiscal 1999, 3.9 million shares of VDC's Series B convertible preferred stock ("Escrow Shares"), were released from escrow based upon the achievement of performance criteria which included the deployment of telecommunications equipment in service areas with an aggregate population of greater than 3.9 million. Of the 3.9 million Escrow Shares released, 2.7 million were considered compensatory for accounting purposes. These compensatory shares were owned by management, their family trusts, minor children of management and an employee. The shares issued to former Sky King Connecticut shareholders' minor children were considered compensatory because their beneficial ownership was attributed to certain Sky King Connecticut shareholders in management positions with the Company. The non-cash expense reflected on our financial statements was developed based on the deemed value of the shares released from escrow, which in turn, was based on the trading price of VDC's common stock on the date of release. During Fiscal 1998, 600,000 shares of Series B convertible preferred stock were released from escrow based upon the achievement of performance criteria which included the procurement of $6.9 million in equity financing. Of the 600,000 shares of Series B convertible preferred stock released from escrow, 415,084 were considered compensatory for accounting purposes. These compensatory shares were owned by management, their family trusts, minor children of management, and an employee. The non-cash compensation expense reflected on our financial statements is an accounting charge which was developed based on the deemed value of the shares released from escrow, which in turn, was based on the trading price of VDC Bermuda's common stock on the date of release. Asset impairment charges: We incurred approximately $1.6 million in asset impairment charges during Fiscal 1999. These charges relate to the write off of billing software ($479,198), the write off of fixed assets ($503,363) in Nicaragua and write off of goodwill ($661,824) related to the Masatepe subsidiary. The acquisition of Masatepe was made primarily because of the continued relationship Masatepe's affiliate, Masatepe Comunicaciones, S.A. ("Masacom"), had with ENITEL, the Nicaraguan government controlled telecommunications company. Disagreements over business development arose between Masatepe and Masacom. As a result, we cancelled our circuit into Central America and curtailed Masatepe's operations. Masatepe no longer operates its owned telecommunications route to Central America. Therefore, we believe that the goodwill attributable to the Masatepe acquisition has been permanently impaired. There were no asset impairment charges in Fiscal 1998. Other income (expense): Other income (expense) was approximately $(23.0) million for Fiscal 1999 compared with approximately $195,000 for the corresponding prior year period. The other expense was mostly due to a non-cash charge of $(21.3) million attributable to a writedown of our ownership interest in MCC and a $(1.6) million loss on restructuring of notes receivable during Fiscal 1999. Other income during Fiscal 1998 was attributable to interest and dividend income. See "Liquidity And Capital Resources". Net loss: Our net loss for Fiscal 1999 was approximately $48.1 million. The net loss was primarily the result of non-cash charges, separate and apart from our ongoing core operations. The write down of our investment in MCC accounted for approximately $21.3 million of the loss. Non-cash compensation accounted for an additional $16.1 million of the loss. These items did not affect our liquidity. On an operating cash basis, we experienced a loss of approximately $5.0 million during Fiscal 1999. Losses on an operating cash basis represent cash flows from operations excluding changes in operating assets and liabilities. Our net loss 28 for the corresponding prior year period was approximately $3.2 million. The Fiscal 1998 net loss was mostly attributable to a non-cash compensation charge and SG&A expenses. On an operating cash basis, we experienced a loss of approximately $0.9 million during Fiscal 1998. We expect that future profitability is likely to depend upon a combination of several factors: (1) the continued increase in the market for international telecommunications services; (2) the anticipated increase in the competitiveness of our product; and (3) management of growth. There are many other factors that could also have an impact. For the Year Ended June 30, 1998 Compared to the Year Ended June 30, 1997 Revenues: Total revenues increased to approximately $100,000 in Fiscal 1998 as compared to approximately $43,000 for Fiscal 1997. The increase reflects increased sites under management and consulting fees. We no longer act as a consultant to other telecommunications companies. Costs of services: Costs of services during Fiscal 1998 and Fiscal 1997 consisted of site leasing expense. Site leasing expense increased to approximately $28,000 in Fiscal 1998 from approximately $22,000 in Fiscal 1997. The increase was due to an increase in radio tower and antenna space rentals. Selling, general & administrative: Selling, general and administrative expenses increased to approximately $1.2 million in Fiscal 1998 from approximately $54,000 in Fiscal 1997. This increase was primarily attributable to professional fees, including consulting, legal and accounting expenses associated with the redeployment of our assets and salaries of new personnel necessary for our development of new telecommunications services. Non-cash Compensation Expense: Non-cash compensation expense was $2,254,000 in Fiscal 1998 up from $0 in Fiscal 1997. During Fiscal 1998, 600,000 shares of Series B convertible preferred stock were released from escrow based upon the achievement of performance criteria which included the procurement of $6.9 million in equity financing. Of the 600,000 shares of Series B convertible preferred stock released, 415,084 were considered compensatory. These compensatory shares were owned by management, their family trusts, minor children, and an employee. The shares issued to former Sky King Connecticut shareholders' minor children were considered compensatory because their beneficial ownership was attributed to certain Sky King Connecticut shareholders. The non-cash expense reflected on our financial statements is an accounting charge which was developed based on the deemed value of the shares released from escrow, which in turn, was based on the trading price of the Company's common stock on the date of release. Liquidity and Capital Resources Our auditors have raised the issue that we may not be able to continue as a going concern as a result of a lack of profits. A significant amount of capital has been expended towards building corporate infrastructure and operating and 29 capital expenditures in connection with certain acquisitions and the establishment of our programs. These expenditures have been incurred in advance of the realization of revenue that may occur as a result of such programs. As a result, our liquidity and capital resources have diminished significantly. An inability to generate cash within the short term could adversely affect our operations and plans for future growth. To address these issues, we have (i) introduced certain cost-cutting measures such as reductions in personnel, certain circuit expenses and general corporate overhead; (ii) raised $1,000,000 in an October 1999 private placement by issuing 1,333,334 shares of common stock at $0.75 per share and (iii) borrowed $80,000 in September 1999 from an officer of the Company. In addition, two executive officers, Robert E. Warner and William H. Zimmerling, recently resigned, further reducing expenses. In addition, we may implement further cost cutting measures in the short term. In connection with a recent cost-benefit analysis, we ascertained that the Denver switch would continue to operate at a loss. As a result, we have deactivated this switch. We are currently considering strategic alternatives, including but not limited to: (i) the sale of the switch, or (ii) the redeployment of the switch. Based on recent cost cutting and related efforts, we anticipate that we will lose approximately $200,000 per month on an operating cash basis in the short term. The recent cost cutting measures and the funds recently raised should be sufficient to sustain us in the short term. In the long term, however, we need to increase our revenues and gross profit through: (i) the initiation of services for new customers and/or increased capacity available to existing customers; and (ii) the development and operation of direct telecommunications route(s). There are no assurances, however, that these long term objectives will transpire. In order to meet these long term objectives, we believe we have developed a network that provides competitive telecommunications services. We will continue to operate and market the network to build our customer base. Additionally, we will pursue new opportunities in the domestic and international telecommunications industry through (i) reinvestment of future profits, if any; and/or (ii) mergers and acquisitions. We are currently contemplating capital expenditures of approximately $600,000 during fiscal 2000. The capital expenditures represent telecommunications equipment that could potentially be located in foreign countries. We expect to fund these purchases through debt and/or equity financing and cash flow from operations, if any. Net cash used in operating activities was approximately $(4.3) million for Fiscal 1999. We collected approximately $2.0 million from customers while paying approximately $6.3 million to carriers and other vendors and employees. Net cash used by operating activities of approximately $(0.9) million for Fiscal 1998 was mostly due to the net loss from operations net of a non-cash compensation charge. Net cash used of $(28,573) for Fiscal 1997 was mostly due to the net loss. Net cash used by investing activities was approximately $(2.5) million for Fiscal 1999. Cash was used for capital expenditures on facilities and switching equipment, the purchase of Masatepe as well as investing in and/or lending funds to Masatepe's 49% Nicaraguan owned subsidiary, Masacom. Cash flows from investing activities included the collection of notes receivable and the return 30 of escrow funds in connection with the investment in MCC. Net cash used by investing activities was approximately $(3.2) million for Fiscal 1998. This was primarily the result of the investment in MCC, fixed asset acquisitions and deposits on the purchase of fixed assets offset by the collection of notes receivable. There were no cash flows from investing activities for Fiscal 1997. Cash provided by financing activities was approximately $4.9 million for Fiscal 1999. This reflects proceeds primarily from the issuance of 1,511,106 shares of Company common stock, including 573,329 shares of Company common stock to Frederick A. Moran, Chairman and Chief Executive Officer of the Company, and certain entities associated with and family members of Mr. Moran, the collection of stock subscriptions receivable, and proceeds from the issuance of short-term debt less repayments of debt and capital lease obligations. The funds were used mostly for working capital and capital expenditures. Proceeds provided by financing activities of approximately $6.3 million for Fiscal 1998 were solely from the issuance of common stock and were used to fund operations and capital expenses. Fiscal 1997 proceeds reflect capital contributions by the owners of Sky King Connecticut and were used to fund operations. We are currently funding operations through existing cash and accounts receivable collections. We do not know how long it will take before we will be able to operate profitably and, therefore, sustain our business without outside funding. We expect to continue to explore acquisition opportunities. Such acquisitions may have a significant impact on our need for capital. In the event of a need for capital in connection with an acquisition, we would explore a range of financing options, which could include public or private debt, or equity financing. There can be no assurances that such financing will be available, or if available, will be available on favorable terms. We will also consider acquisitions using our common stock. Investment in MCC We own 2.0 million shares and warrants to purchase 4.0 million shares of MCC, a private telecommunications company which operates joint ventures in China. We have held this asset for over one year. We originally valued the asset based on the value of our shares and cash exchanged for the investment. Our current financial position does not allow us to exercise the warrants without the liquidity of a public market for MCC stock. Therefore, in performing a review for current recoverability of our investment, we have not attributed a value to the warrants. Currently, legal restrictions in China prohibit foreign ownership and operations in the telecommunications sector. MCC's investments in joint ventures have been made through a structure known as Sino-Sino-Foreign ("SSF") joint venture. This has been a widely used method for foreign investment in the Chinese telecommunications industry. The SSF venturer, in this case MCC, is a provider of telecommunications equipment, financing and technical services to telecommunications operators and not a direct provider of telephony service. The joint ventures invest in telecommunications system construction and development networks being undertaken by the local partner, China Unicom. The completed systems are operated by China Unicom. MCC receives payments from China Unicom 31 based on revenues and profits generated by the systems in return for their providing financing, technical advice, consulting and other services. Metromedia International Group ("MMG") is the majority owner of MCC. Based on MMG's Form 10-Q for its quarter ended June 30, 1999 ("June 10-Q"), two of the four joint ventures (the one Ningbo Ya Mei Telecommunications Co., Ltd. and the other Ningbo Ya Lian Telecommunications, Co., Ltd.) were notified by China Unicom that the supervisory department of the Chinese government had requested that China Unicom terminate the projects. The notification requested that negotiations begin immediately regarding the amounts to be paid to the joint ventures, including return of investment made and appropriate compensation and other matters related to winding up the Ningbo joint ventures' activities as a result of this notice. Negotiations regarding the termination have begun. The content of the negotiations includes determining the investment principal of the joint ventures, appropriate compensation and other matters related to termination of contracts. MCC has not announced, and may not know the amount of compensation the joint ventures will receive, or expect to receive. While MCC has not announced that it has received notification regarding the termination of its other two joint ventures (the one Sichuan Tai Li Feng Telecommunications Co., Ltd. and the other Chongqing Tai Le Feng Telecommunications Co., Ltd.), the majority owner, MMG, expects that these will also be the subject of project termination negotiations. MMG has disclosed in its June 10-Q that depending on the amount of compensation it receives, it will record a non-cash charge equal to the difference between the sum of the carrying values of its investment and advances made to joint ventures plus goodwill less the cash compensation it receives from the joint ventures which China Unicom has paid. MMG has represented to us that it owns approximately 33 million MCC shares, or 56% (33 million/59 million shares). As such, our 2 million shares represents approximately a 3.4% interest (2 million/59 million shares). Prior to the project termination agreements, there had been uncertainty regarding possible significant changes in the regulation of and policy concerning foreign participation in and financing of the telecommunications industry in China, including the continued viability of the SSF structure and associated service and consulting arrangements with China Unicom. As a result, we recorded a $19,388,641 writedown of the investment in MCC during the quarter ended March 31, 1999. The write-down adjusted the carrying value of the investment in MCC to an amount relative to MMG's carrying amount. Due to the announcement of the project terminations described above, we recorded an additional $1,940,000 writedown of the investment in MCC. The write-down adjusted the carrying value of the investment in MCC to an amount relative to MMG's carrying amount, excluding MMG's goodwill attributable to the investment in MCC. As such, we adjusted the carrying value of our investment in MCC to $2.4 million ($70.8 million X 3.4%) at June 30, 1999. Given the uncertainty regarding the outcome of the negotiations of the project terminations, it is reasonably possible that our investment in MCC could be reduced further in the near term. Recent Accounting Standards In June 1998, the AICPA issued statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities". We have not yet analyzed the impact of this new standard. We will adopt this standard in July 2000. 32 The Year 2000 Readiness Disclosure We are currently evaluating the year 2000 readiness of our computer systems, software applications and telecommunications equipment. We are sending year 2000 compliance inquiries to certain third parties (i.e. vendors, customers, outside contractors) with whom we have a relationship. These inquiries include, among other things, requests to provide documentation regarding the third party's year 2000 programs, and questions regarding how the third party specifically examined the year 2000 effect on their computers and what remedial actions will be taken with regard to these problems. Our key processing systems have recently been implemented. Most of the vendors of such systems have represented to us that their systems are compliant with the year 2000 issues without any modification. We will, however, continue to require confirmation of year 2000 compliance in our future requests for proposals from equipment and software vendors. The failure of our computer systems and software applications to accommodate year 2000 issues, could have a material adverse effect on our business, financial condition and result of operations. Further, if the networks and systems of those on whose services we depend and with whom our networks and systems must interface are not year 2000 functional, it could have a material adverse effect on the operation of our networks and, as a result, have a material adverse effect on us. Most major domestic carriers announced that they expected all of their network and support systems to be year 2000 functional by the middle of 1999. However, other domestic and international carriers may not be year 2000 functional. We intend to continue to monitor the performance of our accounting, information and processing systems and software applications and those of our third-party constituents to identify and resolve any year 2000 issues. Currently, through our discovery process, we have identified and remedied $84,000 worth of expenditures associated with updating our systems to be compliant with the year 2000. However, we expect to find additional expenses pending the finalization of our year 2000 investigation. We have not made an estimate of what those additional expenditures might be, although, we expect they will be less than the initial $84,000. We believe there is significant risk in that carriers in other countries with whom we may do business may not be year 2000 compliant, possibly having an adverse impact upon our ability to transmit or terminate telecom traffic and therefore, a material adverse effect on our business, financial condition and results of operations. We believe that the most reasonably likely worst case scenario resulting from the century change could be the inability to route telecommunications traffic at market rates to desired locations for an indeterminable period of time, which could have a material adverse effect on our results of operations and liquidity. We do not have a completed contingency plan. However, in order to handle our perceived worst case scenario, we believe we would have to test alternative routing options and possibly re-route significant amounts of telecommunications traffic. Re-routing to certain destinations may not be readily available. We do not currently have a contingency plan. However, we anticipate having our year 2000 compliance procedures completed prior to the end of calendar 1999. Impact of Inflation The effects of inflation on our operations were not significant during the periods represented. 33 Quantitative and Qualitative Disclosures About Market Risk The Company 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. Our primary debt is in the form of long term equipment leases. We may be exposed to interest rate risk, as additional financing may be required due to the operating losses and capital expenditures associated with establishing and expanding our facilities. The interest rate that we will be able to obtain on additional financing will depend on market conditions at that time, and may differ from the rates we have secured on our current debt. We do not currently anticipate entering into interest rate swap and/or similar instruments. The Company's carrying values of cash and cash equivalents, accounts and notes receivable, accounts payable, and marketable securities-available for sale are a reasonable approximation of their fair value. Business We own telecommunications equipment and lease telecommunications lines to provide domestic and international long distance telecommunications services. In addition, we connect to other telephone companies and resell their services to destinations where we do not own equipment or lease lines. Our customers are other long distance telephone companies that resell our services to their retail customers or other telecommunications companies. In the future, we may offer our services directly to retail customers in addition to our current wholesale customers. The Company currently employs state-of-the-art digital switching and transmission technology. This equipment, located in New York and Los Angeles, comprises our operating facilities. Our operating facilities and industry agreements allow us to provide voice and facsimile telecommunications services to most countries in the world. We operate an international network of owned and leased telecommunications equipment. At the end of December 1998, we began carrying telecommunications traffic domestically and to certain countries in the world. We provide international services through several United States Federal Communications Commission Overseas Common Carrier Section 214 Licenses ("FCC 214 License"). An FCC 214 License authorizes an entity to provide domestic and international telecommunication services. We have sixteen contracted customers, other telecommunications companies, some or most of whom we are doing business with, for carriage of telecommunications traffic or provision of related telecommunications services. In addition, we derive modest revenues from tower site management. The towers provide sites for wireless communications companies to transmit their signals to their customers and receive signals from their customers. Industry Background We are a relatively small company in the large international telecommunications market. This market is dominated by several large retail long distance and international voice and data providers; such as AT&T, MCI Worldcom, Sprint, British Telecom, Deutsch Telecom and others. We compete with all telecommunications companies that sell domestic and international long distance services to other telecommunications companies. 34 The international telecommunications market consists of all telephone calls and other telecommunications services that originate in one country and are completed in another. This market can be divided into two major segments: the United States-originated international market, consisting of all international calls which either originate or terminate in the United States, and the overseas-originated international market, consisting of calls between countries other than the United States. We provide service to customers who (i) originate calls in the U.S. and (ii) customers who originate calls outside the U.S. and terminate these calls either inside or outside the U.S. The Company anticipates that the market for its services will continue to experience strong growth for the foreseeable future as a result of the following trends: 1) the opening of overseas telecommunications markets due to deregulation and the privatization of government-owned monopoly telecommunications companies; 2) the reduction of long distance rates, driven by competition and technological advancements, which is making international calling and other telecommunications services available to a much larger customer base and resulting in increased number of telephone calls; 3) the dramatic increases in the availability of telephones and the number and quality of access lines in service around the world; 4) the worldwide proliferation of new communications devices; such as cellular telephones, facsimile machines and other forms of data communications equipment; 5) the rapidly increasing globalization of commerce, trade and travel; and 6) the rapidly increasing demand for bandwidth-intensive data transmission services, including the Internet. Many of the world's developing countries are committing significant resources to building telecommunications infrastructures in order to increase the number and quality of telephone lines and other telecommunications services in their countries. We believe that increasing investment in telecommunications infrastructure will stimulate increasing demand for international telecommunications services. Certain countries have opened their telecommunications markets to competition in order to increase the level of private investment and the rate of infrastructure development. We expect that this trend will continue. Deregulation of telecommunications services in the United States began in 1984 with the AT&T divestiture. We believe that this trend creates numerous opportunities for U.S.-based carriers to increase their access to developing telecommunications markets and to increase their market share in both the U.S.-originated market and the overseas-originated market. 35 Business Strategy Our business strategy is to develop a telecommunications business that focuses on niche segments of the market that are evolving by virtue of the deregulation of the telecommunications industry and the corresponding growth of the international long distance markets. Key elements of our business strategy include the following: 1) Capitalize on Projected International Telecommunications Industry Growth. We believe that the telecommunications industry, and, in particular, the international long distance market provides attractive opportunity. We seek to capitalize on the international market opportunity, due to our belief that it has the potential for higher revenue and profit per call minute, and greater projected growth rate, as compared to the domestic long distance market. We seek to target those international markets that offer the possibility to generate impressive volumes of traffic, relatively high rates per minute, prospects for deregulation, privatization and growth and/or limited competition. We believe that the ongoing trend toward deregulation and privatization may create new opportunities for us in international markets. There can be no assurance that we will succeed in this endeavor. 2) Leverage Increased Traffic Volume to Reduce Costs per Minute of Traffic Carried. We are focused on trying to build our volume of international long distance traffic. We believe higher traffic volumes strengthen our negotiating position with vendors, customers and potential foreign partners, which allows us to lower the cost of our services. There can be no assurance that we will succeed in this endeavor. 3) Secure Operating Agreements or Owned Routes for Foreign Countries. We are actively seeking to enter into operating agreements to expand the geographical scope of our owned facilities and to attract new domestic and foreign customers. An operating agreement and/or owned route is an agreement with a foreign country or telecommunications carrier to build telecommunications capability in that country and to provide service to that country from the United States and possibly other parts of the world. We anticipate that the addition of new operating agreements may increase the revenues generated by our existing customer base by providing direct, or owned, services for these customers to additional countries. There can be no assurance that we will succeed in this endeavor. 4) Growth Through Acquisitions. We are actively pursuing opportunities to enhance our business through strategic and synergistic acquisitions. These acquisitions may focus on entering new territories, enlarging our presence in an existing territory, adding capacity, or diversifying our operations and/or customer base. In addition to expanding our revenue base, we might realize operating efficiencies by integrating acquired operations into the Company's billing, routing and other systems. On August 7, 1998, we acquired Masatepe, an international telecommunications company focused on the Central American countries. On April 13, 1998, we completed the acquisition of the business of VDC 36 Telecommunications (then known as "Blue Sky International"). There can be no assurance that we will succeed in completing any suitable acquisitions. 5) Provide Competitive Priced, High Quality Services. We seek to provide our customers with highly competitive rates, while maintaining carrier grade toll quality services. In the future, we may be able to lower our prices by adding telecommunications equipment in strategic locations and increasing our total number of minutes of telecommunications traffic through our network. Owning facilities, rather than reselling services, may provide a more efficient manner of transmission. This may lead to a lower cost. In areas of the world where we do not own equipment, we may be able to achieve cost savings by increasing our traffic and getting volume discounts from our suppliers. Network We provide international long distance services to over 200 foreign countries and cities through a flexible, switched-based network consisting of resale arrangements with other long distance providers, foreign termination relationships, international gateway switches and leased transmission facilities. The Company's network employs digital switching and transmission technologies and is supported by technical personnel. Switches and Transmission Facilities International long distance traffic to and from the United States is generally transmitted through an international gateway switching facility across undersea digital fiber optic cable or via satellite to the end termination point. International gateway switches are digital computerized routing facilities that receive calls, route calls through transmission lines to their destination and record information about the source, destination and duration of calls. We currently operate international gateway switches in New York and Los Angeles. We consider any of our switches to be international gateway switches, if we can route international calls across such switches. We have installed multiple redundancies into our switching facilities to decrease the risk of a network failure. For example, we employ both battery and generator power back-up and have installed hardware that automatically shifts the system to auxiliary power during a power outage, rather than rely on manual override. Sales and Marketing We market our services to other telecommunications companies through our experienced direct sales force and marketing/account management team who, seek to leverage their industry relationships. We reach our customers primarily through domestic and international trade shows and through relationships gained from experience in the telecommunications industry. As of November 3, 1999, we have one direct sales and marketing employee. Our salespeople receive stock options, which vest over five years, to enhance their retention. We may also use outside agents to sell our services. Billing We have developed a billing system for our exclusive use. We utilize an application, which collects, processes, and reports data for effective telecommunications billing management. 37 The application consists of three integrated databases: 1) Call Accounting. Call Accounting provides reports that detail outgoing, incoming, and internal information regarding the details of each call. The system captures the variety of raw data and normalizes it into a Company layout for further processing and reporting. We utilize and warehouse the Call Detail Record, or CDR, information for billing, fraud detection, and various other customer and internal requirements. 2) Traffic Management. Traffic Management reports concentrate on route usage and cost analysis. Reports include usage by route, traffic histograms by route, and universal call distribution, all by customer or provider; and 3) Directory Center. The Directory Center provides operators the ability to search on a variety of customer or vendor demographics to efficiently access and utilize all data captured within the system. The system provides management of a complicated communications environment including equipment and circuits management using three interrelated modules: 1) Network Information System. Keeps track of switches and circuits. 2) Equipment/Features Inventory. Provides complete inventory tracking by numerous hardware and software identifiers. 3) Order Processing and Tracking System. Tracks trouble reports from origination to resolution. Company Subject to Intense Competition The international telecommunications industry is highly competitive and subject to rapid change, including the introduction of new services facilitated by advances in technology. We are unable to predict which of many possible future product and service offerings will be important to maintain our competitive position or what expenditures will be required to develop and provide such products and services. International telecommunications providers compete on the basis of price, customer service, transmission quality, breadth of service offerings and value-added services. The U.S.-based international telecommunications services market is dominated by AT&T, MCI Worldcom and Sprint. The wholesale long distance market in which we focus our operations is also highly competitive. As our network develops further, we expect to encounter increasing competition from these and other major domestic and international communications companies, many of which may have significantly greater resources and more extensive domestic and international communications networks than ours. We expect the domestic and international long distance marketplace to continue to be highly competitive. This competition has been and will continue to put downward pressure on the price of telecommunications services, such as voice and facsimile. Competition is expected to further increase as a result of the new competitive opportunities created by the WTO Agreement. Under the WTO Agreement, the United States and 68 other countries committed to open their telecommunications markets to competition. 38 Government Regulation The following summary does not purport to describe all present and proposed federal, state and local regulation and legislation affecting the telecommunications industry. Regulations are often the subject of judicial proceedings, legislative hearings, and administrative proposals, which could change, in varying degrees, the manner in which the telecommunications industry operates. Neither the outcome of these proceedings, nor their impact upon the telecommunications industry or the Company can be predicted at this time. Our gateway and long distance telecommunications business is heavily regulated. The United States Federal Communications Commission ("FCC") exercises authority over all interstate and international facilities-based and resale services offered by us. We also may be subject to regulation in foreign countries in connection with certain business activities. There can be no assurance that future regulatory, judicial and legislative changes will not have a material adverse effect on the Company, or that domestic or international regulators or third parties will not raise material issues with regard to our compliance or noncompliance with applicable regulations or that regulatory activities will not have a materially adverse effect on the Company. We are also subject to other FCC requirements, including the filing of periodic reports and the payment of annual regulatory and other fees. In addition, FCC rules limit the routing of international traffic via international privately-owned lines and prohibit the accepting of "special concessions" from certain foreign providers. The FCC continues to refine its international service rules. FCC rules also require international companies notify the FCC sixty days in advance of an acquisition of a 25% or greater controlling interest by a foreign carrier in that U.S. carrier or an acquisition by the U.S. carrier of a 25% or greater controlling interest in a foreign carrier. After receiving this notification, the FCC reviews the proposed transaction and, among other things, can require a carrier to meet certain "dominant carrier" reporting and other conditions if the FCC finds that the acquisition creates an affiliation with a dominant foreign carrier. Our cost of providing long distance services may also be affected by changes in the access charge rates imposed by incumbent local exchange carriers ("LECs"). The FCC has significantly revised its access charge rules to permit incumbent LECs greater pricing flexibility and relaxed regulation in certain circumstances. The FCC also revised its universal service rules and we may be required to contribute to the federal universal service fund. We must comply with the requirements of common carriage under the Communications Act of 1934, as amended (the "Communications Act"), including the offering of service on a non-discriminatory basis at just and reasonable rates, and obtaining FCC approval prior to any assignment of FCC authorizations or any transfer of de jure or de facto control of the Company, with certain exceptions. Under the Communications Act and the FCC's rules, all international telecommunications carriers, including the Company, are required to obtain authority under Section 214 of the Communications Act prior to initiating international common carrier services, and must file and maintain tariffs containing the rates, terms and conditions applicable to their services. The Company, through its wholly-owned subsidiaries VDC Telecommunications, Inc., Masatepe, Voice & Data Communications (Hong Kong) Limited and 39 WorldConnectTelecom.com, Inc., a wholly-owned subsidiary of VDC Telecommunications, has received four Section 214 Licenses that authorize the provision of international services on a facilities and resale basis. The FCC recently adopted changes to its rules regarding FCC 214 Licenses, which are intended to reduce certain regulatory requirements. Among other things, the recent order: reduces the waiting period for granting new streamlined applications from 35 days to 14 days; eliminates the requirement for prior approval of pro forma assignments and transfers control of FCC 214 Licenses; and simplifies the FCC's process of authorizing the use of private lines to provide switched services (ISR) on particular routes. Domestic interstate common carriers such as the Company are not required to obtain Section 214 or other authorization from the FCC for the provision of domestic interstate telecommunications services. Domestic interstate carriers currently must, however, file and maintain tariffs with the FCC containing the specific rates, terms and conditions applicable to their services. These tariffs are effective upon one day's notice. We have filed two domestic tariffs and two international tariffs with the FCC. We must also conduct our international business in compliance with the FCC's international settlements policy (the "ISP"). The international settlements policy establishes the permissible boundaries for U.S.-based carriers and their foreign correspondents to settle the cost of terminating each other's traffic over their respective networks. The precise terms of settlement are established in a correspondent agreement, also referred to as an operating agreement. Among other terms, the operating agreement establishes the types of service covered by the agreement, the division of revenues between the carrier that bills for the call and the carrier that terminates the call at the other end, the frequency of settlements (i.e. monthly or quarterly), the currency in which payments will be made, the formula for calculating traffic flows between countries, technical standards, procedures for the settlement of disputes, the effective date of the agreement and the term of the agreement. In accordance with FCC regulations, we have applied for an accounting rate modification on an international route, which application was deemed granted under FCC procedures. The FCC recently approved significant changes to its ISP. Specifically, the FCC removed the ISP for arrangements between U.S. carriers and non-dominant foreign carriers (i.e., foreign carriers that lack market power). In addition, the FCC removed the ISP for arrangements with any carrier (dominant or non-dominant) on certain competitive routes where settlement rates are at least 25% below the FCC's applicable benchmarks. These routes currently include Canada, the United Kingdom, Sweden, Germany, Hong Kong, The Netherlands, Denmark and Norway. Certain confidential filing requirements still apply to dominant carrier arrangements. Employees As of November 3, 1999, the Company had 22 full-time employees, of which 3 were executive officers, 1 was engaged in sales, 13 were engaged in operations, engineering and technical/data systems, and 8 were engaged in administration. We consider our employee relations to be good. Properties Our headquarters are located in approximately 6,300 square feet of leased office space in Greenwich, Connecticut. The office space is leased from an unaffiliated third party pursuant to a five-year agreement at an annual rental of approximately $170,000. We also lease approximately 5,600 square feet of office space in Aurora, Colorado where the operations of a subsidiary are located. This office is leased from an unaffiliated third party pursuant to a five-year agreement at an annual rental of approximately $95,500. 40 We also lease a total of approximately 8,500 square feet in New York, Los Angeles and Denver as sites for our switching facilities. The locations are leased from unaffiliated third parties pursuant to ten-year leases at a combined annual rental of approximately $199,000. We believe that our facilities are adequate to support our current needs and that suitable additional facilities will be available, when needed, at commercially reasonable terms. 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 the Company and is now a wholly-owned subsidiary of the Company. The relief sought by Worldstar includes: (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 the Company acquired an interest in the Nicaraguan Project was void. In the event that the plaintiff prevails in the Action, the value of the Company's interest in Masatepe, Masacom and/or the Nicaraguan Project could be diluted. Additionally, the Company could be held liable for certain profits associated with the operation of Masatepe and/or the Nicaraguan Project and for related damages. However, pursuant to the Purchase Agreement through which the Company acquired Masatepe (the "Purchase Agreement"), Activated has an obligation to indemnify and hold the Company 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 the Company all or part of the Company's equity interest in Masatepe. Furthermore, defendants are vigorously defending the Action and certain of the defendants including the Company, have filed a Motion to Dismiss. In view of the foregoing, the Company does not believe that the claims asserted in the Action will have a material adverse effect on the Company'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 the Company induced it to enter into an agreement with the Company through various purported misrepresentations. StarCom alleges that, due to these purported misrepresentations and purported breaches of contract, it has been 41 unable to provide services to its customers. The relief sought by StarCom includes monetary damages arising out of the Company's purported misrepresentations and purported breaches of contract. In the event that StarCom prevails in the StarCom Action, the Company could be liable for monetary damages in an amount that would have a material adverse effect on the Company's assets and operations. The Company does not believe that the claims asserted in the StarCom Action are either meritorious or will have a material adverse effect on the Company's assets or operations. To date, despite the fact that the StarCom Action was filed approximately four months ago, opposing counsel in the StarCom Action has refused to have the Company served with process. Moreover, original opposing counsel filed a Motion to Withdraw as Attorney in Charge of the StarCom Action. In the event that the Company is served in the StarCom Action, it intends to vigorously defend itself. Management Directors and Executive Officers The directors and executive officers of the Company are listed below.
