-----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, J96elS4MAE2QJrUYfI6i5L5S/2pFpHrFFOCXwE349W8Uyn5xLulerq2UI9MGSjjj /D/Q3GNuE0cT1MeZhjFukQ== 0000889812-99-000539.txt : 19990217 0000889812-99-000539.hdr.sgml : 19990217 ACCESSION NUMBER: 0000889812-99-000539 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990216 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VDC COMMUNICATIONS INC CENTRAL INDEX KEY: 0000784961 STANDARD INDUSTRIAL CLASSIFICATION: RADIO TELEPHONE COMMUNICATIONS [4812] IRS NUMBER: 061510832 FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-14281 FILM NUMBER: 99540229 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 10-Q 1 QUARTERLY REPORT ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [ X ] QUARTERTLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended December 31, 1998 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period From ________ To ________ VDC COMMUNICATIONS, INC. ------------------------ (Exact name of registrant as specified in its charter) Delaware 0-14045 061524454 -------- ------- --------- (Jurisdiction of Incorporation) (Commission File No.) (IRS Employer Identification No.) 75 Holly Hill Lane Greenwich, Connecticut 06830 (Address of principal executive office) - -------------------------------------------------------------------------------- Registrant's telephone number, including area code: (203) 869-5100 (Former name, if changed since last report) Check whether the Registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. (1) Yes ____X____ No __________ (2) Yes ____X____ No __________ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $.0001 par value 18,503,837 as of January 27, 1999 ================================================================================ VDC COMMUNICATIONS, INC. INDEX ----- PART I FINANCIAL INFORMATION PAGE --------------------- ---- Item 1. Consolidated balance sheets as of June 30, 1998 And December 31, 1998 3 Consolidated statements of operations and comprehensive loss for the three and six month periods ended December 31, 1997 and 1998 4 Consolidated statements of cash flows for the six months ended December 31, 1997 and 1998 5 Notes to consolidated financial statements 6-10 Item 2. Management's discussion and analysis of financial condition and results of operations 11-17 Item 3. Quantitative and qualitative disclosures about market risk 17 PART II OTHER INFORMATION ----------------- Item 1. Legal Proceedings 18-19 Item 2. Changes in Securities and Use of Proceeds 19 Item 3. Defaults Upon Senior Securities 20 Item 4. Submission of Matters to a Vote of Security Holders 20 Item 5. Other Information 20 Item 6. Exhibits and Reports on Form 8-K 20-21 2 PART 1 - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS VDC COMMUNICATIONS, INC. AND SUBSIDARIES CONSOLIDATED BALANCE SHEETS ---------------------------
December 31, 1998 June 30, 1998 ----------------- ------------- (Unaudited) Assets Current: cash and cash equivalents $ 627,302 $ 2,212,111 restricted cash 406,720 - marketable securities 93,388 451,875 accounts receivable 152,709 - notes receivable - current 2,174,988 2,800,000 ------------ ----------- Total current assets 3,455,107 5,463,986 ------------ ----------- property, plant and equipment, less accumulated depreciation 4,817,307 331,316 notes receivable, less current portion - 1,500,000 investment in MCC 23,728,647 37,790,877 deposits 419,642 567,775 intangible assets less accumulated amortization 988,185 - investment - at equity 61,530 Other assets 247,322 169,730 ------------ ----------- Total assets $ 33,717,740 $45,823,684 ------------ ----------- Liabilities and Stockholders' Equity Current: accounts payable and accrued expenses $ 3,322,445 $ 156,185 note payable 127,379 - ------------ ----------- Total current liabilities 3,449,824 156,185 ------------ ----------- Stockholders' equity: convertible preferred stock series A - - convertible preferred stock series B - 60 common stock 1,868 1545 additional paid-in capital 63,880,679 51,234,105 accumulated deficit (32,785,356) (4,218,035) treasury stock - at cost (164,175) - stock subscriptions receivable (344,700) (1,425,951) accumulated comprehensive income (deficit) (320,400) 75,775 ------------ ----------- Total stockholders' equity 30,267,916 45,667,499 ------------ ----------- Total liabilities and stockholders' equity $ 33,717,740 $45,823,684 ------------ -----------
See accompanying notes to consolidated financial statements. 3 VDC COMMUNICATIONS, INC. AND SUBSIDARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED) ------------------------------------------------
three-months ended six-months ended December 31, December 31, 1998 1997 1998 1997 ---- ---- ---- ---- revenue $ 527,567 $ 20,295 $ 728,961 $ 40,230 direct costs of revenues (exclusive of depreciation) 857,129 56,468 1,198,550 76,717 ------------ ------------ ------------ ------------ gross margin (329,562) (36,173) (469,589) (36,487) selling, general and administrative 797,306 108 1,719,716 183 depreciation and amortization 240,877 1,651 343,713 3302 non-cash compensation - - 16,146,000 - ------------ ------------ ------------ ------------ total operating expenses 1,038,183 1,759 18,209,429 3485 operating loss (1,367,745) (37,932) (18,679,018) (39,972) other income (expense) loss on note restructuring (1,198,425) - (1,598,425) - other income (expense) (161,752) - (72,610) - ------------ ------------ ------------ ------------ total other income (expense) (1,360,177) - (1,671,035) - equity in loss of affiliate (363,268) - (363,268) - ------------ ------------ ------------ ------------ net loss $ (3,091,190) $ (37,932) $(20,713,321) $ (39,972) ------------ ------------ ------------ ------------ Other Comprehensive income (loss), net of tax: Unrealized loss on marketable securities (57,237) - (396,175) - ------------ ------------ ------------ ------------ comprehensive loss (3,148,427) (37,932) (21,109,496) (39,972) ------------ ------------ ------------ ------------ net loss per common share - basic $ (.17) $ (0.00) $ (1.15) $ (0.00) ------------ ------------ ------------ ------------ weighted average number of shares outstanding 18,420,158 9,199,838 17,984,119 9,199,838 ------------ ------------ ------------ ------------
See accompanying notes to consolidated financial statements. 4 VDC COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) -------------------------------------------------
Six Months Ended December 31, 1998 1997 ---- ---- Cash flows from operating activities: net loss (20,713,321) (39,972) Adjustments to reconcile net loss to net cash provided by operating activities depreciation and amortization 343,713 3,302 non-cash compensation expense 16,146,000 - equity in losses of affiliate 363,268 - loss on note restructuring 1,598,425 - Changes in operating assets and liabilities cash restricted in use (406,720) - accounts receivable (152,709) - prepaid expenses and other assets 198,077 - accounts payable and accrued expenses 664,303 - ----------- ----------- Net cash used by operating activities (1,958,964) (36,670) ----------- ----------- Cash flows from investing activities: proceeds from return of escrow in connection 1,019,762 with the investment in MCC - payment for purchase of subsidiary (589,169) - investment in affiliate (424,800) proceeds from payment of notes receivable 526,587 - capital expenditures (1,899,002) - ----------- ----------- Net cash flows used in investing activities (1,366,622) - ----------- ----------- Cash flows from financing activities: proceeds from issuance of common stock 888,701 - collections on stock subscription receivables 917,076 - repayment of note payable (65,000) - capital contribution - 132,200 ----------- ----------- Net cash flows provided by financing activities 1,740,777 132,200 ----------- ----------- Net increase (decrease) in cash and cash equivalents (1,584,809) 95,530 Cash and cash equivalents, beginning of period 2,212,111 1,430 ----------- ----------- Cash and cash equivalents, end of period 627,302 96,960 ----------- ----------- Supplemental schedule of non cash investing and financing activities: fixed assets exchanged for note 192,379 common stock placed in escrow in connection with investment in MCC 13,962,500 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 -----------
See accompanying notes to consolidated financial statements. 5 VDC Communications, Inc. and Subsidiaries Notes to consolidated financial statements 1. Basis of Presentation The financial statements presented are those of VDC Communications, Inc. (the Company") which is the successor to VDC Corporation Ltd. ("VDC") by way of the Domestication Merger (the "Domestication Merger") that occurred on November 6,1998. The Domestication Merger was accounted for as a capital reorganization in which 11,810,862 issued and outstanding shares of common stock of VDC, $2.00 par value per share, were exchanged, and 8,487,500 issued and outstanding shares of preferred stock of the Company $.0001 par value per share, were converted, on a one for one basis, into a total of 20,298,362 shares of common stock, of the Company $.0001 par value common stock per share. The Domestication Merger reflects the completion of a series of transactions entered into on March 6, 1998 pursuant to which Sky King Communications, Inc. ("Sky King") entered into a merger agreement with VDC and VDC (Delaware), Inc. (n/k/a VDC Communications, Inc). This merger transaction was accounted for as a reverse acquisition whereby Sky King was the acquirer for accounting purposes. Accordingly the historical financial statements presented are those of Sky King before the merger on March 6, 1998 and reflect the consolidated results of Sky King and VDC, and VDC's wholly-owned subsidiaries after the merger. On November 6, 1998, the Domestication Merger, whereby VDC merged with and into the Company, was consummated. The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instruction to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the disclosures required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results for the three- and six-month periods ended December 31, 1998 are not necessarily indicative of the results that may be expected for the year ended June 30, 1999. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended June 30, 1998, as filed with the Securities and Exchange Commission. The Company is a facilities-based international telecommunications carrier focused on international telecommunications gateways and long distance carrier services, which includes international private lines ("IPL's"), direct routes and the resale of other carriers' routes. 2. Summary of Significant Accounting Policies (a) Cash and Cash Equivalents 6 For purposes of the statement of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. (b) Principles of Consolidation The consolidated financial statements represent all companies of which the Company directly or indirectly has majority ownership. Significant intercompany accounts and transactions have been eliminated. 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"), and Voice & Data Communications (Hong Kong) Limited ("VDC Hong Kong"). (c) Loss Per Share of Common Stock Loss per common share 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 938,546 shares of common stock at prices ranging from $4.00 to $5.00 are not included in the computation of diluted loss per share because they are antidilutive due to the net loss. (d) Goodwill and Amortization Goodwill is amortized using the straight-line method over its estimated useful life. (e) Recent Accounting Pronouncements In June 1998, the AICPA issued statement of Financial Accounting Standards No. 33 "Accounting for Derivative Instruments and Hedging Activities". The Company has not yet analyzed the impact of this new standard. The Company will adopt this standard in July of 1999. 