Name Age Position - ---- --- -------- Frederick A. Moran (1) 57 Chairman, Chief Executive Officer, Chief Financial Officer, Secretary and Director James B. Dittman (1) 57 Director Dr. Hussein Elkholy (2) 66 Director Dr. Leonard Hausman (1)(2) 57 Director Clayton F. Moran (2) 28 Vice President, Finance Charles W. Mulloy 34 Vice President, Corporate Development
(1) Member of Compensation Committee (2) Member of Audit Committee Frederick A. Moran Mr. Moran has served as Chairman, Chief Executive Officer, Chief Financial Officer, Secretary, and Director of the Company since March 6, 1998. Mr. Moran served as the Chairman of Sky King Connecticut from its inception in 1996 through its merger with and into the Company. In 1997, Mr. Moran served as Chairman and Chief Executive Officer of NovoComm, Inc., a privately owned company engaged in the telephony and communications businesses in Russia and Ukraine. Mr. Moran was the co-founder and, from 1990 to 1993, served as Chairman and Chief Executive Officer of International Telcell, Inc. (now part of Metromedia International Group, Inc.). Additionally, Mr. Moran was the founder 42 of and, from 1987 to 1996, served as President of Moran & Associates, Inc. Securities Brokerage, an investment banking and securities brokerage firm ("Moran Brokerage"), and Moran Asset Management, Inc., an investment advisory firm ("Moran Asset"). Mr. Moran has been listed in the "Who's Who of American Business Leaders." James B. Dittman Mr. Dittman has served as a member of the Company's Board of Directors since November 4, 1998. Mr. Dittman is President and a principal shareholder of Dittman Incentive Marketing, a motivation and performance improvement company he founded in 1976. In 1997, this company was named by the top industry publication as one of the five most innovative incentive marketing companies in the United States. Prior to forming Dittman Incentive Marketing, Mr. Dittman held management positions in marketing and communications with such firms as the Bendix Corporation, Litton Industries, and the SCM Corporation. Mr. Dittman's articles on incentive marketing have appeared widely in business publications, and he has been a keynote speaker and conducted incentive workshops and seminars for 25 years. Mr. Dittman is a Past President of the Society of Incentive Travel Executives ("SITE"). In 23 years of SITE involvement, Mr. Dittman has been a member of the Board of Directors and Executive Committee and a Trustee of the SITE Foundation, which funds independent research in the field of incentive marketing. Dr. Hussein Elkholy Dr. Elkholy has served as a member of the Company's Board of Directors since July 8, 1998. From 1995 to the present, Dr. Elkholy has served as the Chairman of National Telecom Company and the President and Chief Executive Officer of Satellite Equipment Manufacturing Corporation, both located in Cairo, Egypt. Dr. Elkholy is also a full professor at the Department of Mathematics, Computer Science and Physics at Fairleigh Dickinson University, where he has taught undergraduate and graduate courses in physics, engineering and computer science for over 34 years. From 1979 to 1980, Dr. Elkholy served as acting Dean of the College of Arts and Sciences at Fairleigh Dickinson University. In addition, Dr. Elkholy has conducted research and taught classes in the fields of physics and computer science at several universities and institutes in the United States, Italy, Hungary, Egypt and Sudan. During the past several years, Dr. Elkholy has consulted numerous governmental agencies, private companies and research and educational institutions in the United States and abroad on computer and electronic technology. Dr. Elkholy holds doctorate degrees in natural sciences from Eotvos Lorand University and in solid state physics from the Hungarian Academy of Sciences, and a Bachelor of Science degree in physics from Cairo University. Dr. Leonard Hausman Dr. Hausman has served as a member of the Company's Board of Directors since November 4, 1998. Dr. Hausman is a partner in Middle East Holdings LLC, a company devoted to facilitating trade and investment in the Middle East and North Africa. From 1988 until 1998, Dr. Hausman was the Director of the Institute for Social and Economic Policy in the Middle East at Harvard University. There, he developed a broad program on the social and economic aspects of the Arab-Israeli peace process, as well as micro-economic reform throughout the Middle East and North Africa. Prior to holding this position, Dr. Hausman was the Director of the East Asia Management Studies at the 43 Massachusetts Institute of Technology. Based on his work there and his academic work at the Kennedy School at Harvard, he is now completing a book, with a colleague, entitled: "Social Protection Reform in China." From 1970 to 1988, Dr. Hausman was a professor of economics, holding the Hexter Chair, at Brandies University in Boston. He began his work there on human resources and social protection and initiated two research programs on China and on the Middle East. Clayton F. Moran Mr. Moran has served as Vice President, Finance, of the Company since June 1, 1998. Prior thereto, Mr. Moran was employed by Moran Real Estate Holdings, Inc. and Putnam Avenue Properties, Inc. From 1993 to 1995, Mr. Moran was an equity research analyst with Smith Barney, Inc. Mr. Moran is a graduate of Princeton University, with a Bachelor of Arts degree in economics. Mr. Moran is an adult son of Frederick A. Moran. Charles W. Mulloy Mr. Mulloy has served as Vice President, Corporate Development, of the Company since February 1, 1998. Mr. Mulloy has a broad background as a technologist and business development manager, having worked in California's Silicon Valley business community for over 10 years. From 1996 to 1998, Mr. Mulloy served as a business development and system design executive for the IBM Corporation and managed IBM's strategic relationship with the Intel Corporation. From 1994 to 1996, Mr. Mulloy served as Vice President of Inacom Information Systems. Prior to that, from 1987 to 1994, Mr. Mulloy served as National Sales Manager for California Computer Options. Mr. Mulloy has extensive experience in developing data and telecommunications solutions with a foundation in network strategy and deployment. He has designed and managed business solutions for several telecommunications companies. Mr. Mulloy graduated from San Francisco State University with a Bachelor of Arts degree in telecommunications. Involvement in Certain Legal Proceedings In a civil action filed by the Securities and Exchange Commission ("SEC") during June 1995, Frederick A. Moran ("Mr. Moran") and Moran Asset were found by the United States District Court for the Southern District of New York to have violated Section 206(2) of the Investment Advisers Act of 1940 (the "Advisers Act") for negligently allocating shares of stock to Mr. Moran's personal, family and firm accounts at a slightly lower price than shares of stock purchased for Moran Asset's advisory clients the following day. The Court also found that Mr. Moran, Moran Asset and Moran Brokerage had violated the disclosure requirements of Section 204 of the Advisers Act and the corresponding broker-dealer registration requirements of Section 15(b) of the Securities Exchange Act of 1934 (the "Exchange Act") by willfully failing to disclose that Mr. Moran's two eldest sons were members of Moran Asset's and Moran Brokerage's board of directors. Mr. Moran was the President and principal portfolio manager of Moran Asset, as well as the President and Director of Research for Moran Brokerage. As a result of these findings, Mr. Moran, Moran Asset and Moran Brokerage were permanently enjoined from violating Sections 204, 206(2), and 207 of the Advisers Act and Section 15(b) of the Exchange Act. The Court ordered Moran Asset and Moran Brokerage to pay civil monetary penalties in the respective amounts of $50,000 and $25,000. The Court also ordered Mr. Moran to disgorge 44 $9,551.17 plus prejudgment interest and pay a civil monetary penalty in the amount of $25,000. Although Mr. Moran and the other named parties accepted and fully complied with the findings of the District Court, they believe that the outcome of the matter and the sanctions imposed failed to take into account a number of mitigating circumstances, the first of which is that the basis for the violation of Section 206(2) of the Advisers Act was an isolated incident of negligence resulting in the allocation of 15,000 shares of stock to Moran family and firm accounts at a slightly lower price than those purchased for firm clients the following day, resulting in $9,551.17 in higher purchase cost incurred by these clients. In the opinion of Mr. Moran, the scope of this infraction was not properly considered in view of the following circumstances, among others: (i) the extraordinary volume of the daily business undertaken by Moran Asset and Moran Brokerage which, on the date in question, purchased approximately $34,000,000 of stocks for advisory clients and proprietary accounts; (ii) that the appropriate personnel had inadvertently allocated shares to certain personal and family accounts on the belief that all client purchases had been completed; and (iii) shares of an additional stock had been purchased that day for certain personal and family accounts at prices higher than those paid by advisory clients the following day. Second, with respect to the violation of the disclosure requirements of Section 204 of the Advisers Act and Section 15(b) of the Exchange Act, the Court found Mr. Moran and others to be liable for failure to disclose additional directors of Moran Asset and Moran Brokerage. However, the additional directors in question were Mr. Moran's two older sons who had been appointed as directors as a matter of clerical convenience. In fact, they never participated in any Board of Directors meetings, nor made any decisions concerning Moran Asset or Moran Brokerage, and were never informed that they were directors. Furthermore, if their directorships had been disclosed, as the Court had determined to be required, Mr. Moran believes that any such disclosure would have, in fact, enhanced the Form ADV of Moran Asset and the Form BD of Moran Brokerage, since both adult sons were professional securities analysts with major investment banks and held college degrees from prestigious universities. Third, during his twenty-four years as a full time investment professional, Mr. Moran has not otherwise been the subject of any SEC, NASD or other regulatory or judicial matters. To the best of the Company's knowledge, other than the events specified above, there have been no events under any state or federal bankruptcy laws, no criminal proceedings, no judgments, orders, decrees or injunctions entered against any officer or director, and no violations of federal or state securities or commodities laws material to the ability and integrity of any director or executive officer during the past five years. Terms of Officers All officers of the Company serve for terms expiring at the next annual meeting of shareholders following their appointment. Officers' terms are without prejudice to the terms of their employment agreements. Each of the Company's officers, as well as each employee director, devotes substantially full time to the affairs of the Company. Board Composition In accordance with the terms of the Company's Certificate of Incorporation, the terms of office of the Board of Directors are divided into three classes: Class I, whose term will expire at the annual meeting of stockholders to be held in 45 1999; Class II, whose term will expire at the annual meeting of stockholders to be held in 2000; and Class III, whose term will expire at the annual meeting of stockholders to be held in 2001. The Class I directors are Dr. Hussein Elkholy and James Dittman; the Class II director is Dr. Leonard Hausman; and the Class III director is Frederick A. Moran. At each annual meeting of stockholders after the initial classification, the successors to directors whose term will then expire will be elected to serve from the time of election and qualification until the third annual meeting following election. This classification of the Board of Directors may have the effect of delaying or preventing changes in control or changes in management of the Company. See "Risk Factors--Anti-Takeover Provisions may Deter Change in Control Transactions" and "Description Of Securities--Anti-Takeover Effects of Provisions of the Certificate of Incorporation, Bylaws and Delaware Law." Executive Compensation Compensation Committee Report On November 9, 1998, the Company's Board of Directors established a Compensation Committee. The Compensation Committee consists of Frederick A. Moran, James Dittman, and Dr. Leonard Hausman. James Dittman and Dr. Leonard Hausman are non-employee directors within the meaning of Rule 16b-3 under the Exchange Act and outside directors within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended. The Compensation Committee recommends general compensation policies to the Board, oversees the Company's compensation plans, establishes the compensation levels for executive officers and advises the Board on the compensation policies for the Company's executive officers. Prior to the establishment of the Compensation Committee, compensation matters were handled by the Board of Directors which consisted of Frederick A. Moran, Dr. James C. Roberts and Dr. Hussein Elkholy. For purposes of this Report the term "Committee" refers to either the Compensation Committee or the entire Board of Directors dependent on which group of directors was charged with the responsibility for executive compensation matters at the relevant time. Dr. James C. Roberts resigned from the Board of Directors in November 1998. Goals: In determining the amount and composition of executive compensation for Fiscal 1999, the Committee was guided by the following goals: 1) Attract, motivate and retain the executives necessary to the Company's success by providing compensation comparable to that offered by other entrepreneurial growth companies; 2) Afford the executives an opportunity to acquire or increase their proprietary interest in the Company through the grant of options that align the interests of the executives more closely with those of the overall goals of the Company; and 3) Ensuring that a portion of the executives' compensation is variable and is tied to short-term goals (annual performance) and long-term measures (stock-based incentives awards) of the Company's performance. The Committee considered several factors in establishing the components of the executives' compensation package, including: (i) a base salary which reflects individual performance and is designed primarily to be competitive with salary levels of other entrepreneurial growth companies; (ii) annual discretionary 46 bonuses tied to the Company's achievement of performance goals; and (iii) long-term incentives in the form of stock options or other Company securities which the Committee believes strengthen the mutuality of interest between the executive and the Company's stockholders. In establishing the actual level of compensation for executives, the Committee took into account both qualitative and quantitative factors and all compensation decisions were designed to further the general goals as described above. Base Salary: As a general matter, the Company establishes base salaries for each of its executives based upon their individual performance and contribution to the organization, as measured against executives of comparable position in similar industries and companies. The employment contracts for certain of the Company's executive officers were entered into contemporaneously with the commencement of the Company's telecommunications business (March 1998) and reflect the executive's level of compensation prior to such commencement and the factors described in the preceding sentence. Bonus: The Committee may from time to time award discretionary bonuses to its executive officers to reward them for extraordinary individual or Company performance. No discretionary bonus awards were made to executive officers of the Company in Fiscal 1999. Stock Options: During Fiscal 1999, the Committee and the Board periodically considered the grant of stock options to certain of its executives, and other employees, pursuant to the Company's 1998 Stock Incentive Plan (the "Plan"). Additionally, prior to the Domestication Merger, the Board granted stock options outside of the Plan. In both instances, the grants were designed to align the interests of each executive with those of the stockholders and provide each individual with a significant incentive to manage the Company from the perspective of an owner with an equity stake in the business. Each grant was intended to permit the executive to acquire shares of the Company's common stock at a fixed price per share (typically, the market price on the grant date) over a specified period of time (typically, with five year vesting periods), and to provide a return to the executive only if the market price of the shares appreciated over the option term. The size of the option grant to each executive was intended to take into account the individual's potential for future responsibility over the option term, the individual's personal performance in recent periods and the individual's current holdings of the Company's stock and options. Additional information regarding stock options granted in Fiscal 1999 is included in the "Option Grants in Last Fiscal Year" table below. Compensation of the Chief Executive Officer: During Fiscal 1999, Frederick A. Moran served as the Chairman of the Board, Chief Executive Officer, Chief Financial Officer, and Secretary of the Company. Mr. Moran's compensation was determined pursuant to the terms of his employment agreement, which was negotiated and entered into by the Company in connection with the Sky King Connecticut Acquisition and was intended to align his interests with those of the stockholders and to compensate him for guiding the Company to achieve its goals and objectives. Additional information regarding Mr. Moran's employment contract is contained in the "Employment Contracts and Termination of Employment and Change-in-Control Arrangements" section below. During Fiscal 1999, the Board granted Mr. Moran options to purchase 200,000 shares of Company common stock. These options vest in equal installments over five years. This grant was made in recognition of Mr. Moran's contributions to and achievements with the Company in his capacity as an executive officer. See "Option Grants in Last Fiscal Year." 47 Employee Compensation Strategy: The Committee believes the Company's employee compensation strategy enables the Company to attract, motivate and retain employees by providing competitive total compensation opportunity based on performance. Base salaries that reflect each individual's level of responsibility and annual variable performance-based incentive awards are intended to be important elements of the Company's compensation policy. The Committee believes that the grant of options not only aligns the interests of the employee with stockholders, but creates a competitive advantage for the Company as well. The Committee believes the Company's employee compensation policies strike an appropriate balance between short and long-term performance objectives. Option Repricing Program: Competition for skilled engineers, sales personnel and other key employees in the telecommunications industry is intense, and the use of stock options for retention and motivation of such personnel is widespread in high-technology industries. The Committee believes that stock options are a critical component of the compensation offered by the Company to promote long-term retention of key employees, motivate high levels of performance and recognize employee contributions to the success of the Company. The market price of the common stock decreased from a high of $7.50 in July 1998 to a low of $4.00 in October 1998. In light of this substantial decline in market price, the Committee 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 1998, the Committee approved an option repricing program under which options to acquire shares of common stock that were originally issued with exercise prices above $4.125 per share were reissued with an exercise price of $4.125 per share, the fair market value of the common stock at the repricing date. These options will continue to vest under the original terms of the option grant. None of the options held by Named Executive Officers (as defined below) were affected by the repricing program. Compensation Committee: Frederick A. Moran James Dittman Dr. Leonard Hausman Dr. Hussein Elkholy (in his capacity as a member of the Company's Board of Directors prior to the establishment of the Compensation Committee). The following Summary Compensation Table sets forth the compensation earned for the three fiscal years ended June 30, 1999 by the Company's Chief Executive Officer and each of the Company's four most highly compensated executive officers, other than the Chief Executive Officer, whose total annual salary and bonus for Fiscal 1999 exceeded $100,000 (the "Named Executive Officers"). Other than the Chief Executive Officer, there was no Company executive officer who earned salary and bonus in excess of $100,000 for services rendered in all capacities to the Company and its subsidiaries during Fiscal 1999. 48
SUMMARY COMPENSATION TABLE Long Term Compensation ---------------------- Annual Compensation Awards ------------------- ------ Securities Underlying Options/ Name and Principal Position Year(s) Salary($) SARs(#) - --------------------------- ------- --------- ------- Frederick A. Moran(1) 1999 $125,000.04 (2) 200,000(3) Chief Executive Officer, 1998 40,625.05 (4) - Chief Financial Officer, 1997 - - Chairman and Director of the Company
(1) Mr. Moran became Chief Executive Officer, Chief Financial Officer, Chairman, and Director of the Company in March 1998 in connection with the Sky King Connecticut Acquisition. Mr. Moran was neither an officer nor a director of the Company prior to the Sky King Connecticut Acquisition. (2) Includes $20,833.34 in deferred income. (3) The Company granted Mr. Moran an option to purchase 200,000 shares of the Company common stock on December 8, 1998. Additional information regarding these stock option grants is contained in the "Option Grants in Last Fiscal Year" table below. (4) Reflects compensation for partial year employment. The following table contains information concerning stock option grants made to Named Executive Officers during Fiscal 1999.
Option Grants in Last Fiscal Year --------------------------------- Individual Grants ----------------- Potential Potential Realizable Realizable Value at Assumed Value at Assumed Annual Rates of Annual Rates of % of Total Stock Price Stock Price Number of Securities Options/SARs Exercise or Appreciation for Appreciation for Underlying Options/ Granted to Employees Base Price Expiration Option Term Option Term Name SARs Granted (#) in Fiscal Year (1) ($/Share) Date 5% ($)(2) 10% ($) (2) - ---- ---------------- ------------------ --------- ---- --------- ----------- Frederick A. Moran 200,000 (3) 20.0% $4.125 12/08/03 132,210.00 382,882.50
(1) Based upon options to purchase an aggregate of 999,000 shares of common stock granted to employees in Fiscal 1999. The options to purchase 999,000 shares of common stock includes: (a) options to purchase 757,500 shares of common stock granted under the Company's 1998 Stock Incentive Plan in Fiscal 1999; (b) options to purchase 180,000 shares of common stock granted outside of the Company's 1998 Stock Incentive Plan in Fiscal 1999; and (c) options to purchase 61,500 shares of common stock granted outside of the Company's 1998 Stock Incentive Plan 49 in Fiscal 1998 but repriced in Fiscal 1999. Excludes options to purchase 40,000 shares of common stock granted to non-employees in Fiscal 1999. (2) The 5% and 10% assumed annual rates of compounded stock price appreciation are mandated by rules of the Securities and Exchange Commission. There can be no assurance provided to any executive officer or any other holder of the Company's securities that the actual stock price appreciation over the 5 year option term will be at the assumed 5% and 10% levels or at any other defined level. Unless the market price of the common stock appreciates over the option term, no value will be realized from the option grants made to the Named Executive Officers. (3) The options vest in equal installments over five years commencing on the first anniversary of the date of grant (December 8, 1998). The options are exercisable upon vesting. Does not include options to purchase 10,000 shares of common stock granted to Joan B. Moran, Mr. Moran's wife and an employee of the Company.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year End Option/SAR Values ----------------------------------------------------------------------------------------- Number of Securities Value of Unexercised Underlying Unexercised In-the-Money Options Options/SARs at FY-End(#) at FY-End($) Shares Acquired Value Exercisable/ Exercisable/ Name on Exercise (#) Realized($) Unexercisable Unexercisable - ---- --------------- ----------- ------------- ------------- Frederick A. Moran 0 0 0(E)/200,000(U) (1)
(1) Based upon the closing price for Company common stock for June 30, 1999 of $3.00 per share, none of the options referenced in this table were in-the-money at the close of Fiscal 1999. Stock Options The Company's 1998 Stock Incentive Plan (the "Plan"), which authorizes the issuance of up to 5,000,000 shares of the Company's common stock was adopted by the Board of Directors on September 4, 1998. Under its terms, officers, directors, key employees and consultants of the Company are eligible to receive incentive stock options within the meaning of Section 422 of the Internal Revenue Code, as well as non-qualified stock options, stock appreciation rights ("SARs"), restricted stock awards, stock awards, and performance share awards. The Plan may be administered by the Board of Directors or the Company's Compensation Committee (the "Plan Administrator"). Incentive stock options granted under the Plan are exercisable for a period of up to 10 years from the date of grant and at an exercise price that is not less than the fair market value of the common stock on the date of the grant, except that the term of an incentive stock option granted under the Plan to a stockholder owning more than 10% of the outstanding common stock may not exceed five years from the date of grant and the exercise price of an incentive stock option granted to such stockholder may not be less than 110% of the fair market value of the common stock on the date of the grant. Non-qualified stock options may be granted on terms determined by the Plan Administrator. SARs, which give the holder the privilege of surrendering such rights for the appreciation in the Company's common stock between the time of grant and the surrender, may be granted on any terms determined by the Plan Administrator. A restricted stock award entitles 50 the recipient to acquire shares of stock subject to such restrictions and conditions as the Plan Administrator may determine at the time of grant. Conditions may be based on continuing employment (or other business relationship) and/or achievement of pre-established performance goals and objectives. A stock award is an award pursuant to which an individual may receive shares of stock free of any vesting restrictions under the Plan. A performance share award is an award entitling the recipient to acquire shares of stock upon the attainment of specified performance goals. The Plan Administrator in its sole discretion shall determine whether and to whom performance share awards shall be made, the performance goals applicable under each such award, the periods during which performance is to be measured, and all other limitations and conditions applicable to the awarded performance shares; provided, however, that the Plan Administrator may rely on the performance goals and other standards applicable to other performance plans of the Company in setting the standards for performance share awards under the Plan. Stock options with respect to no more than 1,000,000 shares of stock may be granted to any one individual participant during any one calendar year period. Additionally, under the terms of the Plan, the aggregate fair market value (determined as of the date of grant) of the shares of common stock with respect to which incentive stock options are exercisable for the first time by an employee during any calendar year (under all such plans of the Company and any parent and subsidiary corporation of the Company) may not exceed $100,000. Under the Plan, the Plan Administrator is authorized to impose limitations on Plan awards, including limitations on transferability. Non-qualified stock options and SARs are not transferable by the participant otherwise than by will or by the laws of descent and distribution or pursuant to a domestic relations order. In addition to other times during which they are exercisable while the participant has a continuing relationship with the Company, options and SARs granted under the Plan may be exercised within two years after the date of a participant's termination of employment by reason of his death or disability, or within three months after the date of termination by reason of retirement or voluntary termination, but only to the extent the option or SAR was otherwise exercisable at the date of termination. If a participant is terminated for "Cause" (as defined in the Plan), or if the optionee becomes an officer, director of, or a consultant to or employed by a "Competing Business" (as defined in the Plan) then any and all options and SARs held by such participant shall terminate and all vested options shall be forfeited. The Plan provides that, in general, the Plan Administrator, shall, consistent with the Plan, determine the terms and conditions, including vesting provisions, of any option or SAR granted under the Plan, and may accelerate the exercisability of any option or SAR. The Board of Directors may alter, amend, suspend or discontinue the Plan, provided that no such action shall deprive any person without such person's consent of any rights theretofore granted pursuant hereto. As of November 3, 1999, options to purchase 775,500 shares of Company common stock were outstanding. With the exception of the options granted to directors, which vest over three years, and options to purchase 90,000 shares to Company common stock, which are subject to alternative vesting schedules, all of these options vest in equal installments over five years. With the exception of the options granted to Frederick A. Moran, which expire in five years, and options 51 retained by former employees, which expire three years from the date of resignation, all these options expire ten years after the date of grant. In October 1999, the Board of Directors amended one section of the Plan which provides for the vesting and termination of awards granted under the Plan in connection with certain extraordinary corporate events including, but not limited to, mergers, reorganizations or consolidations. Among other things, the amendment clarified the circumstances under which the acceleration and vesting of awards will occur and extended the period during which such awards may be exercised upon acceleration. October 1999 Repricing Competition for skilled engineers, sales personnel and other key employees in the telecommunications industry is intense, and the use of stock options for retention and motivation of such personnel is widespread in high-technology industries. The Board of Directors believes that stock options are a critical component of the compensation offered by the Company to promote long-term retention of key employees, motivate high levels of performance and recognize employee contributions to the success of the Company. The market price of the common stock decreased from a high of $7.50 in July 1998 to a low of $1.25 on October 1, 1999. In light of this substantial decline in market price, the Board of Directors believed that the outstanding stock options with an exercise price in excess of the actual market price were no longer an effective tool to encourage employee retention or to motivate high levels of performance. As a result, in October 1999, the Board of Directors approved an option repricing program under which options to acquire shares of common stock that were originally issued with exercise prices above $1.25 per share were reissued with an exercise price of $1.25 per share, the fair market value of the common stock at the repricing date. These options will continue to vest under the original terms of the option grant. Options to purchase 757,500 shares of Company common stock were affected by the repricing program including options to purchase 567,500 shares of common stock issued under the Plan and options to purchase 190,000 shares of common stock issued outside of the Plan. Options to purchase 510,000 shares of common stock granted to executive officers and members of the Board of Directors were affected by the repricing program. Committees of the Board of Directors On November 9, 1998, the Company's Board of Directors established an Audit Committee and Compensation Committee. Clayton F. Moran, Dr. Hussein Elkholy, and Dr. Leonard Hausman serve on the Audit Committee. The Audit Committee reviews and reports to the Board of Directors with respect to the selection, retention, termination and terms of engagement of the Company's independent public accountants, and maintains communications among the Board of Directors, the independent public accountants, and the Company's internal accounting staff with respect to accounting and audit procedures. The Audit Committee also reviews, with management, the Company's internal accounting and control procedures and policies and related matters. The Compensation Committee consists of Frederick A. Moran, James Dittman, and Dr. Leonard Hausman. James Dittman and Dr. Leonard Hausman are non-employee directors within the meaning of Rule 16b-3 under the Exchange Act and outside directors within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended. The Compensation Committee is responsible for administering 52 the Company's stock plans and reviewing and making decisions with respect to the other compensation of executive officers and employees of the Company. The Board may, from time to time, establish other committees of the Board. Director Compensation As compensation for their service to the Company, each independent Director is granted upon initial appointment options to purchase 25,000 shares of the Company's common stock. Other than the stock options granted to independent Directors, Directors do not receive a salary, payment or reimbursement of any kind for their service to the Company. By way of illustration, Directors are not reimbursed for out-of-pocket expenses incurred in the performance of Company duties, nor are they compensated for attending meetings of the Company's Board of Directors, whether by telephone or in person. On November 4, 1998, the Company granted each of Dr. Leonard Hausman and James Dittman options to purchase 25,000 shares of Company common stock at an exercise price of $4.00 per share, in connection with their appointment as Directors. The options vest in equal installments over three years commencing on the first anniversary of the date of grant and are contingent upon continued service as a member of the Board of Directors. On July 8, 1998, the Company granted to Dr. Hussein Elkholy an option to purchase 25,000 shares of Company common stock at an exercise price of $7.625 per share, in connection with his service as a Director. As originally issued, the options vested in equal installments over five years commencing on the first anniversary of the date of grant and was contingent upon continued service as a member of the Company's Board of Directors. These options were subsequently amended to vest in equal installments over three years commencing on the first anniversary of the date of grant. On October 21, 1998, the Company's Board of Directors repriced the exercise price for all outstanding stock options granted to employees and directors serving the Company as of October 21, 1998 to $4.125. Dr. Elkholy's options were repriced accordingly. See "Compensation Committee Report" for description of repricing. As of October 1, 1999, in connection with the October 1999 repricing program described above, the exercise price for all options held by Mr. Dittman, Dr. Elkholy and Dr. Hausman was repriced to $1.25 per share. On March 2, 1998, the Company issued 25,000 shares of Company common stock to Graham F. Lacey as compensation for his services rendered to the Company as a Director. Said shares were valued at $135,937.50 based upon a closing price of Company common stock on March 2, 1998 of $5.4375 per share on the OTC Bulletin Board. Mr. Lacey received these shares prior to the change in management accompanying the Sky King Connecticut Acquisition and the adoption of the current management's compensation policy for directors. On July 31, 1997, the Company issued 100,000 shares of Company common stock to Mr. Lacey as compensation for his services rendered to the Company as a Director. Said shares were valued at $493,750, based upon a closing price of Company common stock on July 31, 1997 of $4.9375 per share. Mr. Lacey received these shares prior to the change in management accompanying the Sky King 53 Connecticut Acquisition and the adoption of the current management's compensation policy for directors. On July 1, 1997, the Company issued 28,000 shares of Company common stock to Mr. Lacey as compensation for his services rendered to the Company as a Director. Said shares were valued at $131,250 based upon a closing price of Company common stock on July 1, 1997 of $4.6875 per share. Mr. Lacey received these shares prior to the change in management accompanying the Sky King Connecticut Acquisition and the adoption of the current management's compensation policy for directors. Employment Contracts and Termination of Employment and Change-in-Control Arrangements The Company has an employment agreement with Frederick A. Moran. The agreement, which is dated March 3, 1998, provides for an initial term of five years with year-to-year renewals in the event that neither Mr. Moran nor the Company elects to terminate the agreement after the initial term or otherwise. The agreement contains non-competition and non-solicitation provisions which survive employment for a term of one year. Mr. Moran's current base salary is $125,000. Upon Mr. Moran's death, incapacity or termination without "cause", as defined in the agreement, Mr. Moran is entitled to a lump sum payment at the time of the termination of his employment equal to one year's base salary. Mr. Moran has been granted options to purchase shares of Company common stock. See "Option Grants in Last Fiscal Year." Pursuant to the Company's 1998 Stock Incentive Plan, as amended, all options held by Mr. Moran, and all other option holders under the Plan, will vest upon certain change-in-control transactions. Compensation Committee Interlocks and Insider Participation in Compensation Decisions On November 9, 1998, the Company's Board of Directors established a Compensation Committee. The Compensation Committee consists of Frederick A. Moran, James Dittman, and Dr. Leonard Hausman. James Dittman and Dr. Leonard Hausman are non-employee directors within the meaning of Rule 16b-3 under the Exchange Act and outside directors within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended. Mr. Moran serves as an executive officer of the Company and as an officer of each of the Company's subsidiaries. The Compensation Committee recommends general compensation policies to the Board, oversees the Company's compensation plans, establishes the compensation levels for executive officers and advises the Board on the compensation policies for the Company's executive officers. Prior to the establishment of the Compensation Committee, compensation matters were handled by the Company's Board of Directors. The Board of Directors, prior to the establishment of the Compensation Committee, consisted of Frederick A. Moran, Dr. James C. Roberts and Dr. Hussein Elkholy. No executive officer of the Company served as a member of the board of directors of any entity that had one or more executive officers serving as a member of the Company's Board of Directors or Compensation Committee. Comparison of 5 Year Cumulative Total Returns The following Performance Graph sets forth the Company's total stockholder return (1) as compared to: (i) the University of Chicago Graduate School of Business CRSP Total Return Index for the AMEX Market (U.S. companies) ("CRSP 54 Index")(2), and (ii) a Peer Group selected on the Basis of a 3-Digit SIC Group (SIC 4810-4819 U.S.). The table assumes that $100 was invested on June 30, 1994 in the Company's common stock, the CRSP Index and the peer group index, and that all dividends were reinvested. In addition, the graph weighs the peer group on the basis of its respective market capitalization, measured at the beginning of each relevant time period. (1) The Company became involved in the telecommunications industry on March 6, 1998. Prior to March 6, 1998 the Company was involved in other unrelated industries. The Peer Group reflects the Company's SIC Group and does not reflect the Company's SIC Groups for periods prior to the March 6, 1998 acquisition. Consequently, a comparison of the Peer Group's performance to the performance of the Company during the period March 6, 1998 to June 30, 1999 may be meaningful, however, a comparison of the Peer Group's performance to that of the Company for periods prior to the Sky King Connecticut Acquisition is unlikely to be meaningful. Furthermore, the comparisons presented may not be indicative of the Company's future performance. (2) The Performance Graph contains an AMEX index because the Company's common stock began trading on the American Stock Exchange, Inc. on July 7, 1998.
Company Market Peer Date Index Index Index ---- ----- ----- ----- 06/30/1994 $100.000 $ 100.000 $100.000 09/30/1994 158.333 108.444 103.144 12/30/1994 75.000 106.650 94.658 03/31/1995 75.000 116.023 97.884 06/30/1995 70.833 132.630 103.357 09/29/1995 86.667 148.429 122.765 12/29/1995 75.000 149.802 129.288 03/29/1996 78.333 157.079 125.054 06/28/1996 120.000 169.251 129.198 09/30/1996 98.333 174.994 121.492 12/31/1996 70.000 183.402 132.218 03/31/1997 68.333 174.003 127.850 06/30/1997 56.667 205.630 151.727 09/30/1997 60.833 240.644 167.637 12/31/1997 70.000 223.964 193.294 03/31/1998 70.000 262.443 241.091 06/30/1998 70.000 268.439 245.650 09/30/1998 37.869 239.271 234.357 12/31/1998 40.164 309.650 316.453 03/31/1999 36.721 345.411 350.460 06/30/1999 27.541 377.785 397.111
Compliance With Section 16(a) Of The Exchange Act Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") requires the Company's officers and directors, and persons who own more than ten percent (10%) of a class of the Company's equity securities registered under the Exchange Act to file reports of ownership on Form 3 and changes in 55 ownership on Form 4 or 5 with the Securities and Exchange Commission (the "SEC"). Such officers, directors and ten percent (10%) stockholders are also required by SEC rules to furnish the Company with copies of all forms that they file pursuant to Section 16(a). Based solely on its review of copies of forms filed pursuant to Section 16(a) of the Exchange Act, and written representations from certain reporting persons, the Company believes that during Fiscal 1999 all reporting persons timely complied with all filing requirements applicable to them, except for certain reports which were not timely filed including: (i) a Form 3 for James B. Dittman; (ii) a Form 3 for Leonard Hausman; and (iii) a Form 4 for Frederick A. Moran (reporting one transaction). Certain Relationships And Related Transactions Registration of Certain Moran Shares The Company is in the process of registering the potential resale of 6,931,046 shares of Company common stock, the beneficial ownership of which is attributed to Frederick A. Moran or certain members of Mr. Moran's immediate family (the "Moran Shares"). The Moran Shares were included in a Registration Statement on Form S-1 (Registration No. 333-80107) which was filed with the United States Securities and Exchange Commission on June 7, 1999 (the "Registration Statement"). Of the Moran Shares included in the Registration Statement, 994,837 of said shares are being included pursuant to registration rights granted in connection with the sale of said shares in May and October 1999 to Mr. Moran, certain Moran family members, and certain trusts for the benefit of Mr. Moran's minor children. Loans From Director and Officer In September 1999, Frederick A. Moran, a director and officer of the Company, transferred personal funds totaling $80,000 to the Company. This amount represents a short term loan to be repaid by the Company in accordance with the terms of a promissory note executed by the Company on September 24, 1999. The promissory note is due on September 24, 2000 and provides for an interest rate of eight percent (8%) per annum. Between January and February 1999, Frederick A. Moran, a director and officer of the Company, transferred personal funds totaling $500,000 to the Company. This amount represents a short-term loan to be repaid by the Company in accordance with the terms of a promissory note executed by the Company on January 26, 1999. The promissory note which was to be due on or before July 26, 1999, bore an interest rate of ten percent (10%) per annum. The Company paid the promissory note in full on May 13, 1999. On October 22, 1998, Frederick A. Moran transferred personal funds totaling $65,000 to the Company. This amount represented a short-term loan bearing no interest. The Company paid back the loan in full on October 26, 1998. Private Placement Transactions Through a Securities Purchase Agreement dated October 27, 1999, the Company sold 666,667 shares of Company common stock, at a price of $0.75 per share, to Frederick W. Moran, the adult son of Frederick A. Moran, in a non-public offering exempt from registration pursuant to Section 4(2) and Rule 506 of Regulation D of the Act. 56 Through Securities Purchase Agreements dated May 5, 1999, the Company sold an aggregate of 328,170 shares of Company common stock, at a price of $3.00 per share, to Frederick A. Moran and Joan B. Moran, Mr. Moran's wife, and certain trusts for the benefit of Mr. and Mrs. Moran's minor children in a non-public offering exempt from registration pursuant to Section 4(2) and Rule 506 of Regulation D of the Act. Through Securities Purchase Agreements dated December 23, 1998, the Company sold an aggregate of 245,159 shares of Company common stock, at a price of $3.625 per share, to certain entities associated with and family members of Frederick A. Moran in a non-public offering exempt from registration pursuant to Section 4(2) and Rule 506 of Regulation D of the Act. Through Securities Purchase Agreements dated May 27, 1998, the Company issued an aggregate of 583,430 shares of Company common stock, at a price of $6.00 per share, in a non-public offering pursuant to Section 4(2) and Regulation D of the Act, including 308,430 shares of Company common stock to certain entities associated with and family members of Frederick A. Moran. Certain Transactions Arising out of Sky King Connecticut Acquisition In connection with the Sky King Connecticut Acquisition, the Company issued shares of Company Series A Convertible Preferred Stock ("Series A Stock") and Series B Convertible Preferred Stock ("Series B Stock") to Frederick A. Moran, and certain family members of and entities associated with Mr. Moran which in the aggregate totaled approximately 5,537,670 shares. Also, the Company issued shares of Series A Stock and Series B stock to the Roberts Family Trust which in the aggregate totaled approximately 2,750,000 shares. James C. Roberts is a former officer and director of the Company. In June 1998, with the approval of the respective Boards of Directors of VDC Bermuda and the Company, 1,512,500 shares of Series B Stock owned by the Roberts Family Trust were converted into 1,512,500 shares of Company common stock. All shares of Series B Stock issued in connection with the Sky King Connecticut Acquisition were placed in escrow to be released upon the satisfaction of certain performance criteria set forth in the Escrow Agreement, dated as of March 6, 1998 (the "Escrow Agreement"). In May 1998, the Company released 600,000 shares of Series B Stock from escrow based upon the satisfaction of certain criteria identified on the Escrow Agreement. On August 31, 1998, the Company released an additional 3,900,000 shares of Series B Stock as additional performance criteria were satisfied. Certain members of the management and Board of Directors of VDC Bermuda and the Company, among others, had interests in the Domestication Merger that were in addition to the interests of the members and stockholders of said companies. Upon the consummation of the Domestication Merger, all of the outstanding shares of VDC Bermuda common stock were convertible, on a share-for-share basis, into shares of Company common stock. Additionally, all shares of Company Series A Stock and Series B Stock, were automatically converted, on a share-for-share basis, into shares of Company common stock. Upon the consummation of the Domestication Merger, Frederick A. Moran, Chairman, Chief Executive Officer, Chief Financial Officer, Secretary and Director of the Company together with his spouse and his minor children, received 2,849,150 of Company common stock; a 57 trust for the benefit of Dr. James C. Roberts, an officer and director of the Company at that time and his family received 2,750,000 shares of Company common stock; and Clayton F. Moran, Vice President of Finance of the Company, received 1,422,850 shares of Company common stock. The Company common stock issued upon the conversion of the Series A Stock and Series B Stock to Frederick A. Moran, certain family members of and entities associated with Mr. Moran, and to the Roberts Family Trust were subject to an eighteen month contractual restriction on resale (the "Restriction"). On December 15, 1998, the Company removed the Restriction from all shares of Company common stock held by Frederick A. Moran, and family members of and entities associated with Frederick A. Moran (in the aggregate approximately 5,537,670 shares). The Company removed this Restriction in order to permit the Morans more flexibility with regard to providing the Company with future financing. Also, on December 15, 1998 the Company removed the Restriction from all shares held by the Roberts Family Trust in connection with a certain Settlement Agreement by and among the Company, Dr. James C. Roberts, and Frederick A. Moran, dated November 19, 1998 (in the aggregate approximately 750,000 shares), pursuant to which Dr. Roberts resigned from all positions held with the Company and its subsidiaries and surrendered to the Company 1,875,000 shares of Company common stock. Certain Transactions and Agreements with PortaCom On June 22, 1998 the Company acquired from PortaCom 2 million shares of the common stock of Metromedia China Corporation ("MCC") and warrants to purchase 4 million shares of common stock of MCC at an exercise price of $4.00 per share, for an aggregate purchase price of 5,300,000 shares of common stock and approximately $370,000 in cash. In March 1998, PortaCom filed a voluntary petition for bankruptcy relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court District of Delaware. During the course of the bankruptcy proceedings, the acquisition was amended to provide that the Company would fund an escrow account in the amount of up to $2,682,000 (the "Escrow Cash") for the benefit of holders of priority unsecured claims and general unsecured claims against PortaCom's bankruptcy estate. To the extent that the cash escrow was used by PortaCom, PortaCom received proportionally fewer Company shares. The Escrow Cash and 5,300,000 shares (the "Escrow Shares") were placed in escrow pending the resolution of the disputed claims against PortaCom's bankruptcy estate. In October 1998, the Company filed a motion in the United States Bankruptcy Court to block the distribution of escrowed assets in connection with the bankruptcy of PortaCom. The Company filed the motion to permit it to undertake discovery relative to certain aspects of its investment in MCC prior to the distribution of escrowed assets. Following the submission of that motion, the Company, PortaCom, and certain other interested parties, agreed on a stipulation releasing the majority of the Escrow Cash and Escrow Shares, as reduced based upon the use of Escrow Cash, from escrow in accordance with PortaCom's Amended Plan of Reorganization as Modified (the "Plan") and postponing the distribution of certain Escrow Shares to PortaCom and PortaCom shareholders. In November 1998, PortaCom Wireless, Inc. ("PortaCom"), the Company and Michael Richard, a PortaCom officer charged with certain responsibilities in distributing certain assets in connection with the Plan (as defined below), 58 entered into a Settlement Agreement (the "Settlement Agreement") which provided for the retention of 2 million of the Escrow Shares (as defined below) in escrow for up to eighteen (18) months. The Settlement Agreement provides that a portion or all of these shares may be released to PortaCom contingent upon certain performance criteria. One of the criteria provides that the 2 million shares being held in escrow be released if the closing market price of a share of the Company's common stock is less than $5.00 on any 40 trading days during the 120 consecutive trading days subsequent to August 31, 1999. This criterion has been satisfied. PortaCom used $1,669,839 of the Escrow Cash, resulting in PortaCom's return of 186,105 Escrow Shares to the Company. The unused Escrow Cash has been returned to the Company. Settlement Agreement with Roberts Pursuant to the terms of a Settlement, Release and Discharge Agreement, dated November 19, 1998, by and among the Company, Dr. James C. Roberts and Frederick A. Moran, Dr. Roberts resigned from all positions he held with the Company and its subsidiaries. Also in connection with this agreement, Dr. Roberts surrendered 1,875,000 shares of Company common stock to the Company's treasury and the Company forgave indebtedness totaling $164,175 owed to it by Dr. Roberts. Securities Issued to Former Directors On March 2, 1998, the Company issued warrants to purchase 45,000 shares of Company common stock to Graham Ferguson Lacey, who, at that time, served as the Company's Chairman and was a member of the Company's Board of Directors. On March 2, 1998, the Company issued 25,000 shares of Company common stock to Mr. Lacey, who, at that time, served as the Company's Chairman and was a member of the Company's Board of Directors. On March 2, 1998, the Company issued 10,000 shares of Company common stock to Robert Alexander, who, at that time, served as the Company's Deputy Chairman and was a member of the Company's Board of Directors. On July 31, 1997, the Company issued 100,000 shares of Company common stock to Mr. Lacey, who, at that time, served as the Company's Chairman and was a member of the Company's Board of Directors. On July 1, 1997, the Company issued 28,000 shares of Company common stock to Mr. Lacey, who, at that time, served as the Company's Chairman and was a member of the Company's Board of Directors. Principal Stockholders The following table sets forth certain information regarding the beneficial ownership of the Company common stock as of November 3, 1999 with respect to: (i) each person known by the Company to beneficially own 5% or more of the outstanding shares of Company common stock; (ii) each of the Company's directors; (iii) each of the Company's Named Executive Officers; and (iv) all 59 directors and executive officers of the Company as a group. Except as otherwise indicated, each person set forth below has sole voting and investment power on the shares reported.