3. Domestication Merger On November 6, 1998, the Company completed the Domestication Merger with VDC. The effect of the Domestication Merger was that members of VDC became stockholders of the Company. The primary reason for the Domestication Merger was to reorganize VDC, 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, $2.00 par value per share, were exchanged, and 8,487,500 issued and outstanding shares of preferred stock of the Company, $.0001 par value per share, were converted, on a one-for-one basis, into an aggregate 20,298,362 shares of common stock of the Company, $.0001 par value per share. The Domestication merger has been accounted for as a 7 reorganization which has been given retroactive effect in the financial statements for all periods presented. 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 MCC shares and warrants represent an approximate 8.7% interest in the outstanding common stock of MCC. MCC operates joint ventures in China under the direction of its majority owner, Metromedia International Group. The joint ventures invest in network construction and development of telephony networks in China and participate in project cooperation contracts with local partners that enable the joint ventures to receive certain percentages of the projects' distributable cash flows. The Company evaluated the MCC investment based on: (i) the population of the Chinese markets where MCC's local partner has licenses to provide wireless and wireline telecommunications service, which the Company estimates at 116,000,000; (ii) the understanding that MCC's local partner would receive additional licenses in the future; and (iii) the possible synergy should the Company ever do business in China. 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 will fund an escrow account in the amount of up to $2,682,000 for the benefit of holders of priority unsecured claims and general unsecured claims against PortaCom's bankruptcy estate. The escrow fund and 5,300,000 VDC shares were placed in escrow pending the resolution of the disputed claims against PortaCom's bankruptcy estate. To the extent that the cash escrow is used, PortaCom will receive proportionally fewer VDC shares. PortaCom had used $1,627,339 of the escrow funds as of December 31, 1998. In November 1998, the Company and PortaCom settled a dispute in which the Company alleged that fraud may have been committed against it in connection with the investment in MCC. PortaCom agreed to allow two million VDC shares be held in escrow for up to eighteen months. These shares will be released from escrow contingent upon certain performance criteria. To the extent that the performance criteria are not met, those shares will be returned to VDC. The two million escrow shares 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. The investment in MCC has been recorded based on the consideration given which consisted of 3,061,900 common shares at $6.98125 (excludes 2 million shares in escrow), $1,662,236 in cash, the elimination of a loan 8 receivable of $390,522 and 50,000 investment advisory shares valued at $6.00 per share. 5. Non-cash Compensation Sky King entered into a merger agreement with VDC and the Company effective March 6, 1998. This transaction was accounted for as a reverse acquisition whereby Sky King was the acquirer for accounting purposes. Since the assets and liabilities of VDC Corporation Ltd. acquired were monetary in nature, the merger was recorded at the value of the net monetary assets. The consideration paid to the former Sky King shareholders in the merger consisted of the issuance of 10 million newly-issued shares of preferred stock of the Company which were convertible, and have been converted, in the aggregate, into 10 million shares of common stock of the Company. Of the consideration paid to the Sky King shareholders, preferred stock of the Company convertible in the aggregate into 4.5 million shares of common stock of the Company (the "Escrow Shares") was placed in escrow to be held and released from time to time as the Company achieved certain performance criteria. As of December 31, 1998, all of the performance criteria had been met. Accordingly, 4.5 million shares have been released from escrow. During the six-months ended December 31, 1998, 3.9 million shares were released from escrow. Of the shares released, approximately 2.7 million shares were considered compensatory to the extent of the trading value of the shares on the date of the release. This resulted in non-cash compensation of $16,146,000 for the six-months ended December 31, 1998. Compensatory shares are related to former Sky King shareholders who are members of the Company's management, their family trusts and minor children and an employee. 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. 6. Shares Surrendered 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. 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. 7. Investment in Masatepe Communications, S.A. Masatepe owns a 49% interest in Masatepe Comunicaciones, S.A. ("Masacom"), a Nicaraguan company. Masacom supports the development of Masatepe's operations in Central America. Masatepe carries the investment at cost, adjusted for 100% of Masacom's losses, since the recovery of 51% of the 9 losses is not reasonably assured. Following is Masacom's summary of financial position at December 31, 1998 and results of operations from inception through December 31, 1998: Assets $72,032 Liabilities $10,500 Results of operations $(363,268) 8. Private Placement In December 1998, the Company sold 245,159 shares at $3.625, 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. These shares have not been issued, but for financial statement purposes such shares have been treated as if they had been issued and outstanding. 9. Restructured Note Receivable During the six months ended December 31, 1998, the Company restructured notes receivable from debtors by reducing the principal due by $1,598,425 which has been charged to operations. The Company believes this step will maximize the recovery of its investment and expedite payment on the notes. The debt will be repaid in installments through April 1999. 10. 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 of certain activities 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 LC's must be collateralized in the form of cash equivalents held by the issuing bank. Collateral at December 31, 1998 consisted of approximately $406,000 in the form of three-month U.S. Government bonds. Each LC expires no later than one year from the date of issuance. As of December 31, 1998, there were no advances issued under the revolving line of credit. 11. Issuance of Investment Banking Shares In December 1998, the Company issued 240,000 common shares previously held in escrow for investment bankers in connection with the March 6, 1998 merger of Sky King with VDC and VDC (Delaware), Inc (n/k/a VDC Communications, Inc.). 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. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 When used in this Report on Form 10-Q, the words "may," "will," "expect," "anticipate," "continue," "estimate," "intend," 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. Such statements are not guarantees of future performance and are subject to risks and uncertainties and actual results may differ materially from those included within the forward-looking statements as a result of various factors. Such risks may relate to, among others: (i) the Company's ability to secure the various international licenses, approvals and other authorizations needed to commence operations in Asia, Latin America, China or other foreign countries; (ii) the Company's ability to otherwise develop and implement certain segments of its intended business that are subject to normal start-up risks and uncertainties; (iii) the Company's ability to secure sufficient financing in order to fund its proposed operations; (iv) inherent regulatory, licensing and political risks associated with operations in foreign countries; (v) the Company's dependence on certain key personnel; and (vi) competitive and other market conditions that may adversely affect the scope of the Company's operations. Additional factors are described in the Company's other public reports and filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date made. The Company undertakes no obligation to publicly release the result of any revision of these forward-looking statements to reflect events or circumstances after the date they are made or to reflect the occurrence of unanticipated events. General The Company is a facilities-based international telecommunications company, focused on international telecommunications gateways and long distance carrier services, which includes IPL's, direct routes and the reselling of other carriers' routes. Its global telecommunications network provides customers both voice and data capabilities. The Company currently carries international telecommunications traffic and has points of presence in major US cities and Central America and is currently developing opportunities in other parts of the world including Asia, Africa and further development in the Americas. Through VDC Telecommunications, a Delaware corporation, the Company operates an international network of telecommunications services with gateway and/or switch facilities located in New York, Los Angeles and Denver. During the quarter ended December 31, 1998, VDC Telecommunications began carrying wholesale domestic and international telecommunications traffic 11 through its network. VDC Telecommunications provides international carrier services through a United States Federal Communications Commission Overseas Common Carrier Section 214 License ("FCC 214 License"). An FCC 214 License authorizes an entity to provide international telecommunication services. At mid-January 1999, VDC Telecommunications had six contracted carrier customers for carriage of telecommunications traffic or provision of related telecommunication services. Through Masatepe, a Delaware limited liability company, the Company provides wholesale telecommunications services between Central America and the United States through an operating agreement with the Nicaraguan Post Telephone and Telegraph ("PTT") and an FCC 214 License. Masatepe also holds an Internet license from TELCOR in Nicaragua, and a teleport license in Nicaragua. At mid-January 1999, Masatepe had two carrier customers for carriage of telecommunications traffic. As of February 1999, Masatepe was in the process of increasing the capacity of its Central American network in response to customer demand. The Company also derives modest revenues from site tower management. Through VDC Hong Kong, the Company is developing telecommunications capability in Hong Kong and Asia. The Company has been licensed by the Office of Telecommunications Authority in Hong Kong to provide international calling services, value-added services and Internet services. In addition, VDC Hong Kong has an FCC 214 License. VDC Hong Kong is currently in the developmental stage and does not yet provide customers with telecommunications services. The Company is currently seeking a telecommunications license and operating agreement in Egypt because it believes this market offers significant opportunity. The Company's efforts in Egypt have not resulted in any licenses or agreements to date. There can be no assurances regarding the