Amount and Nature of Percent Name and Address of Beneficial Owner Beneficial Ownership(1) Of Class - ------------------------------------ ----------------------- -------- Frederick A. Moran 3,353,125 (2) 15.6% 75 Holly Hill Lane Greenwich, CT 06830 Dr. Hussein Elkholy 8,333 (3) * 75 Holly Hill Lane Greenwich, CT 06830 Dr. Leonard Hausman 8,333 (4) * 70 Neshobe Road Waban, MA 02468 James B. Dittman 10,333 (5) * 8 Worthington Ave. Spring Lake, NJ 07762 Clayton F. Moran 1,436,600 (6) 6.7% 75 Holly Hill Lane Greenwich, CT 06830 Frederick W. Moran 2,069,417 (7) 9.6% 520 Madison Avenue New York, NY 10022 PortaCom Wireless, Inc. 4,281,878 (8) 19.9% 10061 Talbert Avenue Suite 200 Fountain Valley, CA 92708 All executive officers and directors 4,836,724 22.4% as a group (6 persons)
(*) Less than 1%. (1) The securities "beneficially owned" by an individual are determined in accordance with the definition of "beneficial ownership" set forth in the regulations promulgated under the Securities Exchange Act of 1934, and, accordingly, may include securities owned by or for, among others, the spouse and/or minor children of an individual and any other relative who has the same home as such individual, as well as other securities as to which the individual has or shares voting or investment power or which each person has the right to acquire within 60 days of the date hereof through the exercise of options, or otherwise. Beneficial ownership may be disclaimed as to certain of the securities. This table has been prepared based on 21,506,917 shares of common stock outstanding as of November 3, 1999. 60 (2) Includes options to purchase 42,000 shares of common stock which vest in December, 1999. Does not include options to purchase 168,000 shares of common stock which may vest on and after December, 2000. Includes 527,817 shares owned directly by Mr. Moran as well as 2,783,308 shares owned, directly or indirectly, by certain members of Mr. Moran's family and certain entities associated with Mr. Moran's family, whose ownership is attributed to Mr. Moran. Does not include shares beneficially owned by Mr. Moran's mother. Also, does not include 2,069,417 shares owned by Frederick W. Moran and 1,436,600 beneficially owned by Clayton F. Moran, both of whom are Mr. Moran's adult children. (3) Includes options to purchase 8,333 shares of common stock which vested in July 1999. Does not include options to purchase 16,667 shares of common stock which may vest on or after July, 2000. (4) Includes options to purchase 8,333 shares of common stock which vested in November 1999. Does not include options to purchase 16,667 shares of common stock which may vest on or after November 4, 2000. (5) Includes 2,000 shares and options to purchase 8,333 shares of common stock which vested in November, 1999. Does not include options to purchase 16,667 shares of common stock which may vest on or after November 4, 2000. (6) Includes options to purchase 2,000 shares of common stock which vested in June 1999 and options to purchase 9,000 which vest in December 1999. Does not include options to purchase 44,000 shares of common stock which may vest on and after June 2000. An adult son of Frederick A. Moran and employed as Vice President, Finance of the Company. (7) An adult son of Frederick A. Moran. (8) Of these shares, 2,000,000 are being held in escrow but are expected to be released in the near term. Description Of Securities Common Stock The Company is authorized to issue 50,000,000 shares of common stock, $.0001 par value per share, of which 21,506,917 are outstanding as of November 3, 1999. Holders of common stock have equal rights to receive dividends when and if declared by the Board of Directors, out of funds legally available therefor. Holders of common stock have one vote for each share held of record and do not have cumulative voting rights. Holders of common stock are entitled upon liquidation of the Company to share ratably in the net assets available for distribution, subject to the rights, if any, of holders of any preferred stock then outstanding. Shares of common stock are not redeemable and have no pre-emptive or similar rights. All outstanding shares of common stock are fully paid and non-assessable. 61 Preferred Stock Pursuant to the Company's Certificate of Incorporation, the Board of Directors has the authority to issue up to 10,000,000 shares of preferred stock, $.0001 par value per share, in one or more series and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any series or the designation of such series, without further vote or action by the Company's stockholders. The issuance of preferred stock may have the effect of delaying, deferring or preventing a change in control of the Company without further action by the stockholders and may adversely affect the voting and other rights of the holders of common stock. The issuance of preferred stock with voting and conversion rights may adversely affect the voting power of the holders of common stock, including the loss of voting control to others. Warrants As of November 3, 1999, warrants to purchase 1,064,081 shares of Company common stock are outstanding as follows:
Number of Warrants Exercise Price Expiration Date ------------------ -------------- --------------- 893,546 $4.00 (1) 45,000 $5.00 (1) 4,500 $7.00 August 7, 2001 121,035 $6.00 May, 2002 ------- TOTAL: 1,064,081
(1) Expire 30 days after the date of this prospectus. Registration Rights This prospectus has been prepared, in part, pursuant to contractual registration rights granted in connection with the prior sale of certain securities by the Company in private transactions. Anti-Takeover Effects of Provisions of the Certificate of Incorporation, Bylaws and Delaware Law Certificate of Incorporation and Bylaws The Company's Certificate of Incorporation, as amended (the "Certificate of Incorporation"), provides that the Board of Directors be divided into three classes of directors, with each class serving a staggered three-year term. The classification system of electing directors may tend to discourage a third party from making a tender offer or otherwise attempting to obtain control of the Company and may maintain the incumbency of the Board of Directors, as the classification of the Board of Directors generally increases the difficulty of replacing a majority of the directors. Additionally, the Company's Bylaws, as amended (the "Bylaws"), provide that special meetings of stockholders may only be called by either the Chief Executive Officer or the President, or pursuant to a written request of a majority of the Board of Directors. Special meetings may not be called by the 62 stockholders. These provisions could have the effect of delaying consideration of a stockholder proposal until the next annual meeting. The provisions would also prevent the holders of a majority of the voting power of the capital stock of the Company entitled to vote from unilaterally using the written consent procedure to take stockholder action. Moreover, a stockholder could not force the Board of Directors to call a special meeting of the stockholders prior to the time such persons believe such consideration to be appropriate, except as required by Delaware law. The Bylaws establish advance notice procedures with regard to stockholder proposals and the nomination, other than by or at the direction of the Board of Directors or a committee thereof, of candidates for election as directors. These procedures provide that stockholder nominations for the election of directors at an annual meeting must be in writing and received by the Company's Secretary not less than 50 days nor more than 75 days prior to the meeting; provided, however, that in the event that less than 60 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder must be received not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made, whichever first occurs. The notice of nominations for the elections of directors must set forth certain information with respect to the stockholder giving the notice and with respect to each nominee. By requiring advance notice of nominations by stockholders, the foregoing procedures will afford the Board of Directors an opportunity to consider the qualifications of the proposed nominees and, to the extent deemed necessary or desirable by the Board of Directors, to inform stockholders about such qualifications. By requiring advance notice of other proposed business, such procedures will provide the Board of Directors with an opportunity to inform stockholders prior to such meetings, of any business proposed to be conducted at such meetings, together with any recommendations as to the Board of Directors' position regarding action to be taken with respect to such business, so that stockholders can better decide whether to attend such a meeting or to grant a proxy regarding the disposition of any such business. Although the Certificate of Incorporation and the Bylaws do not give the Board of Directors any power to approve or disapprove stockholder nominations for the election of directors or proposals for action, they may have the effect of precluding a contest for the election of directors or the consideration of stockholder proposals if the proper procedures are not followed, and of discouraging or deterring a third party from conducting a solicitation of proxies to elect its own slate of directors or to approve its own proposal, with regard to whether consideration of such nominee or proposals might be harmful or beneficial to the Company and its stockholders. The Certificate of Incorporation provides that the Bylaws of the Company may be adopted, altered, amended or repealed by the Board of Directors of the Company except as otherwise provided by law. The Certificate of Incorporation also provides that any Bylaw made by the Board of Directors, may be altered, amended or repealed, and new Bylaws made by the affirmative vote of the holders of two-thirds of the combined voting power of the then outstanding shares of stock entitled to vote on the proposed adoption, alteration, amendment or repeal of or to the Bylaws. This provision modifies the default rules of the Delaware General Corporation Law by providing that the Board of Directors may adopt and modify the Bylaws. Additionally, the provision alters the Delaware General Corporation Law by requiring the affirmative vote of two-thirds of the combined voting power of the than outstanding shares, as opposed to a simple majority. 63 The Certificate of Incorporation provides that amendments to the Certificate of Incorporation shall require the affirmative vote of the holders of two-thirds of the combined voting power of the then outstanding shares of stock entitled to vote on any proposed amendment to the Certificate of Incorporation. However, in the event that a resolution to amend the Certificate of Incorporation is adopted by the affirmative vote of at least eighty percent (80%) of the Board of Directors, approval of the amendment shall only require the affirmative vote of the holders of a majority combined voting power of the then outstanding shares of the stock entitled to vote generally on such amendment. This provision modifies the default rules of the Delaware General Corporation Law by requiring, under certain conditions, a higher level of shareholder approval in favor of modifying the Certificate of Incorporation. Pursuant to the Company's Certificate of Incorporation, the Board of Directors has the authority to issue up to 10,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any series or the designation of such series, without further vote or action by the Company's stockholders. The issuance of preferred stock may have the effect of delaying, deferring or preventing a change in control of the Company without further action by the stockholders and may adversely affect the voting and other rights of the holders of common stock. The issuance of preferred stock with voting and conversion rights may adversely affect the voting power of the holders of common stock, including the loss of voting control to others. The foregoing provisions of the Certificate of Incorporation and Bylaws could discourage potential acquisition proposals and could delay or prevent a change in control of the Company. These provisions are intended to enhance the likelihood of continuity and stability in the composition of the Board of Directors and in the policies formulated by the Board of Directors and to discourage certain types of transactions that may involve an actual or threatened change of control of the Company. These provisions are designed to reduce the vulnerability of the Company to an unsolicited acquisition proposal. The provisions also are intended to discourage certain tactics that may be used in proxy fights. However, such provisions could have the effect of discouraging others from making tender offers for the Company's shares and, as a consequence, they also may inhibit fluctuations in the market price of the Company's shares that could result from actual or rumored takeover attempts. Such provisions also may have the effect of preventing changes in the management of the Company. Delaware Takeover Statute The Company is subject to Section 203 of the Delaware General Corporation Law ("Section 203"), which, subject to certain exceptions, prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date that such stockholder became an interested stockholder, unless: (i) prior to such date, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned (x) by persons who are directors and also officers and (y) by employee stock plans in which employee participants do not 64 have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) on or subsequent to such date, the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock that is not owned by the interested stockholder. Section 203 defines business combination to include: (i) any merger or consolidation involving the corporation and the interested stockholder; (ii) any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder; (iii) subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; (iv) any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; or (v) the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation. In general, Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by such entity or person. Transfer Agent The Transfer Agent for the common stock is American Stock Transfer & Trust Company. Selling Security Holders All of the shares of common stock of the Company offered by this prospectus are being sold for the account of the selling security holders identified in the following table (the "Selling Security Holders"). The Selling Security Holders are offering for sale an aggregate of 9,939,245 shares of common stock which include: (i) 8,875,164 shares of common stock; and (ii) 1,064,081 shares of common stock issuable, if at all, upon the exercise of certain common stock purchase warrants. The following table sets forth the number of Shares being held of record or beneficially (to the extent known by the Company) by such Selling Security Holders and provides (by footnote reference) any material relationship between the Company and such Selling Security Holder, all of which is based upon information currently available to the Company. The shares of common stock offered by the Selling Security Holders may be offered for sale from time to time at market prices prevailing at the time of sale or at negotiated prices, and without payment of any underwriting discounts or commissions except for usual and customary selling commissions paid to brokers or dealers.
SHARES BENEFICIALLY OWNED SHARES TO BE BENEFICIALLY PRIOR TO OFFERING(1) OWNED AFTER OFFERING NAME NUMBER OF SHARES PERCENT SHARES BEING OFFERED NUMBER OF SHARES PERCENT ---- ---------------- ------- -------------------- ---------------- ------- Activated Communications Limited 39,072 * 39,072 0 0% Partnership Adase Partners, L. P. 206,000 * 206,000 (2) 0 0% Alnilam Partners, L.P. 2,185 * 2,185 0 0% Anne Moran Trust (3) 250 * 250 0 0% 65 Bermuda Trust Company, as trustee for 235,000 1.1% 235,000 (4) 0 0% the Elanken Family Trust Dean Brizel and Jeanne Brizel 22,000 * 22,000 (5) 0 0% Stephen Buell 22,000 * 22,000 (5) 0 0% Capital Opportunity Partners One, L.P. 22,000 * 22,000 (5) 0 0% Clifton Capital Ltd. 205,618 * 185,618 (6) 20,000 * Arthur Cooper and Joanie Cooper 44,000 * 44,000 (7) 0 0% Mark Eshman and Jill Eshman trustees for 22,000 * 22,000 (5) 0 0% the Eshman Living Trust dated 9/24/90 FAC Enterprises, Inc. 175,852 * 129,852 46,000 * Jeffrey Feingold and Barbara Feingold 22,000 * 22,000 (5) 0 0% Fred Fraenkel 22,000 * 22,000 (5) 0 0% Torunn Garin 66,000 * 66,000 (2) 0 0% Marc Graubart (8) 7,500 * 7,500 0 0% ING Barings, LLC 4,500 * 4,500 (9) 0 0% Henry D. Jacobs, Jr. 112,740 * 40,740 (10) 72,000 * KAB Investments, Inc. 30,148 * 30,148 0 0% Graham F. Lacey (11) 70,000 * 45,000 (12) 25,000 * The Lucien I. Levy Revocable Living Trust 14,000 * 10,000 4,000 * Merl Trust 35,000 * 28,000 7,000 * Anne Moran (13) 63,643 * 63,643 0 0% Anne Moran IRA 61,046 * 61,046 0 0% Clayton F. Moran (14) 1,436,600 6.6% 1,425,600 11,000 * Frederick A. Moran (15) 3,353,125 (16) 15.6% 100,000 0 (17) 0% Fred Moran, IRA 85,998 * 85,998 0 0% Fred Moran Trust (18) 180 * 180 0 0% Frederick A. Moran and Anne Moran 41,380 * 41,380 0 0% Frederick A. Moran and Joan Moran (19) 386,437 1.8% 386,437 0 0% Frederick W. Moran (20) 2,069,417 9.5% 2,069,417 0 0% Joan Moran IRA 248 * 248 0 0% Kent Moran (21) 15,671 * 15,671 0 0% Kent Moran IRA 333 * 333 0 0% Luke Moran (21) 22,102 * 22,102 0 0% Luke Moran IRA 333 * 333 0 0% Kent F. Moran Trust (22) 1,328,810 6.2% 1,328,810 0 0% Luke F. Moran Trust (23) 1,328,660 6.2% 1,328,660 0 0% Moran Equity Fund, Inc. 938 * 938 0 0% O.T. Finance, SA 34,000 * 22,000 12,000 * Paradigm Group, LLC 435,184 2.0% 435,184 (24) 0 0% PGP I Investors, LLC 203,703 * 203,703 (25) 0 0% Tab K. Rosenfeld 18,250 * 18,250 0 0% Steven B. Rosner 78,610 * 41,110 (26) 37,500 * Rozel International Holding Company 431,818 2.0% 431,818 (27) 0 0% Limited Santa Fe Capital Group (NM), Inc. 3,000 * 3,000 0 0% Scott Schenker and Randi Schenker 22,000 * 22,000 (5) 0 0% SPH Equities, Inc. 44,852 * 44,852 0 0% Alan B. Snyder 532,567 2.5% 266,667 265,900 1.2% SPH Investments, Inc. 70,000 * 70,000 0 0% Robert Vicas 22,000 * 22,000 (5) 0 0% Ernst Von Olnhausen 11,000 * 11,000 (28) 0 0% Michael Weissman 11,000 * 11,000 (28) 0 0% Eric M. Zachs 200,000 * 200,000 0 0% ------- TOTAL 9,939,245
(*) Less than 1% 66 (1) Based upon 21,506,917 shares of common stock outstanding as of November 3, 1999. (2) Includes 6,000 shares issuable, if at all, upon the exercise of outstanding warrants to purchase common stock. (3) A trust for the benefit of Frederick W. Moran, Clayton F. Moran, Kent F. Moran and Luke F. Moran. Anne Moran is the mother of Frederick A. Moran. (4) Represents 235,000 shares issuable, if at all, upon the exercise of outstanding warrants to purchase common stock. (5) Includes 2,000 shares issuable, if at all, upon the exercise of outstanding warrants to purchase common stock. (6) Represents 185,618 shares issuable, if at all, upon the exercise of outstanding warrants to purchase common stock. (7) Includes 4,000 shares issuable, if at all, upon the exercise of outstanding warrants to purchase common stock. (8) Former President and Chief Executive Officer of Masatepe Communications, U.S.A., L.L.C., a Delaware limited liability company and wholly-owned subsidiary of the Company. (9) Represents 4,500 shares issuable, if at all, upon the exercise of outstanding warrants to purchase common stock. (10) Includes 3,703 shares issuable, if at all, upon the exercise of outstanding warrants to purchase common stock. (11) Former Chief Executive Officer, President and Director of the Company. (12) Represents 45,000 shares issuable, if at all, upon the exercise of outstanding warrants to purchase common stock. (13) Mother of Frederick A. Moran. (14) An adult son of Frederick A. Moran and employed as Vice President, Finance, of the Company. (15) Frederick A. Moran serves as Chairman, Chief Executive Officer, Chief Financial Officer, Secretary and Director of the Company. (16) Includes options to purchase 42,000 shares of common stock which vest in December, 1999. Does not include options to purchase 168,000 shares of common stock which may vest on and after December, 2000. Does not include shares beneficially owned by Mr. Moran's mother. Also, does not include 2,069,417 shares owned by Frederick W. Moran and 1,436,600 beneficially owned by Clayton F. Moran, both of whom are Mr. Moran's adult children. The beneficial ownership of the following shares is attributed to Frederick A. Moran: 100,000 shares owned by Frederick A. Moran; 386,437 shares owned by Frederick A. Moran and Joan Moran; 41,380 owned by Frederick A. Moran and Anne Moran; 938 shares owned by Moran Equity Fund, Inc.; 1,328,660 shares owned by Luke F. Moran Trust; 1,328,810 shares owned by Kent F. Moran Trust; 22,102 shares owned by Luke Moran; 15,671 shares owned by Kent Moran; 85,998 shares owned by Fred Moran, IRA; 90 shares owned by Fred Moran Trust; 125 shares owned by Anne Moran Trust; 333 shares owned by Luke Moran IRA; 333 shares owned by Kent Moran IRA; and 248 shares owned by Joan Moran IRA. (17) All shares beneficially owned by Mr. Moran are being offered hereby. (18) A trust for the benefit of Frederick W. Moran, Clayton F. Moran, Kent F. Moran and Luke F. Moran. (19) Joan Moran is the wife of Frederick A. Moran. (20) An adult son of Frederick A. Moran. 67 (21) A minor child of Frederick A. Moran. (22) A trust for the benefit of Kent F. Moran. (23) A trust for the benefit of Luke F. Moran. (24) Includes 64,814 shares issuable, if at all, upon the exercise of outstanding warrants to purchase common stock. (25) Includes 18,518 shares issuable, if at all, upon the exercise of outstanding warrants to purchase common stock. (26) Represents 41,110 shares issuable, it at all, upon the exercise of outstanding warrants to purchase common stock. (27) Represents 431,818 shares issuable, it at all, upon the exercise of outstanding warrants to purchase common stock. (28) Includes 1,000 shares issuable, if at all, upon the exercise of outstanding warrants to purchase common stock. Plan Of Distribution The Selling Security Holders are offering shares of common stock for their own account, and not for the account of the Company. The Company will not receive any proceeds from the sale of the shares of common stock by the Selling Security Holders. The common stock may be sold from time to time by the Selling Security Holders or by their pledges, donees, transferees or other successors in interest. Such sales may be made on the exchange or market upon which the shares trade at the time, the over-the-counter market or otherwise at prices and at terms then prevailing or at prices related to the then current market price, or in negotiated transactions. The common stock may be sold by one or more of the following: (1) a block trade in which the broker or dealer so engaged will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; (2) purchases by a broker or dealer for its account pursuant to this prospectus; and (3) ordinary brokerage transactions and transactions in which the broker solicits purchases. In effecting sales, brokers or dealers engaged by the Selling Security Holders may arrange for other brokers or dealers to participate. Brokers or dealers will receive commissions or discounts from Selling Security Holders in amounts to be negotiated immediately prior to the sale. Such brokers or dealers and any other participating brokers or dealers may be deemed to be "underwriters" within the meaning of the Securities Act of 1933 in connection with such sales. In addition, any securities covered by this prospectus that qualify for sale pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to this prospectus. The Company will not receive any of the proceeds from the sale of these shares, although it has paid the expenses of preparing this prospectus and the related Registration Statement. The Selling Security Holders have been 68 advised that they are subject to the applicable provisions of the Exchange Act, including without limitation, Regulation M thereunder. Where You Can Find More Information We have filed with the Securities and Exchange Commission (the "Commission") a Registration Statement with respect to the common stock to be issued hereby, of which this prospectus constitutes a part. This prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto. For further information, reference is hereby made to the Registration Statement and the exhibits and schedules thereto. Any statements contained herein concerning the contents of any contract, agreement or other document referred to herein and filed as an exhibit to the Registration Statement or otherwise filed with the Commission are not necessarily complete. With respect to each such contract, agreement or other document filed with the Commission as an exhibit, reference is made to the exhibit for a more complete description of the matter involved, and each such statement is qualified in its entirety by such reference. Our Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and, in accordance therewith, files reports, proxy statements, registration statements and other information with the Commission. The reports, proxy statements, registration statements and other information filed by the Company with the Commission may be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices at Seven World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, IL 60661-2511. The public may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. The Commission also maintains a Web Site at http://www.sec.gov which contains reports, proxy statements, registration statements and other information regarding registrants that file electronically with the Commission. VDC's common stock is listed on the American Stock Exchange ("AMEX") under the symbol "VDC". Legal Matters The validity of the common stock offered hereby has been passed upon for us by Buchanan Ingersoll Professional Corporation, Eleven Penn Center, 1835 Market Street, 14th Floor, Philadelphia, Pennsylvania, 19103. Experts The balance sheets as of June 30, 1999 and 1998 and the statements of operations, cash flows, and changes in stockholders' equity for the years ended June 30, 1999, 1998 and 1997 included in this prospectus have been included herein in reliance on the report of BDO Seidman, LLP, independent accountants, (which raised the issue of the Company's ability to continue as a going concern and referred to the Company's valuation of its investment in Metromedia China Corporation) given on the authority of that firm as experts in accounting and auditing. 69 Report of Independent Certified Public Accountants Board of Directors and Stockholders of VDC Communications, Inc. and Subsidiaries Greenwich, Connecticut - ---------------------- We have audited the accompanying consolidated balance sheets of VDC Communications, Inc. and Subsidiaries as of June 30, 1998 and 1999 and the related consolidated statements of operations and retained earnings, and of cash flows for each of the three years in the period ended June 30, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the Consolidated Financial Statements referred to above present fairly, in all material respects, the consolidated financial position of VDC Communications, Inc. and Subsidiaries as of June 30, 1998 and 1999, and the consolidated results of their operations and their cash flows for each of the three years in the period ended June 30, 1999, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to this matter are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company's investment in Metromedia China Corporation is valued in the manner described in Note 4. /s/BDO Seidman, LLP BDO Seidman, LLP Valhalla, New York September 3, 1999 F-1 VDC COMMUNICATIONS, INC. AND SUBSIDARIES CONSOLIDATED BALANCE SHEETS ---------------------------
June 30, 1998 1999 ---- ---- Assets Current: Cash and cash equivalents $2,212,111 $ 317,799 Restricted cash - 475,770 Marketable securities 451,875 90,375 Accounts receivable, net of allowance for doubtful accounts of $7,000 in 1999 - 1,251,581 Notes receivable - current 2,800,000 249,979 ---------------------------- Total current assets 5,463,986 2,385,504 Property and equipment, less accumulated depreciation 331,316 4,888,163 Notes receivable, less current portion 1,500,000 - Investment in MCC 37,790,877 2,400,000 Other assets 737,505 328,394 ---------------------------- Total assets $45,823,684 $10,002,061 ============================= Liabilities and Stockholders' Equity Current: Accounts payable and accrued expenses $ 156,185 $2,160,839 Current portion of capitalized lease obligations - 426,356 ---------------------------- Total current liabilities 156,185 2,587,195 Long-term portion of capitalized lease obligations - 847,334 ---------------------------- Total liabilities 156,185 3,434,529 Commitment and Contingencies Stockholders' equity: Preferred stock, $0.0001 par value, authorized 10 million shares; issued and outstanding-none - - Convertible preferred stock series B, non-voting, $0.0001 par value, none authorized issued or outstanding at June 30, 1999 4.5 million shares authorized, issued and outstanding at June 30, 1998 60 - Common stock, $0.0001 par value, authorized 50 million shares issued - 20,186,462 and 15,499,107 at June 30, 1999 and 1998, respectively 1,545 2,018 Additional paid-in capital 51,234,105 67,737,195 Accumulated deficit (4,218,035) (60,339,393) Treasury stock - at cost, 1,875,000 shares at June 30, 1999 and none at June 30, 1998 - (164,175) Stock subscriptions receivable (1,425,951) (344,700) Accumulated comprehensive income (loss) 75,775 (323,413) ---------------------------- Total stockholders' equity 45,667,499 6,567,532 ---------------------------- Total liabilities and stockholders' equity $45,823,684 $10,002,061 ============================= See accompanying notes to consolidated financial statements.
F-2 VDC COMMUNICATIONS, INC. AND SUBSIDARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS -----------------------------------------------
Year Ended June 30, 1997 1998 1999 ---- ---- ---- Revenue $ 43,248 $ 99,957 $ 3,298,357 Operating Expenses Costs of services 22,020 28,460 5,155,752 Selling, general and administrative expenses 53,657 1,167,429 4,636,230 Non-cash compensation expense - 2,254,000 16,146,000 Asset impairment charges - - 1,644,385 --------------------------------------------------------- Total operating expenses 75,677 3,449,889 27,582,367 --------------------------------------------------------- Operating loss (32,429) (3,349,932) (24,284,010) Other income (expense): Writedown of investment in MCC - - (21,328,641) Loss on note restructuring - - (1,598,425) Other income (expense) - 195,122 (63,637) --------------------------------------------------------- Total other income (expense) - 195,122 (22,990,703) Equity in loss of affiliate - - (867,645) Net loss (32,429) (3,154,810) (48,142,358) --------------------------------------------------------- Other comprehensive income (loss), net of tax: Unrealized gain (loss) on marketable securities - 75,775 (399,188) --------------------------------------------------------- Comprehensive loss $ (32,429) $ (3,079,035) $ (48,541,546) ========================================================= Net loss per common share - basic and diluted $ (0.01) $ (0.72) $ (2.72) --------------------------------------------------------- Weighted average number of shares outstanding 3,699,838 4,390,423 17,678,045 --------------------------------------------------------- See accompanying notes to consolidated financial statements.
F-3 VDC COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -----------------------------------------------
Convertible Common Stock Preferred Stock Series B Shares Amount Shares - --------------------------------------------------------------------------------------------------------------------------- Balance - June 30, 1996 ............................... -- $ -- 5,500,000 Capital contribution .................................. -- -- -- Net loss .............................................. -- -- -- - --------------------------------------------------------------------------------------------------------------------------- Balance - June 30, 1997 ............................... -- -- 5,500,000 Reverse acquisition ................................... -- -- 3,697,908 Release of escrow shares .............................. 600,000 60 -- collection on stock subscription receivable ........... -- -- -- issuance of common shares in connection ............... -- -- -- with investment in MCC ................................ -- -- 4,965,828 Issuance of common stock .............................. -- -- 1,130,584 Issuance of common stock for note ..................... -- -- 154,787 Unrealized gain on marketable securities .............. -- -- -- Net loss .............................................. -- -- -- - --------------------------------------------------------------------------------------------------------------------------- Balance - June 30, 1998 ............................... 600,000 60 15,449,107 - --------------------------------------------------------------------------------------------------------------------------- Release of escrow shares .............................. 3,900,000 390 -- Issuance of common stock in connection with acquisition -- -- 154,444 collection on stock subscription receivable ........... -- -- -- Conversion of preferred stock into common stock ....... (4,500,000) (450) 4,500,000 Purchase of treasury stock ............................ -- -- (1,875,000) Issuance of common shares in connection ............... -- -- -- with investment banking fees .......................... -- -- 290,000 issuance of common shares in connection ............... -- -- -- with investment in MCC ................................ -- -- 198,067 Return of common stock in connection with ............. -- -- -- investment in MCC ..................................... -- -- (2,000,000) Adjustment to common stock issued in .................. -- -- -- connection with acquisition ........................... -- -- (14,160) Common stock issued to settle claim ................... -- -- 95,000 issuance of common stock .............................. -- -- 1,514,004 Unrealized loss on marketable securities .............. -- -- -- Net loss .............................................. -- -- -- - --------------------------------------------------------------------------------------------------------------------------- Balance - June 30, 1999 ............................... $ -- $ -- 18,311,462 - --------------------------------------------------------------------------------------------------------------------------- F-4 Additional Stock Common Stock Paid-In Accumulated Subscriptions Amount Capital Deficit Receivable - --------------------------------------------------------------------------------------------------------------------------- Balance - June 30, 1996 ............................... $ 550 $ 42,401 $ (26,702) $ -- Capital contribution .................................. -- 30,930 -- -- Net loss .............................................. -- -- (32,429) -- - --------------------------------------------------------------------------------------------------------------------------- Balance - June 30, 1997 ............................... 550 73,331 (59,131) -- Reverse acquisition ................................... 370 6,053,324 -- (465,838) Release of escrow shares .............................. -- 3,258,034 (1,004,094) -- collection on stock subscription receivable ........... -- -- -- 287,800 issuance of common shares in connection ............... -- -- -- -- with investment in MCC ................................ 497 34,618,127 -- -- Issuance of common stock .............................. 113 5,983,391 -- -- Issuance of common stock for note ..................... 15 1,247,898 -- (1,247,913) Unrealized gain on marketable securities .............. -- -- -- -- Net loss .............................................. -- -- (3,154,810) -- - --------------------------------------------------------------------------------------------------------------------------- Balance - June 30, 1998 ............................... 1,545 51,234,105 (4,218,035) (1,425,951) - --------------------------------------------------------------------------------------------------------------------------- Release of escrow shares .............................. -- 23,399,610 (7,254,000) -- Issuance of common stock in connection with acquisition 15 700,865 -- -- collection on stock subscription receivable ........... -- -- -- 917,076 Conversion of preferred stock into common stock ....... 450 -- -- -- Purchase of treasury stock ............................ -- -- -- 164,175 Issuance of common shares in connection ............... -- -- -- -- with investment banking fees .......................... 29 724,971 (725,000) -- issuance of common shares in connection ............... -- -- -- -- with investment in MCC ................................ 20 1,012,141 -- -- Return of common stock in connection with ............. -- -- -- -- investment in MCC ..................................... (200) (13,962,300) -- -- Adjustment to common stock issued in .................. -- -- -- -- connection with acquisition ........................... (1) (99,119) -- -- Common stock issued to settle claim ................... 9 391,865 -- -- issuance of common stock .............................. 151 4,335,057 -- -- Unrealized loss on marketable securities .............. -- -- -- -- Net loss .............................................. -- -- (48,142,358) -- - --------------------------------------------------------------------------------------------------------------------------- Balance - June 30, 1999 ............................... $ 2,018 $ 67,737,195 $(60,339,393) $ (344,700) - --------------------------------------------------------------------------------------------------------------------------- F-4 Unrealized gain (loss) on Marketable Treasury Stock Treasury Stock Securities # of Shares $ Total - --------------------------------------------------------------------------------------------------------------------------- Balance - June 30, 1996 ............................... $ -- $ -- $ -- $ 16,249 Capital contribution .................................. -- -- -- 30,930 Net loss .............................................. -- -- -- (32,429) - --------------------------------------------------------------------------------------------------------------------------- Balance - June 30, 1997 ............................... -- -- -- 14,750 Reverse acquisition ................................... -- -- -- 5,587,856 Release of escrow shares .............................. -- -- -- 2,254,000 collection on stock subscription receivable ........... -- -- -- 287,800 issuance of common shares in connection ............... -- -- -- -- with investment in MCC ................................ -- -- -- 34,618,624 Issuance of common stock .............................. -- -- -- 5,983,504 Issuance of common stock for note ..................... -- -- -- 0 Unrealized gain on marketable securities .............. 75,775 -- -- 75,775 Net loss .............................................. -- -- -- (3,154,810) - --------------------------------------------------------------------------------------------------------------------------- Balance - June 30, 1998 ............................... 75,775 -- -- 45,667,499 - --------------------------------------------------------------------------------------------------------------------------- Release of escrow shares .............................. -- -- -- 16,146,000 Issuance of common stock in connection with acquisition -- -- -- 700,880 collection on stock subscription receivable ........... -- -- -- 917,076 Conversion of preferred stock into common stock ....... -- -- -- -- Purchase of treasury stock ............................ -- 1,875,000 (164,175) -- Issuance of common shares in connection ............... -- -- -- -- with investment banking fees .......................... -- -- -- -- issuance of common shares in connection ............... -- -- -- -- with investment in MCC ................................ -- -- -- 1,012,161 Return of common stock in connection with ............. -- -- -- -- investment in MCC ..................................... -- -- -- (13,962,500) Adjustment to common stock issued in .................. -- -- -- -- connection with acquisition ........................... -- -- -- (99,120) Common stock issued to settle claim ................... -- -- -- 391,874 issuance of common stock .............................. -- -- -- 4,335,208 Unrealized loss on marketable securities .............. (399,188) -- -- (399,188) Net loss .............................................. -- -- -- (48,142,358) - --------------------------------------------------------------------------------------------------------------------------- Balance - June 30, 1999 ............................... $ (323,413) 1,875,000 $ (164,175) $ 6,567,532 - ---------------------------------------------------------------------------------------------------------------------------
F-4 VDC COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS -------------------------------------
Year Ended June 30, 1997 1998 1999 ---- ---- ---- Cash flows from operating activities: Net loss $(32,429) $(3,154,810) $(48,142,358) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 3,390 6,205 1,107,018 Writedown of investment in MCC - - 21,328,641 Non-cash compensation expense - 2,254,000 16,146,000 Loss on note restructuring - - 1,598,425 Equity in losses of affiliate - - 867,645 Impairment loss - - 1,644,385 Non-cash severance - - 391,875 Provision for doubtful accounts - - 7,000 Changes in operating assets and liabilities: - - - Resticted cash - - (475,770) Accounts receivable - - (1,258,581) Other assets 466 44,146 527,533 Accounts payable and accrued expenses - (8,931) 2,004,655 -------------------------------------------------- Net cash used by operating activities (28,573) (859,390) (4,253,532) Cash flows from investing activities: Cash paid for investment in MCC - (2,799,731) - Proceeds from return of escrow in connection - - - with the investment in MCC - - 1,012,161 Payment for purchase of subsidiary - - (589,169) Investment in affiliate - - (867,645) Proceeds from repayment of notes receivable - 700,000 2,451,596 Purchase of investment securities - (288,600) - Fixed asset acquisition - (323,951) (4,499,427) Deposit of fixed assets - (489,151) - -------------------------------------------------- Net cash flows used in investing activities - (3,201,433) (2,492,484) Cash flows from financing activities: Proceeds from issuance of common stock - 6,271,504 4,335,209 Collections on stock subscription receivables - - 917,076 Repayment of note payable - - (692,379) Proceeds from issuance of short-term debt - - 500,000 Repayments on capital lease obligations - - (208,202) Capital contribution 27,830 - - -------------------------------------------------- Net cash flows provided by financing activities 27,830 6,271,504 4,851,704 -------------------------------------------------- Net increase (decrease) in cash and cash equivalents (743) 2,210,681 (1,894,312) Cash and cash equivalents, beginning of period 2,173 1,430 2,212,111 -------------------------------------------------- Cash and cash equivalents, end of period $ 1,430 $ 2,212,111 $ 317,799 ================================================== See accompanying notes to consolidated financial statements.
F-5 VDC Communications, Inc. and Subsidiaries Notes to consolidated financial statements 1. Summary of Significant Accounting Policies (a) Basis of Presentation The financial statements presented are those of VDC Communications, Inc. ("VDC") which is the successor to VDC Corporation Ltd. ("VDC Bermuda") by way of a domestication merger (the "Domestication Merger") that occurred on November 6, 1998. (see Note 3). (As used in this document, the terms "the Company","we", and "us" include both VDC and VDC Bermuda. The use of these terms reflects the fact that through November 6, 1998, the publicly held company was VDC Bermuda. Thereafter, due to the Domestication Merger, the publicly held company was VDC.) The Domestication Merger reflects the completion of a series of transactions that commenced on March 6, 1998 when the Company (then a wholly owned subsidiary of VDC Bermuda) acquired Sky King Communications, Inc. ("Sky King Connecticut") by merger. This merger transaction was accounted for as a reverse acquisition whereby Sky King Connecticut was the acquirer for accounting purposes. Accordingly, the historical financial statements presented are those of Sky King Connecticut before the merger on March 6, 1998 and reflect the consolidated results of Sky King Connecticut, VDC Bermuda, and VDC Bermuda's wholly owned subsidiaries after the merger. On November 6, 1998, the Domestication Merger, whereby VDC Bermuda merged with and into VDC, was consummated. (b) Business The Company is a telecommunications services company focused primarily on the international long-distance market. The Company's customers are other long-distance telephone companies that resell the Company's services to their retail customers or other telecommunications companies. The Company is subject to various risks in connection with the operation of its business. These risks include, but are not limited to, changes in liquidity, availability of financing, government regulation, dependence on transmission facilities, network maintenance and failure, and competition. (c) Principles of Consolidation The consolidated financial statements represent all companies of which the Company directly or indirectly has majority ownership. The Company's consolidated financial statements include the accounts of wholly owned subsidiaries VDC Telecommunications, Inc. ("VDC Telecommunications"), Masatepe Communications U.S.A., L.L.C. ("Masatepe"), Voice & Data Communications (Hong Kong) Limited ("VDC Hong Kong") Sky King Communications, Inc. ("Sky King") and WorldConnectTelecom.com, Inc. ("World ConnectTelecom.com"). In September 1999, the Company formed a subsidiary, Voice and Data Communications (Latin America), Inc. Intercompany accounts and transactions have been eliminated. F-6 (d) Revenue Recognition The Company records revenues for telecommunications sales at the time of customer usage. Additionally, the Company records on a monthly basis, revenues from renting its network facilities and from the management of tower sites that provide transmission and receiver site locations for wireless communications companies. (e) Cost of services Cost of services for wholesale long distance services represent direct charges from vendors that the Company incurs to deliver service to its customers. These include leasing costs for dedicated telephone lines and rate-per-minute charges from other carriers that terminate traffic on behalf of the Company. These costs also include salaries, depreciation and overhead attributable to operations. (f) Cash and Cash Equivalents For purposes of the statement of cash flows, the Company considers all liquid investments with an original maturity of three months or less to be cash equivalents. The carrying amounts reported in the accompanying balance sheet approximate fair market value. (g) Property and Equipment Property and equipment are carried at cost. Replacements and betterments are capitalized. Repairs and maintenance are charged to operations. Depreciation and amortization of property and equipment are computed using the straight-line method over the following estimated useful lives: operating equipment 5 years leasehold improvements life of lease furniture and equipment 3-5 years Operating equipment includes assets financed under capital lease obligations of $1,331,987 at June 30, 1999 (primarily acquired in the second half of Fiscal 1999). Accumulated amortization related to assets financed under capital leases was $70,865 at June 30, 1999. For income tax purposes, depreciation is computed using statutory recovery methods. (h) Earnings (loss) Per Share of common stock Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share" specifies the computation, presentation and disclosure requirements for earnings per share ("EPS"). SFAS 128 requires the presentation of basic EPS and diluted EPS. Loss per common share - basic is computed on the weighted average number of shares outstanding. If dilutive, common equivalent shares (common shares assuming exercise of options and warrants) utilizing the treasury stock method, as well as the conversion of convertible preferred stock are considered in presenting diluted earnings per share. Warrants to purchase 1,064,081 and 938,546 shares of common stock at prices ranging from $4.00 to $7.00 and options F-7 to purchase 850,500 and 61,500 and shares of common stock at prices ranging from $3.75 to $4.125 for the years ended June 30, 1999 and 1998, respectively, are not included in the computation of diluted loss per share because they are antidilutive due to the net loss. If the preferred shares were considered to be common shares, loss per share would have been $(0.00) and $(0.44) and $(2.63) for the years ended June 30, 1997, 1998, and 1999. (i) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements and reported amounts of revenue and expenses during the reported periods. The investment in MCC was valued based on criteria discussed in Note 3. Actual results could differ from those estimates. (j) Financial Instruments The carrying amount of financial instruments including cash and cash equivalents, accounts receivable and accounts payable approximated fair value at June 30, 1999 and 1998 because of the relatively short maturity of these financial instruments. The carrying amount of obligations under capital leases, including the current portion, approximated fair value as of June 30, 1999 based upon similar debt issues. (k) Long-lived Assets Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets for Long-Lived Assets to be Disposed of, requires that long-lived assets and certain intangible assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If undiscounted expected future cash flows are less than the carrying value of the assets, an impairment loss is to be recognized based on the fair value of the assets. During the year ended June 30, 1999, the Company recognized an impairment loss of $1,165,187 on long lived-assets of a subsidiary as described in Note 6 and an impairment loss of $479,199 in connection with the write off of certain billing software. (l) Concentrations of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents and accounts receivable. The Company's customer base includes domestic and international companies in the telecommunications industry. The Company performs ongoing credit evaluations of its customers but generally does not require collateral to support customer receivables. The Company will establish an allowance for possible losses, if needed, based on factors surrounding the credit risk of specific customers. The two largest customers accounted for approximately 65 percent of revenues for the year ended June 30, 1999. (m) Recent Accounting Pronouncements F-8 In June 1998, the AICPA issued statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities". The Company has not yet analyzed the impact, if any, of this new standard. The Company will adopt this standard in July of 2000. (n) Reclassifications Certain 1998 amounts have been reclassified to conform with 1999 presentation format. Amounts reclassified had no impact on consolidated net loss. 2. Going Concern The accompanying financial statements have been prepared in accordance with generally accepted accounting principles, which contemplates continuation of the Company as a going concern. However, the Company has sustained substantial operating losses. In addition, the Company has used substantial amounts of working capital in its operations. Further, as of June 30, 1999, current liabilities exceed current assets by approximately $200,000. Management is currently attempting to obtain a $3 million line of credit which would be collateralized by certain of the Company's long-distance telecommunications equipment and is pursuing alternative financing arrangements. However, there can be no assurance that the Company will be able to secure additional financing. In view of these matters, continued operations of VDC is dependent upon the its ability to meet its financing requirements and the success of its future operations. 3. Sky King Merger/Domestication Merger/Non-cash Compensation On March 6, 1998, Sky King Connecticut entered into a merger agreement with VDC Bermuda and its subsidiary, VDC Communications, Inc. (then called "VDC (Delaware), Inc.") ("VDC") (the "Sky King Merger"). This transaction was accounted for as a reverse acquisition whereby Sky King Connecticut was the acquirer for accounting purposes. One of the conditions precedent to the completion of the Sky King Merger was the sale by VDC Bermuda of its various investment interests so that at the closing of the Sky King Merger, its only material assets would consist of cash and notes receivable. Since the assets and liabilities of VDC Bermuda acquired were monetary in nature, the merger has been recorded at the value of the net monetary assets. Operations of VDC Bermuda prior to the Sky King Merger consisted of the management of its investments. The consideration paid to the former Sky King Connecticut shareholders in the Sky King Merger consisted of the issuance of 10 million newly-issued shares of preferred stock of VDC which were convertible, and have been converted, in the aggregate, into 10 million shares of common stock of VDC. Of the consideration paid to the Sky King Connecticut shareholders, VDC Series B preferred stock convertible in the aggregate into 4.5 million shares of VDC common stock (the "Escrow Shares") were placed in escrow to be held and released as the Company achieved certain performance criteria. As of June 30, 1999, all of the performance criteria had been met. Accordingly, the 4.5 million Escrow Shares have been released from escrow. F-9 On November 6, 1998, the Company completed the Domestication Merger. The effect of the Domestication Merger was that members of VDC Bermuda became stockholders of VDC. The primary reason for the Domestication Merger was to reorganize VDC Bermuda, which had been a Bermuda company, as a publicly traded U.S. corporation domesticated in the State of Delaware. In connection with the Domestication Merger, 11,810,862 issued and outstanding shares of common stock of VDC Bermuda, $2.00 par value per share, were exchanged, and 8,487,500 issued and outstanding shares of VDC preferred stock, $.0001 par value per share, were converted, on a one-for-one basis, into an aggregate 20,298,362 shares of common stock of VDC, $.0001 par value per share. The Domestication Merger has been accounted for as a reorganization, which has been given retroactive effect in the financial statements for all periods presented. During the year ended June 30, 1999, 3.9 million Escrow Shares were released from escrow. Of the Escrow Shares released, approximately 2.7 million were considered compensatory to the extent of the trading value of the shares on the date of the release. This resulted in a non-cash compensation charge of $16,146,000 for the year ended June 30, 1999. During the year ended June 30, 1998, 600,000 Escrow Shares were released from escrow. Of the Escrow Shares released, 415,084 were considered compensatory to the extent of the trading value of the shares on the date of the release. This resulted in a non-cash compensation charge of $2,254,000 for the year ended June 30, 1998. Compensatory shares are related to former Sky King Connecticut shareholders that are members of the Company's management, their family trusts and minor children and an employee. The shares issued to former Sky King Connecticut shareholders' minor children were considered compensatory because their beneficial ownership was attributed to certain Sky King Connecticut shareholders. Non-compensatory shares released related to non-employee shareholders and non-minor children of employee shareholders where beneficial ownership does not exist. The non-compensatory shares have been accounted for as a stock dividend in which the issued stock is recorded at fair value on the date of release through a charge to accumulated deficit. 4. Metromedia China Corporation Investment On June 22, 1998 the Company acquired from PortaCom Wireless, Inc. ("PortaCom"), 2 million shares of the common stock of Metromedia China Corporation ("MCC") and warrants to purchase 4 million shares of common stock of MCC at an exercise price of $4.00 per share. The consideration given for the investment in MCC consisted of 5,113,895 common shares at $6.98125, $1,787,570 in cash, and 50,000 investment advisory shares valued at $6.00 per share. The Company's ownership in MCC is approximately 3.4% exclusive of the warrants. In November 1998, the Company and PortaCom settled a dispute regarding the June 22, 1998 transaction. Pursuant to this settlement, PortaCom agreed to place 2 million VDC shares in escrow for up to eighteen months. These shares will be released from escrow contingent upon certain performance criteria. The placement of the 2 million shares in escrow have been recorded as a reduction in common shares outstanding at their original issue price of $6.98125 (fair market value as determined at the date of acquisition) and a corresponding reduction in the investment in MCC. One of the conditions under which an additional 2 million escrow shares may be issuable to PortaCom is if the Company's stock price trades below $5 per share on any 40 trading days during the 120 consecutive days F-10 subsequent to August 31, 1999. If these shares are issued under this price guarantee, the Company's investment in MCC would increase by the par value of the shares (i.e. $200). MCC operates joint ventures in China under the direction of its majority owner, Metromedia International Group ("MMG"). Currently, legal restrictions in China prohibit foreign ownership and operations in the telecommunications sector. MCC's investments in joint ventures have been made through a structure known as Sino-Sino-Foreign ("SSF") joint venture, a widely used method for foreign investment in the Chinese telecommunications industry, in which the SSF venturer is a provider of telephony equipment, financing and technical services to telecommunications operators and not a direct provider of telephone service. The joint ventures invest in telephony system construction and development networks being undertaken by the local partner, China Unicom. The completed systems are operated by China Unicom. MCC receives payments from China Unicom based on revenues and profits generated by the systems in return for their providing financing, technical advice and consulting and other services. Based on MMG's June 1999 10-Q, subsequent to June 30, 1999, two of the four joint ventures (the one Ningbo Ya Mei Telecommunications Co., Ltd. and the other Ningbo Ya Lian Telecommunications, Co., Ltd.) were notified by China Unicom that the supervisory department of the Chinese government had requested that China Unicom terminate the projects. The notification requested that negotiations begin immediately regarding the amounts to be paid to the joint ventures, including return of investment made and appropriate compensation and other matters related to winding up the Ningbo joint ventures' activities as a result of this notice. Negotiations regarding the termination have begun. The content of the negotiations includes determining the investment principal of the joint ventures, appropriate compensation and other matters related to termination of contracts. MCC cannot currently determine the amount of compensation the joint ventures will receive. While MCC had not received notification regarding the termination of its other two joint ventures (the one Sichuan Tai Li Feng Telecommunications Co., Ltd. and the other Chongqing Tai Le Feng Telecommunications Co., Ltd.), the majority owner, MMG, expects that these will also be the subject of project termination negotiations. MMG has disclosed in their June 1999 10-Q that depending on the amount of compensation it receives, it will record a non-cash charge equal to the difference between the sum of the carrying values of its investment and advances made to joint ventures plus goodwill less the cash compensation it receives from the joint ventures which China Unicom has paid. The Company had previously assessed the investment in MCC for impairment by applying a valuation technique commonly used in the telecommunications industry to assess market potential. Based on the developments relating to the termination of the joint ventures discussed above, this valuation technique is no longer appropriate. Prior to the project termination agreements, there had been uncertainty regarding possible significant changes in the regulation of and policy concerning foreign participation in and financing of the telecommunications industry in China, including the continued viability of the SSF structure and associated service and consulting arrangements with China Unicom. As a result, the Company recorded a $19,388,641 writedown of the investment in MCC during the quarter ended March 31, 1999. The write-down adjusted the carrying value of the investment in MCC to an amount relative to MMG's carrying amount. Due to the recent announcement regarding the project terminations described above, the Company recorded an additional $1,940,000 writedown of the investment in MCC. The write-down adjusted the carrying value of the investment in MCC to an amount F-11 relative to MMG's carrying amount, excluding MMG's goodwill attributable to the investment in MCC. As such, the Company adjusted the carrying value of its investment in MCC to $2.4 million ($70.8 million X 3.4%) at June 30, 1999. Given the uncertainty regarding the outcome of the negotiations of the project terminations, it is reasonably possible that our investment in MCC could be written down further in the near term. 5. Property and Equipment Major classes of property and equipment consist of the following:
June 30, 1998 June 30, 1999 ------------- ------------- Operating equipment $115,538 $4,943,233 Computers and office equipment 191,219 107,533 Furniture and fixtures 34,442 161,572 Leasehold improvements - 271,939 - ------- 341,199 5,484,277 accumulated depreciation - beginning of year (3678) (9,883) depreciation expense-cost of services - (597,398) depreciation expense-SG&A (6,205) (36,890) depreciation expense on impaired assets - 48,057 -------------- ------------- Property and Equipment, net of accumulated depreciation $331,316 $4,888,163 -------- ----------
6. Asset Impairment - subsidiary The acquisition of Masatepe resulted in goodwill of $1,134,554. The acquisition was made primarily because of the contractual relationship Masatepe's affiliate, Masatepe Comunicaciones, S.A. ("Masacom"), had with the Nicaraguan government controlled telecommunications company, ENITEL. Disagreements over business development arose between Masatepe and Masacom. As a result, we cancelled our circuit into Central America and curtailed Masatepe's operations. Masatepe no longer operates its owned telecommunications route to Central America. The Company believes that the goodwill attributable to its acquisition of Masatepe has therefore been permanently impaired. A write down in accordance with SFAS 121 was recognized by writing off the unamortized portion of the goodwill associated with the Masatepe acquisition ($661,824). Additionally, Masatepe also had property and equipment with a net book value of $503,363 in Nicaragua at June 30, 1999. Despite its efforts, Masatepe has not been able to obtain its Nicaraguan assets and, therefore, they are considered unrecoverable. These assets are also being written off in accordance with FASB No. 121. The Company has recorded approximately $1.1 million of current liabilities believed to be the responsibility of Masacom. The liability relates to traffic terminated by ENITEL on Masacom's behalf. Masatepe owns a 49% interest in Masacom, a Nicaraguan company. Masacom had supported the development of Masatepe's operations in Central America. Masatepe accounted for the investment using the equity method considering 100% of Masacom's losses. At June 30, 1999, the Company is carrying the investment in F-12 Masacom at $0. The following is Masacom's summary of financial position at June 30, 1999 and results of operations from inception through May 26, 1999: Assets $ 55,322 Liabilities $ 15,866 Results of operations (loss) $ (867,645) 7. Restructured Note Receivable During the year ended June 30, 1999, the Company restructured notes receivable from debtors by reducing the principal and accrued interest which together totaled $1,598,425. It was necessary to restructure the notes for the following reasons: (i) the debtors were not meeting the terms of the original notes and (ii) to accelerate payment terms of the original notes for the benefit of the Company. The restructured terms provided the Company with needed short term working capital. The balance on this note was $249,979 at June 30, 1999 and $65,000 as of the date of this report, which is past due. 8. Line of Credit In August 1998, the Company entered into a $1,000,000 revolving conditional line of credit to be used for the purposes of issuing certain letters of credit ("LC") to secure payment to certain vendors (carriers)of the Company. Principal payments are due on demand and the interest rate is two percent above the prime rate. The aggregate face amount of all LCs must be collateralized in the form of cash equivalents held by the issuing bank. Each LC expires no later than one year from the date of issuance. Outstanding LC's in the amount of $395,000 were secured by approximately $476,000 in three month U.S. Government bonds at June 30, 1998. As of June 30, 1999, there were no advances issued under the revolving line of credit. 9. Income Taxes The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes," under which deferred assets and liabilities are provided on differences between financial reporting and taxable income using enacted tax rates. Deferred income tax expenses or credits are based on the changes in deferred income tax assets or liabilities from period to period. Under SFAS No. 109, deferred tax assets may be recognized for temporary differences that will result in deductible amounts in future periods. A valuation allowance is recognized if, on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. The Company had deferred tax assets of approximately $14 million and $360,000 at June 30, 1999 and 1998, respectively. A valuation allowance has been established for the entire amount of the deferred tax assets. Deferred income taxes result primarily from the writedown of the investment in MCC and net operating loss carryforwards which expire through 2019. Reconciliation of the Company's actual tax rate to the U.S. Federal Statutory rate is as follows: F-13
Year ended June 30, 1999 1998 ---- ---- (in percents) Income tax rates - ---------------- - -Statutory U.S. Federal rate (34%) (34%) - -States rates (9.5%) (9.5%) - -Valuation allowance 43.5% 43.5% ----- ----- Total -% -%
10. Capital Transactions On March 6, 1998, in connection with the Sky King Merger, all of the outstanding shares of Sky King Connecticut were exchanged for preferred shares of VDC (see Note 3). On November 6, 1998, in connection with the Domestication Merger, all the issued and outstanding shares of VDC Bermuda and all preferred stock issued and outstanding of VDC were converted, on a one-for-one basis, into common stock of VDC. The Domestication Merger has been given retroactive effect in the financial statements for all periods presented. On March 31, 1998, the Company sold 100,000 shares of common stock at $5.50 per share and on March 24, 1998, 600,000 shares of common stock at $4.75 per share, each to unrelated investors for total cash consideration of $3.4 million less an investment banking fee of $85,500. In May 1998, the Company sold 275,000 shares of common stock to unrelated investors and 308,430 shares to the Chief Executive Officer and his family for $6.00 per share less an investment banking fee of $31,500. In November 1998, an executive officer and member of the Company's Board of Directors ("Officer") resigned. In connection with the resignation, the Officer surrendered 1,875,000 common shares in exchange for the elimination of a subscription receivable for $164,175. Additionally, the Company agreed not to pursue potential employment and other claims against the Officer. The transaction has been accounted for as the purchase of 1,875,000 shares of treasury stock using the cost method. The subscription receivable represented the Officer's basis in his 27.5% ownership in Sky King Connecticut. In December 1998, the Company sold 245,159 shares at $3.625 per share, the public market price at that time. The Chairman and CEO and certain family members and entities associated with the Chairman and CEO participated as investors in the private placement. F-14 In May 1999, through a private placement, the Company sold 328,170 shares of Company common stock to the Chief Executive Officer and his family at $3.00 per share, the public market price at that time, and 932,592 shares of Company common stock at $2.70 per share and warrants to purchase 93,258 shares of Company common stock at $6.00 per share to unrelated investors. The Company incurred investment-banking fees of: (i) $56,000, (ii) issued 5,185 shares of Company common stock, and (iii) warrants to purchase 27,777 shares of Company common stock at $6.00 in connection with the private placement. The warrants expire in May 2002. The Chief Executive Officer and his family did not receive any warrants in the private placement. During the year ended June 30, 1999, the Company issued 290,000 shares of Company common stock to investment bankers in connection with the March 6, 1998 Sky King Merger. The shares were issued at the fair market value as of the date of the merger ($2.50 per share) and a corresponding charge to accumulated deficit. An additional 154,852 shares of Company common stock are contingently issuable to investment bankers subject to the satisfaction of the collection of notes and stock subscriptions receivable. In June 1998, the Company issued 5.3 million Company common shares to PortaCom in exchange for the investment in MCC (see Note 4). 3,113,895 and 4,915,828 common shares have been reflected as outstanding under the agreement as of June 30, 1999 and 1998, respectively. Additionally, 50,000 shares of Company common stock were issued for investment advisory fees in connection with the investment in MCC. At June 30, 1998, the Company had outstanding warrants to acquire an aggregate of 938,546 shares of common stock at prices ranging from $4.00 to $5.00. These warrants were issued prior to the March 6, 1998 Sky King Merger in connection with obligations arising prior to that date. The warrants were assumed by Sky King Connecticut in the merger. The warrants originally were to expire in August 1998. At that date, they were extended until 30 days following the effective date of a registration statement for the underlying stock. 11. Stock Option Plans During the year ended June 30, 1998, the Company granted 61,500 stock options. All stock options were granted to employees at exercise prices equal to the market value on the date of grant. In October 1998, the Company repriced these options to $4.125, the fair market value of the Company's common stock on October 21, 1998. On September 4, 1998, the Company adopted the VDC Communications, Inc. 1998 Stock Incentive Plan (the "1998 Plan"). The 1998 Plan provides for the granting of stock options or other rights to purchase up to 5 million shares of common stock. Options expire up to 10 years after the date of grant, except for incentive options issued to a holder of more than 10 percent of the common stock outstanding, which expire five years after the date of grant. Options generally vest in equal increments over five years. SFAS No. 123, "Accounting for Stock-Based Compensation", encourages adoption of a fair-value based method for valuing the cost of stock-based compensation. However, it allows companies to continue to use the intrinsic value method prescribed under Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Options Issued to Employees", for options granted to employees and disclose pro forma net income and earnings per share in accordance with SFAS No. 123. Had compensation cost for the Company's stock-based compensation plans been determined consistent with SFAS No. 123, the Company's net income and earnings per share would have been as follows:
Year ended June 30, 1999 1998 - ------------------------------------------------------------------------------------------------------------- Pro forma results Net loss: F-15 As reported $ (48,142,358) $ (3,154,810) Pro forma $ (48,545,002) $ (3,188,260) - ------------------------------------------------------------------------------------------------------------- Loss per common share-basic and diluted As reported $ (2.72) $ (0.72) Pro forma $ (2.75) $ (0.73)
The fair value of each option grant is estimated on the date of grant using the Black-Scholes pricing model with the following assumptions:
Years ended June 30, 1999 1998 - ------------------------------------------------------------------------------------------ Dividend yield 0.0% 0.0% Risk free interest rate 5.0% 5.6% Expected volatility 46.1% 46.5% Expected lives 6 years 6 years - ------------------------------------------------------------------------------------------
Information regarding the Company's stock option plans and non-qualified stock options as of June 30, 1998 and 1999 and changes during the years ended on those dates is summarized as follows:
Weighted Average Exercise Number of shares Price - ------------------------------------------------------------------------------------------ Outstanding at June 30, 1997 - - Granted 61,500 $5.16 Exercised - - Forfeited - - - ------------------------------------------------------------------------------------------ Outstanding at June 30, 1998 61,500 $ 5.16 Granted 1,023,500 $ 3.88 Exercised - - Forfeited 234,500 $ 4.04 - ------------------------------------------------------------------------------------------ Outstanding at June 30, 1999 850,500 $ 3.85
Information about stock options outstanding at June 30, 1999 is summarized as follows: F-16
Options Outstanding Options Exercisable ---------------------------------------------------------------------------------------------------------------- Weighted Average Weighted Average Number Remaining Number Weighted Average Fair Range of Outstanding at Contracted Life Weighted Average Exercisable at Weighted Average Value of Options Exercise Prices June 30, 1999 -Years Exercise Price June 30, 1999 Exercise Price Granted During the Year --------------- ------------- ------ -------------- ------------- -------------- ----------------------- $3.75 - $4.125 850,500 9.36 $3.85 20,500 $4.125 $ 2.07
During the initial phase-in period of SFAS No. 123, the effects on the pro-forma results are not likely to be representative of the effect on pro forma results in future years since options vest over several years and additional awards could be made each year. 12. Commitments and Contingencies Litigation 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 the Company induced it to enter into an agreement with the Company 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 the Company's purported misrepresentations and purported breaches of contract. In the event that StarCom prevails in the StarCom Action, the Company could be liable for monetary damages in an amount that would have a material adverse effect on the Company's assets and operations. Capital Leases The Company entered into several equipment leases during the year ended June 30, 1999 with lease terms ranging from one to five years. Future minimum lease payments under capital leases are as follows:
- --------------------------------------------------------------------------------------- Year ending June 30, -------------------- 2000 $ 547,481 2001 364,502 2002 364,502 2003 206,846 2004 64,170 ---- --------- Total minimum lease payments 1,547,501 less: amount representing 273,811 --------- interest present value of minimum lease 1,273,690 payments less: current portion 426,356 --------- long-term capital lease obligations $ 847,334 - ---------------------------------------------------------------------------------------
F-17 Operating Leases The Company leases office and equipment space under noncancellable operating leases. Future minimum lease payments are as follows:
- ------------------------------------------------------------------------------------------------------------ Year ending June 30, 2000 $ 591,421 2001 582,936 2002 582,038 2003 587,448 2004 407,974 thereafter 824,078 ----------- $ 3,575,895 - ------------------------------------------------------------------------------------------------------------
Rent expense for the year ended June 30, 1999 was approximately $516,000. Rent expense for the years ended June 30, 1998 and 1997 was not material to the financial statements. Employment Agreements The Company has entered into several multi-year employment agreements expiring through 2003 with officers and certain employees of the Company, which provide for aggregate annual base salaries as follows:
- ------------------------------------------------------------------------- Years ended June 30, 2000 $ 852,000 2001 708,750 2002 172,500 2003 75,000 ---- -------------- $ 1,808,250 - -------------------------------------------------------------------------
Bad Debt Reserve In Fiscal 1999, the Company provided $7,000 for a reserve against accounts receivable for potential bad debts. 13. Fourth Quarter Financial Information During the fourth quarter of the year ended June 30, 1999, the Company recorded asset impairment charges of $1,165,187, related to the Masatepe acquisition (see Note 6) and $1,940,000 related to the investment in MCC (see Note 4). F-18 During the fourth quarter of the year ended June 30, 1998, the Company recorded non-cash compensation expense of $1,453,000, related to the release of convertible preferred stock from escrow (See Note 3). 14. Supplemental Disclosure of Cash Flow Information
Year ended June 30, 1999 1998 ---- ---- Cash paid during the year for: - ------------------------------ Interest $ 92,304 $ - -------- ------ Schedule of non-cash investing and financing activities: - -------------------------------------------------------- Net assets acquired in exchange for stock - 5,871,071 Equipment acquired through capital lease obligation 1,481,892 - Equipment exchanged for note 192,379 - Release of investment banking shares 725,000 - Common stock placed in escrow in connection with stock investment in MCC 13,962,500 - Stock subscription for common stock - 164,175 Treasury stock acquired in exchange for subscription receivable 164,175 - Acquisition of subsidiary: Fair value of assets acquired 1,290,044 - Common stock issued 700,875 - ------- ------ Cash paid $589,169 $ - -------- ------
F-19 9,939,245 Shares [Logo] VDC COMMUNICATIONS, INC. Common Stock ------------------ Prospectus ------------------ November ___, 1999 Part II Information Not Required In Prospectus Item 13. Other Expenses of Issuance and Distribution The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by the Company in connection with the sale of common stock being registered. All amounts are estimates except the SEC registration fee and the American Stock Exchange listing fee.
SEC Registration fee $ 3,627 Printing and engraving expenses 15,000 Legal fees and expenses 55,000 Accounting fees and expenses 15,000 Transfer agent fees 5,000 Miscellaneous fees and expenses 10,000 ------- Total $103,627 (1) (1) No part of this total will be paid by Selling Security Holders.
Item 14. Indemnification of Directors and Officers. Section 145(a) of the General Corporation Law of the State of Delaware ("Delaware Corporation Law") provides, in general, that a corporation shall have the power to indemnify any person who was or is a party or is or was threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation), by reason of the fact that he is or was a director or officer of the corporation or is serving at the request of the corporation as a director, officer, employee or agent or another corporation or business entity. Such indemnity may be against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding, if the indemnified party acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and if, with respect to any criminal action or proceeding, the indemnified party did not have reasonable cause to believe his conduct was unlawful. Section 145(b) of the Delaware Corporation Law provides, in general, that a corporation shall have the power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director or officer of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent or another corporation or business entity, against any expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation. Section 145(g) of the Delaware Corporation Law provides, in general, that a corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director or officer of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent or another corporation or business entity against any liability asserted II-1 against him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of the law. Article Seventh of the Registrant's Certificate of Incorporation, as amended, (incorporated by reference herein) provides that: (a) RIGHT TO INDEMNIFICATION. Each person who was or is made a party or is threatened to be made a party or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer, of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that, except as provided in paragraph (b) hereof, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. The right to indemnification conferred in this Section shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that, if the Delaware General Corporation Law requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Section or otherwise. The Corporation may, by action of its Board of Directors, provide indemnification to employees and agents of the Corporation with the same scope and effect as the foregoing indemnification of directors and officers. (b) RIGHT OF CLAIMANT TO BRING SUIT: If a claim under paragraph (a) of this Section is not paid in full by the Corporation within thirty days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an II-2 action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation Law for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard or conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard or conduct. (c) Notwithstanding any limitation to the contrary contained in sub-paragraphs 8(a) and 8(b), the corporation shall, to the fullest extent permitted by Section 145 of the General Corporation Law of the State of Delaware, as the same may be amended and supplemented, indemnify any and all persons whom it shall have power to indemnify under said section from and against any and all of the expenses, liabilities or other matters referred to in or covered by said section, and the indemnification provided for herein shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any By-law, agreement, vote of stockholders or disinterested Directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. (d) INSURANCE: The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. The Company has liability insurance for the benefit of its directors and officers. The insurance covers claims against such persons alleging error, omission, misstatement, misleading statement, neglect, breach of duty or negligent act. The insurance also provides certain coverage for the Company and employees of the Company in connection with certain securities law claims. The insurance covers claims referenced above, except as prohibited by law, or otherwise excluded by such insurance policy. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in a successful defense of any action, suit or proceeding) is asserted by a director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. Item 15. Recent Sales of Unregistered Securities Recent Sales of Unregistered Securities In October 1999, the Company sold 1,333,334 shares of Company common stock in a non-public offering exempt from registration pursuant to Section 4(2) and Rule 506 of Regulation D of the Securities Act of 1933 (the "Act") as follows: II-3
Shareholder Number of Shares Consideration ($) ----------- ---------------- ----------------- Adase Partners, L.P. 140,000 105,000.00 The Lucien I. Levy Revocable Living Trust 10,000 7,500.00 Frederick W. Moran (1) 666,667 500,000.25 Merl Trust 28,000 21,000.00 O.T. Finance, SA 22,000 16,500.00 Alan B. Snyder 266,667 200,000.25 Eric M. Zachs 200,000 150,000.00 ------- ---------- Total 1,333,334 1,000,000.50
(1) An adult son of Frederick A. Moran. In May 1999, the Company sold 1,265,947 shares of Company common stock and granted warrants to purchase 121,035 shares of Company common stock in a non-public offering exempt from registration pursuant to Section 4(2) and Rule 506 of Regulation D of the Act as follows:
Shareholder Number of Shares Consideration ($) Warrants(1) ----------- ---------------- ----------------- ----------- Adase Partners, L.P. 60,000 162,000.00 6,000 Alnilam Partners, LP 2,185 (2) Dean Brizel and Jeanne Brizel 20,000 54,000.00 2,000 Stephen Buell 20,000 54,000.00 2,000 Capital Opportunity Partners One, LP 20,000 54,000.00 2,000 Arthur Cooper and Joanie Cooper 40,000 108,000.00 4,000 Mark Eshman & Jill Eshman trustees for the 20,000 54,000.00 2,000 Eshman Living Trust dated 9/24/90 Jeffrey Feingold and Barbara Feingold 20,000 54,000.00 2,000 Fred Fraenkel 20,000 54,000.00 2,000 Torunn Garin 60,000 162,000.00 6,000 Henry D. Jacobs Jr. 37,037 99,999.90 3,703 Frederick A. Moran and Joan B. Moran 280,000 840,000.00 - Kent F. Moran Trust 24,160 72,480.00 - Luke F. Moran Trust 24,010 72,030.00 - Ernst Von Olnhausen 10,000 27,000.00 1,000 Paradigm Group, LLC 370,370 999,999.00 64,814 (3) PGP I Investors, LLC 185,185 499,999.50 18,518 Santa Fe Capital Group (NM), Inc. 3,000 (2) - Scott Schenker and Randi Schenker 20,000 54,000.00 2,000 Michael Weissman 10,000 27,000.00 1,000 Robert Vicas 20,000 54,000.00 2,000 ------ --------- ----- Total 1,265,947 121,035
II-4 (1) The warrants have an exercise price of $6.00 per share and expire three years from the date of grant (May, 2002). (2) In consideration for investment banking services rendered in connection with private placement. (3) Includes warrant to purchase 27,777 shares granted in consideration for consulting services rendered in connection with private placement. In May 1999, the Company issued, in a non-public offering exempt from registration pursuant to Section 4(2) and Rule 506 of Regulation D of the Act, warrants to purchase 4,500 shares of Company common stock at an exercise price of $7.00 per share to ING Barings Furman Selz ("ING") in consideration for investment banking services rendered by ING in connection with the Company's acquisition of the membership interests of Masatepe Communications, U.S.A., L.L.C. ("Masatepe"). The warrants expire on August 7, 2001. In April 1999, the Company issued, in a non-public offering exempt from registration pursuant to Section 4(2) and Rule 506 of Regulation D of the Act, 76,750 shares of Company common stock in the name of Marc Graubart and 18,250 shares of Company common stock in the name of Tab K. Rosenfeld, in consideration for Mr. Graubart's resignation from positions held with Masatepe, the release of various claims, and other consideration set forth more particularly in a Settlement, Release and Discharge Agreement by and among the Company, Masatepe, and Marc Graubart, dated March 9, 1999 (the "Release Agreement"). Of the shares issued in the name of Marc Graubart, 7,500 will be held in escrow for a period of one (1) year following the date of the Release Agreement (the "Escrow Shares"). The Escrow Shares will be released from escrow, if at all, in the event that Marc Graubart has complied with certain terms of the Release Agreement during the one (1) year following the date of the Release Agreement. In connection with the Company's acquisition of Sky King Connecticut, the Company agreed to issue to SPH Equities Inc. ("SPH Equities"), KAB Investments Inc. ("KAB"), FAC Enterprises, Inc. ("FAC"), and SPH Investments Inc. ("SPH Investments") an aggregate of 444,852 shares of Company common stock as an investment banking fee, subject to certain conditions (the "Investment Banking Shares"). In partial satisfaction of this obligation, on December 22, 1998, the Company issued 129,852 shares of Company common stock in the name of FAC, 70,000 shares of Company common stock in the name of SPH Investments, and 40,148 shares of Company common stock in the name of SPH Equities in a non-public offering exempt from registration pursuant to Section 4(2) and Rule 506 of Regulation D of the Act. On February 16, 1999, in further satisfaction of this commitment, the Company issued 19,852 shares of Company common stock in the name of SPH Equities and 30,148 shares of Company common stock in the name of KAB in a non-public offering exempt from registration pursuant to Section 4(2) and Rule 506 of Regulation D of the Act. On December 23, 1998, the Company sold 245,159 shares of Company common stock, to certain entities associated with and family members of Frederick A. Moran in a non-public offering exempt from registration pursuant to Section 4(2) and Rule 506 of Regulation D of the Act as follows: II-5
Shareholder Number of Shares Price per Share - ----------- ---------------- --------------- Anne Moran 35,310 $3.625 Anne Moran, IRA 49,379 $3.625 Frederick A. Moran & 41,380 $3.625 Anne Moran Frederick A. Moran, IRA 331 $3.625 Frederick W. Moran 100,000 $3.625 Joan Moran, IRA 248 $3.625 Kent Moran 8,221 $3.625 Luke Moran 9,352 $3.625 Moran Equity Fund, Inc. 938 $3.625 --- TOTAL 245,159
In August 1998, the Company issued, in a non-public offering exempt from registration pursuant to Section 4(2) and Rule 506 of Regulation D of the Act, 78,697 shares of Company common stock (the "Activated Shares") to Activated Communications Limited Partnership ("Activated") and 21,428 shares of Company common stock to Marc Graubart (the "Graubart Shares") in connection with the Company's acquisition of the membership interests of Masatepe (the "Masatepe Acquisition") pursuant to the terms of a Purchase Agreement dated July 31, 1998, by and among the Company, Masatepe, Activated and Marc Graubart (the "Purchase Agreement"). The Activated Shares were issued in escrow as partial consideration for Activated's membership interest in Masatepe. The Graubart Shares were issued in escrow as consideration for investment banking services rendered by Graubart in connection with the Masatepe Acquisition. Both the Activated Shares, less 14,160 shares returned to the Company for a claim made by the Company, and the Graubart Shares were released from escrow. Both the Activated Shares and the Graubart Shares were subject to upward adjustment due to price adjustment rights. In June 1999, in connection with these rights, the Company issued, in a non-public offering exempt from registration pursuant to Section 4(2) and Rule 506 of Regulation D of the Act, 39,072 shares of Company common stock to Activated and 15,247 shares of Company common stock to Mr. Graubart. In June 1998, the Company issued 5,300,000 shares of Company common stock, pursuant to an exemption from registration provided by Section 1145 of Chapter 11 of the United States Bankruptcy Code, to PortaCom Wireless, Inc. ("PortaCom") in consideration of the issuance by PortaCom to the Company of 2 million shares of common stock of Metromedia China Corporation ("MCC") and warrants to purchase 4 million shares of common stock of MCC at an exercise price of $4.00 per share (the "MCC Warrants"). The MCC Warrants currently have an expiration date of September 2001. In May 1998, the Company issued 583,430 shares of Company common stock in a non-public offering exempt from registration pursuant to Section 4(2) and Rule 506 of Regulation D of the Act as follows:
Shareholder Number of Shares Price Per Share - ----------- ---------------- --------------- Lancer Offshore, Inc. 150,000 $6.00 Lancer Voyager Fund 25,000 $6.00 Anne Moran 39,333 $6.00 Anne Moran Trust 250 $6.00 II-6 Anne Moran, IRA 11,667 $6.00 Moran Equity Fund, Inc. 27,000 $6.00 Frederick A. Moran 85,667 $6.00 Frederick A. Moran 23,667 $6.00 & Joan B. Moran Frederick A. Moran Trust 180 $6.00 Frederick W. Moran 100,000 $6.00 Kent Moran 10,000 $6.00 Kent Moran, IRA 333 $6.00 Luke Moran 10,000 $6.00 Luke Moran, IRA 333 $6.00 Alan B. Snyder 100,000 $6.00 ------- TOTAL 583,430
In March 1998, and prior to the merger of Sky King Connecticut and VDC Bermuda (the "Sky King Connecticut Acquisition") whereby Frederick A. Moran became Chairman and C.E.O., the Company issued 1,490,902 shares of Company common stock in non-public offerings exempt from registration as follows:
Shareholder Number of Shares Consideration Exemption - ----------- ---------------- ------------- --------- Robert Alexander 10,000 (1) (2) FAC Enterprises, Inc. 30,000 $75,000 (3) (2) FYL Service Limited 10,000 (4) (2) Gibralt Holdings Limited 100,000 $250,000 (2) HPC Corporate Services Limited 122,027 $305,069 (3) (5) HPC Corporate Services Limited 132,000 (6) (5) HPC Corporate Services Limited 253,000 (7) (5) KAB Investments, Inc. 75,000 (8) (2) Graham Lacey 25,000 (1) (2) Lancer Offshore, Inc. (9) 390,000 $1,852,500 (2) Lancer Partners LP (9) 132,000 $627,000 (2) Lancer Voyager Fund (9) 58,500 $277,875 (2) Michael Lauer (9) 19,500 $92,625 (2) Rozel International Holdings Limited 5,290 $13,225 (3) (5) SPH Equities, Inc. 28,585 (4) (2) Alan Snyder (9) 100,000 $550,000 (2) ------- TOTAL 1,490,902
(1) In consideration for services rendered as a member of the Company's Board of Directors. (2) Issued in a non-public offering exempt from registration pursuant to Section 4(2) of the Act. (3) Debt conversion. (4) In consideration for services rendered in arranging for financing transactions. (5) Issued in a non-public offering exempt from registration pursuant to Rules 901-904, inclusive, of Regulation S of the Act. (6) In consideration for services rendered in arranging certain business transactions. (7) In consideration for subscription agreement for $632,500 purchase price due in March 1999. (8) In consideration for services rendered in connection with arranging the Company's acquisition of certain MCC securities from PortaCom Wireless, Inc. (9) Participant in a private placement that occured after the Sky King Connecticut Acqusition. II-7 In March 1998, prior to the merger of Sky King Connecticut and VDC Bermuda, the Company issued warrants to purchase 938,546 shares of Company common stock in consideration for services rendered and various other claims, in a non-public offering exempt from registration pursuant to Section 4(2) and Rule 506 of Regulation D of the Act as follows:
Number of Shares Warrant Holder Underlying Warrants Exercise Price Consideration - -------------- ------------------- -------------- ------------- Bermuda Trust Company Limited 85,000 $4.00 (1) Clifton Capital Ltd. 285,618 $4.00 (2) Graham F. Lacey 45,000 $5.00 (3) HPC Corporate Services Limited 50,000 $4.00 (4) Steven B. Rosner 41,110 $4.00 (5) Rozel International Holding Company Limited 431,818 $4.00 (2) ------- TOTAL 938,546
(1) Issued in connection with raising additional working capital. (2) Issued in connection with previous financing transactions and in connection with subscription agreements dated February 1, 1997. (3) Issued in connection with services rendered to the Company as Director. (4) Issued in connection with previous financing transactions. (5) Issued pursuant to subscription agreement dated February 1, 1997. On March 6, 1998, the Company issued 10 million shares of preferred stock (the "Preferred Stock") to the former shareholders of Sky King Connecticut in consideration of the merger of Sky King Connecticut with and into the Company in a non-public offering exempt from registration pursuant to Section 4(2) and Regulation D of the Act. 4.5 million shares of the Preferred Stock were issued in escrow. The shares of Preferred Stock were converted, on a one-for-one basis, into shares of Company common stock in connection with the Domestication Merger. During the period from January 1997 to October 1997, the Company issued in the aggregate 921,386 shares of Company common stock in non-public offerings exempt from registration as follows:
Shareholder Number of Shares Consideration Exemption - ----------- ---------------- ------------- --------- Channel Hotel and Properties Limited 49,375 $197,500 (1) (2) Channel Hotel and Properties Limited 49,375 $197,500 (1) (2) Clifton Capital Ltd. 49,000 $134,750 (3) (2) Clifton Capital Ltd. 30,000 $82,500 (3) (2) Clifton Capital Ltd. 100,000 $275,000 (3) (2) Clifton Capital Ltd. 50,000 $137,500 (3) (2) Clifton Capital Ltd. 22,727 $62,499.25 (3) (2) Gibralt Holdings Ltd. 40,000 (5) (4) Gibralt Holdings Ltd. 49,091 $130,000 (3) (2) HPC Corporate Services Limited 70,000 $180,000 (3) (2) Graham Lacey 30,000 (6) (2) Graham Lacey 50,000 $150,000 (7) (2) Graham Lacey 50,000 $150,000 (7) (2) Graham Lacey 28,000 (6) (2) Graham Lacey 100,000 (7) (2) Radway Investments Inc. 90,909 $249,999.75 (3) (2) II-8 Rozel International Holdings Limited 30,000 $82,500 (3) (2) Rozel International Holdings Limited 32,909 $90,499.75 (3) (2) ------ ----------- TOTAL 921,386
(1) Pursuant to the exercise of warrants dated April 17, 1995. (2) Issued in a non-public offering exempt from registration pursuant to Rules 901-904, inclusive, of Regulation S of the Act. (3) Debt conversion. (4) Issued in a non-public offering exempt from registration pursuant to Section 4(2) of the Act. (5) In consideration for services rendered in arranging for financing transaction. (6) In consideration for services rendered as a member of the Company's Board of Directors. (7) Pursuant to an exercise of options dated January 17, 1997. During the period from June 1996 to November 1996, the Company issued in the aggregate 725,175 shares of common stock in non-public offerings exempt from registration as follows:
Shareholder Number of Shares Consideration Exemption - ----------- ---------------- ------------- --------- Robert Alexander 10,000 - (1) (2) Audley Investment Group 49,347 $107,082.99 (3) (2) Bel Cal Holdings Inc. 86,364 $475,002 (2) Campden Financial Services Ltd. 2,500 - (5) (2) Harold Chaffe 10,000 - (6) (2) Clifton Capital Ltd. 144,364 $794,002 (4) Comprehensive Claims Corp. 34,274 $74,374.58 (3) (2) David Crane 1,875 - (7) (2) Crawsfield Limited 114,067 $247,525.39 (3) (2) Diversified Securities Fund 48,963 $106,249.71 (3) (2) Harvey Glicker 24,442 $53,039.14 (3) (2) Andrew Gordon 5,000 - (8) (2) HST Partners 49,347 $107,082.99 (3) (2) Herb Josephart 4,896 $10,624.32 (3) (2) Graham Lacey 20,000 - (1) (2) Graham Lacey 50,000 $200,000 (2) Graham Lacey 50,000 $200,000 (2) Sid Sands and Edith Sands 4,934 $10,706.78 (3) (2) Gloria Sax 4,934 $10,706.78 (3) (2) Weston Investors 9,868 $21,413.56 (3) (2) ----- ---------- TOTAL 725,175
(1) In consideration for services rendered as a member of the Company's Board of Directors. (2) Issued in a non-public offering exempt from registration pursuant to Rules 901-904, inclusive, of Regulation S of the Act. (3) Represents debt conversion. (4) Issued in a non-public offering exempt from registration pursuant to Section 4(2) of the Act. II-9 (5) In consideration for the rent-free use of office facilities. (6) In consideration for services rendered regarding the administration of Company accounts. (7) In consideration for services rendered as a real estate broker for the sale of a Company property. (8) In consideration for services rendered in connection with acquisition of certain securities in a business transaction. Item 16. Exhibits and Financial Statement Schedules (A) Exhibits. The following Exhibits are attached hereto and incorporated herein by reference.