Company's ability to secure the appropriate regulatory approval to provide wholesale carrier or other telecommunications services in Egypt. The Company's costs include long distance charges for transmission services, terminating overseas-originated traffic in the United States and terminating domestic originated international traffic outside the United States. In addition, the Company incurs costs associated with business development including selling, general, and administrative costs. On November 6, 1998, VDC Corporation Ltd., a Bermuda company ("VDC"), merged with and into the Company (the "Domestication Merger"). The effect of the Domestication Merger was that members/stockholders of VDC became stockholders of the Company. The primary reason for the Domestication Merger was to reorganize VDC as a publicly traded U.S. corporation domesticated in the State of Delaware. The Company believes that the Domestication Merger may increase the Company's ability to meet any future equity and debt financing needs, may enhance the marketability of the Company's securities by raising the Company's profile in the U.S. capital markets, may allow investors to assess the Company on a more comparable footing with its competitors domiciled in the 12 United States and, over time, may have a positive effect on the trading of the Company's securities. Additionally, becoming a Delaware corporation is expected to simplify the Company's tax and securities filings, accounting and operations, and reduce both the cost and burden of these reporting obligations. In connection with the Domestication Merger, 11,810,862 issued and outstanding shares of common stock of VDC, $2.00 par value per share, were exchanged, and 8,487,500 issued and outstanding shares of preferred stock of the Company, $.0001 par value per share, were converted, on a one-for-one basis, into an aggregate 20,298,362 shares of common stock of the Company, $.0001 par value per share. During the quarter ended December 31, 1998, the Company renegotiated the agreement to acquire 2.0 million shares and warrants to purchase 4.0 million shares of MCC. Under the terms of the amended agreement, 2.0 million of the 5.1 million VDC shares issued to purchase the MCC interest will be held in escrow. These shares will be released from escrow contingent upon certain performance criteria. The shares not released will be returned to VDC. During the quarter ended December 31, 1998, the Company added additional personnel to its sales, technical and corporate development teams. In addition, the former chief operating officer ("COO") resigned from his position to pursue other opportunities. Upon his resignation, the COO returned one million eight-hundred seventy-five thousand (1,875,000) common shares to the Company's treasury. The combination of this with the potential reduction in shares slated for the MCC investment could reduce the Company's base shares by 3,875,000. Results of Operations The Company's operations are currently in a transitional phase. The Company began the development of its telecommunications business on March 6, 1998 and has since experienced a ramp-up in business. The Company does not believe, however, that current results are indicative of future performance, given the expected increase in business activity. For the three months ended December 31, 1998, compared to the three months ended December 31, 1997 Revenues: Total revenues in the three months ended December 31, 1998 increased to $527,567 from $20,295 in the three months ended December 31, 1997. This is the initial result of the implementation of the Company's telecommunications carrier services. Revenues were generated during the period by Masatepe, site tower management, and VDC Telecommunications for an abbreviated portion of the period. Revenue for the corresponding period of the prior year was solely attributable to site tower rentals. Gross Margin: Negative gross margins were the result of a combination of termination and circuit fees associated with the traffic carried in the quarter and salaries and other operating expenses incurred in advance of the realization of significant telecommunications traffic revenues. 13 Selling, general & administrative: Selling, general and administrative expenses increased to $797,306 from $108 in the corresponding period of the previous year. This increase was primarily attributable to salaries and corporate development costs necessary for the Company's development and operation of new telecommunications services, including its domestic and global telecommunications network. Depreciation and Amortization: Depreciation and amortization increased to $240,877 from $1,651 in the corresponding period of the previous year. The increase was primarily attributable to the amortization of goodwill associated with the Masatepe acquisition and depreciation of the Company's telecommunications equipment. Other income (expense): Other income (expense) was approximately $(1,360,000) for the three months ended December 31, 1998. The Company restructured certain notes receivable to maximize their recovery and wrote off all previously accrued interest. There were no other income (expense) items for the three months ended December 31, 1997. For the six months ended December 31, 1998, compared to the six months ended December 31, 1997 Revenues: Total revenues in the six months ended December 31, 1998 increased to $728,961 from $40,230 in the six months ended December 31, 1997. This is the initial result of the implementation of the Company's telecommunications carrier services. Revenues were generated during the period by Masatepe, site tower management, and VDC Telecommunications for an abbreviated portion of the period. Revenue for the corresponding period of the prior year was attributable to site tower rentals. Gross Margin: Negative gross margins were the result of a combination of termination and circuit fees associated with the traffic carried in the period and salaries and other operating expenses incurred in advance of the realization of significant telecommunications traffic revenues. Selling, general & administrative: Selling, general and administrative expenses increased to $1,719,716 from $183 in the corresponding period of the previous year. This increase was primarily attributable to salaries and corporate development costs necessary for the Company's development and operation of new telecommunications services, including its domestic and global telecommunications network; and professional fees, including consulting, legal and accounting expenses associated with the redeployment of the Company's assets. Non-cash Compensation Expense: Non-cash compensation expense was $16,146,000 for the six-months ended December 31, 1998 compared to $0 for the corresponding period of the previous year. During the six months ended December 31, 1998, 3.9 million shares of the Company's Series B convertible preferred stock ("Series B Stock"), were released from escrow based upon the achievement of performance criteria which includes the deployment of telecommunications equipment in service areas with an aggregate population of 14 greater than 3.9 million. Of the 3.9 million shares of Series B Stock released, 2.7 million shares were considered compensatory for accounting purposes. These compensatory shares were owned by management, their family trusts, minor children, and an employee. The non-cash expense reflected on the Company's 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 the Company's common stock on the date of release. Depreciation and Amortization: Depreciation and amortization increased to $343,713 from $3,302 in the corresponding period of the previous year. The increase was primarily attributable to the amortization of goodwill associated with the Masatepe acquisition. Other income (expense): Other income (expense) was approximately $(1,671,000) for the six months ended December 31, 1998. The Company restructured certain notes receivable to maximize their recovery and wrote off all previously accrued interest. There were no other income (expense) items for the six months ended December 31, 1997. Liquidity and Capital Resources In the near term, the Company expects to satisfy its working capital requirements and capital commitments with available cash on hand, notes receivable and other short term liquid assets and/or alternative financing arrangements. Management believes that its long-term liquidity needs will be satisfied by achieving positive operating results and cash flow through revenue generated by carrying long distance traffic. Net cash used in operating activities was approximately $1,959,000 for the six months ended December 31, 1998. The Company collected approximately $550,000 from customers while paying approximately $2,509,000 to its vendors and employees. Net cash used by operating activities of approximately $37,000 for the corresponding period of the previous year was due to the net loss from operations offset by depreciation. Net cash used by investing activities was approximately $1,367,000 for the six months ended December 31, 1998. Cash was used for capital expenditures on network facilities and switching equipment, the purchase of Masatepe as well as investing in Masatepe's Nicaraguan subsidiary, Masacom. Cash provided by investing activities was attributable to the collection of notes receivable and the return of escrow funds in connection with the investment in MCC. There were no cash flows from investing activities for the six months ended December 31, 1997. Cash provided by financing activities was approximately $1,741,000 for the six months ended December 31, 1998. This reflects the collection of stock subscriptions receivable and the issuance of common stock less repayments of notes for the purchase of telecommunication equipment. The funds were used to fund operations and capital expenditures. Proceeds provided by financing 15 activities of approximately $132,000 for the corresponding period of the previous year were used to fund operations. At December 31, 1998 the Company had outstanding capital commitments of approximately $2.5 million for the purchase of network facilities and switching equipment. These commitments are reflected in the Company's consolidated balance sheet at December 31, 1998. Acquisitions The Company entered into a Purchase Agreement on July 31, 1998 to acquire Masatepe for $589,169 in cash and shares of the Company's Common Stock valued at $700,875, less any adjustments made to the purchase price by virtue of indemnification claims made by the Company against an escrow fund established under the Purchase Agreement. The entire purchase price for the Masatepe acquisition was placed in escrow pending the satisfaction of certain regulatory filings to be made by Masatepe with the United States Federal Communications Commission (the "FCC"). On or about October 27, 1998, the entire purchase price for the Masatepe acquisition was released from escrow, less 14,160 shares of the Company's common stock, which shall be retained in escrow pending the resolution of a claim made by the Company against the escrow fund for outstanding expenses incurred by Masatepe prior to its acquisition by the Company. In addition, the Company delivered a promissory note to an executive officer of Masatepe in connection with the Masatepe acquisition. The amount due under the note is payable in shares of the Company's common stock on or before September 30, 2001, and will be based on Masatepe's cash flow for the twelve calendar months immediately preceding July 31, 2001. The Company may also be obligated under the Purchase Agreement to pay a deferred purchase