Exhibit No. Description Method of Filing ----------- ----------- ---------------- 2.1 Amended and Restated Agreement and Plan of Merger, dated as of (1) December 10, 1997, by and among VDC Corporation Ltd., VDC Communications, Inc. (f/k/a VDC (Delaware), Inc.) and Sky King Communications, Inc. 2.2 Amendment to Amended and Restated Agreement and Plan of Merger, (1) dated as of March 6, 1998, by and among VDC Corporation Ltd., VDC Communications, Inc. (f/k/a VDC (Delaware), Inc.) and Sky King Communications, Inc. 2.3 Agreement and Plan of Merger, made as of October 5, 1998, by (2) and between VDC Corporation Ltd. and VDC Communications, Inc. (f/k/a Sky King Communications, Inc.) 2.4 Certificate of Merger of Sky King Communications, Inc. into VDC (1) Communications, Inc. (formerly known as VDC (Delaware), Inc.) 2.5 Certificate of Merger of VDC Corporation Ltd. into (3) VDC Communications, Inc. 3.1 Certificate of Incorporation, as amended of VDC Communications, (2) Inc. 3.2 Amended and Restated Bylaws of VDC Communications, Inc. (2) 4.1 Specimen of Common Stock Certificate (4) 4.2 1998 Stock Incentive Plan (4) II-10 5.1 Opinion of Buchanan Ingersoll Professional Corporation (14) 10.1 Purchase Agreement, dated as of July 31, 1998, by and among VDC (6) Corporation Ltd., Masatepe Communications U.S.A., L.L.C, Activated Communications Limited Partnership and Marc Graubart 10.2 Bridge Loan Agreement, dated as of August 1, 1998, by and among (6) Masatepe Communications U.S.A., L.L.C. and VDC Corporation Ltd. 10.3 Bridge Note, dated as of August 1, 1998, made by Masatepe (6) Communications U.S.A., L.L.C. in favor of VDC Corporation Ltd. 10.4 Guaranty, dated as of August 1, 1998, by Activated (6) Communications Limited Partnership to VDC Corporation Ltd. 10.5 Amended and Restated Asset Purchase Agreement between VDC (8) Corporation Ltd. and PortaCom Wireless, Inc., dated as of March 23, 1998, as amended by two Bankruptcy Court Stipulations and Orders in Lieu of Objection, dated as of April 3, 1998 and April 23, 1998, respectively 10.6 Escrow Agreement by and among VDC Corporation Ltd., PortaCom (8) Wireless, Inc., the Official Committee of Unsecured Creditors of PortaCom Wireless, Inc. and Klehr, Harrison, Harvey, Branzburg & Ellers, LLP, dated as of April __, 1998 10.7 Memorandum of Understanding, dated June 8, 1998, by and among (9) VDC Corporation Ltd., PortaCom Wireless, Inc. and the Official Committee of Unsecured Creditors of PortaCom Wireless, Inc. 10.8 Closing Escrow Agreement, dated June 8, 1998, by and among VDC (9) Corporation Ltd., PortaCom Wireless, Inc., Metromedia China Corporation, the Official Committee of Unsecured Creditors of PortaCom Wireless, Inc. and Klehr, Harrison, Harvey, Branzburg & Ellers LLP 10.9 Promissory Note, dated June 9, 1998, made by VDC Corporation (9) Ltd. in favor of PortaCom Wireless, Inc. II-11 10.10 Assignment, dated June 8, 1998, by PortaCom Wireless, Inc. (9) 10.11 Loan Agreement, dated November 10, 1997, between VDC (9) Corporation Ltd. and PortaCom Wireless, Inc. 10.12 Pledge Agreement, dated November 10, 1997, between VDC (9) Corporation Ltd. and PortaCom Wireless, Inc. 10.13 Security Agreement, dated November 10, 1997, between VDC (9) Corporation Ltd. and PortaCom Wireless, Inc. 10.14 Debtor-in-Possession Loan, Pledge and Security Agreement, dated (9) March 23, 1998 between VDC Corporation Ltd and PortaCom Wireless, Inc. 10.15 Waiver, dated June 8, 1998, by VDC Corporation Ltd. (9) 10.16 Asset Purchase Agreement between VDC Corporation Ltd. and Rozel (1) International Holdings Limited, dated December 18, 1997, including Exhibits thereto 10.17 Asset Purchase Agreement between VDC Corporation Ltd. and (1) Tasmin Limited, dated February 10, 1998, including Exhibits thereto 10.18 Promissory Note from HPC Corporate Services Limited, dated (1) March 2, 1998 10.19 Employment Agreement of Frederick A. Moran, as amended (1) 10.20 Employment Agreement of Dr. James C. Roberts (1) 10.21 Employment Agreement of Charles W. Mulloy (6) 10.22 Option to Purchase 10,000 Shares Granted to Charles W. Mulloy (6) 10.23 Option to Purchase 50,000 Shares Granted to Charles W. Mulloy (6) II-12 10.24 Registration Rights Agreements between VDC Corporation Ltd. and (6) Charles W. Mulloy 10.25 Employment Agreement of Clayton F. Moran (6) 10.26 Option to Purchase 10,000 Shares Granted to Clayton F. Moran (6) 10.27 Registration Rights Agreement between VDC Corporation Ltd. and (6) Clayton F. Moran 10.28 Director Agreement with Dr. Hussein Elkholy (6) 10.29 Option to Purchase 25,000 Shares Granted to Dr. Hussein Elkholy (6) 10.30 Registration Rights Agreement between VDC Corporation Ltd. and (6) Dr. Hussein Elkholy 10.31 Warrant to Purchase 45,000 Shares Granted to Graham Ferguson (6) Lacey 10.32 Settlement, Release and Discharge Agreement, by and among VDC (10) Communications, Inc., Dr. James C. Roberts, and Frederick A. Moran, dated November 19, 1998 10.33 Settlement Agreement between VDC Communications, Inc., PortaCom (10) Wireless, Inc., and Michael Richards, dated November 24, 1998 10.34 Director Agreement with Dr. Leonard Hausman, dated November 4, (11) 1998 10.35 Option to Purchase 25,000 shares granted to Dr. Leonard (11) Hausman, dated November 4, 1998 10.36 Registration Rights Agreement between VDC Corporation Ltd. and (11) Dr. Leonard Hausman, dated November 4, 1998 10.37 Director Agreement with James Dittman, dated November 4, 1998 (11) 10.38 Option to Purchase 25,000 shares granted to James Dittman, (11) dated November 4, 1998 10.39 Registration Rights Agreement between VDC Corporation Ltd. and (11) II-13 James Dittman, dated November 4, 1998 10.40 Settlement, Release and Discharge Agreement, by and among VDC (12) Communications, Inc., Masatepe Communications, U.S.A., L.L.C., and Marc Graubart, dated March 9, 1999 10.41 Form of Securities Purchase Agreement, dated December 23, 1998 (12) 10.42 Form of Securities Purchase Agreement, dated May 5, 1999 (12) 10.43 Form of Securities Purchase Agreement, dated May 7, 1999 (12) 10.44 Securities Purchase Agreement, between PGP I Investors, LLC and (12) VDC Communications, Inc., dated May 12, 1999 10.45 Securities Purchase Agreement, between Paradigm Group, LLC, and (3) VDC Communications, Inc., dated May 17, 1999 10.46 Form of Employment Agreement (3) 10.47 Form of Option Agreement (3) 10.48 Form of Registration Rights Agreement (3) 10.49 Form of Incentive Stock Option Agreement (3) 10.50 Incentive Stock Option Agreement between Frederick A. Moran and (3) VDC Communications, Inc., dated December 8, 1998 10.51 Promissory Note, dated January 26, 1999, made by VDC (13) Communications, Inc. in favor of Frederick A. Moran 10.52 Promissory Note, dated September 24, 1999, made by VDC (13) Communications, Inc. in favor of Frederick A. Moran 10.53 1998 Stock Incentive Plan, as Amended (14) 10.54 Settlement, Release and Separation Agreement by and among VDC (14) II-14 Communications, Inc. and William H. Zimmerling, dated October 1, 1999 10.55 Settlement, Release and Separation Agreement by and among VDC (14) Communications, Inc. and Robert E. Warner, dated October 18, 1999 10.56 Form of Non-Qualified Stock Option Agreement (14) 10.57 Incentive Stock Option Agreement between Frederick A. Moran and (14) VDC Communications, Inc., dated October 1, 1999 10.58 Form of Incentive Stock Option Agreement (14) 10.59 Form of Incentive Stock Option Agreement (14) 10.60 Form of Securities Purchase Agreement for October 1999 (14) 10.61 Form of Registration Rights Agreement for October 1999 (14) 16.1 Letter to the SEC from Neville Russell dated (7) May 21, 1998 16.2 Letter to the SEC from Neville Russell dated (7) June 19, 1998 21.1 Subsidiaries of Registrant (14) 23.1 Consent of BDO Seidman LLP, independent accountants (14) 24.1 Powers of Attorney of certain officers and directors of the (3) Registrant 27.1 Financial Data Schedule (14)
(1) Filed as an Exhibit to VDC Corporation Ltd.'s Current Report on Form 8-K, dated March 6, 1998, and incorporated by reference herein. (2) Filed as an Exhibit to Registrant's registration statement on Form S-4, filed with the SEC on September 9, 1998, and incorporated by reference herein. (3) Filed as an Exhibit to Registrant's registration statement on Form S-1, filed with the SEC on June 7, 1999, and incorporated by reference herein. II-15 (4) Filed as an Exhibit to Registrant's registration statement on Form 8-A/A, filed with the SEC on January 19, 1999, and incorporated by reference herein. (5) To be filed on an amendment hereto. (6) Filed as an Exhibit to VDC Corporation Ltd.'s Form 10-K for the year ended June 30, 1998, as amended by Form 10-K/A filed with the SEC on February 17, 1999, and incorporated herein by reference. (7) Filed as an Exhibit to VDC Corporation Ltd.'s Current Report on Form 8-K, dated May 21, 1998, as amended by Form 8-K/A, filed with the SEC on June 19, 1998, and incorporated by reference herein. (8) Filed as an Exhibit to VDC Corporation Ltd.'s Form 10-Q for the quarter ended March 31, 1998, and incorporated by reference herein. (9) Filed as an Exhibit to VDC Corporation Ltd.'s Current Report on Form 8-K, dated June 22, 1998, and incorporated by reference herein. (10) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated November 19, 1998, and incorporated by reference herein. (11) Filed as an Exhibit to Registrant's Form 10-Q for the quarter ended December 31, 1998, and incorporated herein by reference. (12) Filed as an Exhibit to Registrant's Form 10-Q for the quarter ended March 31, 1999, and incorporated herein by reference. (13) Filed as an Exhibit to Registrant's Form 10-K for the year ended June 30, 1999, and incorporated herein by reference. (14) Filed herewith. Item 17. Undertakings The undersigned Registrant hereby undertakes: 1. To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement to: (i) include any prospectus required by Section 10(a)(3) of the Securities Act of 1933, as amended; (ii) reflect in the prospectus any facts or events arising after the effective date of the registration statement; and (iii) include any additional or changed material information on the plan of distribution. 2. For the purpose of determining liability under the Securities Act of 1933, as amended, each post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-16 3. To file a post-effective amendment to remove from registration any of the securities being registered which remain unsold at the termination of the offering. 4. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in a successful defense of any action, suit or proceeding) is asserted by a director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. 5. For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant under Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. 6. For purposes determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be as the initial bona fide offering thereof. II-17 Signatures In accordance with the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Amendment No. 1 to the Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Greenwich, State of Connecticut, on this 8th date of November, 1999. VDC COMMUNCATIONS, INC. By:/s/ Frederick A. Moran ------------------------- Chairman of the Board, Chief Executive Officer, Chief Financial Officer, and Director In accordance with the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 to the Registration Statement on Form S-1 has been signed by the following persons in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ Frederick A. Moran Chairman of the Board, Chief Executive November 8, 1999 - ---------------------- Officer, Director, and Chief Financial Frederick A. Moran Officer (Principal Executive, Financial and Accounting Officer) /s/* Director November 8, 1999 - ----------------------- Dr. Hussein Elkholy /s/* Director November 8, 1999 - ----------------------- James B. Dittman /s/* Director November 8, 1999 - ----------------------- Dr. Leonard Hausman *By: /s/ Frederick A. Moran --------------------------- Frederick A. Moran Attorney-in-fact
II-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 5.1 Opinion of Buchanan Ingersoll Professional Corporation 10.53 1998 Stock Incentive Plan, as Amended 10.54 Settlement, Release and Separation Agreement by and among VDC Communications, Inc. and William H. Zimmerling, dated October 1, 1999 10.55 Settlement, Release and Separation Agreement by and among VDC Communications, Inc. and Robert E. Warner, dated October 18, 1999 10.56 Form of Non-Qualified Stock Option Agreement 10.57 Incentive Stock Option Agreement between Frederick A. Moran and VDC Communications, Inc., dated October 1, 1999 10.58 Form of Incentive Stock Option Agreement 10.59 Form of Incentive Stock Option Agreement 10.60 Form of Securities Purchase Agreement for October 1999 10.61 Form of Registration Rights Agreement for October 1999 21.1 Subsidiaries of Registrant 23.1 Consent of BDO Seidman LLP, independent accountants 27.1 Financial Data Schedule
II-19 EX-5.1 2 EX-5.1 Buchanan Ingersoll Professional Corporation Eleven Penn Center, 14th Floor 1835 Market Street Philadelphia, Pennsylvania 19103-2895 November 8, 1999 VDC Communications, Inc. 75 Holly Hill Lane Greenwich, CT 06830 Gentlemen: We have acted as counsel to VDC Communications, Inc., a Delaware corporation (the "Company"), in connection with the filing by the Company of a registration statement on Form S-1 (the "Registration Statement"), under the Securities Act of 1933, as amended, relating to the registration of the following shares of the Company's common stock, $0.0001 par value per share (the "Common Stock"), all of which are to be offered by certain Selling Security Holders as set forth in the Registration Statement: 1. 8,875,164 shares of Common Stock (the "Shares"); and 2. 1,064,081 shares of Common Stock which may be issued, if at all, upon the exercise of warrants (the "Warrants"); In connection with the Registration Statement, we have examined such corporate records and documents, other documents, and such questions of law as we have deemed necessary or appropriate for purposes of this opinion. On the basis of such examination, it is our opinion that: 1. The issuance of the Shares has been duly and validly authorized, and the Shares are legally issued, fully paid and non-assessable; and 2. The shares of Common Stock to be issued upon the exercise of the Warrants have been duly and validly authorized and, when issued in accordance with the terms of the appropriate instrument evidencing the Warrants, including, without limitation, payment of the applicable exercise price with respect to the Warrants, will be legally issued, fully paid and non-assessable. November 8, 1999 Page -2- We hereby consent to the filing of this opinion as Exhibit 5.1 to the Registration Statement and to the reference to this firm under the heading "Legal Matters" in the Registration Statement. Very truly yours, BUCHANAN INGERSOLL PROFESSIONAL CORPORATION By:/s/ Stephen M. Cohen ----------------------- Stephen M. Cohen EX-10.53 3 EX-10.53 VDC COMMUNICATIONS, INC. 1998 STOCK INCENTIVE PLAN, AS AMENDED SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS. The name of the plan is the VDC Communications, Inc. 1998 Stock Incentive Plan (the "Plan"). The purpose of the Plan is to encourage and enable the officers, employees, directors and consultants of VDC Communications, Inc. (the "Company") and its Subsidiaries upon whose judgment, initiative and efforts the Company largely depends for the successful conduct of its business to acquire a proprietary interest in the Company. It is anticipated that providing such persons with a direct stake in the Company's welfare will assure a closer identification of their interests with those of the Company, thereby stimulating their efforts on the Company's behalf and strengthening their desire to remain with the Company. The following terms shall be defined as set forth below: "Act" means the Securities Exchange Act of 1934, as amended. "Award" or "Awards," except where referring to a particular category of grant under the Plan, shall include Incentive Stock Options, Non-Qualified Stock Options, Restricted Stock Awards, Stock Awards, Performance Share Awards and Stock Appreciation Rights. "Board" means the Board of Directors of the Company. "Code" means the Internal Revenue Code of 1986, as amended, and any successor Code, and related rules, regulations and interpretations. "Effective Date" means the date on which the Plan is approved by the stockholders as set forth in Section 19. "Fair Market Value" of the Stock on any given date means (i) if the principal market for the Stock is the American Stock Exchange, Inc. ("AMEX"), any other United States securities exchange or the National Market System of National Association of the Securities Dealers Automated Quotation System ("NASDAQ"), the Fair Market Value on any date shall be the closing price reported for the Stock on such exchange or system for such date or, if no sales were reported for such date, for the last day preceding such date for which a sale was reported, or (ii) if the principal market for the Stock is not a national securities exchange or the NASDAQ National Market System, and the Stock is admitted to quotation on NASDAQ, the Fair Market Value on any given date shall be the average of the highest bid and lowest asked prices of the Stock reported for such date or, if no bid and asked prices were reported for such date, for the last day preceding such date for which such prices were reported; and (iii) if the Fair Market Value cannot be determined on the basis previously set forth in this definition on the date that Fair Market Value is to be determined, the Board shall in good faith determine the Fair Market Value of the Stock on such date. "Incentive Stock Option" means any Stock Option designated and qualified as an "incentive stock option" as defined in Section 422 of the Code. "Independent Director" means a member of the Board who is not an employee or officer of the Company or any Subsidiary. "Non-Qualified Stock Option" means any Stock Option that is not an Incentive Stock Option. "Option" or "Stock Option" means any Option to purchase shares of Stock granted pursuant to Section 6. "Performance Share Award" means any Award granted pursuant to Section 12. "Restricted Stock Award" means any Award granted pursuant to Section 10. "Stock" means the Common Stock, par value $.0001 per share, of the Company, subject to adjustments pursuant to Section 14. "Stock Appreciation Right" or "SAR" means any Award granted pursuant to Section 7. "Stock Award" means any award granted pursuant to Section 11. "Subsidiary" means any corporation or other entity (other than the Company) in any unbroken chain of corporations or other entities, beginning with the Company, if each of the corporations or entities (other than the last corporation or entity in the unbroken chain) owns stock or other interests possessing 50% or more of the economic interest or the total combined voting power of all classes of stock or other interests in one of the other corporations or entities in the chain. SECTION 2. ADMINISTRATION. The Plan shall be administered by the full Board of Directors of the Company or a committee of such Board of Directors comprised of two or more "Non-Employee Directors" within the meaning of Rule 16b-3(a)(3) promulgated under the Act (the "Plan Administrator"). Subject to the provisions of the Plan, the Plan Administrator is authorized to: (a) construe the Plan and any Award under the Plan; (b) select the directors, officers, employees and consultants of the Company and its Subsidiaries to whom Awards may be granted; (c) determine the number of shares of Stock to be covered by any Award; (d) determine and modify from time to time the terms and conditions, including restrictions, of any Award and to approve the form of written instrument evidencing Awards; 2 (e) accelerate at any time the exercisability or vesting of all or any portion of any Award and/or to include provisions in awards providing for such acceleration; (f) impose limitations on Awards, including limitations on transfer and repurchase provisions; (g) extend the exercise period within which Stock Options may be exercised; and (h) determine at any time whether, to what extent, and under what circumstances Stock and other amounts payable with respect to an Award shall be deferred either automatically or at the election of the participant and whether and to what extent the Company shall pay or credit amounts constituting interest (at rates determined by the Plan Administrator) or dividends or deemed dividends on such deferrals. The determination of the Plan Administrator on any such matters shall be conclusive. SECTION 3. DELEGATION OF AUTHORITY TO GRANT AWARDS. The Plan Administrator, in its discretion, may delegate to the Co-Chairmen of the Company all or part of the Plan Administrator's authority and duties with respect to granting Awards to individuals who are not subject to the reporting provisions of Section 16 of the Act or "covered employees" within the meaning of Section 162(m) of the Code. The Plan Administrator may revoke or amend the terms of such a delegation at any time, but such revocation shall not invalidate prior actions of the Co-Chairmen that were consistent with the terms of the Plan. SECTION 4. ELIGIBILITY. Directors, officers, employees and consultants of the Company or its Subsidiaries who, in the opinion of the Plan Administrator, are mainly responsible for the continued growth and development and future financial success of the business shall be eligible to participate in the Plan. In addition, Independent Directors are eligible to receive an automatic grant of Stock Options pursuant to Section 9 hereof. SECTION 5. SHARES SUBJECT TO THE PLAN. The initial number of shares of Stock which may be issued pursuant to the Plan shall be 5,000,000. For purposes of the foregoing limitation, the shares of Stock underlying any Awards which are forfeited, canceled, reacquired by the Company, satisfied without the issuance of Stock or otherwise terminated (other than by exercise) shall be added back to the number of shares of Stock available for issuance under the Plan. Notwithstanding the foregoing, on and after the date that the Plan is subject to Section 162(m) of the Code, Stock Options with respect to no more than 1,000,000 shares of Stock may be granted to any one individual participant during any one calendar year period. To the extent that an SAR is granted in conjunction with an Option, the shares covered by such SAR and Option shall be counted only once. Common Stock to be issued under the Plan may be either authorized and unissued shares or shares held in treasury by the Company. 3 SECTION 6. STOCK OPTIONS. Options granted pursuant to the Plan may be either Options which are Incentive Stock Options or Non-Qualified Stock Options. Incentive Stock Options and Non-Qualified Stock Options shall be granted separately hereunder. The Plan Administrator, shall determine whether and to what extent Options shall be granted under the Plan and whether such Options granted shall be Incentive Stock Options or Non-Qualified Stock Options; provided, however, that: (a) Incentive Stock Options may be granted only to employees of the Company or any Subsidiary that is a "subsidiary corporation" within the meaning of Section 424(f) of the Code; and (b) No Incentive Stock Option may be granted following the tenth anniversary of the effective date of the Plan. The provisions of the Plan and any stock Option agreement pursuant to which Incentive Stock Options shall be issued shall be construed in a manner consistent with Section 422 of the Code (or any successor provision) and rules and regulations promulgated thereunder. SECTION 7. STOCK APPRECIATION RIGHTS. The Plan Administrator may, from time to time, subject to the provisions of the Plan, grant SARs to eligible participants. Such SARs may be granted (i) alone, (ii) simultaneously with the grant of an Option (either an Incentive Stock Option or Non-Qualified Stock Option) and in conjunction therewith or in the alternative thereto or (iii) subsequent to the grant of a Non-Qualified Stock Option and in conjunction therewith or in the alternative thereto. (a) An SAR shall entitle the holder upon exercise thereof to receive from the Company, upon a written request filed with the Secretary of the Company at its principal offices (the "Request"), (i) a number of shares of Stock (with or without restrictions as to substantial risk of forfeiture and transferability, as determined by the Plan Administrator in its sole discretion), (ii) an amount of cash, or (iii) any combination of shares of Stock and cash, as specified in the Request (but subject to the approval of the Plan Administrator in its sole discretion, at any time up to and including the time of payment, as to the making of any cash payment), having an aggregate Fair Market Value equal to the product of (i) the excess of the Fair Market Value, on the day of such Request, of one share of Stock over the exercise price per share specified in such SAR or its related Option, multiplied by (ii) the number of shares of Stock for which such SAR shall be exercised. (b) The exercise price of an SAR granted alone shall be determined by the Plan Administrator, but may not be less than the Fair Market Value of the underlying Stock on the date of grant. An SAR granted simultaneously with or subsequent to the grant of an Option and in conjunction therewith or in the alternative thereto shall have the same exercise price as the related Option, shall be transferable only upon the same terms and conditions as the related Option, and shall be exercisable only to the same extent as the related Option; provided, however, that an SAR, by its terms, shall be exercisable only when the Fair Market Value of the Stock subject to the SAR and related Option exceeds the exercise price thereof. 4 (c) Upon exercise of an SAR granted simultaneously with or subsequent to an Option and in the alternative thereto, the number of shares of Stock for which the related Option shall be exercisable shall be reduced by the number of shares of Stock for which the SAR shall have been exercised. The number of shares of Stock for which an SAR shall be exercisable shall be reduced upon any exercise of a related Option by the number of shares of Stock for which such Option shall have been exercised. (d) Any SAR shall be exercisable upon such additional terms and conditions as may be prescribed by the Plan Administrator. SECTION 8. TERMS OF OPTIONS AND SARS. Each Option or SAR granted under the Plan shall be evidenced by an agreement between the Company and the person to whom such Option or SAR is granted and shall be subject to the following terms and conditions: (a) Subject to adjustment as provided in Section 14 of this Plan, the price at which each share covered by an Option may be purchased shall be determined in each case by the Plan Administrator; provided, however, that such price shall not, in the case of an Incentive Stock Option, be less than the Fair Market Value of the underlying Stock at the time the Option is granted. If an optionee owns (or is deemed to own under applicable provisions of the Code and rules and regulations promulgated thereunder) more than ten percent (10%) of the combined voting power of all classes of the stock of the Company and an Option granted to such optionee is intended to qualify as an Incentive Stock Option, the Option price shall be no less than 110% of the Fair Market Value of the Common Stock covered by the Option on the date the Option is granted. (b) The aggregate Fair Market Value of shares of Stock with respect to which Incentive Stock Options are first exercisable by the optionee in any calendar year (under all plans of the Company) shall not exceed the limitations, if any, imposed by Section 422(d) of the Code (or any successor provision). If any Option designated as an Incentive Stock Option, either alone or in conjunction with any other Option or Options, exceeds the foregoing limitation, the portion of such Option in excess of such limitation shall automatically be reclassified (in whole share increments and without fractional share portions) as a Non-Qualified Stock Option, with later granted Options being so reclassified first. (c) Non-Qualified Stock Options and SARs shall not be transferable by the participant otherwise than by will or by the laws of descent and distribution or pursuant to a domestic relations order. After the death of the participant, the Non-Qualified Stock Option or SAR may be transferred to the Company upon such terms and conditions, if any, as the Plan Administrator and the personal representative or other person entitled to exercise the Option or SAR 5 may agree within the period specified in subsection 8(d)(iii) hereof. (d) An Option or SAR may be exercised in whole at any time, or in part from time to time, within such period or periods (not to exceed ten years from the granting of the Option in the case of an Incentive Stock Option) as may be determined by the Plan Administrator and set forth in the agreement (such period or periods being hereinafter referred to as the "Option Period"), provided that, unless the agreement provides otherwise: (i) If a participant who is an employee of the Company shall cease to be employed by the Company, all Options and SARs to which the employee is then entitled to exercise may be exercised only within three months after the termination of employment and within the Option Period or, if such termination was due to disability or retirement (as hereinafter defined), within two years after termination of employment and within the Option Period. Notwithstanding the foregoing: (a) in the event that any termination of employment shall be for Cause (as defined herein) or the participant becomes an officer or director of, a consultant to or employed by a Competing Business (as defined herein), during the Option Period, then any and all Options and SARs held by such participant shall forthwith terminate and all vested Options shall be forfeited; and (b) the Plan Administrator may, in its sole discretion, extend the Option Period of any Option or SAR for up to three years from the date of termination of employment regardless of the original Option Period. For purposes of the Plan, retirement shall mean the termination of employment with the Company, other than for Cause, at any time after the age 65. For purposes of this Plan, the term "Cause" shall mean (a) with respect to an individual who is party to a written agreement with the Company which contains a definition of "cause" or "for cause" or words of similar import for purposes of termination of employment thereunder by the Company, "cause" or "for cause" as defined in such agreement; (b) in all other cases (I) the willful commission by an employee of a criminal or other act that causes substantial economic damage to the Company or substantial injury to the business reputation of the Company; (II) the commission of an act of fraud in the performance of such person's duties to or on behalf of the Company; or (III) the continuing willful failure of a person to perform the duties of such person to the Company (other than a failure to perform duties resulting from such person's incapacity due to illness) after written notice thereof (specifying the particulars thereof in reasonable detail) and a reasonable opportunity to cure such failure are given to the person by the Board of 6 Directors of the Company or the Plan Administrator. For purposes of the Plan, no act, or failure to act, on the part of any person shall be considered "willful" unless done or omitted to be done by the person other than in good faith and without reasonable belief that the person's action or omission was in the best interest of the Company. For purposes of this Plan, the term "Competing Business" shall mean: any person, corporation or other entity engaged in the business of (a) providing telecommunications services or (b) selling or attempting to sell any product or service which is the same as or similar to products or services sold by the Company within the last year prior to termination of such person's employment, consultant relationship or directorship, as the case may be, hereunder. (ii) If a participant who is a director of the Company shall cease to serve as a director of the Company, any Options or SARs then exercisable by such director may be exercised only within three months after the cessation of service and within the Option Period unless such cessation was due to disability, in which case such optionee may exercise such Option or SAR within two years after cessation of service and within the Option Period. Notwithstanding the foregoing: (a) if any cessation of service as a director was the result of removal for Cause or the participant becomes an officer or director of, a consultant to or employed by a Competing Business during the Option Period, any Options and SARs held by such participant shall forthwith terminate; and (b) the Plan Administrator may in its sole discretion extend the Option Period of any Option or SAR for up to three years from the date of cessation of service regardless of the original Option Period; (iii) If the participant shall die during the Option Period, any Options or SARs then exercisable may be exercised only within two years after the participant's death and within the Option Period and only by the participant's personal representative or persons entitled thereto under the participant's will or the laws of descent and distribution; (iv) The Option or SAR may not be exercised for more shares (subject to adjustment as provided in Section 14) after the termination of the participant's employment, cessation of service as a director or the participant's death, as the case may be, than the participant was entitled to purchase thereunder at the time of the termination of the participant's employment or the participant's death; and 7 (v) If a participant owns (or is deemed to own under applicable provisions of the Code and regulations promulgated thereunder) more than 10% of the combined voting power of all classes of stock of the Company (or any parent or subsidiary corporation of the Company) and an Option granted to such participant is intended to qualify as an Incentive Stock Option, the Option by its terms may not be exercisable after the expiration of five years from the date such Option is granted. (e) The Option exercise price of each share purchased pursuant to an Option shall be paid in full at the time of each exercise (the "Payment Date") of the Option (i) in cash; (ii) by delivering to the Company a notice of exercise with an irrevocable direction to a broker-dealer registered under the Act to sell a sufficient portion of the shares and deliver the sale proceeds directly to the Company to pay the exercise price; (iii) in the discretion of the Plan Administrator, through the delivery to the Company of previously-owned shares of Common Stock having an aggregate Fair Market Value equal to the Option exercise price of the shares being purchased pursuant to the exercise of the Option; provided, however, that shares of Common Stock delivered in payment of the Option price must have been held by the participant for at least six (6) months in order to be utilized to pay the Option price; (iv) in the discretion of the Plan Administrator, through an election to have shares of Common Stock otherwise issuable to the optionee withheld to pay the exercise price of such Option; or (v) in the discretion of the Plan Administrator, through any combination of the payment procedures set forth in subsections (i)-(iv) of this Section 8(e). (f) The Plan Administrator, in its discretion, may authorize "stock retention Options" which provide, upon the exercise of an Option previously granted under this Plan (a "prior Option"), using previously owned shares, for the automatic issuance of a new Option under this Plan with an exercise price equal to the current Fair Market Value and for up to the number of shares equal to the number of previously-owned shares delivered in payment of the exercise price of the prior Option. Such stock retention Option shall have the same Option Period as the prior Option. (g) Nothing contained in the Plan nor in any Award agreement shall confer upon any participant any right with respect to the continuance of employment by the Company nor interfere in any way with the right of the Company to terminate his employment or change his compensation at any time. (h) The Plan Administrator may include such other terms and conditions not inconsistent with the foregoing as the Plan Administrator shall approve. Without limiting the generality of the foregoing sentence, 8 the Plan Administrator shall be authorized to determine that Options or SARs shall be exercisable in one or more installments during the term of the Option, subject to the attainment of performance goals and objectives and the right to exercise may be cumulative as determined by the Plan Administrator. SECTION 9. INDEPENDENT DIRECTOR OPTIONS. Anything to the contrary notwithstanding, each Independent Director who is first elected or appointed to serve as a director commencing June 1, 1998 shall automatically be granted Non-Qualified Stock Options to purchase 25,000 shares of Stock. The Option exercise price for Options granted to Independent Directors under the Plan will be equal the Fair Market Value of the Stock on the date of grant. Options granted to Independent Directors under the foregoing provisions will be granted on the date that such Independent Director is first elected or appointed to serve as a director and, so long as the Independent Director continuously remains a director, will vest in equal annual installments over three years commencing on the anniversary of the date of grant and will expire ten years after grant; provided, however, that if the optionee ceases to serve as a director, the Options will terminate ninety days after such cessation. SECTION 10. RESTRICTED STOCK AWARDS. (a) The Plan Administrator may grant Restricted Stock Awards to any officer, employee or consultant of the Company and its Subsidiaries. A Restricted Stock Award entitles the recipient to acquire shares of Stock subject to such restrictions and conditions as the Plan Administrator may determine at the time of grant ("Restricted Stock"). Conditions may be based on continuing employment (or other business relationship) and/or achievement of pre-established performance goals and objectives. (b) Upon execution of a written instrument setting forth the Restricted Stock Award and paying any applicable purchase price, a participant shall have the rights of a shareholder with respect to the Stock subject to the Restricted Stock Award, including, but not limited to the right to vote and receive dividends with respect thereto; provided, however, that shares of Stock subject to Restricted Stock Awards that have not vested shall be subject to the restrictions on transferability described in Section 10(d) below. Unless the Plan Administrator shall otherwise determine, certificates evidencing the Restricted Stock shall remain in the possession of the Company until such Restricted Stock is vested as provided in Section 10(c) below. (c) The Plan Administrator at the time of grant shall specify the date or dates and/or the attainment of pre-established performance goals, objectives and other conditions on which Restricted Stock shall become vested, subject to such further rights of the Company or its assigns as may be specified in the instrument evidencing the Restricted Stock Award. If the grantee or the Company, as the case may be, fails to achieve the designated goals or the grantee's relationship with the Company is terminated 9 prior to the expiration of the vesting period, the grantee shall forfeit all shares of Stock subject to the Restricted Stock Award which have not then vested. (d) Unvested Restricted Stock may not be sold, assigned transferred, pledged or otherwise encumbered or disposed of except as specifically provided herein or in the written instrument evidencing the Restricted Stock Award. SECTION 11. STOCK AWARDS. The Plan Administrator may, in its sole discretion, grant (or sell at a purchase price determined by the Plan Administrator) a Stock Award to any officer, employee or consultant of the Company or its Subsidiaries, pursuant to which such individual may receive shares of Stock free of any vesting restrictions (a "Stock Award") under the Plan. Stock Awards may be granted or sold as described in the preceding sentence in respect of past services or other valid consideration, or in lieu of any cash compensation due to such individual. SECTION 12. PERFORMANCE SHARE AWARDS. A Performance Share Award is an Award entitling the recipient to acquire shares of Stock upon the attainment of specified performance goals. The Plan Administrator may make Performance Share Awards independent of or in connection with the granting of any other Award under the Plan. Performance Share Awards may be granted under the Plan to any officer, employee or consultant of the Company or its Subsidiaries, including those who qualify for awards under other performance plans of the Company. The Plan Administrator in its sole discretion shall determine whether and to whom Performance Share Awards shall be made, the performance goals applicable under each such Award, the periods during which performance is to be measured, and all other limitations and conditions applicable to the awarded Performance Shares; provided, however, that the Plan Administrator may rely on the performance goals and other standards applicable to other performance plans of the Company in setting the standards for Performance Share Awards under the Plan. SECTION 13. TAX WITHHOLDING. (a) Whenever shares are to be issued or cash is to be paid under the Plan, the Company shall have the right to require the participant to remit to the Company an amount sufficient to satisfy federal, state and local tax withholding requirements prior to the delivery of any certificate for shares or any proceeds; provided, however, that in the case of a participant who receives an Award of shares under the Plan which is not fully vested, the participant shall remit such amount on the first business day following the Tax Date. The "Tax Date" for purposes of this Section 13 shall be the date on which the amount of tax to be withheld is determined. If a participant makes a disposition of shares acquired upon the exercise of an Incentive Stock Option within either two years after the Option was granted or one year after its exercise by the participant, the participant shall promptly notify the Company and the Company shall have the right to require the participant to pay to the Company an amount sufficient to satisfy federal, state and local tax withholding requirements. 10 (b) A participant who is obligated to pay the Company an amount required to be withheld under applicable tax withholding requirements may pay such amount (i) in cash; (ii) in the discretion of the Plan Administrator, through the delivery to the Company of previously-owned shares of Common Stock having an aggregate Fair Market Value on the Tax Date equal to the tax obligation provided that the previously owned shares delivered in satisfaction of the withholding obligations must have been held by the participant for at least six (6) months; or (iii) in the discretion of the Plan Administrator, through a combination of the procedures set forth in subsections (i) and (ii) of this Section 13(b). (c) A participant who is obligated to pay to the Company an amount required to be withheld under applicable tax withholding requirements in connection with either the exercise of a Non-Qualified Stock Option, or the receipt of a Restricted Stock Award, Stock Award or Performance Share Award under the Plan may, in the discretion of the Plan Administrator, elect to satisfy this withholding obligation, in whole or in part, by requesting that the Company withhold shares of stock otherwise issuable to the participant having a Fair Market Value on the Tax Date equal to the amount of the tax required to be withheld; provided, however, that shares may be withheld by the Company only if such withheld shares have vested. Any fractional amount shall be paid to the Company by the participant in cash or shall be withheld from the participant's next regular paycheck. (d) An election by a participant to have shares of stock withheld to satisfy federal, state and local tax withholding requirements pursuant to Section 13(c) must be in writing and delivered to the Company prior to the Tax Date. SECTION 14. ADJUSTMENT OF NUMBER AND PRICE OF SHARES. Any other provision of the Plan notwithstanding: (a) (If, through or as a result of any merger, consolidation, sale of all or substantially all of the assets of the Company, reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar transaction, the outstanding shares of Stock are increased or decreased or are exchanged for a different number or kind of shares or other securities of the Company, or additional shares or new or different shares or other securities of the Company or other non-cash assets are distributed with respect to such shares of Stock or other securities, the Plan Administrator shall make an appropriate or proportionate adjustment in (i) the number of Stock Options that can be granted to any one individual participant, (ii) the number and kind of shares or other securities subject to any then outstanding Awards under the Plan, and (iii) the price for each 11 share subject to any then outstanding Stock Options under the Plan, without changing the aggregate exercise price (i.e., the exercise price multiplied by the number of shares) as to which such Stock Options remain exercisable. The adjustment by the Plan Administrator shall be final, binding and conclusive. (b) In the event that, by reason of a corporate merger, consolidation, acquisition of property or stock, separation, reorganization or liquidation, the Board of Directors shall authorize the issuance or assumption of a stock Option or stock Options in a transaction to which Section 424(a) of the Code applies, then, notwithstanding any other provision of the Plan, the Plan Administrator may grant an Option or Options upon such terms and conditions as it may deem appropriate for the purpose of assumption of the old Option, or substitution of a new Option for the old Option, in conformity with the provisions of Code Section 424(a) and the rules and regulations thereunder, as they may be amended from time to time. (c) No adjustment or substitution provided for in this Section 14 shall require the Company to issue or to sell a fractional share under any stock Option agreement or share award agreement and the total adjustment or substitution with respect to each stock Option and share award agreement shall be limited accordingly. (d) If during any one (1) year, a tender offer is, or tender offers are, made for, in the aggregate, more than 40% of the outstanding shares for any class of Company stock registered under the Act (a "Fundamental Transaction") or the Company, through one of its executive officers, executes a definitive agreement or plan providing for: (i) the dissolution or liquidation of the Company, (ii) a merger, reorganization or consolidation in which the Company is acquired by another person or entity (other than a holding company formed by the Company), (iii) the sale of all or substantially all of the assets of the Company to an unrelated person or entity, or (iv) the sale of more than 50% of the outstanding shares of any class of Company stock registered under the Act to an unrelated person or entity (in each case, a "Fundamental Transaction"), then all or any unexercised portion of the Awards granted hereunder shall be terminated ninety (90) days after written notice to the Award holders of such proposed Fundamental Transaction, during which ninety (90) day period the Award holders may exercise the Award or any part thereof, notwithstanding the fact that such Awards may not have vested as of such period. If the proposed Fundamental Transaction is later abandoned and not consummated, such Awards, to the extent not so exercised, shall be deemed reinstated on their original terms set forth herein, as if never terminated. 