price component (the "Deferred Purchase Price") to the sellers, Activated Communications, Limited Partnership and Marc Graubart on or about April 7, 1999 in the event that the market price of the Company's common stock is less than $7.00 per share, as determined by a formula set forth in the Purchase Agreement. The Deferred Purchase Price is payable in shares of common stock of the Company. The Company expects to continue to explore acquisition opportunities. Such acquisitions may have a significant impact on the Company's need for capital. The Company 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 terms attractive to the Company. The Company may also consider acquisitions using the Company's common stock. The Year 2000 Readiness Disclosure The Year 2000 issue is a matter of worldwide concern for carriers and affects many aspects of telecommunications technology, including the computer 16 systems and software applications that are essential for network administration and operations. A significant portion of the voice and data networking and network management devices have date-sensitive processing in them which affect network administration and operations functions such as service activation, service assurance and billing processes. The Company is currently evaluating the year 2000 readiness of its computer systems, software applications and telecommunications equipment. It is sending Year 2000 compliance inquiries to certain third parties (i.e. vendors, customers, outside contractors) with whom it has 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. The Company's key processing systems have recently been implemented. Most of the vendors of such systems have represented to the Company that the systems are compliant with the year 2000 issues without any modification. The Company will, however, continue to require confirmation of year 2000 compliance in its future requests for proposals from equipment and software vendors. The failure of the Company's computer systems and software applications to accommodate the year 2000, could have a material adverse effect on the Company's business, financial condition and result of operations. Further, if the networks and systems of those on whose services the Company depends and with whom the Company's networks and systems must interface are not year 2000 functional, it could have a material adverse effect on the operation of the Company's networks and, as a result, have a material adverse effect on the Company. Most major domestic carriers have announced that they expect all of their network and support systems to be year 2000 functional by mid 1999. However, other domestic and international carriers may not be year 2000 functional. The Company intends to continue to monitor the performance of its accounting, information and processing systems and software applications and those of its third-party constituents to identify and resolve any year 2000 issues. Currently, through its discovery process, the Company has identified an estimated $84,000 of expenditures associated with updating its systems to be compliant with the year 2000. However, the Company expects to find additional expenses pending the finalization of its year 2000 investigation. The Company believes that the most reasonably likely worst case scenario resulting from the century change could be the inability to route telecommunications traffic at current rates to desired locations for an indeterminable period of time, which could have a material adverse effect on the Company's results of operations and liquidity. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Item not applicable. 17 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 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, for an aggregate purchase price of 5,300,000 shares of common stock of VDC Corporation Ltd., a Bermuda company ("VDC Bermuda") and up to $700,000 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 VDC Bermuda 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 is used by PortaCom, PortaCom will receive fewer VDC Bermuda shares. The Escrow Cash and 5,300,000 VDC 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, successor to VDC Bermuda pursuant to the Domestication Merger, 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 to be distributed 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, the Company and Michael Richard, a PortaCom officer charged with certain responsibilities in distributing certain assets in connection with the Plan, entered into a Settlement Agreement pursuant to which 2 million of the Escrow Shares will be retained in escrow for up to eighteen (18) months (the "Retained Shares"). A portion or all of the Retained Shares shall be released to PortaCom contingent upon certain performance criteria. Those shares not so released will be returned to the Company. As of February 1999, PortaCom had used approximately $1,669,839 of the Escrow Cash, resulting in PortaCom's return, or obligation to return, approximately 186,105 Escrow Shares to the Company. The unused Escrow Cash has been returned to the Company. Worldstar Suit On or about June 10, 1998, Worldstar Communications Corporation ("Worldstar") commenced an action in the United States District Court for the Southern District of New York entitled Worldstar Communications Corporation v. Lindemann Capital L.P., Activated Communications, L.P. and Marc Graubart (Civil Action No. 98 4093) (the "Action"). Worldstar asserts in the Action that, under the terms of a purported joint venture arrangement with Lindemann Capital L.P. ("Lindemann") and Activated Communications, L.P. ("Activated"), Worldstar acquired certain rights to share in the 18 profits and ownership of a telecommunications project in Nicaragua owned by Masatepe Comunicaciones S.A., a Nicaraguan company ("Masatepe S.A."). Masatepe Communications U.S.A., L.L.C. ("Masatepe U.S.A."), which owns a 49% equity interest in Masatepe S.A., was acquired by the Company and is now a wholly-owned subsidiary of the Company. In the event that the plaintiff prevails in the Action, the value of the Company's interest in Masatepe U.S.A., Masatepe S.A and/or the Nicaraguan Project could be diluted. However, pursuant to the Purchase Agreement through which the Company acquired Masatepe U.S.A. (the "Purchase Agreement"), Activated agreed to indemnify and hold the Company and Masatepe U.S.A. harmless from any loss, liability, claim, damage and expense arising out or resulting from the Action. 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 U.S.A. Furthermore, defendants in the action have filed a motion to dismiss the Action, and are otherwise vigorously defending the Action. 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. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Domestication Merger On November 6, 1998, VDC Corporation Ltd., a Bermuda company ("VDC Bermuda"), merged with and into the Company (the "Domestication Merger") pursuant to the terms of an Agreement and Plan of Merger, made as of October 5, 1998, by and between VDC Bermuda and the Company (the "Merger Agreement"). Pursuant to the terms of the Merger Agreement, each outstanding share of VDC Bermuda common stock, par value $2.00 per share, was converted into the right to receive one share of Company common stock, par value $.0001 per share ("Common Stock"). Additionally, each outstanding share of Company preferred stock was changed and converted into one share of Company Common Stock. Additional information required by this Item is provided in the registrant's Registration Statement on Form S-4, filed with the SEC on September 9, 1998 and is incorporated by reference herein. Recent Sales of Unregistered Securities On December 22, 1998, the Company issued 129,852 shares of Company Common Stock in the name of FAC Enterprises, Inc. ("FAC"), 70,000 shares of Company Common Stock in the name of SPH Investments Inc. ("SPH Investments"), and 40,148 shares of Company Common Stock in the name of SPH Equities Inc. ("SPH Equities") in a non-public offering exempt from registration pursuant to Section 4(2) and Rule 506 of Regulation D of the Act (the "Investment Banking Shares"). The Investment Banking Shares were issued in the name of FAC, SPH Investments, and SPH Equities as an investment banking fee for their work in arranging for, and providing services in connection with, the merger of Sky King Communications, Inc., a Connecticut corporation, with and into VDC (Delaware), Inc., a Delaware corporation. The aggregate value of the services rendered as consideration for the Investment Banking Shares was $600,000. On December 23, 1998, the Company sold 245,159 shares of Company Common Stock to accredited investors consisting of Frederick A. Moran and certain entities associated with and family members of Frederick A. Moran for an aggregate purchase price of $888,701.38 in a non-public offering exempt from registration pursuant to Section 4(2) and Rule 506 of Regulation D of the Act. 19 ITEM 3. DEFAULTS UPON SENIOR SECURITIES Item not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS Domestication Merger On October 30, 1998, VDC Bermuda held a Special General Meeting of its shareholders (the "VDC Bermuda Meeting"). At the VDC Bermuda Meeting the shareholders voted on the merger of VDC Bermuda with and into the Company. Holders of 8,519,975 shares voted in favor of the Domestication Merger. Holders of 42,016 shares voted against the Domestication Merger. Holders of 5,830 shares abstained from voting on the Domestication Merger. The sole holder of shares of Company Common Stock, par value $.0001 per share, prior to the Domestication Merger voted for the Domestication Merger pursuant to a Unanimous Written Consent dated November 5, 1998. The holders of Company Series A convertible preferred stock, par value $.0001 per share ("Series A Stock") and Series B convertible preferred stock, par value $.0001 per share ("Series B Stock") approved the Domestication Merger pursuant to a Written Consent dated November 4, 1998. Holders of 3,832,767.4 shares of Series A Stock voted for the Domestication Merger. Holders of 4,373,400.6 shares of Series B Stock voted for the Domestication Merger. No abstentions or votes against the Domestication Merger were noted by holders of Series A or Series B Stock on the Written Consent. ITEM 5. OTHER INFORMATION The Company has decided to postpone the Company's 1999 Annual Meeting of Shareholders (the "Annual Meeting") until on or about December 3, 1999. To be considered for inclusion in the Company's proxy statement relating to the Annual Meeting, Company shareholder ("Shareholder") proposals must be received no later than August 2, 1999. To be considered for presentation at the Annual Meeting, although not included in the proxy statement, proposals must be received no later than October 14, 1999, nor earlier than September 17, 1999. All Shareholder proposals should be marked for the attention of Secretary, VDC Communications, Inc., 75 Holly Hill Lane, Greenwich, Connecticut 06830. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits
Exhibit No. Description Method of Filing ----------- ----------- ---------------- 2.1 Agreement and Plan of Merger, made as of October 5, 1998, by (1) and between VDC Corporation Ltd. and VDC Communications, Inc. 3.1 Certificate of Incorporation, as amended (1) 20 3.2 Amended and Restated Bylaws (1) 4.1 1998 Stock Incentive Plan (2) 10.1 Settlement, Release and Discharge Agreement, by and among VDC (3) Communications, Inc., Dr. James C. Roberts, and Frederick A. Moran, dated November 19, 1998 10.2 Settlement Agreement between VDC Communications, Inc., PortaCom (3) Wireless, Inc., and Michael Richards, dated November 24, 1998 10.3 Director Agreement with Dr. Leonard Hausman, dated November 4, (4) 1998 10.4 Option to Purchase 25,000 shares granted to Dr. Leonard (4) Hausman, dated November 4, 1998 10.5 Registration Rights Agreement between VDC Corporation Ltd. and (4) Dr. Leonard Hausman, dated November 4, 1998 10.6 Director Agreement with James Dittman, dated November 4, 1998 (4) 10.7 Option to Purchase 25,000 shares granted to James Dittman, (4) dated November 4, 1998 10.8 Registration Rights Agreement between VDC Corporation Ltd. and (4) James Dittman, dated November 4, 1998 27.1 Financial Data Schedule (4)
(1) 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. (2) 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. (3) Filed as an Exhibit to Current Report on Form 8-K dated November 19, 1998, and incorporated by reference herein. (4) Filed herewith. (b) Reports on Form 8-K Report on Form 8-K, dated November 19, 1998, reporting resignation of Dr. James C. Roberts, and improvement of terms of acquisition of Metromedia China Corporation securities. 21 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized. VDC COMMUNICATIONS, INC. By: /s/ Frederick A. Moran Dated: February 11, 1999 ------------------------------------------ Frederick A. Moran Chairman, Chief Executive Officer, Chief Financial Officer and Director 22 EXHIBIT INDEX
Exhibit Page Number in Number Rule 0-3(b) (Referenced to Sequential Item 601 of Numbering System Reg. S-K) Where Exhibit Can Be Found 10.3 Director Agreement with Dr. Leonard Hausman, dated November 4, 1998 10.4 Option to Purchase 25,000 shares granted to Dr. Leonard Hausman, dated November 4, 1998 10.5 Registration Rights Agreement between VDC Corporation Ltd. and Dr. Leonard Hausman, dated November 4, 1998 10.6 Director Agreement with James Dittman, dated November 4, 1998 10.7 Option to Purchase 25,000 shares granted to James Dittman, dated November 4, 1998 10.8 Registration Rights Agreement between VDC Corporation Ltd. and James Dittman, dated November 4, 1998 27.1 Financial Data Schedule
23 EX-10.3 2 MATERIAL CONTRACTS Exhibit 10.3 DIRECTOR AGREEMENT DIRECTOR AGREEMENT effective as of the 4th day of November, 1998 by and among Leonard Hausman (hereinafter referred to as "Dr. Hausman") and VDC Corporation Ltd., a Bermuda company (hereinafter referred to as the "Company"). WITNESSETH WHEREAS, Dr. Hausman has been elected to serve as a member of the Company's Board of Directors (a "Director") and Dr. Hausman has agreed to serve as a Director, each upon the terms and conditions contained within this Director Agreement. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereto, intending to be legally bound, hereby agree as follows: 1. Term, Duties and Acceptance a. The Company hereby retains Dr. Hausman as a Director to render his services to the Company in such capacity. b. Dr. Hausman hereby agrees to serve as a Director and agrees to devote his best efforts, energy and skill to such position. c. Dr. Hausman agrees to serve as a Director for the term for which he was elected unless he retires or is removed from office. 2. Compensation and Expense Reimbursement a. As compensation (the "Compensation") for his service as a Director, Dr. Hausman shall receive options to purchase the Company's stock upon the terms and conditions set forth in that certain Option to Purchase Common Shares of VDC Corporation Ltd. by and between Dr. Hausman and the Company dated November 4, 1998. b. Other than the Compensation, Dr. Hausman shall not receive a salary, payments or reimbursement of any kind for his service as a Director. c. The Company shall not pay or reimburse Dr. Hausman for out-of-pocket expenses incurred by him in the performance of his duties as a Director, nor for attending telephonic or physical meetings of the Company's Board of Directors (the "Board"). 3. Resignation and Removal from Office a. Dr. Hausman may resign from his position as a Director upon thirty (30) days written notice to the Board. b. Dr. Hausman may be removed from office as Director on the terms and conditions set forth in the corporate law of the current jurisdiction of incorporation of the Company and on the terms and conditions set forth in the Company's governing documents. 4. Trade Secrets and Confidential Information Dr. Hausman recognizes and acknowledges that certain information including, without limitation, information pertaining to the financial condition of the Company, its systems, methods of doing business, agreements with customers or suppliers or other aspects of the business of the Company or which is sufficiently secret to derive economic value from not being disclosed ("Confidential Information") may be made available or otherwise come into the possession of Dr. Hausman by reason of his service to the Company. Accordingly, Dr. Hausman agrees that he will not at any time disclose any Confidential Information to any person, firm, corporation, association or other entity for any reason or purpose whatsoever or make use to his personal advantage or to the advantage of any third party, of any Confidential Information, without the prior written consent of the Board. Dr. Hausman shall, upon termination of his service to the Company, return to the Company all documents which reflect Confidential Information (including copies thereof). Notwithstanding anything heretofore stated in this Section 4, Dr. Hausman's obligations under this Section 4 shall not, after termination of Dr. Hausman's service to the Company, apply to information which has become generally available to the public without any action or omission of Dr. Hausman (except that any Confidential Information which is disclosed to any third party by an employee or representative of the Company who is not authorized to make such disclosure shall be deemed to remain confidential and protectable by Dr. Hausman under this Section 4). 5. Severability 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; and this Agreement and such other terms 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 in entering into this Agreement. 6. Breach Dr. Hausman hereby recognizes and acknowledges that irreparable injury or damage shall result to the Company in the event of a breach or threatened breach by Dr. Hausman of any of the terms of Section 4 hereunder, and Dr. Hausman therefore agrees that the Company shall be entitled to an injunction restraining Dr. Hausman from engaging in any activity constituting such breach or threatened breach. Nothing contained herein shall be construed as prohibiting the 2 Company from pursuing any other remedies available to the Company at law or in equity for breach or threatened breach of this Agreement, including but not limited to, the recovery of damages from Dr. Hausman and removal from office as a Director. 7. Arbitration All controversies which may arise between the parties hereto including, but not limited to, those arising out of or related to this Agreement shall be determined by binding arbitration applying the laws of the State of Delaware as set forth in Section 11 hereof. Any arbitration pursuant to this Agreement shall be conducted in Stamford, Connecticut before the American Arbitration Association in accordance with its arbitration rules. The arbitration shall be final and binding upon all the parties (so long as the award was not procured by corruption, fraud or undue means) and the arbitrator's award shall not be required to include factual findings or legal reasoning. Nothing in this Section 7 will prevent either party from resorting to judicial proceedings if interim injunctive relief under the laws of the State of Delaware from a court is necessary to prevent serious and irreparable injury to one of the parties, and the parties hereto agree that the federal and state courts located in Stamford, Connecticut shall have exclusive subject matter and in personam jurisdiction over the parties and any such claims or disputes arising from the subject matter contained herein. 8. Remedies Cumulative Except as otherwise expressly provided herein, each of the rights and remedies of the parties set forth in this Agreement shall be cumulative with all other such rights and remedies, as well as with all rights and remedies of the parties otherwise available at law or in equity. 9. Counterparts This Agreement may be executed via facsimile transmission signature and in counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 10. Waiver The failure of either party at any time or times to require performance of any provision hereof shall in no manner affect the right at a later time to enforce the same. To be effective, any waiver must be contained in a written instrument signed by the party waiving compliance by the other party of the term or covenant as specified. The waiver by either party of the breach of any term or covenant contained herein, whether by conduct or otherwise, in any one or more instances, shall not be deemed to be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other term or covenant contained in this Agreement. 11. Governing Law This Agreement shall be governed by the laws of the State of Delaware without regard to principles of conflict of laws. 3 12. Complete Agreement This Agreement constitutes the complete and exclusive agreement between the parties hereto which supersedes all proposals, oral and written, and all other communications between the parties relating to the subject matter contained herein. 13. Warranties Dr. Hausman represents, warrants, covenants and agrees that he has a right to enter into this Agreement, that he is not a party to any agreement or understanding whether or not written which would prohibit or restrict his performance of his obligations under this Agreement and that he will not use in the performance of his obligations hereunder any proprietary information of any other party which he is legally prohibited from using. 14. Notice Any notice, demand, or communication given in connection with this Agreement shall be in writing and shall be deemed received (a) when delivered if given in person or by courier or courier service, or (b) on the date and at the time of transmission if sent by facsimile (receipt confirmed) or (c) five (5) business days after being deposited in the mail postage prepaid. 15. Key Man Insurance The Company shall have the right to obtain what is commonly known as "Key Man Insurance" on the life of Dr. Hausman in such amount as the Company deems appropriate. Dr. Hausman agrees to cooperate in all manner in the obtaining of such a policy. All expenses involved in connection with the obtaining and maintaining of such a policy shall be that of the Company. 16. Assignment This Agreement shall inure to the benefit of and be binding upon the Company, its successors and assigns. By way of illustration, and not limitation, if the Company merges with and into VDC Communications, Inc., (the "Subsidiary") and Mr. Dittman serves as a Director of the Subsidiary following the merger, then the terms of this Agreement shall inure to the benefit of and be binding upon the Subsidiary. 4 IN WITNESS WHEREOF, the parties have executed this Agreement as of the 4th day of November 1998. WITNESS: VDC CORPORATION LTD. /s/ Louis D. Frost By:/s/ Frederick A. Moran - ------------------ ----------------------------------------------- Frederick A. Moran, Chief Executive Officer WITNESS: /s/ Tamar Miller /s/ Leonard Hausman - ---------------- ---------------------------------------- Leonard Hausman