12 SECTION 15. AMENDMENT AND DISCONTINUANCE. The Board of Directors may alter, amend, suspend or discontinue the Plan, provided that no such action shall deprive any person without such person's consent of any rights theretofore granted pursuant hereto. SECTION 16. COMPLIANCE WITH GOVERNMENTAL REGULATIONS. Notwithstanding any provision of the Plan or the terms of any agreement entered into pursuant to the Plan, the Company shall not be required to issue any shares hereunder prior to registration of the shares subject to the Plan under the Securities Act of 1933 or the Act, if such registration shall be necessary, or before compliance by the Company or any participant with any other provisions of either of those acts or of regulations or rulings of the Securities and Exchange Commission thereunder, or before compliance with other federal and state laws and regulations and rulings thereunder, including the rules of AMEX, any applicable exchange or of the NASDAQ Stock Market. The Company shall use its best efforts to effect such registrations and to comply with such laws, regulations and rulings forthwith upon advice by its counsel that any such registration or compliance is necessary. SECTION 17. COMPLIANCE WITH SECTION 16. With respect to persons subject to Section 16 of the Act, transactions under this Plan are intended to comply with all applicable conditions of Rule 16b-3 (or its successor rule and shall be construed to the fullest extent possible in a manner consistent with this intent ). To the extent that any Award fails to so comply, it shall be deemed to be modified to the extent permitted by law and to the extent deemed advisable by the Plan Administrator in order to comply with Rule 16b-3. . SECTION 18. PARTICIPATION BY FOREIGN NATIONALS. The Plan Administrator may, in order to fulfill the purposes of the Plan and without amending the Plan, modify grants to foreign nationals or United States citizens employed abroad in order to recognize differences in local law, tax policy or custom. SECTION 19. EFFECTIVE DATE OF PLAN. The Plan became effective on September 4, 1998, the date of approval and adoption of the Plan by requisite vote of the holders of the outstanding shares of Stock. 13 EX-10.54 4 EX-10.54 SETTLEMENT, RELEASE AND SEPARATION AGREEMENT -------------------------------------------- THIS SETTLEMENT, RELEASE AND SEPARATION AGREEMENT (the "Agreement"), made this 1st day of October, 1999, (the "Date of this Agreement") by and among VDC COMMUNICATIONS, INC. (the "Company"), a Delaware corporation and WILLIAM H. ZIMMERLING (the "Employee"), an adult individual presently residing within the State of Colorado (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 Payments. Within ten (10) calendar days after the complete execution of this Agreement (the "Execution Date"), the Company shall pay to the Employee a lump sum of $1,304.86 (which is equivalent to one (1) week of gross pay totaling $1,666.67, less any state, local and federal withholding, employment or income taxes payable with respect thereto), twenty-five (25) percent of which is being paid to induce the Employee to release any claims he may have under the Age Discrimination in Employment Act (ADEA). The Employee acknowledges that, but for the execution of this Agreement, the Company is not otherwise required to pay this amount to the Employee. 2. Certain Benefits. 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 and VDC Telecommunications, Inc. ("VDC"). 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 VDC 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 The following Section addresses the treatment of the Company stock options and VDC Corporation Ltd. ("VDC Bermuda") stock options granted to the Employee pursuant to an Option to Purchase Common Shares of VDC 1 Corporation Ltd. dated April 1, 1998 by and between the Employee and VDC Bermuda (the "April Option Agreement") representing options to purchase 26,500 shares of VDC Bermuda (the "April Options") and a VDC Communications Incentive Stock Option Agreement dated December 8, 1998 by and between the Employee and the Company (the "December Option Agreement") representing options to purchase 33,500 shares of Company common stock (the "December Options"). (a) On the Execution Date, the Employee shall deliver to the Company at its offices in Greenwich, Connecticut the original April Option Agreement. For thirty (30) calendar days following the Termination Date, the Employee may exercise the 12,500 vested April Options. Thereafter, the April Option Agreement and the April Options, to the extent not exercised, shall be canceled, forfeited, and shall otherwise be null, void, and unenforceable. (b) On the Execution Date, the Employee shall deliver to the Company at its offices in Greenwich, Connecticut the original December Option Agreement. Within (20) calendar days after the Execution Date, the Employee shall receive an amended option agreement (the "Amended Agreement") with the following terms: (1) options to purchase 25,000 shares of Company common stock shall be vested as of twenty (20) calendar days after the Execution Date (the "Vested Options"); (2) options to purchase 5,000 shares of Company common stock shall vest one (1) year from the Execution Date if, in the sole discretion of the Company's Board of Directors, the Employee has complied with the terms of this Agreement (the "Additional Options"); (3) if in the sole discretion of the Company's Board of Directors the Employee does not comply with the terms of this Agreement at any time during the one year following the Execution Date, then the Additional Options shall be forfeited and shall otherwise be null, void, and unenforceable; (4) the Vested Options shall expire three years from the Termination Date; the Additional Options shall expire three years from the Termination Date unless earlier terminated in accordance with provisions above; (5) the Employee shall not exercise the Vested Options or the Additional Options until the Company has filed a Registration Statement on Form S-8 with the Securities and Exchange Commission for its 1998 Stock Incentive Plan and said Registration Statement is effective; (6) other than the Vested Options and the Additional Options, the remaining December Options shall be canceled and shall otherwise be null, void, and unenforceable as of the Termination Date; 2 (7) the Additional Options, unless forfeited, and the Vested Options shall be included in any Company stock option repricing covering more than 50% of the Company's outstanding stock options that occurs within six (6) months from the Date of this Agreement; and (8) other standard provisions. The Employee acknowledges that, but for the execution of this Agreement, the Employee would not be entitled to the Amended Agreement or the stock options represented thereby. 3. No Reimbursement of Business Expenses. The Employee has no out-of-pocket business expenses that have not been reimbursed. 4. Resignation and Termination of Services. 4.1 Employee's employment with the Company and its affiliates (including VDC) shall end forever on October 1, 1999 (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, 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., and all of the foregoing's successors, predecessors and assigns. 4.3 The Employment Agreement by and between VDC Bermuda and the Employee dated April 1, 1998, as amended, is hereby terminated. 5. Surrender of Rights to Securities. Other than as provided for in this Agreement, Employee for himself and his heirs, assigns, executors and administrators hereby surrenders and forfeits any and all rights to or interests in the stock, options, warrants, notes, debentures, any other security of any form or type of, and any type of payment from, the VDC Entities. 6. Confidentiality and Nonsolicitation. 6.1 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 3 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. 6.2 Employee shall not solicit for employment, directly or indirectly, any person who is, or within one (1) year prior to the Execution Date was, an officer, director, manager, employee, or consultant of the VDC Entities. 7. 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. 8. Release by Employee. 8.1 Except for the Company's obligations set forth in this Agreement and the limitation in Section 8.7, 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. 8.2 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: 4 (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. 8.3 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 post-employment health or group insurance benefits; or (iv) any claims to attorneys' fees or other indemnities. 8.4 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. 5 8.5 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 8. 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. 8.6. 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. 8.7 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. 9. Release by Company. 9.1 Except for Employee's obligations set forth in this Agreement and the limitation in Section 9.3, the Company and its subsidiaries and affiliates (the "VDC 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 Employee and his heirs, executors and administrators, 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 VDC Releasors ever had, now have, or hereafter may have, or which their successors or assigns hereafter may have by reason of any matter, cause or thing whatsoever from the beginning of the world to the Date of this Agreement. 9.2 Except as set forth in Section 9.3 and subject to Employee fulfilling his obligations as set forth in this Agreement, the VDC Releasors also agree that they will not file any claim for legal or equitable relief against Employee for any matter within the scope of the release set forth in Section 9.1. The Company agrees that it will provide no assistance or advisory services (unless required by law or compelled by legal process), to any third parties in connection with any disputes between such third parties and Employee. Nothing contained herein shall restrict the Company's or its affiliate's ability 6 to cooperate in any manner they deem appropriate with any law enforcement agency inquiry, investigation or prosecution. 9.3 The VDC Releasors, and each one of them, reserve their right to assert claims for contribution or indemnification in the event of an action asserted by a third party against the VDC Releasors, or any one of them. 10. Certain Additional Covenants. 10.1 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. 10.2 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. 10.3 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. 10.4 The Employee shall not incur any expenses, obligations, or liabilities on behalf of the VDC Entities. 10.5 The Employee shall, as requested by the Company or VDC, fully cooperate in effecting a smooth transition of the Employee's responsibilities to others. To accomplish this, the Employee shall be available to the Company or VDC for a maximum of six (6) hours during the six (6) months following the Execution Date. For example, when requested the Employee will promptly and fully respond to inquiries from the Company, VDC and their representatives. To the extent the Employee spends more than six (6) hours during the six (6) months following the Execution Date responding to requests from the Company or VDC, the Company shall pay the Employee a per hour rate of $45 per hour; provided, however, that the Employee shall inform the Company and VDC in writing prior to working more than six (6) hours during the six (6) months following the Execution Date and shall not work in excess of such time unless so instructed by the Company and VDC in writing. To the extent the Employee incurs out-of-pocket expenses (such as postage costs or telephone charges) in assisting the Company or VDC 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. 7 10.6 In addition to the provisions of Section 10.5, if requested by either the Company or VDC, the Employee shall serve as a witness for the Company or VDC and otherwise assist and cooperate with the Company and VDC, in any dispute involving the Company or VDC and any one or more of StarCom Telecom International, LLC, StarCom Telecom, Inc., Robert Caron, American Access, NACT Telecommunications, Inc., World Access, Zions Credit Corporation or the foregoing's subsidiaries, affiliates, divisions, predecessors, successors or assigns. The Company shall reimburse the Employee for any out-of-pocket expenses, preapproved by the Company in writing, incurred by the Employee in complying with the terms of this Section 10.6. Moreover, the Company shall pay the Employee a per diem rate of $360 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 10.6. 10.7 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. By way of illustration, but not limitation, the Employee shall comply with any applicable trading and reporting requirements. 10.8 The Employee shall not interfere with the Company's or VDC's telecommunications or computer networks or otherwise seek to obtain unauthorized benefits or perquisites therefrom. 11. Representations and Warranties of Employee. 11.1 The Employee knows of no action or failure to act on the part of the Employee which could form the basis for a claim or complaint against the VDC Entities, by any third party, except as disclosed in Schedule 11.1. 11.2 The Employee has not during the term of his employment disclosed to third parties, without the knowledge or permission of the Company, Confidential Information about the VDC Entities. 11.3 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. 11.4 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. 11.5 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, 8 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. 12. Representations and Warranties of the Company. 12.1 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. 12.2 To the extent permitted by law, the Company represents that it will use its reasonable best efforts to remove the Employee from all state corporate and federal FCC filings within thirty (30) days of the Execution Date. 12.3 The Company represents that within one (1) day after the Execution Date, VDC will cancel the Employee's voice mailbox and greeting at VDC's offices in Aurora, Colorado. 13. Representations and Warranties of Both Parties. Each Party represents and warrants that: 13.1 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. 13.2 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. 13.3 It has entered into this Agreement voluntarily and of its own volition without any pressure or influence whatsoever by any individual or entity. 13.4 It has not sold, assigned, transferred, conveyed, or otherwise disposed of any of the claims settled by this Agreement. 14. Certain Additional Agreements. 14.1 The Employee agrees that the Company would be irreparably harmed by any actual or threatened violation of Section 10.1 that involves making negative remarks and the disclosure of the existence, terms, or amount payable under this Agreement, or Section 6 that involves disclosure or use of confidential information or trade secrets or solicitation of employees, and that 9 the Company will be entitled to an injunction prohibiting the Employee from committing any such violation. 14.2 Should the Employee attempt to challenge the enforceability of this Agreement, the Employee agrees that he shall first deliver a cashier's check to the Company for all amounts he received pursuant to this Agreement and shall invite the Company to cancel this Agreement. If the Company accepts, in writing, the Employee's offer to cancel this Agreement, then this Agreement shall be canceled. If it rejects the Employee's offer, the Company shall notify the Employee and retain the funds represented by the cashier's check pending a determination of the enforceability of this Agreement. If the Agreement is determined to be enforceable, the Company will return the funds represented by the cashier's check to the Employee less any amounts the Employee owes the Company. If this Agreement is not enforceable, the Company or its designee shall keep the funds represented by the cashier's check. 15. Miscellaneous 15.1 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 in Denver, Colorado 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 and the state courts in Denver, Colorado and the United States District Court in the District of Colorado, in Denver, Colorado shall have exclusive subject matter and in personam jurisdiction over the parties for purposes of obtaining interim injunctive relief. 15.2 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. 15.3 This Agreement shall be construed in accordance with the laws of the State of Connecticut without regard to principles of conflict of laws. 15.4 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 10 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. 15.5 No rule of construction requiring interpretation against the drafting party shall apply to the interpretation of this Agreement. 15.6 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 make the cash payment provided for in Section 1 or the option amendment provided for in Section 2(b), 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. 15.7 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. 15.8 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. 15.9 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. 15.10 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. 11 15.11 In connection with the execution of this Agreement, the Company has prepared the letter of recommendation attached hereto as Exhibit "B" and incorporated herein by reference. The Employee may use this letter in his discretion. In connection with the execution of this Agreement, the Company has prepared the letter attached hereto as Exhibit "C" and incorporated herein by reference. The Company may use this letter in its discretion. 15.12 This Agreement shall be binding on and inure to the benefit of the Parties hereto and their respective heirs, representatives, successors and assigns. 15.13 This Agreement shall not be construed as an admission of guilt or wrongdoing by either Party. 15.14 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 15.6 AND YOU SHOULD CONSULT YOUR ATTORNEY. - -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the Parties have executed this Agreement the day and year first above written. VDC COMMUNICATIONS, INC. By:/s/ Frederick A. Moran ---------------------- Frederick A. Moran Chairman and CEO /s/ William H. Zimmerling ------------------------- William H. Zimmerling 12 SCHEDULE 11.1 NONE. 13 EXHIBIT "A" CERTIFICATION ------------- I, William H. Zimmerling, 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 October 1, 1999 (the "Agreement"), as of October 9, 1999. VDC Communications, Inc. may rely upon this Certification in forwarding to me certain payments provided for in the Agreement. --------------------- William H. Zimmerling --------------------- Dated State of --------------------- County of -------------------- Before me, the undersigned, personally appeared William H. Zimmerling, 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: --------------- 14 VDC COMMUNICATIONS, INC. 75 HOLLY HILL LANE GREENWICH, CONNECTICUT 06830 - -------------------------------------------------------------------------------- TEL: 203-869-5100 FREDERICK A. MORAN FAX: 203-552-0908 CHAIRMAN & CEO HTTP://www.vdccorp.com EXHIBIT "B" October 1, 1999 To Whom It May Concern: This letter will confirm that William H. Zimmerling was an employee of VDC Communications, Inc. ("VDC") from April 1, 1998 to October 1, 1999. During his time as an employee of VDC, Mr. Zimmerling served as: (1) an executive officer of VDC, specifically Vice President; (2) Executive Vice President of VDC Telecommunications, Inc., a wholly-owned subsidiary of VDC; and (3) Chairman of the Board, Chief Executive Officer, Secretary and Treasurer of WorldConnectTelecom.com, Inc., a wholly-owned subsidiary of VDC Telecommunications, Inc. During his time at VDC, Mr. Zimmerling's salary was $80,000 per annum. During Mr. Zimmerling's employment at VDC, he demonstrated a commitment to VDC's success, a take-charge attitude and was professionally cooperative. Very truly yours, Frederick A. Moran Chairman & CEO FAM/lg 15 VDC COMMUNICATIONS, INC. 75 HOLLY HILL LANE GREENWICH, CONNECTICUT 06830 - -------------------------------------------------------------------------------- TEL: 203-869-5100 FREDERICK A. MORAN FAX: 203-552-0908 CHAIRMAN & CEO HTTP://www.vdccorp.com EXHIBIT "C" To [Addressee] RE: WILLIAM H. ZIMMERLING Dear Addressee: This letter shall serve as notice that William H. Zimmerling has resigned from all positions he held with VDC Communications, Inc., VDC Telecommunications, Inc., and WorldConnectTelecom.com, Inc. in order to pursue other interests. As such, Mr. Zimmerling no longer has authority to act on behalf of any such entities. Please direct inquiries regarding this matter to me at the telephone number and address above. Very truly yours, Frederick A. Moran Chairman & CEO FAM/lg 16 State of Connecticut County of Fairfield Before me, the undersigned, personally appeared Frederick A. Moran, known to me (or satisfactorily proven) to be the person who executed the within document on behalf of the entity whose name is subscribed to the within instrument and acknowledged that he executed the same for the purposes therein contained. In witness whereof, I hereunto set my hand. /s/ Jeanne Bauge O'Malley ------------------------- (Notary Public) Dated: 10/4/99 ------------------- 17 State of Colorado County of Arapahoe Before me, the undersigned, personally appeared William H. Zimmerling, known to me (or satisfactorily proven) to be the person who executed the within instrument and acknowledged that he executed the same for the purposes therein contained. In witness whereof, I hereunto set my hand. /s/ Carol A. Turecek -------------------- (Notary Public) Dated: 10/1/99 -------------- 18 EX-10.55 5 EX-10.55 SETTLEMENT, RELEASE AND SEPARATION AGREEMENT -------------------------------------------- THIS SETTLEMENT, RELEASE AND SEPARATION AGREEMENT (the "Agreement"), made this 18th day of October, 1999, (the "Date of this Agreement") by and among VDC COMMUNICATIONS, INC. (the "Company"), a Delaware corporation and ROBERT E. WARNER (the "Employee"), an adult individual presently residing within the State of Colorado (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 Payments. The Company shall pay to the Employee, during the Company's normal pay cycles, severance pay, based upon the Employee's salary as of the Termination Date, from the Termination Date (as defined below) through November 15, 1999, twenty-five (25) percent of which is being paid to induce the Employee to release any claims he may have under the Age Discrimination in Employment Act (ADEA). The Employee acknowledges that, but for the execution of this Agreement, the Company is not otherwise required to pay this amount to the Employee. 2. Certain Benefits. As of the Termination Date, 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 and VDC Telecommunications, Inc. ("VDC"). After the Termination Date, the Employee shall have no rights under any of those plans, except as follows: 2.1 The Company shall continue the Employee's medical benefits through the month of October 1999 and shall pay 1/2 of the monthly premium payment for the Employee's current Kaiser Permanente medical insurance for the month of November 1999. Thereafter, neither the Company nor the VDC entities shall have any further obligation to pay for medical benefits for the Employee or his family. The Employee acknowledges that, but for the execution of this Agreement, the Company is not otherwise required to continue the Employee's medical benefits through the month of October 1999 or pay 1/2 of the monthly premium payment for the Employee's current Kaiser Permanente medical insurance for the month of November 1999. 1 2.2 The following Section addresses the treatment of the Company stock options and VDC Corporation Ltd. ("VDC Bermuda") stock options granted to the Employee pursuant to an Option to Purchase Common Shares of VDC Corporation Ltd. dated April 1, 1998 by and between the Employee and VDC Bermuda (the "April Option Agreement") representing options to purchase 5,000 shares of VDC Bermuda (the "April Options"), an Option to Purchase Common Shares of VDC Corporation Ltd. dated September 2, 1998 by and between the Employee and VDC Bermuda (the "September Option Agreement") representing options to purchase 2,500 shares of VDC Bermuda (the "September Options") and a VDC Communications Incentive Stock Option Agreement dated December 8, 1998 by and between the Employee and the Company (the "December Option Agreement") representing options to purchase 42,500 shares of Company common stock (the "December Options"). (a) Upon executing this Agreement, the Employee shall deliver to the Company at its offices in Greenwich, Connecticut the original April Option Agreement, the original September Option Agreement, and the original December Option Agreement. The original April Option Agreement, the original September Option Agreement, and the original December Option Agreement shall be superseded and rendered null and void by the Amended Agreement (as defined below). (b) Within thirty (30) calendar days after date on which this Agreement is completely executed (the "Execution Date") and provided that the Employee has returned to the Company the original April Option Agreement, the original September Option Agreement, and the original December Option Agreement, the Employee shall receive from the Company, and shall promptly execute and return to the Company, an amended option agreement (the "Amended Agreement") with the following terms: (1) options to purchase 25,000 shares of Company common stock shall be vested as of thirty (30) calendar days after the Execution Date (the "Vested Options"); (2) options to purchase 25,000 shares of Company common stock shall vest one (1) year from the Execution Date if, in the sole discretion of the Company's Board of Directors, the Employee has complied with the terms of this Agreement (the "Additional Options"); (3) if in the sole discretion of the Company's Board of Directors the Employee does not comply with the terms of this Agreement at any time during the one year following the Execution Date, then the Additional Options shall be forfeited and shall otherwise be null, void, and unenforceable; (4) the Vested Options shall expire three years from the Termination Date; the Additional Options shall expire three years from the Termination Date unless earlier terminated in accordance with provisions above; 2 (5) the Employee shall not exercise the Vested Options or the Additional Options until the Company has filed a Registration Statement on Form S-8 with the Securities and Exchange Commission for its 1998 Stock Incentive Plan, as amended, and said Registration Statement is effective; (6) the per share exercise price for the shares subject to the option represented by the Amended Agreement shall be $1.25 per share; and (7) other standard provisions. The Employee acknowledges that, but for the execution of this Agreement, the Employee would not be entitled to the Amended Agreement or the stock options represented thereby. (c) The Amended Agreement and the options represented thereby shall be issued in accordance with the Company's 1998 Stock Incentive Plan, as amended. The Employee hereby consents to and approves the amendment to the Company's 1998 Stock Incentive Plan and will promptly execute any additional documents provided to the Employee by the Company to further signify his approval of such amendment. The Employee represents and warrants to the Company that the Company provided the Employee with a copy of the Company's 1998 Stock Incentive Plan, as amended, prior to his execution of this Agreement and that he read, understood, and had an opportunity to ask questions about such plan. 3. No Reimbursement of Business Expenses. The Employee has no out-of-pocket business expenses that have not been reimbursed. 4. Resignation and Termination of Services. 4.1 Employee's employment with the Company and its affiliates (including VDC) ended forever on October 11, 1999 (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, 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., and all of the foregoing's successors, predecessors and assigns. 4.3 The Employment Agreement by and between VDC Bermuda and the Employee dated March 15, 1998, as amended, is hereby terminated. 3 5. Surrender of Rights to Securities and Registration Rights. Other than as provided for in this Agreement, Employee for himself and his heirs, assigns, executors and administrators hereby surrenders and forfeits any and all rights to or interests in the stock, options, warrants, notes, debentures, any other security of any form or type of, and any type of payment from, the VDC Entities. The Registration Rights Agreements by and between the Employee and VDC Bermuda dated April 1, 1998 and September 2, 1998 (collectively the "Registration Rights Agreements") are hereby terminated. Upon executing this Agreement, the Employee shall deliver to the Company at its offices in Greenwich, Connecticut the Registration Rights Agreements. 6. Confidentiality and Nonsolicitation. 6.1 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. 6.2 Employee shall not solicit for employment, directly or indirectly, any person who is, or within one (1) year prior to the Execution Date was, an officer, director, manager, employee, or consultant of the VDC Entities. 7. 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. 8. Release by Employee. 8.1 Except for the Company's obligations set forth in this Agreement and the limitation in Section 8.7, the Employee and his spouse, assigns, heirs, executors, administrators, and representatives (collectively the "Releasors") for and in consideration of the undertakings set forth in this 4 Agreement and intending to be legally bound, do hereby REMISE, RELEASE AND FOREVER DISCHARGE the Company and its subsidiaries, affiliates, predecessors, successors, assigns, and all of its present and former managers, members, officers, directors, shareholders, employees, agents, representatives, attorneys, insurers, and all of the foregoing's present and former officers, directors, partners, principals, employees, members, managers, shareholders, trustees, attorneys, insurers, agents, representatives, and their respective spouses, successors, heirs, executors, estates, administrators, representatives, attorneys and agents (collectively the "VDC Released Parties"), from and against all claims, causes of action, demands, or suits of any kind, known or unknown 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 through the Date of this Agreement. 8.2 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. 8.3 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 5 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 post-employment health or group insurance benefits; or (iv) any claims to attorneys' fees or other indemnities. 8.4 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. 8.5 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 8. 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. 8.6. 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. 8.7 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. 9. Release by Company. 6 9.1 Except for Employee's obligations set forth in this Agreement and the limitation in Section 9.3, the Company and its subsidiaries and affiliates (the "VDC 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 Employee and his heirs, executors and administrators, 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 VDC Releasors ever had, now have, or hereafter may have, or which their successors or assigns hereafter may have by reason of any matter, cause or thing whatsoever from the beginning of the world to the Date of this Agreement. 9.2 Except as set forth in Section 9.3 and subject to Employee fulfilling his obligations as set forth in this Agreement, the VDC Releasors also agree that they will not file any claim for legal or equitable relief against Employee for any matter within the scope of the release set forth in Section 9.1. The Company agrees that it will provide no assistance or advisory services (unless required by law or compelled by legal process), to any third parties in connection with any disputes between such third parties and Employee. Nothing contained herein shall restrict the Company's or its affiliates' ability to cooperate in any manner they deem appropriate with any law enforcement agency inquiry, investigation or prosecution. 9.3 The VDC Releasors, and each one of them, reserve their right to assert claims for contribution or indemnification in the event of an action asserted by a third party against the VDC Releasors, or any one of them. 10. Certain Additional Covenants. 10.1 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. 10.2 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. 10.3 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. 10.4 The Employee shall not incur any expenses, obligations, or liabilities on behalf of the VDC Entities. 7 10.5 The Employee shall, as requested by the Company or VDC, fully cooperate in effecting a smooth transition of the Employee's responsibilities to others. To accomplish this, the Employee shall be available to the Company or VDC for a maximum of six (6) hours during the six (6) months following the Execution Date. For example, when requested the Employee will promptly and fully respond to inquiries from the Company, VDC and their representatives. To the extent the Employee spends more than six (6) hours during the six (6) months following the Execution Date responding to requests from the Company or VDC, the Company shall pay the Employee a per hour rate of $45 per hour; provided, however, that the Employee shall inform the Company and VDC in writing prior to working more than six (6) hours during the six (6) months following the Execution Date and shall not work in excess of such time unless so instructed by the Company and VDC in writing. To the extent the Employee incurs out-of-pocket expenses (such as postage costs or telephone charges) in assisting the Company or VDC 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. 10.6 In addition to the provisions of Section 10.5, if requested by either the Company or VDC, the Employee shall serve as a witness for the Company or VDC and otherwise assist and cooperate with the Company and VDC, in any dispute involving the Company or VDC and any one or more of StarCom Telecom International, LLC, StarCom Telecom, Inc., Robert Caron, American Access, NACT Telecommunications, Inc., World Access, Zions Credit Corporation or the foregoing's subsidiaries, affiliates, divisions, predecessors, successors or assigns. The Company shall reimburse the Employee for any out-of-pocket expenses, preapproved by the Company in writing, incurred by the Employee in complying with the terms of this Section 10.6. Moreover, the Company shall pay the Employee a per diem rate of $360 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 10.6. 10.7 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. By way of illustration, but not limitation, the Employee shall comply with any applicable trading and reporting requirements. 10.8 The Employee shall not interfere with the Company's or VDC's telecommunications or computer networks or otherwise seek to obtain unauthorized benefits or perquisites therefrom. 10.9 The Company shall give to the Employee the Fujitsu Lifebook laptop computer (the "Computer") purchased by the Company for use by the Employee during his employment. Upon request by the Company, the Employee shall promptly provide the Company with a copy of all files on the Computer associated with or pertaining to the business of the VDC Entities, including, but not limited to, those containing the names, addresses, and telephone numbers 8 of vendors, business contacts, and other individuals and entities. The Employee acknowledges that, but for the execution of this Agreement, the Employee would not be entitled to keep the Computer. 11. Representations and Warranties of Employee. 11.1 The Employee knows of no action or failure to act on the part of the Employee which could form the basis for a claim or complaint against the VDC Entities, by any third party, except as disclosed in Schedule 11.1. 11.2 The Employee has not during the term of his employment disclosed to third parties, without the knowledge or permission of the Company, Confidential Information about the VDC Entities. 11.3 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. 11.4 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. 11.5 Except for the Computer, the Employee has returned to the Company all discs, contracts, notes, business cards, 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. 12. Representations and Warranties of the Company. 12.1 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. 13. Representations and Warranties of Both Parties. Each Party represents and warrants that: 13.1 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. 9 13.2 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. 13.3 It has entered into this Agreement voluntarily and of its own volition without any pressure or influence whatsoever by any individual or entity. 13.4 It has not sold, assigned, transferred, conveyed, or otherwise disposed of any of the claims settled by this Agreement. 14. Certain Additional Agreements. 14.1 The Employee agrees that the Company would be irreparably harmed by any actual or threatened violation of Section 10.1 that involves making negative remarks and the disclosure of the existence, terms, or amount payable under this Agreement, or Section 6 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. 14.2 Should the Employee attempt to challenge the enforceability of this Agreement, the Employee agrees that he shall first deliver a cashier's check to the Company for all amounts he received pursuant to this Agreement and shall invite the Company to cancel this Agreement. If the Company accepts, in writing, the Employee's offer to cancel this Agreement, then this Agreement shall be canceled. If it rejects the Employee's offer, the Company shall notify the Employee and retain the funds represented by the cashier's check pending a determination of the enforceability of this Agreement. If the Agreement is determined to be enforceable, the Company will return the funds represented by the cashier's check to the Employee less any amounts the Employee owes the Company. If this Agreement is not enforceable, the Company or its designee shall keep the funds represented by the cashier's check. 15. Miscellaneous 15.1 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 in Denver, Colorado 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 and the state courts in Denver, Colorado and the United States District Court in the District of Colorado, in Denver, Colorado shall 10 have exclusive subject matter and in personam jurisdiction over the parties for purposes of obtaining interim injunctive relief. 15.2 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. 15.3 This Agreement shall be construed in accordance with the laws of the State of Connecticut without regard to principles of conflict of laws. 15.4 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. 15.5 No rule of construction requiring interpretation against the drafting party shall apply to the interpretation of this Agreement. 15.6 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 President or Chief Executive Officer of the Company at its principal offices. 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. A condition precedent to the Company being obligated to make the cash payment provided for in Section 1 or providing the option amendment referenced in Section 2.2(b), is that the Employee shall execute and deliver to the Company the Certification attached hereto as Exhibit "A" and incorporated herein by reference. 15.7 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. 15.8 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. 11 15.9 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 effect on the meaning of the provisions hereof. 15.10 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. 15.11 In connection with the execution of this Agreement, the Company has prepared the letter of recommendation attached hereto as Exhibit "B" and incorporated herein by reference. The Employee may use this letter in his discretion. In connection with the execution of this Agreement, the Company has prepared the letter attached hereto as Exhibit "C" and incorporated herein by reference. The Company may use this letter in its discretion. 15.12 This Agreement shall be binding on and inure to the benefit of the Parties hereto and their respective heirs, representatives, successors and assigns. 15.13 This Agreement shall not be construed as an admission of guilt or wrongdoing by either Party. 15.14 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 15.6 AND YOU SHOULD CONSULT YOUR ATTORNEY. - -------------------------------------------------------------------------------- 12 IN WITNESS WHEREOF, the Parties have executed this Agreement the day and year first above written. COMPANY: VDC COMMUNICATIONS, INC. By:/s/ Frederick A. Moran ------------------------ Frederick A. Moran Chairman and CEO EMPLOYEE: /s/ Robert E. Warner --------------------------- Robert E. Warner 13 SCHEDULE 11.1 NONE. 14 EXHIBIT "A" CERTIFICATION ------------- I, Robert E. Warner, 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 October 18, 1999 (the "Agreement"), as of October 26, 1999. VDC Communications, Inc. may rely upon this Certification in forwarding to me certain payments provided for in the Agreement. ------------------ Robert E. Warner ------------------ Dated State of ------------------------------ County of ----------------------------- Before me, the undersigned, personally appeared Robert E. Warner, 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: ------------ 15 VDC COMMUNICATIONS, INC. 75 HOLLY HILL LANE GREENWICH, CONNECTICUT 06830 TEL: 203-869-5100 FREDERICK A. MORAN FAX: 203-552-0908 CHAIRMAN & CEO HTTP://www.vdccorp.com EXHIBIT "B" October 18, 1999 To Whom It May Concern: This letter will confirm that Robert E. Warner was an employee of VDC Communications, Inc. ("VDC") from March 15, 1998 to October 11, 1999. During his time as an employee of VDC, Mr. Warner initially served as Senior Account Executive and was later promoted to Vice President, Sales and Marketing. During his time at VDC, Mr. Warner's salary was initially $60,000 per annum and was later increased to $72,500 per annum. During Mr. Warner's employment at VDC, he demonstrated a commitment to VDC's success, a take-charge attitude and was professionally cooperative. Mr. Warner consistently worked a long workday on VDC's behalf. He was always a team player and remained fully dedicated to VDC's success. It has been a pleasure to work with him at VDC. I recommend Mr. Warner highly as an excellent employee and responsible, competent business executive. Very truly yours, Frederick A. Moran Chairman & CEO FAM/lg 16 VDC COMMUNICATIONS, INC. 75 HOLLY HILL LANE GREENWICH, CONNECTICUT 06830 TEL: 203-869-5100 FREDERICK A. MORAN FAX: 203-552-0908 CHAIRMAN & CEO HTTP://www.vdccorp.com EXHIBIT "C" To [Addressee] RE: ROBERT E. WARNER Dear Addressee: This letter shall serve as notice that Robert E. Warner has resigned from all positions he held with VDC Communications, Inc. and VDC Telecommunications, Inc. in order to pursue other interests. As such, Mr. Warner no longer has authority to act on behalf of any such entities. Please direct inquiries regarding this matter to me at the telephone number and address above. Very truly yours, Frederick A. Moran Chairman & CEO FAM/lg 17 State of Connecticut County of Fairfield Before me, the undersigned, personally appeared Frederick A. Moran, known to me (or satisfactorily proven) to be the person who executed the within document on behalf of the entity whose name is subscribed to the within instrument and acknowledged that he executed the same for the purposes therein contained. In witness whereof, I hereunto set my hand. /s/ Jeanne Bauge O'Malley ------------------------- (Notary Public) Dated: 10/20/99 ------------------- 18 State of Colorado County of Arapahoe Before me, the undersigned, personally appeared Robert E. Warner, known to me (or satisfactorily proven) to be the person who executed the within document and acknowledged that he executed the same for the purposes therein contained. In witness whereof, I hereunto set my hand. /s/ Sinath K.R. Thompson ------------------------ (Notary Public) Dated: 10/18/99 ------------------ 19 EX-10.56 6 EX-10.56 The following Form of Non-Qualified Stock Option Agreement was entered into with the following directors:
Name / Optionee Date of Document Superseded Date 1 Date 2 James B. Dittman November 4, 1998 November 4 November 3 Dr. Hussein Elkholy July 8, 1998 July 8 July 7 Dr. Leonard Hausman November 4, 1998 November 4 November 3
1999-OP ----- Optionee THIS AGREEMENT SUPERSEDES AND RENDERS NULL AND VOID A PRIOR OPTION TO PURCHASE COMMON SHARES OF VDC CORPORATION LTD. BETWEEN VDC CORPORATION LTD. AND MADE AS OF . VDC COMMUNICATIONS, INC. ------------------------ FORM OF NON-QUALIFIED STOCK OPTION AGREEMENT UNDER THE VDC COMMUNICATIONS, INC. 1998 STOCK INCENTIVE PLAN, AS AMENDED (THE "PLAN") This Agreement is made as of October 1, 1999 (the "Grant Date") by and between VDC Communications, Inc., a Delaware corporation (the "Corporation"), and the person named on Schedule A hereto (the "Optionee"). WHEREAS, Optionee was a valuable agent of VDC Corporation Ltd. ("VDC Bermuda") or one of its subsidiaries and VDC Bermuda considered it desirable and in its best interest that Optionee be given an inducement to acquire a proprietary interest in VDC Bermuda and an incentive to advance the interests of VDC Bermuda by granting the Optionee an option to purchase shares of common stock of VDC Bermuda; WHEREAS, VDC Bermuda and the Optionee entered into an Option to Purchase Common Shares of VDC Corporation Ltd. dated [Date 1], 1998 (the "Original Option Agreement") representing an option to purchase 25,000 shares of VDC Bermuda common stock (the "Original Option"); WHEREAS, VDC Bermuda merged with and into the Corporation in November 1998 (the "Merger"); WHEREAS, pursuant to the merger agreement documenting the Merger, the Corporation agreed to assume and continue all VDC Bermuda stock options; WHEREAS, the Corporation wishes to consolidate all outstanding VDC Bermuda options under the Plan; 2 WHEREAS, the Board of Directors of the Corporation has repriced the per share exercise price for the shares subject to the Original Option; and WHEREAS, the parties wish to enter into a new agreement that reflects the new exercise price, contains certain other terms, and supersedes and renders null and void the Original Option Agreement and the Original Option. NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree that as of the Grant Date, the Corporation hereby grants Optionee an option to purchase from it, upon the terms and conditions set forth in the Plan and this Agreement, that number of shares of the authorized and unissued common stock of the Corporation (the "Common Stock") as is set forth on Schedule A hereto. 1. Terms of Stock Option. The option to purchase Common Stock granted hereby is subject to the terms, conditions, and covenants set forth in the Plan as well as the following: (a) This option shall constitute a Non-Qualified Stock Option which is not intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended; (b) The per share exercise price for the shares subject to this option shall be the Fair Market Value (as defined in the Plan) of the Common Stock on the Grant Date, which exercise price is set forth on Schedule A hereto; (c) This option shall vest in accordance with the vesting schedule set forth on Schedule A hereto; and (d) No portion of this option may be exercised more than ten (10) years from the [Date 1], 1998. (e) The Optionee shall not exercise the option represented by this Agreement in whole or in part until the Corporation has filed a Registration Statement on Form S-8 with the Securities and Exchange Commission for the Plan and said Registration Statement is effective. 2. Payment of Exercise Price. The option may be exercised, in part or in whole, only by written request to the Corporation accompanied by payment of the exercise price in full either: (i) in cash for the shares with respect to which it is exercised; (ii) by delivering to the Corporation a notice of exercise with an irrevocable direction to a broker-dealer registered under the Securities Exchange Act of 1934, as amended, to sell a sufficient portion of the 3 shares and deliver the sale proceeds directly to the Corporation to pay the exercise price; (iii) in the discretion of the Plan Administrator, through the delivery to the Corporation of previously-owned shares of Common Stock having an aggregate Fair Market Value equal to the option exercise price of the shares being purchased pursuant to the exercise of the Option; provided, however, that shares of Common Stock delivered in payment of the option price must have been held by the Optionee for at least six (6) months in order to be utilized to pay the option price; (iv) in the discretion of the Plan Administrator, through an election to have shares of Common Stock otherwise issuable to the Optionee withheld to pay the exercise price of such Option; or (v) in the discretion of the Plan Administrator, through any combination of the payment procedures set forth in Subsections (i) - (iv) of this paragraph. 3. Miscellaneous. (a) This Agreement is binding upon the parties hereto and their respective heirs, personal representatives, successors and assigns. (b) This Agreement will be governed and interpreted in accordance with the laws of the State of Connecticut, and may be executed in more than one counterpart, each of which shall constitute an original document. (c) No alterations, amendments, changes or additions to this agreement will be binding upon either the Corporation or Optionee unless reduced to writing and signed by both parties. (d) All controversies or claims arising out of this Agreement shall be determined by binding arbitration, conducted at the Corporation's offices in Greenwich, Connecticut, or at such other location designated by the Corporation, before the American Arbitration Association. (e) No rule of construction requiring interpretation against the drafting party shall apply to the interpretation of this Agreement. (f) This Agreement supersedes and renders null and void the Original Option Agreement and the Original Option. (g) The recitals to this Agreement constitute a part of this Agreement. (h) If any provision of this Agreement is held to be invalid, the remaining provisions shall remain in full force and effect. 4 (i) 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. IN WITNESS WHEREOF, the parties have executed this Agreement as of the Grant Date. CORPORATION: VDC COMMUNICATIONS, INC. By:/s/ Frederick A. Moran ------------------------ Frederick A. Moran Chief Executive Officer OPTIONEE: ---------------------------- 5 Optionee SCHEDULE A 1. Grant Date: October 1, 1999 2. Number of Shares of Common Stock covered by the Option: 25,000 3. Exercise Price (100% of Fair Market Value of Common Stock on the Grant Date): $1.25 4. The Option shall vest in accordance with the following schedule: (i) 8,333 shares shall vest on [Date 1], 1999, provided Optionee serves as a member of the Corporation's Board of Directors continuously from [Date 1], 1998 through [Date 2], 1999; (ii) 8,333 shares shall vest on [Date 1], 2000, provided Optionee serves as a member of the Corporation's Board of Directors continuously from [Date 1], 1998 through [Date 2], 2000; and (iii) 8,334 shares shall vest on [Date 1], 2001, provided Optionee serves as a member of the Corporation's Board of Directors continuously from [Date 1], 1998 through [Date 2], 2001. 6 EX-10.57 7 EX-10.57 1998-OP5/A Frederick A. Moran Optionee THIS AGREEMENT SUPERSEDES AND RENDERS NULL AND VOID A PRIOR INCENTIVE STOCK OPTION AGREEMENT BETWEEN THE PARTIES MADE AS OF DECEMBER 8, 1998. VDC COMMUNICATIONS, INC. ------------------------ INCENTIVE STOCK OPTION AGREEMENT UNDER THE VDC COMMUNICATIONS, INC. 1998 STOCK INCENTIVE PLAN, AS AMENDED (THE "PLAN") This Agreement is made as of October 1, 1999, (the "Grant Date") by and between VDC Communications, Inc., a Delaware corporation (the "Corporation") and Frederick A. Moran (the "Optionee"). WHEREAS, Optionee is an employee of the Corporation or one of its subsidiaries and the Corporation, in December 1998, considered it desirable and in its best interest that Optionee be given an inducement to acquire a proprietary interest in the Corporation and an incentive to advance the interests of the Corporation and granted the Optionee an option to purchase shares of common stock of the Corporation (the "Common Stock"); and WHEREAS, the parties entered into an Incentive Stock Option Agreement dated December 8, 1998 (the "December Option Agreement") representing an option to purchase 200,000 shares of Corporation Common Stock (the "December Option"); WHEREAS, the Board of Directors of the Corporation has repriced the per share exercise price for the shares subject to the December Option; and WHEREAS, the parties wish to enter into a new agreement that reflects the new exercise price, and supersedes and renders null and void the December Option Agreement and the December Option. NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree that as of the Grant Date, the Corporation hereby grants Optionee an option to purchase from it, upon the terms and conditions set forth in the Plan (a copy of which is attached hereto) and this Agreement, that number of shares of the authorized and unissued Common Stock of the Corporation as is set forth on Schedule A hereto. 1. Terms of Stock Option. The option to purchase Common Stock granted herein is subject to the terms, conditions, and covenants set forth in the Plan as well as the following: (a) This option shall constitute an Incentive Stock Option which is intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended; (b) The per share exercise price for the shares subject to this option shall be higher than 110% of the Fair Market Value (as defined in the Plan) of the Common Stock on the Grant Date, which exercise price is set forth on Schedule A hereto; (c) This option shall vest in accordance with the vesting schedule set forth on Schedule A hereto; and (d) No portion of this option may be exercised more than five (5) years from December 8, 1998. 2. Payment of Exercise Price. The option may be exercised, in part or in whole, only by written request to the Corporation accompanied by payment of the exercise price in full either: (i) in cash for the shares with respect to which it is exercised; (ii) by delivering to the Corporation a notice of exercise with an irrevocable direction to a broker-dealer registered under the Securities Exchange Act of 1934, as amended, to sell a sufficient portion of the shares and deliver the sale proceeds directly to the Corporation to pay the exercise price; (iii) in the discretion of the Plan Administrator, through the delivery to the Corporation of previously-owned shares of Common Stock having an aggregate Fair Market Value equal to the option exercise price of the shares being purchased pursuant to the exercise of the Option; provided, however, that shares of Common Stock delivered in payment of the option price must have been held by the Optionee for at least six (6) months in order to be utilized to pay the option price; (iv) in the discretion of the Plan Administrator, through an election to have shares of Common Stock otherwise issuable to the Optionee withheld to pay the exercise price of such Option; or (v) in the discretion of the Plan Administrator, through any combination of the payment procedures set forth in Subsections (i) - (iv) of this paragraph. 3. Miscellaneous. (a) This Agreement and the option represented hereby may not be assigned or transferred in any manner except by will or by the laws of descent and distribution. (b) This Agreement will be governed and interpreted in accordance with the laws of the State of Connecticut, and may be executed in more than one counterpart, each of which shall constitute an original document. (c) No alterations, amendments, changes or additions to this agreement will be binding upon either the Corporation or Optionee unless reduced to writing and signed by both parties. (d) All controversies or claims arising out of this Agreement shall be determined by binding arbitration, conducted at the Corporation's offices in Greenwich, Connecticut, or at such other location designated by the Corporation, before the American Arbitration Association (the "AAA"). (e) No rule of construction requiring interpretation against the drafting party shall apply to the interpretation of this Agreement. (f) This Agreement supersedes and renders null and void the December Option Agreement and the December Option. (g) The recitals to this Agreement constitute a part of this Agreement. (h) If any provision of this Agreement is held to be invalid, the remaining provisions shall remain in full force and effect. In witness whereof, the parties have executed this Agreement as of the Grant Date. CORPORATION: VDC COMMUNICATIONS, INC. By:/s/ Frederick A. Moran ------------------------- Frederick A. Moran Chief Executive Officer OPTIONEE: /s/ Frederick A. Moran ---------------------- Frederick A. Moran Frederick A. Moran Optionee SCHEDULE A 1. Grant Date: October 1, 1999 2. Number of Shares of Common Stock covered by the Option: 200,000 3. Exercise Price (higher than 110% of Fair Market Value of Common Stock on the Grant Date): $1.38 4. The Option shall vest in accordance with the following schedule: (i) 40,000 shares shall vest on December 8, 1999, provided Optionee remains continuously employed by the Corporation from December 8, 1998 through December 7, 1999; (ii) 40,000 shares shall vest on December 8, 2000, provided Optionee remains continuously employed by the Corporation from December 8, 1998 through December 7, 2000; (iii) 40,000 shares shall vest on December 8, 2001, provided Optionee remains continuously employed by the Corporation from December 8, 1998 through December 7, 2001; (iv) 40,000 shares shall vest on December 8, 2002, provided Optionee remains continuously employed by the Corporation from December 8, 1998 through December 7, 2002; and (v) 40,000 shares shall vest on December 8, 2003, provided Optionee remains continuously employed by the Corporation from December 8, 1998 through December 7, 2003. EX-10.58 8 EX-10.58 The following Form of Incentive Stock Option Agreement was entered into with the following executive officers:
Name / Optionee Date of Document Number of Date 1 Date 2 Annual Vesting Amt Superseded Options Clayton F. Moran June 1, 1998 10,000 June 1 May 31 2,000 Charles W. Mulloy February 1, 1998 10,000 Feb. 1 Jan. 31 2,000 Charles W. Mulloy September 2, 1998 50,000 Sept. 2 Sept. 1 10,000
1999-OP ---- ----------- Optionee THIS AGREEMENT SUPERSEDES AND RENDERS NULL AND VOID A PRIOR OPTION TO PURCHASE COMMON SHARES OF VDC CORPORATION LTD. BETWEEN VDC CORPORATION LTD. AND MADE AS OF . VDC COMMUNICATIONS, INC. ------------------------ FORM OF INCENTIVE STOCK OPTION AGREEMENT UNDER THE VDC COMMUNICATIONS, INC. 1998 STOCK INCENTIVE PLAN, AS AMENDED (THE "PLAN") This Agreement is made as of October 1, 1999, (the "Grant Date") by and between VDC Communications, Inc., a Delaware corporation (the "Corporation") and (the Optionee"). WHEREAS, Optionee was an employee of VDC Corporation Ltd. ("VDC Bermuda") or one of its subsidiaries and VDC Bermuda, on [DATE 1], 1998, considered it desirable and in its best interest that Optionee be given an inducement to acquire a proprietary interest in VDC Bermuda and an incentive to advance the interests of VDC Bermuda and granted the Optionee an option to purchase shares of common stock of VDC Bermuda; and WHEREAS, VDC Bermuda and the Optionee entered into an Option to Purchase Common Shares of VDC Corporation Ltd. dated [DATE 1], 1998 (the "Original Option Agreement") representing an option to purchase shares of VDC Bermuda common stock (the "Original Option"); WHEREAS, VDC Bermuda merged with and into the Corporation in November 1998 (the "Merger"); WHEREAS, pursuant to the merger agreement documenting the Merger, the Corporation agreed to assume and continue all VDC Bermuda stock options; WHEREAS, the Corporation wishes to consolidate all outstanding VDC Bermuda options under the Plan; WHEREAS, the Board of Directors of the Corporation has repriced the per share exercise price for the shares subject to the Original Option; and WHEREAS, the parties wish to enter into a new agreement that reflects the new exercise price, contains certain other terms, and supersedes and renders null and void the Original Option Agreement and the Original Option. NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree that as of the Grant Date, the Corporation hereby grants Optionee an option to purchase from it, upon the terms and conditions set forth in the Plan (a copy of which is attached hereto) and this Agreement, that number of shares of the authorized and unissued common stock of the Corporation (the "Common Stock") as is set forth on Schedule A hereto. 1. Terms of Stock Option. The option to purchase Common Stock granted herein is subject to the terms, conditions, and covenants set forth in the Plan as well as the following: (a) This option shall constitute an Incentive Stock Option which is intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended; (b) The per share exercise price for the shares subject to this option shall be 100% of the Fair Market Value (as defined in the Plan) of the Common Stock on the Grant Date, which exercise price is set forth on Schedule A hereto; (c) This option shall vest in accordance with the vesting schedule set forth on Schedule A hereto; and (d) No portion of this option may be exercised more than ten (10) years from [DATE 1], 1998. 2 (e) The Optionee shall not exercise the option represented by this Agreement in whole or in part until the Corporation has filed a Registration Statement on Form S-8 with the Securities and Exchange Commission for the Plan and said Registration Statement is effective. 2. Payment of Exercise Price. The option may be exercised, in part or in whole, only by written request to the Corporation accompanied by payment of the exercise price in full either: (i) in cash for the shares with respect to which it is exercised; (ii) by delivering to the Corporation a notice of exercise with an irrevocable direction to a broker-dealer registered under the Securities Exchange Act of 1934, as amended, to sell a sufficient portion of the shares and deliver the sale proceeds directly to the Corporation to pay the exercise price; (iii) in the discretion of the Plan Administrator, through the delivery to the Corporation of previously-owned shares of Common Stock having an aggregate Fair Market Value equal to the option exercise price of the shares being purchased pursuant to the exercise of the Option; provided, however, that shares of Common Stock delivered in payment of the option price must have been held by the Optionee for at least six (6) months in order to be utilized to pay the option price; (iv) in the discretion of the Plan Administrator, through an election to have shares of Common Stock otherwise issuable to the Optionee withheld to pay the exercise price of such Option; or (v) in the discretion of the Plan Administrator, through any combination of the payment procedures set forth in Subsections (i) - (iv) of this paragraph. 3. Miscellaneous. (a) This Agreement and the option represented hereby may not be assigned or transferred in any manner except by will or by the laws of descent and distribution. (b) This Agreement will be governed and interpreted in accordance with the laws of the State of Connecticut, and may be executed in more than one counterpart, each of which shall constitute an original document. (c) No alterations, amendments, changes or additions to this agreement will be binding upon either the Corporation or Optionee unless reduced to writing and signed by both parties. (d) All controversies or claims arising out of this Agreement shall be determined by binding arbitration, conducted at the Corporation's offices in Greenwich, Connecticut, or at such other location designated by the Corporation, before the American Arbitration Association. 3 (e) No rule of construction requiring interpretation against the drafting party shall apply to the interpretation of this Agreement. (f) This Agreement supersedes and renders null and void the Original Option Agreement and the Original Option. (g) The recitals to this Agreement constitute a part of this Agreement. (h) If any provision of this Agreement is held to be invalid, the remaining provisions shall remain in full force and effect. (i) 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. In witness whereof, the parties have executed this Agreement as of the Grant Date. CORPORATION: VDC COMMUNICATIONS, INC. By:/s/ Frederick A. Moran ---------------------- Frederick A. Moran Chief Executive Officer OPTIONEE: ------------------------- 4 Optionee SCHEDULE A 1. Grant Date: October 1, 1999 2. Number of Shares of Common Stock covered by the Option: 3. Exercise Price (100% of Fair Market Value of Common Stock on the Grant Date): $1.25 4. The Option shall vest in accordance with the following schedule: (i) shares shall vest on [DATE 1], 1999, provided Optionee remains continuously employed by the Corporation, or its subsidiaries, from [DATE 1], 1998 through [DATE 2], 1999; (ii) shares shall vest on [DATE 1], 2000, provided Optionee remains continuously employed by the Corporation, or its subsidiaries, from [DATE 1], 1998 through [DATE 2], 2000; (iii) shares shall vest on [DATE 1], 2001, provided Optionee remains continuously employed by the Corporation, or its subsidiaries, from [DATE 1], 1998 through [DATE 2], 2001; (iv) shares shall vest on [DATE 1], 2002, provided Optionee remains continuously employed by the Corporation, or its subsidiaries, from [DATE 1], 1998 through [DATE 2], 2002; and (v) shares shall vest on [DATE 1], 2003, provided Optionee remains continuously employed by the Corporation, or its subsidiaries, from [DATE 1], 1998 through [DATE 2], 2003. 5 EX-10.59 9 EX-10.59 The following Form of Incentive Stock Option Agreement was entered into with the following executive officers:
Name / Optionee Number of Options Annual Vesting Amount Clayton F. Moran 45,000 9,000 Charles W. Mulloy 40,000 8,000
1998-OP /A ---------- Optionee THIS AGREEMENT SUPERSEDES AND RENDERS NULL AND VOID A PRIOR INCENTIVE STOCK OPTION AGREEMENT BETWEEN THE PARTIES MADE AS OF DECEMBER 8, 1998. VDC COMMUNICATIONS, INC. ------------------------ FORM OF INCENTIVE STOCK OPTION AGREEMENT UNDER THE VDC COMMUNICATIONS, INC. 1998 STOCK INCENTIVE PLAN, AS AMENDED (THE "PLAN") This Agreement is made as of October 1, 1999, (the "Grant Date") by and between VDC Communications, Inc., a Delaware corporation (the "Corporation") and (the "Optionee"). WHEREAS, Optionee is an employee of the Corporation or one of its subsidiaries and the Corporation, in December 1998, considered it desirable and in its best interest that Optionee be given an inducement to acquire a proprietary interest in the Corporation and an incentive to advance the interests of the Corporation and granted the Optionee an option to purchase shares of common stock of the Corporation (the "Common Stock"); and WHEREAS, the parties entered into an Incentive Stock Option Agreement dated December 8, 1998 (the "December Option Agreement") representing an option to purchase shares of Corporation Common Stock (the "December Option"); WHEREAS, the Board of Directors of the Corporation has repriced the per share exercise price for the shares subject to the December Option; and WHEREAS, the parties wish to enter into a new agreement that reflects the new exercise price, and supersedes and renders null and void the December Option Agreement and the December Option. NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree that as of the Grant Date, the Corporation hereby grants Optionee an option to purchase from it, upon the terms and conditions set forth in the Plan (a copy of which is attached hereto) and this Agreement, that number of shares of the authorized and unissued Common Stock of the Corporation as is set forth on Schedule A hereto. 1. Terms of Stock Option. The option to purchase Common Stock granted herein is subject to the terms, conditions, and covenants set forth in the Plan as well as the following: (a) This option shall constitute an Incentive Stock Option which is intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended; (b) The per share exercise price for the shares subject to this option shall be 100% of the Fair Market Value (as defined in the Plan) of the Common Stock on the Grant Date, which exercise price is set forth on Schedule A hereto; (c) This option shall vest in accordance with the vesting schedule set forth on Schedule A hereto; and (d) No portion of this option may be exercised more than ten (10) years from December 8, 1998. 2. Payment of Exercise Price. The option may be exercised, in part or in whole, only by written request to the Corporation accompanied by payment of the exercise price in full either: (i) in cash for the shares with respect to which it is exercised; (ii) by delivering to the Corporation a notice of exercise with an irrevocable direction to a broker-dealer registered under the Securities Exchange Act of 1934, as amended, to sell a sufficient portion of the shares and deliver the sale proceeds directly to the Corporation to pay the exercise price; (iii) in the discretion of the Plan Administrator, through the delivery to the Corporation of previously-owned shares of Common Stock having an aggregate Fair Market Value equal to the option exercise price of the shares being purchased pursuant to the exercise of the Option; provided, however, that shares of Common Stock delivered in payment of the option price must have been held by the Optionee for at least six (6) months in order to be utilized to pay the option price; (iv) in the discretion of the Plan Administrator, through an election to have shares of Common Stock otherwise issuable to the Optionee withheld to pay the exercise price of such Option; or (v) in the discretion of the Plan Administrator, through any combination of the payment procedures set forth in Subsections (i) - (iv) of this paragraph. 3. Miscellaneous. (a) This Agreement and the option represented hereby may not be assigned or transferred in any manner except by will or by the laws of descent and distribution. (b) This Agreement will be governed and interpreted in accordance with the laws of the State of Connecticut, and may be executed in more than one counterpart, each of which shall constitute an original document. (c) No alterations, amendments, changes or additions to this agreement will be binding upon either the Corporation or Optionee unless reduced to writing and signed by both parties. (d) All controversies or claims arising out of this Agreement shall be determined by binding arbitration, conducted at the Corporation's offices in Greenwich, Connecticut, or at such other location designated by the Corporation, before the American Arbitration Association (the "AAA"). (e) No rule of construction requiring interpretation against the drafting party shall apply to the interpretation of this Agreement. (f) This Agreement supersedes and renders null and void the December Option Agreement and the December Option. (g) The recitals to this Agreement constitute a part of this Agreement. (h) If any provision of this Agreement is held to be invalid, the remaining provisions shall remain in full force and effect. In witness whereof, the parties have executed this Agreement as of the Grant Date. CORPORATION: VDC COMMUNICATIONS, INC. By:/s/ Frederick A. Moran ------------------------- Frederick A. Moran Chief Executive Officer OPTIONEE: ---------------------------- Optionee SCHEDULE A 1. Grant Date: October 1, 1999 2. Number of Shares of Common Stock covered by the Option: 3. Exercise Price (100% of Fair Market Value of Common Stock on the Grant Date): $1.25 4. The Option shall vest in accordance with the following schedule: (i) shares shall vest on December 8, 1999, provided Optionee remains continuously employed by the Corporation from December 8, 1998 through December 7, 1999; (ii) shares shall vest on December 8, 2000, provided Optionee remains continuously employed by the Corporation from December 8, 1998 through December 7, 2000; (iii) shares shall vest on December 8, 2001, provided Optionee remains continuously employed by the Corporation from December 8, 1998 through December 7, 2001; (iv) shares shall vest on December 8, 2002, provided Optionee remains continuously employed by the Corporation from December 8, 1998 through December 7, 2002; and (v) shares shall vest on December 8, 2003, provided Optionee remains continuously employed by the Corporation from December 8, 1998 through December 7, 2003. EX-10.60 10 EX-10.60 The following Form of Securities Purchase Agreement was entered into with the following individuals and entities as follows:
INDIVIDUAL / ENTITY DATE OF AGREEMENT SHARES PURCHASED PURCHASE PRICE ($) Frederick W. Moran October 27, 1999 666,667 500,000.25 Alan B. Snyder October 26, 1999 266,667 200,000.25 Eric M. Zachs October 26, 1999 200,000 150,000.00 O.T. Finance, SA October 26, 1999 22,000 16,500.00 Merl Trust October 26, 1999 28,000 21,000.00 The Lucien I. Levy Revocable October 26, 1999 10,000 7,500.00 Living Trust Adase Partners, L.P. October 26, 1999 140,000 105,000.00
VDC COMMUNICATIONS, INC. ------------------------------------- FORM OF SECURITIES PURCHASE AGREEMENT ------------------------------------- SHARES OF COMMON STOCK AT $0.75 PER SHARE ------------------------------------- OCTOBER -----, 1999 CONFIDENTIAL - ------------ SECURITIES PURCHASE AGREEMENT THIS SECURITIES PURCHASE AGREEMENT (the "Agreement" or the "Securities Purchase Agreement") is entered into as of the _____th day of October, 1999, by and between VDC Communications, Inc., a Delaware corporation ("VDC" or the "Company"), and the investor whose name appears at the end of this Agreement ("Purchaser" or "Subscriber"). R E C I T A L S: ---------------- The Company wishes to obtain additional working capital and the Purchaser desires to provide such working capital to the Company through the purchase of certain shares of the Company's common stock, $.0001 par value per share (the "Common Stock"), being privately offered by the Company. NOW, THEREFORE, in consideration of the premises hereof and the agreements set forth herein below, the parties hereto, intending to be legally bound, hereby agree as follows: 1. Sale and Purchase of Shares. Subject to the terms and conditions hereof, the Company agrees to issue and sell, and the Purchaser agrees to purchase that number of shares of Common Stock (the "Shares") identified on the signature page hereof at a purchase price of $0.75 per share. The total purchase price is set forth on the signature page hereof (the "Purchase Price"). The Purchase Price is payable upon subscription in cash, check or wire transfer. If paying by check, the check should be made payable to "VDC Communications, Inc." and delivered to VDC Communications, Inc. at 75 Holly Hill Lane, Greenwich, Connecticut, 06830. No broker, investment banker or any other person will receive from the Company any compensation as a broker, finder, adviser or in any other capacity in connection with the purchase of the Shares hereunder. 2. Description of the Shares. (a) Restricted Securities. The Shares shall be "restricted securities" as that term is defined under Rule 144 of the Securities Act of 1933, as amended (the "Act"), and may not be offered for sale or sold or otherwise transferred in a transaction which would constitute a sale thereof within the meaning of the Act unless (i) such security has been registered for sale under the Act and registered or qualified under applicable state securities laws relating to the offer and sale of securities; or (ii) exemptions from the registration requirements of the Act and the registration or qualification requirements of all such state securities laws are available and the Company shall have received an opinion of counsel that the proposed sale or other disposition of such securities may be effected without registration under the Act and would not result in any violation of any applicable state securities 2 laws relating to the registration or qualification of securities for sale, such counsel and such opinion to be satisfactory to the Company. (b) Voting Rights; Dividends. Holders of Common Stock of the Company have equal rights to receive dividends when, as, and if declared by the Board of Directors out of funds legally available therefor. Holders of Common Stock of the Company have one vote for each share held of record and do not have cumulative voting rights. (c) Liquidation; Redemption. Holders of Common Stock of the Company are entitled upon liquidation of the Company to share ratably in the net assets available for distribution, subject to the rights, if any of holders of any preferred stock of the Company then outstanding. Shares of Common Stock of the Company are not redeemable and have no preemptive or similar rights. All outstanding shares of Common Stock of the Company are fully paid and nonassessable. (d) Restriction Upon Resale. The Subscriber hereby agrees that the Shares shall be subject to restrictions upon the transfer, sale, encumbrance or other disposition of the Shares. See "UNDERSTANDING OF INVESTMENT RISKS" AND "REGISTRATION RIGHTS". 3. Shares Offered in a Private Placement Transaction. The Shares offered by this Securities Purchase Agreement are being offered as a non-public offering pursuant to Section 4(2) and Regulation D of the Act ("Regulation D"). 4. Binding Effect of Securities Purchase Agreement; The Closing. This Securities Purchase Agreement shall not be binding on the Company unless and until an authorized executive officer of the Company has evidenced acceptance thereof by executing the signature page at the end hereof. The Company may accept or reject this Securities Purchase Agreement in its sole discretion if the Purchaser does not meet the suitability standards established herein, or for any other reason. A closing (the "Closing") will occur contemporaneously with the execution of this Agreement by all parties hereto. 5. Representations and Warranties of the Purchaser. The Purchaser represents and warrants to the Company as follows: (a) Accredited Investor. The Purchaser has such knowledge and experience in business and financial matters such that the Purchaser is capable of evaluating the merits and risks of purchasing the Shares. The Purchaser is either an "accredited investor" as that term is defined in Rule 501 of Regulation D of the Act or a "qualified institutional buyer" as that term is defined in Rule 144A of the Act, and represents that he satisfies the suitability standards identified in Section 10 hereof; 3 (b) Loss of Investment. The Purchaser('s) (i) overall commitment to investments which are not readily marketable is not disproportionate to his net worth; (ii) investment in the Company will not cause such overall commitment to become excessive; (iii) can afford to bear the loss of his entire investment in the Company; and (iv) has adequate means of providing for his current needs and personal contingencies and has no need for liquidity in his investment in the Company; (c) Special Suitability. The Purchaser satisfies any special suitability or other applicable requirements of his state of residence and/or the state in which the transaction by which the Shares are purchased occurs; (d) Investment Intent. The Purchaser hereby acknowledges that the Purchaser has been advised that this offering has not been registered with, or reviewed by, the Securities and Exchange Commission ("SEC") because this offering is intended to be a non-public offering pursuant to Section 4(2) and Regulation D of the Act. The Purchaser represents that the Purchaser's Shares are being purchased for the Purchaser's own account and not on behalf of any other person, for investment purposes only and not with a view towards distribution or resale to others. The Purchaser agrees that the Purchaser will not attempt to sell, transfer, assign, pledge or otherwise dispose of all or any portion of the Shares unless they are registered under the Act or unless in the opinion of counsel an exemption from such registration is available, such counsel and such opinion to be satisfactory to the Company. The Purchaser understands that the Shares have not been registered under the Act by reason of a claimed exemption under the provisions of the Act which depends, in part, upon the Purchaser's investment intention; (e) State Securities Laws. The Purchaser understands that no securities administrator of any state has made any finding or determination relating to the fairness of this investment and that no securities administrator of any state has recommended or endorsed, or will recommend or endorse, the offering of the Shares; (f) Authority; Power; No Conflict. The execution, delivery and performance by the Purchaser of the Agreement are within the powers of the Purchaser, have been duly authorized and will not constitute or result in a breach or default under, or conflict with, any order, ruling or regulation of any court or other tribunal or of any governmental commission or agency, or any agreement or other undertaking, to which the Purchaser is a party or by which the Purchaser is bound, and, if the Purchaser is not an individual, will not violate any provision of the charter documents, Bylaws, indenture of trust, operating agreement, or partnership agreement, as applicable, of the Purchaser. The signatures of the Purchaser on the Agreement are genuine, and the signatory, if the Purchaser is an individual, has legal competence and capacity to execute the same, or, if the Purchaser is not an individual, the signatory has been duly authorized to execute the same; and the Agreement constitutes the legal, valid and binding obligations of the Purchaser, enforceable in accordance with its terms; (g) No General Solicitation. The Purchaser acknowledges that no general solicitation or general advertising (including communications published in any newspaper, magazine or other broadcast) has been received by 4 him and that no public solicitation or advertisement with respect to the offering of the Shares has been made to him; (h) Advice of Tax and Legal Advisors. The Purchaser has relied solely upon the advice of his own tax and legal advisors with respect to the tax and other legal aspects of this investment; (i) Broker Fees. The Purchaser is not aware that any person, and has been advised that no person, will receive from the Company any compensation as a broker, finder, adviser or in any other capacity in connection with the purchase of the Shares; (j) Access to Information. Purchaser has had access to all material and relevant information concerning the Company, its management, financial condition, capitalization, market information, properties and prospects necessary to enable Purchaser to make an informed investment decision with respect to its investment in the Shares. Purchaser has carefully read and reviewed, and is familiar with and understands the contents thereof and hereof, including, without limitation, the risk factors referenced in this Agreement. See "UNDERSTANDING OF INVESTMENT RISKS." Purchaser acknowledges that it has had the opportunity to ask questions of and receive answers from, and to obtain additional information from, representatives of the Company concerning the terms and conditions of the acquisition of the Shares and the present and proposed business and financial condition of the Company, and has had all such questions answered to its satisfaction and has been supplied all information requested; (k) Review of Reports. The Purchaser acknowledges that it has been provided with an opportunity to review: (i) a copy of the Company's Annual Report on Form 10-K for the year ended June 30, 1999; (ii) a copy of the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999, as amended; (iii) a copy of the Company's Registration Statement on Form S-1 (SEC File Number 333-80107); and (iv) all other recent reports filed by the Company with the Securities and Exchange Commission under the Securities Exchange Act of 1934 (collectively, the "Reports"). (l) Understanding the Nature of Securities. The Purchaser understands and acknowledges that: (i) The Shares have not been registered under the Act or any state securities laws and are being issued and sold in reliance upon certain exemptions contained in the Act; (ii) The Shares are "restricted securities" as that term is defined in Rule 144 promulgated under the Act; (iii) The Shares cannot be sold or transferred without registration under the Act and applicable state securities laws, or unless the Company receives an opinion of counsel reasonably acceptable to it 5 (as to both counsel and the opinion) that such registration is not necessary; and (iv) The Shares and any certificates issued in replacement therefor shall bear the following legend, in addition to any other legend required by law or otherwise: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION, OR THE AVAILABILITY OF EXEMPTION FROM REGISTRATION, UNDER THE ACT and any applicable state securities laws, BASED ON AN OPINION LETTER OF COUNSEL SATISFACTORY TO THE COMPANY." (m) Information Provided. The Purchaser has, on or before the date of the Closing, been afforded the opportunity to review and is familiar with the Reports and has based his decision to invest solely on the information contained therein, and the information contained within this Agreement and the associated exhibits and schedules, and has not been furnished with and is not relying upon any other literature, prospectus or other information except as included in the Reports or this Agreement. 6. Indemnification. The Purchaser shall indemnify and hold harmless the Company and the Company's officers, directors and employees from and against any and all loss, damage or liability (including attorneys' fees), due to, or arising out of, a breach or inaccuracy of any representation or warranty contained in Section 5. 7. Understanding of Investment Risks. Any investment in the Shares should not be made by a Purchaser who cannot afford the loss of his entire Purchase Price. THE PURCHASER ACKNOWLEDGES THAT THE SHARES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, OR ANY STATE SECURITIES COMMISSIONS, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ADEQUACY OR ACCURACY OF THIS SECURITIES PURCHASE AGREEMENT OR ANY EXHIBIT HERETO. PRIOR TO MAKING AN INVESTMENT IN THE SHARES, THE PURCHASER HAS FULLY CONSIDERED, AMONG OTHER THINGS, THE FINANCIAL AND OTHER INFORMATION SET FORTH IN THE REPORTS AS WELL AS THE RISK FACTORS ENUMERATED IN THE COMPANY'S FORM 10-K FOR THE YEAR ENDED JUNE 30, 1999, AND ACKNOWLEDGES THAT SUCH INFORMATION HAS BEEN CONSIDERED PRIOR TO MAKING THIS INVESTMENT DECISION. 8. Registration Rights. The Company has agreed to advise the Purchaser by written notice prior to the filing of a registration statement under the Act (excluding registration on Forms S-8, S-4 or any successor forms thereto), covering securities of the Company to be offered and sold to the public generally (whether on behalf of the Company or selling security holders) and 6 shall, upon the request of the Purchaser given at least five (5) calendar days prior to the filing of such registration statement, include in any such registration statement such information as may be required to permit the public resale of the Shares; provided, however, that in the event the resale of the Shares has not been previously included within a registration statement, the Company shall in any event file a registration statement under the Act within one year of the Closing, the purpose of which is to register the resale of the Shares. The registration rights associated with the Shares are described more particularly and are subject in full to the terms of a Registration Rights Agreement between the parties and dated the date hereof (the "Registration Rights Agreement"). The Company is currently working on a registration statement on Form S-1 (the "Current S-1"); Further, the Company shall use reasonable efforts to include the Shares in the Current S-1; provided, however, that an explicit condition precedent to the inclusion of the Shares in the Current S-1 is that the Purchaser shall immediately return or provide to the Company, or return or provide upon such other schedule as the Company shall provide in writing, any document or information requested by the Company in connection with or associated with the inclusion of the Shares in the Current S-1. This paragraph shall serve as written notice prior to the filing of a registration statement in accordance with the terms of the Registration Rights Agreement. The Company's obligation to register the Shares extends only to the inclusion of the Shares in a registration statement which covers the public resale thereof. In all events, the Company shall have no obligation: (i) to assist or cooperate in the offering or disposition of such Shares; (ii) to obtain a commitment from an underwriter relative to the sale of such Shares; or (iii) to include such Shares within an underwritten offering of the Company. The Company shall assume no responsibility for the manner of sale, timing of sale, or sales price relating to the resale of the Shares. 