Agreed to and accepted this 4th day of November, 1998 VDC COMMUNICATIONS, INC. By:/s/ Frederick A. Moran --------------------------------------------- Frederick A. Moran, President 5 EX-10.4 3 MATERIAL CONTRACTS Exhibit 10.4 THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 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 1933 ACT, BASED ON AN OPINION LETTER OF COUNSEL SATISFACTORY TO THE COMPANY OR A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION. OPTION TO PURCHASE COMMON SHARES OF VDC CORPORATION LTD. Void after November 4, 2008 This certifies that, for value received, Dr. Leonard Hausman ("Holder"), is entitled, subject to the terms set forth below and prior to the Expiration Date (as hereinafter defined), to purchase from VDC Corporation Ltd. (the "Company"), a Bermuda company, Common Shares of the Company (as defined below), commencing on the date hereof (the "Option Issue Date"), with the Notice of Exercise attached hereto duly executed, and simultaneous payment therefor in lawful money of the United States, at the Exercise Price as set forth in Section 2 below. The number, character and Exercise Price of the shares are subject to adjustment as provided below. The options granted hereunder are intended to be treated as non-qualified stock options and will not be treated as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended. 1. Term of Option. Subject to compliance with the vesting provisions identified at Paragraph 2.3 hereafter, this Option shall be exercisable, in whole or in part, during the term commencing on the Option Issue Date and ending at 5:00 p.m. on November 4, 2008 (the "Expiration Date"), and shall be void thereafter. 2. Exercise Price, Number of Shares and Vesting Provisions. 2.1. Number of Shares. The number of shares of the Company's Common Shares, $2.00 par value per share ("Common Shares"), which may be purchased pursuant to this Option shall be 25,000 shares, as adjusted pursuant to Section 11 hereof. 2.2. Exercise Price. The Exercise Price at which this Option may be exercised shall be $4.00 per common share, as adjusted pursuant to Section 11 hereof. 2.3. Vesting. The Options granted hereunder shall vest in accordance with the following schedule on an aggregate basis: (i) 8,333 provided Holder serves as a member of the Company's Board of Directors (a "Director") continuously from November 4, 1998 through November 3, 1999; (ii) 16,666 provided Holder serves as a Director continuously from November 4, 1998 through November 3, 2000; and (iii) 25,000 provided Holder serves as a Director continuously from November 4, 1998 through November 3, 2001. Except as otherwise specifically provided herein, Holder's right in and to any Options that do not vest at the date of termination of Holder's service as Director of the Company shall lapse and terminate. 2.4. Death of Holder and Termination. (a) If the Holder shall die, he or his estate, personal representatives, or beneficiary, as applicable, shall have the right, subject to the provisions of this Paragraph 2 hereof, to continue to vest and exercise the Options as if no termination in service to the Company had occurred. (b) In the event Holder resigns or is removed from office pursuant to Section 3 of the Director Agreement by and between the Holder and the Company effective as of November 4, 1998, Holder shall have 30 days in which to exercise the Options (only to the extent that the Holder would have been entitled to do so as of the date of his termination) and thereafter, Holder's right in and to the Options shall lapse and terminate. 3. Exercise of Option. (a) The Exercise Price shall either be payable in cash or by bank or certified check; or by cashless exercise through the delivery by the Holder to the Company of Common Shares for which Holder is the record and beneficial owner which have been held for at least six (6) months, or by delivering to the Company a notice of exercise with an irrevocable direction to a broker/dealer registered under the Securities Exchange Act of 1934 to sell a sufficient portion of the shares and deliver the sale proceeds directly to the Company to pay the Exercise Price, or by any combination thereof. If Common Shares of the Company are tendered as payment of the Exercise Price, the value of such shares shall be their "market value" as of the trading date immediately preceding the date of exercise. The "market value" shall be: (i) If the Company's Common Shares are traded in the over-the-counter market and not on any national securities exchange nor in the NASDAQ Reporting System, the market value shall be the average of the mean between the last bid and ask prices per share, as reported by the National Quotation Bureau, Inc., or an equivalent generally accepted reporting service, for the consecutive 20 trading days immediately preceding the date of exercise, or if not so reported, the average of the closing bid and asked prices for a share for the consecutive 20 trading days immediately preceding the date of exercise, as furnished to the Company by any member of the National Association of Securities Dealers, Inc., selected by the Company for that purpose. (ii) If the Company's Common Shares are traded on a national securities exchange or in the NASDAQ Reporting System, the market value shall be either (1) the simple average of the high and low prices at which a share of the Company's Common Shares traded, as quoted on the NASDAQ-NMS or its other principal exchange, for the consecutive 20 2 trading days immediately preceding the date of exercise or (2) the average price of the last sale of a Common Share as similarly quoted for the consecutive 20 trading days immediately preceding the date of exercise, whichever is higher, and rounding out such figure to the next higher multiple of 12.5 cents (unless the figure is already a multiple of 12.5 cents). If such tender would result in an issuance of a whole number of shares and a fractional Common Share, the value of such fractional share shall be paid to the Company in cash or by check by the Holder. (b) The purchase rights represented by this Option are exercisable by the Holder in whole or in part, at any time, or from time to time, by the surrender of this Option and the Notice of Exercise annexed hereto duly completed and executed on behalf of the Holder, at the office of the Company (or such other office or agency of the Company as it may designate by notice in writing to the Holder at the address of the Holder appearing on the books of the Company). (c) This Option shall be deemed to have been exercised immediately prior to the close of business on the date of its surrender for exercise as provided above, and the person entitled to receive the Common Shares issuable upon such exercise shall be treated for all purposes as the holder of record of such shares as of the close of business on such date. As promptly as practicable on or after such date and in any event within ten (10) days thereafter, the Company at its expense shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for the number of shares issuable upon such exercise. In the event that this Option is exercised in part, the Company at its expense will execute and deliver a new Option of like tenor exercisable for the number of shares for which this Option may then be exercised. 4. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Option. In lieu of any fractional share to which the Holder would otherwise be entitled, the Company shall make a cash payment equal to the Exercise Price multiplied by such fraction. 3 5. Replacement of Option. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Option and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and substance to the Company or, in the case of mutilation, on surrender and cancellation of this Option, the Company at its expense shall execute and deliver, in lieu of this Option, a new Option of like tenor and amount. 6. Rights of Stockholder. The Holder shall not be entitled to vote or receive dividends or be deemed the holder of Common Shares or any other securities of the Company that may at any time be issuable on the exercise hereof for any purpose, nor shall anything contained herein be construed to confer upon the Holder, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of stock, reclassification of stock, change of par value, or change of stock to no par value, consolidation, merger, conveyance or otherwise) or to receive notice of meetings, or to receive dividends or subscription rights or otherwise until the Option shall have been exercised as provided herein. 7. Transfer of Option. 7.1. Non-Transferability. Prior to vesting in accordance with paragraph 2 herein, the Option shall not be assigned, transferred, pledged or hypothecated in any way, nor subject to execution, attachment or similar process, otherwise than by will or by the laws of descent and distribution. To the extent the Options have vested, transfers thereof which comply with the remaining provisions of this paragraph 7 may be undertaken upon the prior written consent of the Company, which consent shall not be unreasonably withheld. Any attempted assignment, transfer, pledge, hypothecation or other disposition of the Option contrary to the provisions hereof, and the levy of an execution, attachment, or similar process upon the Option, shall be null and void and without effect. 7.2. Exchange of Option Upon a Transfer. On surrender of this Option for exchange, properly endorsed, the Company at its expense shall issue to or on the order of the Holder a new Option or Options of like tenor, in the name of the Holder or as the Holder (on payment by the Holder of any applicable transfer taxes) may direct, of the number of shares issuable upon exercise hereof. 7.3. Compliance with Securities Laws; Restrictions on Transfers. (a) The Holder of this Option, by acceptance hereof, acknowledges that this Option and the Shares to be issued upon exercise hereof are being acquired solely for the Holder's own account and not as a nominee for any other party, and for investment (unless such shares are subject to resale pursuant to an effective prospectus), and that the Holder will not offer, sell or otherwise dispose of this Option or any Shares to be issued upon exercise hereof except under circumstances that will not result in a violation of applicable federal and state securities laws. Upon exercise of this Option, the Holder shall, if requested by the Company, 4 confirm in writing, in a form satisfactory to the Company, that the Common Shares so purchased are being acquired solely for the Holder's own account and not as a nominee for any other party, for investment (unless such shares are subject to resale pursuant to an effective prospectus), and not with a view toward distribution or resale. (b) Neither this Option nor any Common Shares issued upon exercise of this Option may be offered for sale or sold, or otherwise transferred or sold in any transaction which would constitute a sale thereof within the meaning of the Securities Act of 1933, as amended (the "1933 Act"), unless (i) such security has been registered for sale under the 1933 Act and registered or qualified under applicable state securities laws relating to the offer an sale of securities, or (ii) exemptions from the registration requirements of the 1933 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 satisfactory to the Company that the proposed sale or other disposition of such securities may be effected without registration under the 1933 Act and would not result in any violation of any applicable state securities laws relating to the registration or qualification of securities for sale, such counsel and such opinion to be satisfactory to the Company. (c) All Common Shares issued upon exercise hereof shall be stamped or imprinted with a legend in substantially the following form (in addition to any legend required by state securities laws). "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 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 1933 ACT, BASED ON AN OPINION LETTER OF COUNSEL SATISFACTORY TO THE COMPANY OR A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION." 8. Reservation and Issuance of Stock; Taxes. (a) The Company covenants that during the term that this Option is exercisable, the Company will reserve from its authorized and unissued Common Shares a sufficient number of shares to provide for the issuance of the shares upon the exercise of this Option, and from time to time will take all steps necessary to amend its Memorandum of Association to provide sufficient reserves of Common Shares issuable upon the exercise of the Option. (b) The Company further covenants that all Common Shares issuable upon the due exercise of this Option will be free and clear from all taxes or liens, charges and security interests created by the Company with respect to the issuance thereof, however, the Company shall not be obligated or liable for the payment of any taxes, liens or charges of Holder, or any other party contemplated by Paragraph 7, incurred in connection with the issuance of this Option or the Common Shares upon the due exercise of this Option. The Company agrees that its issuance of this Option shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Common Shares upon the exercise of 5 this Option. The Common Shares issuable upon the due exercise of this Option, will, upon issuance in accordance with the terms hereof, be duly authorized, validly issued, fully paid and non-assessable. (c) Upon exercise of the Option, the Company shall have the right to require the Holder 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 Common Shares purchased pursuant to the Option. (d) A Holder 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 Company's Chief Executive Officer, through the delivery to the Company of previously-owned Common Shares having an aggregate market value equal to the tax obligation provided that the previously owned shares delivered in satisfaction of the withholding obligations must have been held by the Holder for at least six (6) months; (iii) in the discretion of the Company's Chief Executive Officer, through the withholding of Common Shares otherwise issuable to the Holder in connection with the Option exercise; or (iv) in the discretion of the Company's Chief Executive Officer, through a combination of the procedures set forth in subsections (i), (ii) and (iii) of this Paragraph 8(d). 9. Notices. (a) Whenever the Exercise Price or number of shares purchasable hereunder shall be adjusted pursuant to Section 11 hereof, the Company shall issue a certificate signed by its Chief Executive Officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the Exercise Price and number of shares purchasable hereunder after giving effect to such adjustment, and shall cause a copy of such certificate to be mailed (by first-class mail, postage prepaid) to the Holder of this Option. (b) All notices, advices and communications under this Option shall be deemed to have been given, (i) in the case of personal delivery, on the date of such delivery and (ii) in the case of mailing, on the third business day following the date of such mailing, addressed as follows: If to the Company: VDC Corporation Ltd. 75 Holly Hill Lane, 3rd Floor Greenwich, CT 06830 Attn: Frederick A. Moran, Chief Executive Officer 6 With a Copy to: Louis D. Frost, VDC Corporate Counsel VDC Corporation Ltd. 75 Holly Hill Lane, 3rd Floor Greenwich, CT 06830 and to the Holder: at the address of the Holder appearing on the books of the Company or the Company's transfer agent, if any. Either of the Company or the Holder may from time to time change the address to which notices to it are to be mailed hereunder by notice in accordance with the provisions of this Paragraph 9. 10. Amendments. (a) Any term of this Option may be amended with the written consent of the Company and the Holder. Any amendment effected in accordance with this Section 10 shall be binding upon the Holder, each future holder and the Company. (b) No waivers of, or exceptions to, any term, condition or provision of this Option, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, condition or provision. 11. Adjustments. The number of Shares purchasable hereunder and the Exercise Price are subject to adjustment from time to time upon the occurrence of certain events, as follows: 11.1. Reorganization, Merger or Sale of Assets. If at any time while this Option, or any portion thereof, is outstanding and unexpired there shall be (i) a reorganization (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), (ii) a merger or consolidation of the Company with or into another corporation in which the Company is not the surviving entity, or a merger in which the Company is the surviving entity but the shares of the Company's capital stock outstanding immediately prior to the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise, or (iii) a sale or transfer of substantially all of the Company's properties and assets as, or substantially as, an entirety to any other person, then, as a part of such reorganization, merger, consolidation, sale or transfer, lawful provision shall be made so that the holder of this Option shall upon such reorganization, merger, consolidation or sale or transfer, have the right by exercising such Option, to purchase the kind and number of Common Shares or other securities or property (including cash) otherwise receivable upon such reorganization, merger, consolidation or sale or transfer by a holder of the number of Common Shares that might 7 have been purchased upon exercise of such Option immediately prior to such reorganization, merger, consolidation or sale or transfer. The foregoing provisions of this Section 11.1 shall similarly apply to successive reorganizations, consolidations, mergers, sales and transfers and to the stock or securities of any other corporation that are at the time receivable upon the exercise of this Option. If the per-share consideration payable to the Holder hereof for shares in connection with any such transaction is in a form other than cash or marketable securities, then the value of such consideration shall be determined in good faith by the Company's Board of Directors. In all events, appropriate adjustment (as determined in good faith by the Company's Board of Directors) shall be made in the application of the provisions of this Option with respect to the rights and interests of the Holder after the transaction, to the end that the provisions of this Option shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable after that event upon exercise of this Option. 11.2. Reclassification. If the Company, at any time while this Option, or any portion thereof, remains outstanding and unexpired, by reclassification of securities or otherwise, shall change any of the securities as to which purchase rights under this Option exist into the same or a different number of securities of any other class or classes, this Option shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities that were subject to the purchase rights under this Option immediately prior to such reclassification or other change and the Exercise Price therefor shall be appropriately adjusted, all subject to further adjustment as provided in this Section 11. 11.3. Split, Subdivision or Combination of Shares. If the Company at any time while this Option, or any portion thereof, remains outstanding and unexpired shall split, subdivide or combine the securities as to which purchase rights under this Option exist, into a different number of securities of the same class, the Exercise Price and the number of shares issuable upon exercise of this Option shall be proportionately adjusted. 11.4. Adjustments for Dividends in Stock or Other Securities or Property. If while this Option, or any portion hereof, remains outstanding and unexpired the holders of the securities as to which purchase rights under this Option exist at the time shall have received, or, on or after the record date fixed for the determination of eligible Stockholders, shall have become entitled to receive, without payment therefor, other or additional stock or other securities or property (other than cash) of the Company by way of dividend, then and in each case, this Option shall represent the right to acquire, in addition to the number of shares of the security receivable upon exercise of this Option, and without payment of any additional consideration therefor, the amount of such other or additional stock or other securities or property (other than cash) of the Company that such holder would hold on the date of such exercise had it been the holder of record of the security receivable upon exercise of this Option on the date hereof and had thereafter, during the period from the date hereof to and including the date of such exercise, retained such shares and/or all other additional stock, other securities or property available by this Option as aforesaid during such period. 8 11.5. Necessary or Appropriate Action. The Company will not, by any voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Section 11 and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holders of this Option against impairment. 12. Registration Rights. The Holder shall be entitled to the registration rights set forth in that certain Registration Rights Agreement of even date herewith by and between the Company and such Holder. 13. Severability. Whenever possible, each provision of this Option shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Option is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of any other provision of this Option in such jurisdiction or affect the validity, legality or enforceability of any provision in any other jurisdiction, but this Option shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. 14. Governing Law. The corporate law of the current jurisdiction of incorporation of the Company shall govern all issues and questions concerning the relative rights of the Company and its stockholders. All other questions concerning the construction, validity, interpretation and enforceability of this Option and the exhibits and schedules hereto shall be governed by, and construed in accordance with, the laws of the current jurisdiction of incorporation of the Company, without giving effect to any choice of law or conflict of law rules or provisions that would cause the application of the laws of any jurisdiction other than those of the current jurisdiction of incorporation of the Company. For the purposes of this Section 14, the term "current" shall mean the time at which any dispute, issue or question shall arise hereunder. 15. Jurisdiction. The Holder and the Company agree to submit to personal jurisdiction and to waive any objection as to venue in the federal or state courts located in Stamford, Connecticut. Service of process on the Company or the Holder in any action arising out of or relating to this Option shall be effective if mailed to such party at the address listed in Section 9 hereof. 