9. Representations and Warranties of the Company. The Company hereby represents and warrants to Purchaser as follows: (a) Organization and Standing of the Company. The Company is a duly organized and validly existing corporation in good standing under the laws of the State of Delaware with adequate power and authority to conduct the business in which it is now engaged and has the corporate power and authority to enter into this Agreement, and is duly qualified and licensed to do business as a foreign corporation in such other jurisdictions as is necessary to enable it to carry on its business, except where failure to do so would not have a material adverse effect on its business; (b) Corporate Power and Authority. The execution and delivery of this Agreement and the transactions contemplated hereby have been duly authorized by the Board of Directors of the Company. No other corporate act or proceeding on the part of the Company is necessary to authorize this Agreement. When duly executed and delivered by the parties hereto, this Agreement will constitute a valid and legally binding obligation of the Company enforceable against it in accordance with its terms, except as such enforceability may be 7 limited by (i) bankruptcy, insolvency, moratorium, reorganization or other similar laws and legal and equitable principles limiting or affecting the rights of creditors generally; and/or (ii) general principles of equity, regardless of whether considered in a proceeding in equity or at law. 10. IMPORTANT CONSIDERATIONS: SUITABILITY STANDARDS - WHO SHOULD INVEST. INVESTMENT IN THE SHARES INVOLVES A HIGH DEGREE OF RISK AND IS SUITABLE ONLY FOR PERSONS OF SUBSTANTIAL FINANCIAL RESOURCES WHO HAVE NO NEED FOR LIQUIDITY IN THEIR INVESTMENT. A substantial number of state securities commissions have established investor suitability standards for the marketing within their respective jurisdictions of restricted securities. Some have also established minimum dollar levels for purchases in their states. The reasons for these standards appear to be, among others, the relative lack of liquidity of securities of such programs as compared with other securities investments. Investment in the Shares involves a high degree of risk and is suitable only for persons of substantial financial means who have no need for liquidity in their investments. The Company has adopted as a general investor suitability standard the requirement that each Subscriber for Shares represents in writing that the Subscriber: (a) is acquiring the Shares for investment and not with a view to resale or distribution; (b) can bear the economic risk of losing his entire investment; (c) his overall commitment to investments which are not readily marketable is not disproportionate to his net worth, and an investment in the Shares will not cause such overall commitment to become excessive; (d) has adequate means of providing for his current needs and personal contingencies and has no need for liquidity in this investment in the Shares; (e) has evaluated all the risks of investment in the Company; and (f) has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of investing in the Company or is relying on his own purchaser representative in making an investment decision. In addition, all of the Subscribers for Shares must be: (1) extremely sophisticated investors with substantial net worth and experience in making investments of this nature; and (2) "accredited investors," as defined in Rule 501 of Regulation D under the Act, by meeting any of the following conditions: (i) he or she has an individual income in excess of $200,000 in each of the two most recent years or joint income with his or her spouse in excess of $300,000 in each of those years, and he or she reasonably expects an income in excess of the aforesaid levels in the current year, or 8 (ii) he or she has an individual net worth, or a joint net worth with his or her spouse, at the time of his or her purchase, in excess of $1,000,000 (net worth for these purposes includes homes, home furnishings and automobiles), or (iii) he or she otherwise satisfies the Company that he or she is an accredited investor, as defined in Rule 501 under the Act. Other categories of investors included within the definition of accredited investor include the following: certain institutional investors, including certain banks, whether acting in their individual or fiduciary capacities; certain insurance companies; federally registered investment companies; business development companies (as defined under the Investment Company Act of 1940); Small Business Investment Companies licensed by the Small Business Administration; certain employee benefit plans; private business development companies (as defined in the Investment Advisers Act of 1940); tax exempt organizations (as defined in Section 501(c)(3) of the Internal Revenue Code) with total assets in excess of $5,000,000; entities in which all the equity owners are accredited investors; and certain affiliates of the Company. A partnership Subscriber, which satisfies the requirements set forth in clauses (a) through (f) above shall satisfy the suitability standards if it is an accredited investor by reason of clause (iii) above, or if all of its partners are accredited investors. A corporate subscriber, which satisfies the requirements set forth in clauses (a) through (f) above shall satisfy the investor suitability standards if it is an accredited investor by reason of clause (iii) above, or if all of its shareholders are accredited investors. Corporate subscribers must have net worth of at least three (3) times the amount of their investment in the Shares. The suitability standards referred to above represent minimum suitability requirements for prospective purchasers and the satisfaction of such standards by a prospective purchaser does not necessarily mean that the Shares are a suitable investment for such purchaser. The Company may, in circumstances it deems appropriate, modify such requirements. The Company may also reject subscriptions for whatever reasons, in its sole discretion, it deems appropriate. Securities Purchase Agreements may not necessarily be accepted in the order in which received. Purchasers who are residents of certain states may be required to meet certain additional suitability standards. THE ACCEPTANCE OF A SUBSCRIPTION FOR SHARES BY THE COMPANY DOES NOT CONSTITUTE A DETERMINATION BY THE COMPANY THAT AN INVESTMENT IN THE SHARES IS SUITABLE FOR A PROSPECTIVE INVESTOR. THE FINAL DETERMINATION OF THE SUITABILITY OF INVESTMENT IN THE SHARES MUST BE MADE BY THE PROSPECTIVE INVESTOR AND HIS OR HER ADVISERS. 9 11. State Law Considerations. (a) For Residents of All States. IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE ISSUER'S SECURITIES AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT, AND THE APPLICABLE STATES SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE INVESTOR MUST RELY ON THE INVESTOR'S OWN EXAMINATION OF THE PERSON OR ENTITY CREATING THE SECURITIES AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED, IN MAKING AN INVESTMENT DECISION ON THESE SECURITIES. (b) Florida Residents. Pursuant to Section 517.061(11) (a) (5) of the Florida statute, when sales are made to five or more persons in Florida, Florida investors have a three day right of rescission. If a Florida resident has executed a Securities Purchase Agreement, he may elect, within three business days after signing the subscription agreement, to withdraw from the Agreement and to receive a full refund and return (without interest) of any money paid by him. A Florida resident's withdrawal will be without any further liability to any person. To accomplish such withdrawal, a Florida resident need only send a letter or telegram to the Company at the address set forth in this Agreement indicating their intention to withdraw. Such letter or telegram must be sent and postmarked prior to the end of the aforementioned third business day. If a Florida resident sends a letter, it is prudent to send it by certified mail, return receipt requested, to insure that it is received and also to evidence the time and date when it is mailed. Should a Florida resident make this request orally, he should ask for written confirmation that his request has been received. (c) New Jersey Residents. Neither the Attorney General of the State nor the Bureau of Securities has passed on or endorsed the merits of this Securities Purchase Agreement. The filing of the Securities Purchase Agreement with the Bureau of Securities does not constitute approval of the issue or the 10 sale thereof by the Bureau of Securities or the Department of Law and public safety of the State of New Jersey. Any representation to the contrary is unlawful. (d) New York Residents. This Securities Purchase Agreement has not been filed with or reviewed by the Attorney General of the State of New York prior to its issuance and use. The Attorney General of the State of New York has not passed on or endorsed the merits of this Agreement. Any representation to the contrary is unlawful. This Agreement does not contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements made. In light of the circumstances under with they were made, not misleading, it contains a fair summary of the material terms of documents purported to be summarized herein. 12. Notices. All notices, consents, waivers, and other communications under this Agreement must be in writing and will be deemed to have been duly given when (a) delivered by hand (with written confirmation of receipt), (b) sent by facsimile (with written confirmation of receipt), provided that a copy is mailed by certified mail, return receipt requested (provided that facsimile notice shall be deemed received on the next business day if received after 5:00 p.m. Eastern Standard Time), or (c) on the next business day, if sent by a nationally recognized overnight delivery service, in each case to the appropriate addresses and facsimile numbers set forth below (or to such other addresses and facsimile numbers as a party may designate by notice to the other parties): If to the Company: VDC Communications, Inc. 75 Holly Hill Lane Greenwich, CT 06830 Attention: Frederick A. Moran Chairman & C.E.O. Facsimile: (203) 552-0908 with a copy to: VDC Communications, Inc. 75 Holly Hill Lane Greenwich, CT 06830 Attention: Louis D. Frost, Esq. VDC Corporate Counsel Facsimile: (203) 552-0908 11 If to Purchaser: to the address set forth at the end of this Agreement or to such other addresses as may be specified in accordance herewith from time to time. 13. Survival of Representations and Warranties. Representations and warranties contained herein shall survive the execution and delivery of this Agreement. 14. Parties in Interest. All the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and permitted assigns of the parties hereto, provided that this Agreement and the interests herein may not be assigned by either party without the express written consent of the other party. 15. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Connecticut without regard to the principles of conflict of laws. 16. Arbitration. All controversies arising out of or related to this Agreement shall be determined by binding arbitration applying the laws of the State of Connecticut. Any arbitration between the parties shall be conducted at the Company's offices in Greenwich, Connecticut, or at such other location designated by the Company, before the American Arbitration Association (the "AAA"). The decision of the arbitrator(s) shall be final and binding upon the parties and judgment may be obtained thereon by either party in a court of competent jurisdiction. Each party shall bear the cost of preparing and presenting its own case. The cost of the arbitration, including the fees and expenses of the arbitrator(s), shall be shared equally by the parties hereto unless the award otherwise provides. Nothing in this section will prevent either party from resorting to judicial proceedings if interim injunctive relief under the laws of the State of Connecticut from a court is necessary to prevent serious and irreparable injury to one of the parties, and the parties hereto agree that the state courts in Stamford, Connecticut and the United States District Court in the District of Connecticut in Bridgeport, Connecticut shall have exclusive subject matter and in personam jurisdiction over the parties for purposes of obtaining interim injunctive relief. 17. Sections and Other Headings. The section and other headings contained in this Agreement are for the convenience of reference only, and do not constitute part of this Agreement or otherwise affect any of the provisions hereof. 18. Pronouns. Whenever the context of this Agreement may require, any pronoun will include the corresponding masculine, feminine and neuter form, and the singular form of nouns and pronouns will include the plural. 19. Counterpart Signatures. This Agreement may be executed in multiple counterparts each of which shall be an original but all of which together shall constitute one and the same instrument. This Agreement may also be executed and delivered by exchange of facsimile copies showing the signatures of the parties, 12 and those signatures need not be affixed to the same copy. The facsimile copies showing the signatures of the parties will constitute originally signed copies of the Agreement requiring no further execution. 20. Severability. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction. 21. Entire Agreement; Amendments. This Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor the Purchaser make any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be waived or amended other than by an instrument in writing signed by the party to be charged with enforcement. 22. Construction. This Agreement and any related instruments will not be construed more strictly against one party then against the other by virtue of the fact that drafts may have been prepared by counsel for one of the parties, it being recognized that this Agreement and any related instruments are the product of negotiations between the parties and that both parties have contributed to the final preparation of this Agreement and all related instruments. 23. Agreement Read and Understood. Both parties hereto acknowledge that they have had an opportunity to consult with an attorney, and such other experts or consultants as they deem necessary or prudent, regarding this Agreement and that they, or their designated agents, have read and understand this Agreement. 24. United States Dollars. All dollar amounts stated herein refer to and are payable solely in United States Dollars. IN WITNESS WHEREOF, intending to be legally bound, the parties hereto have caused this Agreement to be signed. Purchaser: ^ Shares/$^ ------------------------------- Number and dollar amount ^ of Shares purchased - Purchase Price 13 Address/Residence of Purchaser: --------------------------------------------- --------------------------------------------- Social Security Number: ---------------------- Accredited Investor Certification (Place INITIALS on the appropriate line(s)) - ---- (i) I am a natural person who had individual income of more than $200,000 in each of the most recent two years or joint income with my spouse in excess of $300,000 in each of the most recent two years and reasonably expect to reach that same income level for the current year ("income", for purposes hereof, should be computed as follows: individual adjusted gross income, as reported (or to be reported) on a federal income tax return, increased by (1) any deduction of long-term capital gains under Section 1202 of the Internal Revenue Code of 1986 (the "Code"), (2) any deduction for depletion under Section 611 et seq. of the Code, (3) any exclusion for interest under Section 103 of the Code and (4) any losses of a partnership as reported on Schedule E of Form 1040); or - ---- (ii) I am a natural person whose individual net worth (i.e., total assets in excess of total liabilities), or joint net worth with my spouse, will at the time of purchase of the Shares be in excess of $1,000,000; or - ---- (iii) The Purchaser is an investor satisfying the requirements of Section 501(a)(1), (2) or (3) of Regulation D promulgated under the Securities Act, which includes but is not limited to, a self-directed employee benefit plan where investment decisions are made solely by persons who are "accredited investors" as otherwise defined in Regulation D; or - ---- (iv) The Purchaser is a "qualified institutional buyer" as that term is defined in Rule 144A of the Securities Act; or - ---- (v) The Purchaser is a trust, which trust has total assets in excess of $5,000,000, which is not formed for the specific purpose of acquiring the Shares offered hereby and whose purchase is directed by a sophisticated person as described in Rule 506(b)(ii) of Regulation D and who has such knowledge and experience in financial and business matters that he is capable of evaluating the risks and merits of an investment in the Shares; or - ---- (vi) I am a director or executive officer of the Company; or 14 - ---- (vii) The Purchaser is an entity (other than a trust) in which all of the equity owners meet the requirements of at least one of the above subparagraphs. Agreed and Accepted by VDC COMMUNICATIONS, INC. By:/s/ Frederick A. Moran ----------------------- Frederick A. Moran Chairman & C.E.O. Dated: -------------------- 15 EX-10.61 11 EX-10.61 The following Form of Registration Rights Agreement was entered into with the following individuals and entities as follows:
INDIVIDUAL / ENTITY DATE OF AGREEMENT Frederick W. Moran October 27, 1999 Alan B. Snyder October 26, 1999 Eric M. Zachs October 26, 1999 O.T. Finance, SA October 26, 1999 Merl Trust October 26, 1999 The Lucien I. Levy Revocable Living Trust October 26, 1999 Adase Partners, L.P. October 26, 1999
FORM OF REGISTRATION RIGHTS AGREEMENT ------------------------------------- This Registration Rights Agreement (this "AGREEMENT") is dated as of October -----, 1999 by and between VDC COMMUNICATIONS, INC., a Delaware corporation (the "COMPANY"), and the undersigned (the "HOLDER" or the "INVESTOR"). W I T N E S S E T H: -------------------- WHEREAS, simultaneously with the execution and delivery of this Agreement, the Investor is purchasing from the Company, pursuant to the Securities Purchase Agreement dated the date hereof (the "PURCHASE AGREEMENT"), certain shares of the Company's Common Stock (the "SECURITIES"); WHEREAS, all capitalized terms not hereinafter defined shall have that meaning assigned to them in the Purchase Agreement; and WHEREAS, the Company desires to grant to the Holder the registration rights set forth herein with respect to the Securities. NOW, THEREFORE, the parties hereto agree as follows: 1. Definitions. (a) "CLOSING" shall mean the closing provided for in the Purchase Agreement. (b) "COMMON STOCK" shall mean the common stock of the Company, par value $.0001 per share. (c) "COMPANY" shall mean VDC Communications, Inc. (d) "OFFERING" shall mean that private placement transaction pursuant to which the Company shall offer shares of Common Stock upon terms and conditions set forth in the Purchase Agreements. (e) "PERSON" means an individual, a partnership (general or limited), corporation, limited liability company, joint venture, business trust, cooperative, association or other form of business organization, whether or not regarded as a legal entity under applicable law, a trust (inter vivos or testamentary), an estate of a deceased, insane or incompetent person, a quasi-governmental entity, a government or any agency, authority, political subdivision or other instrumentality thereof, or any other entity. (f) "PRINCIPAL MARKET" means the OTC Electronic Bulletin Board, the Nasdaq National Market, the Nasdaq Small Cap Stock Market, the American Stock Exchange or the New York Stock Exchange, whichever is at the time the principal trading exchange or market for the Common Stock. (g) "REGISTRATION STATEMENT" shall mean the Registration Statement of the Company filed with the SEC pursuant to the provisions of Section 3 of this Agreement which covers the resale of the Securities on Form S-1, SB-2 or any other appropriate form then permitted by the SEC to be used for such registration and the sales contemplated to be made thereby under the Securities Act, or any similar rule that may be adopted by the SEC, and all amendments and supplements to such Registration Statement, including any pre-and post- effective amendments thereto, in each case including the prospectus contained therein, all exhibits thereto and all materials incorporated by reference therein. (h) "RESTRICTED STOCK" shall mean the Securities that may be issued to the Holder pursuant to the Purchase Agreement, and any additional shares of Common Stock or other equity securities of the Company issued or issuable after the date hereof in respect of any such Securities (or other equity securities issued in respect thereof) by way of a stock dividend or stock split, in connection with a combination, exchange, reorganization, recapitalization or reclassification of Company securities, or pursuant to a merger, division, consolidation or other similar business transaction or combination involving the Company; provided that: as to any particular shares of Restricted Stock, such securities shall cease to constitute Restricted Stock (i) when a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of thereunder, or (ii) when and to the extent such securities are permitted to be distributed pursuant to subparagraph (k) of Rule 144 (or any successor provision to such Rule) promulgated under the Securities Act or are otherwise freely transferable to the public without further registration under the Securities Act. (i) "SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or any similar or successor federal statute, and the rules and regulations of the SEC thereunder, all as the same shall be in effect at any relevant time. (j) "SEC" shall mean the United States Securities and Exchange Commission. 2 (k) "TRADING DAY" means a day on which the Principal Market on which the Common Stock is listed or admitted to trading is open for the transaction of business or, if the Common Stock is not listed or admitted to trading on any national securities exchange, any day other than a Saturday, Sunday, or a day on which banking institutions in the State of Connecticut are authorized or obligated by law or executive order to close. 2. Restrictions on Transfer. The Holder acknowledges and understands that prior to the registration of the Restricted Stock as provided herein, the Restricted Stock and the Securities are "restricted securities" as defined in Rule 144 promulgated under the Securities Act. The Holder understands that no disposition or transfer of the Restricted Stock or the Securities may be made by the Holder in the absence of (i) an opinion of counsel to the Holder, reasonably satisfactory to the Company and prepared at Holder's expense, that such transfer may be made without registration under the Securities Act or any applicable state securities laws; or (ii) such security has been registered for sale under the Securities Act and registered or qualified under applicable state securities laws relating to the offer and sale of securities 3. Registration Rights. (a) Piggyback Registration Rights. The Company shall advise the Holder by written notice prior to the filing of a Registration Statement under the Securities Act (excluding registration on Forms S-8, S-4, or any successor forms thereto), covering securities of the Company to be offered and sold (whether by the Company or any stockholder thereof) and shall, upon the request of the Holder given at least five (5) calendar days prior to the filing of such Registration Statement, include in any such Registration Statement such information as may be required to permit an offering of the Restricted Stock. The Holder shall promptly furnish such information as may be reasonably requested by the Company in order to include such Restricted Stock in the Registration Statement. In the event that any registration pursuant to this Section 3 shall be, in whole or in part, an underwritten public offering of Common Stock on behalf of the Company, and the managing underwriters advise the Company in writing that in their opinion the number of securities requested to be included in such registration exceeds the number which can be sold in an orderly manner in such offering within a price range acceptable to the Company, the Company shall include in such registration (i) first, the securities the Company proposes to sell, and (ii) second, the Restricted Stock and any other registrable securities eligible and requested to be included in such registration to the extent that the number of shares to be registered will not, in the opinion of the managing underwriters, adversely affect the offering of the securities pursuant to clause (i), pro rata among the holders of such registrable securities, including the Holder of the Restricted Stock, on the basis of the number of shares eligible for registration which are owned by all such holders. Notwithstanding the foregoing, the Company may withdraw any registration statement referred to in this Section 3 without thereby incurring liability to the holders of the Restricted Stock. (b) Shelf Registration. 3 In the event that the Restricted Stock is not otherwise included within a Registration Statement filed pursuant to Section 3(a) above, the Company shall use reasonable efforts to prepare and file, not later than twelve (12) months following the Closing of the Offering, a Registration Statement with the SEC and use reasonable efforts to have such Registration Statement declared effective promptly for the purpose of facilitating the public resale of the Restricted Stock. (c) Notwithstanding anything to the contrary contained herein, the Company's obligation in Section 3(a) and 3(b) above shall extend only to the inclusion of the Restricted Stock in a Registration Statement filed under the Securities Act. The Company shall have no obligation to assure the terms and conditions of distribution, to obtain a commitment from an underwriter relative to the sale of the Restricted Stock or to otherwise assume any responsibility for the manner, price or terms of the distribution of the Restricted Stock. Furthermore, the Company shall not be restricted in any manner from including within the Registration Statement or the distribution, issuance or resale of any of its or any other securities. 4. Registration Procedures. Whenever it is obligated to register any Restricted Stock pursuant to this Agreement, the Company shall: (a) prepare and file with the SEC a Registration Statement with respect to the Restricted Stock in the manner set forth at Sections 3(a) or 3(b) hereof and use reasonable efforts to cause such Registration Statement to remain effective for that period identified in Section 4(g) hereafter; (b) prepare and file with the SEC such amendments and supplements to such Registration Statement and the prospectus used in connection therewith as may be necessary to keep such Registration Statement effective for the period specified in Section 4(g) below and to comply with the provisions of the Securities Act with respect to the disposition of all Restricted Stock covered by such Registration Statement in accordance with the Holder's intended method of disposition set forth in such Registration Statement for such period; (c) furnish to the Holder and to each underwriter, if any, such number of copies of the Registration Statement and the prospectus included therein (including each preliminary prospectus), as such person may reasonably request in order to facilitate the public sale or other disposition of the Restricted Stock covered by such Registration Statement; (d) use reasonable efforts to register or qualify the Restricted Stock covered by such Registration Statement under the securities or blue sky laws of such jurisdictions as the Holder, or, in the case of an underwritten public offering, the managing underwriter shall reasonably request; provided, however, that the Company shall not for any such purpose be required to qualify generally to transact business as a foreign corporation in any jurisdiction where it is not so qualified or to consent to general service of process in any such jurisdiction; (e) promptly notify the Holder under such Registration Statement and each underwriter, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any 4 event as a result of which the prospectus contained in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required or necessary to be stated therein in order to make the statements contained therein not misleading in light of the circumstances under which they were made; (f) make available for inspection by the Holder, any underwriter participating in any disposition pursuant to such Registration Statement, and any attorney, accountant or other agent retained by any such Holder or underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors and employees to supply all information reasonably requested by the Holder, underwriter, attorney, accountant or agent in connection with such Registration Statement; (g) for purposes of Sections 4(a) and 4(b) above, the period of distribution of Restricted Stock shall be deemed to extend until the earlier of: (A) in an underwritten public offering of all of the Restricted Stock, the period in which each underwriter has completed the distribution of all securities purchased by it; (B) in any other registration, the earlier of the period in which all shares of Restricted Stock covered thereby shall have been sold or two (2) years from the effective date of the first Registration Statement filed by the Company with the SEC pursuant to this Agreement. (h) if the Common Stock of the Company is listed on any securities exchange or automated quotation system, the Company shall use reasonable efforts to list (with the listing application being made at the time of the filing of such Registration Statement or as soon thereafter as is reasonably practicable) the Restricted Stock covered by such Registration Statement on such exchange or automated quotation system; (i) enter into normal and customary underwriting arrangements or an underwriting agreement and take all other reasonable and customary actions if the Holder sells its shares of Restricted Stock pursuant to an underwriting (however, in no event shall the Company, in connection with such underwriting, be required to undertake any special audit of a fiscal period in which an audit is normally not required); (j) notify the Holder if there are any amendments to the Registration Statement, any requests by the SEC to supplement or amend the Registration Statement, or of any threat by the SEC or state securities commission to undertake a stop order with respect to sales under the Registration Statement; and (k) cooperate in the removal of any restrictive legends from the shares of Restricted Stock in connection with the resale of such shares covered by an effective Registration Statement. 5. Expenses. 5 (a) For the purposes of this Section 5, the term "REGISTRATION EXPENSES" shall mean: all expenses incurred by the Company in complying with Sections 3 and 4 of this Agreement, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel and independent public accountants for the Company, "blue sky" fees, fees of the National Association of Securities Dealers, Inc. ("NASD"), fees and expenses of listing shares of Restricted Stock on any securities exchange or automated quotation system on which the Company's shares are listed and fees of transfer agents and registrars. The term "SELLING EXPENSES" shall mean: all underwriting discounts and selling commissions applicable to the sale of Restricted Stock and all accountable or non-accountable expenses paid to any underwriter in respect of the sale of Restricted Stock. (b) Except as otherwise provided herein, the Company will pay all Registration Expenses in connection with the Registration Statements filed pursuant to Section 3 of this Agreement. All Selling Expenses in connection with any Registration Statements filed pursuant to Section 3 of this Agreement shall be borne by the participating Holder in proportion to the number of shares sold by each. 6. Obligations of Holder. (a) In connection with each registration hereunder, each selling Holder will promptly furnish to the Company in writing such information with respect to such seller and the securities held by such seller, and the proposed distribution by him or them as shall be reasonably requested by the Company in order to assure compliance with federal and applicable state securities laws, as a condition precedent to including such seller's Restricted Stock in the Registration Statement. Each selling Holder also shall agree to promptly notify the Company of any changes in such information included in the Registration Statement or prospectus as a result of which there is an untrue statement of material fact or an omission to state any material fact required or necessary to be stated therein in order to make the statements contained therein not misleading in light of the circumstances then existing. (b) In connection with each registration pursuant to this Agreement, the Holder whose shares are included therein will not effect sales thereof until notified by the Company of the effectiveness of the Registration Statement, and thereafter will suspend such sales after receipt of telegraphic or written notice from the Company to suspend sales to permit the Company to correct or update a Registration Statement or prospectus. At the end of any period during which the Company is obligated to keep a Registration Statement current, the Holder included in said Registration Statement shall discontinue sales of shares pursuant to such Registration Statement upon receipt of notice from the Company of its intention to remove from registration the shares covered by such Registration Statement which remain unsold, and such Holder shall notify the Company of the number of shares registered which remain unsold immediately upon receipt of such notice from the Company. 7. Information Blackout and Holdbacks. 6 (a) At any time when a Registration Statement effected pursuant to Section 3 relating to Restricted Stock is effective, upon written notice from the Company to the Holder that the Company has determined in good faith that sale of Restricted Stock pursuant to the Registration Statement would require disclosure of non-public material information, the Holder shall suspend sales of Restricted Stock pursuant to such Registration Statement until such time as the Company notifies the Holder that such material information has been disclosed to the public or has ceased to be material or that sales pursuant to such Registration Statement may otherwise be resumed. (b) Notwithstanding any other provision of this Agreement, each Holder of Restricted Stock shall not effect any public sale or distribution (including sales pursuant to Rule 144) of equity securities of the Company, or any securities convertible into or exchangeable or exercisable for such securities, during the thirty (30) days prior to the commencement of any primary offering to be undertaken by the Company of shares of its own common stock (the "Primary Offering"), which may also include other securities, and ending one hundred and twenty (120) days after completion of any such Primary Offering, unless the Company, in the case of a non-underwritten offering, or the managing underwriter, in the case of an underwritten Primary Offering, otherwise agrees. 8. Indemnification (a) The Company agrees to indemnify, to the extent permitted by law, each Holder of Restricted Stock, its officers and directors and each Person who controls such Holder (within the meaning of the Securities Act) against all losses, claims, damages, liabilities and expenses caused by any untrue statement of material fact contained in any Registration Statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto or any omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same are caused by or contained in any information furnished to the Company by such Holder for use therein or by such Holder's failure to deliver a copy of the Registration Statement or prospectus or any amendments or supplements thereto after the Company has furnished such Holder with a sufficient number of copies of the same. (b) In connection with any Registration Statement in which a Holder of Restricted Stock is participating, each such Holder shall furnish to the Company in writing such information and affidavits as the Company reasonably requests for use in connection with any such Registration Statement or prospectus and, to the extent permitted by law, shall indemnify the Company, its directors and officers and each Person who controls the Company (within the meaning of the Securities Act) against any losses, claims, damages, liabilities and expenses resulting from: (i) any untrue or alleged untrue statement of material fact contained in the Registration Statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, (but only to the extent that such untrue statement or omission is contained in any information or affidavit so furnished by such Holder); or (ii) any disposition of the Restricted Stock in a manner that fails to comply with the permitted methods of distribution 7 identified within the Registration Statement; provided that the obligation to indemnify (if there shall be more than one Holder) shall be individual, not joint and several, for each Holder and shall be limited to the net amount of proceeds received by such Holder from the sale of Restricted Stock pursuant to such Registration Statement. (c) Any Person entitled to indemnification hereunder shall (i) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification (provided that the failure to give prompt notice shall not impair any Person's right to indemnification hereunder to the extent such failure has not prejudiced the indemnifying party) and (ii) unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. If such defense is assumed, the indemnifying party shall not be subject to any liability for any settlement made by the indemnified party without its consent (but such consent shall not be unreasonably withheld). An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim shall not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim. (d) The indemnification provided for under this Agreement shall remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer, director or controlling Person of such indemnified party and shall survive the transfer of securities. The Company also agrees to make such provisions, as are reasonably requested by any indemnified party, for contribution to such party in the event the Company's indemnification is unavailable for any reason. 9. Miscellaneous Provisions. (a) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Connecticut without regard to principles of conflicts of laws. (b) Counterparts. This Agreement may be executed in multiple counterparts each of which shall be an original but all of which together shall constitute one and the same instrument. This Agreement may also be executed and delivered by exchange of facsimile copies showing the signatures of the parties, and those signatures need not be affixed to the same copy. The facsimile copies showing the signatures of the parties will constitute originally signed copies of the Agreement requiring no further execution. (c) Amendments and Waivers. Except as otherwise provided herein, the provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given without the written consent of the Company and the Holder. 8 (d) Notices. All notices, consents, waivers, and other communications under this Agreement must be in writing and will be deemed to have been duly given when (a) delivered by hand (with written confirmation of receipt), (b) sent by facsimile (with written confirmation of receipt), provided that a copy is mailed by certified mail, return receipt requested (provided that facsimile notice shall be deemed received on the next business day if received after 5:00 p.m. Eastern Standard Time), or (c) on the next business day, if sent by a nationally recognized overnight delivery service, in each case to the appropriate addresses and facsimile numbers set forth below (or to such other addresses and facsimile numbers as a party may designate by notice to the other parties) (i) if to the Company to: VDC Communications, Inc. 75 Holly Hill Lane Greenwich, CT 06830 Attn: Frederick A. Moran, Chief Executive Officer Telephone: (203) 869-5100 Facsimile: (203) 552-0908 (ii) if to the Holder, to the address identified on the books and records of the Company. (e) Successors and Assigns; Holders as Beneficiaries. This Agreement shall inure to the benefit of and be binding upon the parties and their respective successors and assigns, and the agreements of the Company herein shall inure to the benefit of the Holders and their respective successors and assigns. (f) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (g) Entire Agreement; Survival; Termination. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, representations, warranties or undertakings, other than those set forth or referred to herein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. (h) Construction. This Agreement and any related instruments will not be construed more strictly against one party then against the other by virtue of the fact that drafts may have been prepared by counsel for one of the parties, it being recognized that this Agreement and any related instruments are the product of negotiations between the parties and that both parties have contributed to the final preparation of this Agreement and all related instruments. 9 (i) Arbitration. All controversies arising out of or related to this Agreement shall be determined by binding arbitration applying the laws of the State of Connecticut. Any arbitration between the parties shall be conducted at the Company's offices in Greenwich, Connecticut, or at such other location designated by the Company, before the American Arbitration Association (the "AAA"). The decision of the arbitrator(s) shall be final and binding upon the parties and judgment may be obtained thereon by either party in a court of competent jurisdiction. Each party shall bear the cost of preparing and presenting its own case. The cost of the arbitration, including the fees and expenses of the arbitrator(s), shall be shared equally by the parties hereto unless the award otherwise provides. Nothing in this section will prevent either party from resorting to judicial proceedings if interim injunctive relief under the laws of the State of Connecticut from a court is necessary to prevent serious and irreparable injury to one of the parties, and the parties hereto agree that the state courts in Stamford, Connecticut and the United States District Court in the District of Connecticut in Bridgeport, Connecticut shall have exclusive subject matter and in personam jurisdiction over the parties for purposes of obtaining interim injunctive relief. (j) Agreement Read and Understood. Both parties hereto acknowledge that they have had an opportunity to consult with an attorney, and such other experts or consultants as they deem necessary or prudent, regarding this Agreement and that they, or their designated agents, have read and understand this Agreement. (k) Binding Effect. This Agreement shall not be binding on the Company unless and until an authorized executive officer of the Company has evidenced acceptance thereof by executing the signature page at the end hereof. IN WITNESS WHEREOF, intending to be legally bound, the parties hereto have caused this Agreement to be signed. ATTEST: VDC COMMUNICATIONS, INC. By:/s/ Frederick A. Moran - --------------------------- --------------------------- Frederick A. Moran Chief Executive Officer WITNESS: - ---------------------------- --------------------------- ^ 10 EX-21.1 12 EX-21.1 SUBSIDIARES OF REGISTRANT 1. Masatepe Communications, U.S.A., L.L.C., a Delaware limited liability company 2. Sky King Communications, Inc., a Delaware corporation 3. VDC Telecommunications, Inc., a Delaware corporation (d/b/a Voice and Data Communications) 4. Voice & Data Communications (Hong Kong) Limited, a Hong Kong corporation 5. WorldConnectTelecom.com, Inc., a Delaware corporation EX-23.1 13 EX-23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS VDC Communications, Inc. Greenwich, Connecticut We hereby consent to the use in the prospectus constituting a part of this Registration Statement of our report dated September 3, 1999, relating to the consolidated financial statements of VDC Communications, Inc., which is contained in that prospectus. We also consent to the reference to us under the caption "Experts" in the prospectus. /s/ BDO Seidman, LLP - -------------------- BDO Seidman, LLP Valhalla, New York November 4, 1999 EX-27 14 FDS --
5 This schedule contains Summary Financial information extracted from the Financial Statements for the Year Ended June 30, 1999 and is qualified in its entirety by reference to such statements. 1000 YEAR JUN-30-1999 JUN-30-1999 794 90 1509 7 0 2306 5484 596 11942 2587 1274 0 0 2 9338 11942 0 3298 0 23024 21051 7 92 (46202) 0 (46202) 0 0 0 (46202) (2.61) (2.61)
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