16. Arbitration. If a dispute arises as to interpretation of this Option, it shall be decided finally by three arbitrators in an arbitration proceeding conforming to the Rules of the American Arbitration Association applicable to commercial arbitration. The arbitrators shall be appointed as follows: one by the Company, one by the Holder and the third by the said two arbitrators, or, if they cannot agree, then the third arbitrator shall be appointed by the American Arbitration Association. The third arbitrator shall be chairman of the panel and shall be impartial. The arbitration shall take place in Stamford, Connecticut. The decision of a majority of the Arbitrators shall be conclusively binding upon the parties and final, and such decision shall be enforceable as a judgment in any court of competent jurisdiction. Each party shall pay the 9 fees and expenses of the arbitrator appointed by it, its counsel and its witnesses. The parties shall share equally the fees and expenses of the impartial arbitrator. 17. Corporate Power; Authorization; Enforceable Obligations. The execution, delivery and performance by the Company of this Agreement: (i) are within the Company's corporate power; (ii) have been duly authorized by all necessary or proper corporate action; (iii) are not in contravention of the Company's memorandum of association or bye-laws; (iv) will not violate in any material respect, any law or regulation, including any and all Federal and state securities laws, or any order or decree of any court or governmental instrumentality; and (v) will not, in any material respect, conflict with or result in the breach or termination of, or constitute a default under any agreement or other material instrument to which the Company is a party or by which the Company is bound. 18. Successors and Assigns. This Option shall inure to the benefit of and be binding on the respective successors, assigns and legal representatives of the Holder and the Company. IN WITNESS WHEREOF, the Company has caused this Option to be executed by its officers thereunto duly authorized. Dated: November 4, 1998 VDC CORPORATION LTD. /s/ Frederick A. Moran ----------------------------------------------------- By: Frederick A. Moran, Chief Executive Officer HOLDER: /s/ Leonard Hausman ----------------------------------------------------- Dr. Leonard Hausman
10 NOTICE OF EXERCISE TO: [_____________________________] (1) The undersigned hereby elects to purchase _______ Common Shares of VDC Corporation Ltd. pursuant to the terms of the attached Option, and tenders herewith payment of the purchase price for such shares in full. (2) In exercising this Option, the undersigned hereby confirms and acknowledges that the Common Shares to be issued upon conversion thereof are being acquired solely for the account of the undersigned and not as a nominee for any other party, and for investment (unless such shares are subject to resale pursuant to an effective prospectus), and that the undersigned will not offer, sell or otherwise dispose of any such Common Shares except under circumstances that will not result in a violation of the Securities Act of 1933, as amended, or any state securities laws. (3) Please issue a certificate or certificates representing said Common Shares in the name of the undersigned or in such other name as is specified below: ----------------------------------- (Name) ----------------------------------- (Name) - -------------------------- ----------------------------------- (Date) (Signature) 11 EX-10.5 4 MATERIAL CONTRACTS Exhibit 10.5 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT made and entered into as of this 4th day of November, 1998, by and between VDC Corporation Ltd., a Bermuda company (the "Company"), and Dr. Leonard Hausman ("Holder"). BACKGROUND WHEREAS, pursuant to an Option to Purchase Common Shares of VDC Corporation Ltd. dated November 4, 1998, by and between the Company and the Holder (the "Option Agreement"), the Company has agreed to issue to Holder options to purchase Common Shares of the Company, par value $2.00 per share ("Common Stock") in accordance with the terms of the Option Agreement. WHEREAS, in order to induce Holder and the Company to enter into the foregoing transactions, the Company has agreed to provide Holder with the registration rights set forth in this Agreement. Article 1 CERTAIN DEFINITIONS. In addition to the other terms defined in this Agreement, the following terms shall be defined as follows: "Brokers' Transactions" has the meaning ascribed to such term pursuant to Rule 144 under the Securities Act. "Business Day" means any day on which the New York Stock Exchange ("NYSE") is open for trading. "Common Stock" means any outstanding Common Shares of the Company. "Company" means VDC Corporation Ltd., a Bermuda company, or any successor thereof. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC thereunder, all as the same shall be in effect at the relevant time. "Holder" means Holder for so long as (and to the extent that) he owns any Registrable Securities, and each of his heirs and personal representatives who become registered owners of Registrable Securities or securities exercisable, exchangeable or convertible into Registrable Securities. "Outstanding" means with respect to any securities as of any date, all such securities therefore issued, except any such securities therefore canceled or held by the Company or any successor thereto (whether in its treasury or not) or any affiliate of the Company or any successor thereto shall not be deemed "Outstanding" for the purpose of this Agreement. "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. "Registrable Security(ies)" means the Common Stock issued to the Holder pursuant to the Option 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 Registrable Securities, such securities shall cease to constitute Registrable Securities (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 publicly sold pursuant to Rule 144 (or any successor provision to such Rule) under the Securities Act or are otherwise freely transferable to the public without further registration under the Securities Act, or (iii) when such securities shall have ceased to be Outstanding and, in the case of clause (ii), the Company shall, if requested by the Holder or Holders thereof, have delivered to such Holder or Holders the written opinion of independent counsel to the Company to such effect. "Registration Expenses" means all expenses incident to the Company's performance of or compliance with the registration requirements set forth in this Agreement including, without limitation, the following: (i) the fees, disbursements and expenses of the Company's counsel(s), accountants, and experts in connection with the registration under the Securities Act of Registrable Securities; (ii) all expenses in connection with the preparation, printing and filing of the registration statement, any preliminary prospectus or final prospectus, any other offering documents and amendments and supplements thereto, and the mailing and delivery of copies thereof to the underwriters and dealers, if any; (iii) the cost of printing or producing any agreement(s) among underwriters, underwriting agreement(s) and blue sky or legal investment memoranda, any selling agreements, and any other documents in connection with the offering, sale or delivery of Registrable Securities to be disposed of; (iv) any other expenses in connection with the qualification of Registrable Securities for offer and sale under state securities laws, including the fees and disbursements of counsel for the underwriters in connection with such qualification and in connection with any blue sky and legal investment surveys; (v) the filing fees incident to securing any required review by the NASDAQ Stock Market of the terms of the sale of Registrable Securities to be disposed of and any blue sky registration or filing fees, and (vi) the fees and expenses incurred in connection with the listing of Registrable Securities on each securities exchange (or the NASDAQ Stock Market) on which Company securities of the same class are then listed; provided, however, that Registration Expenses with respect to any registration pursuant to -2- this Agreement shall not include (x) expenses of any Holder's counsel, or (y) any underwriting discounts or commissions attributable to Registrable Securities, each of which shall be borne by the Holder. "SEC" means the United States Securities and Exchange Commission, or such other federal agency at the time having the principal responsibility for administering the Securities Act. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations of the SEC thereunder, all as the same shall be in effect at the relevant time. Article 2 PIGGYBACK REGISTRATIONS. (a) Right to Piggyback. If at any time after the date hereof, the Company proposes to file a registration statement under the Securities Act (except with respect to registration statements on Forms S-4, S-8, or any other form not available for registering the Registrable Securities for sale to the public), with respect to an offering of newly issued Common Stock for its own account, then the Company shall in each case give written notice of such proposed filing to the Holders of Registrable Securities at least 45 days before the anticipated filing date of the registration statement with respect thereto (the "Piggyback Registration"), and shall, subject to Sections 2(b) and 2(c) below, include in such Piggyback Registration such amount of Registrable Securities as the Holder may request within 20 days of the receipt of such notice. (b) Priority on Primary Registrations. If a Piggyback Registration is an underwritten primary registration on behalf of the Company, and the managing underwriter advises the Company in writing that in its 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, (ii) second, the Registrable Securities 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 underwriter, adversely affect the offering of the securities pursuant to clause (i), pro rata among the Holders of such Registrable Securities on the basis of the number of shares owned by such Holder and (iii) third, provided that all Registrable Securities requested to be included in the registration statement have been so included, any other securities requested to be included in such registration. (c) Priority on Secondary Registrations. If a Piggyback Registration is an underwritten secondary registration on behalf of holders of the Company's securities other than the Holders of Registrable Securities, and the managing underwriter advises 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 holders initially requesting such registration, the Company shall include in such registration (i) first, the securities requested to be included therein by the holders requesting such registration, (ii) second, the Registrable Securities 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 underwriter, adversely affect the offering of the securities pursuant to clause (i), pro rata among the -3- Holders of such securities on the basis of the number of shares so requested to be included therein owned by each such Holder, and (iii) third, other securities requested to be included in such registration. Article 3 HOLDBACK AGREEMENTS. The Holder of Registrable Securities 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 60 days prior to and the 120-day period beginning on the effective date of any underwritten primary registration undertaken by the Company (except as part of such underwritten registration), unless the underwriter managing the registered public offering otherwise agrees. Article 4 REGISTRATION PROCEDURES. Whenever the Holder of Registrable Securities has requested that any Registrable Securities be registered pursuant to this Agreement, the Company shall use its best efforts to effect the registration of the resale of such Registrable Securities and pursuant thereto the Company shall as soon as practicable: (a) prepare and file with the SEC a registration statement with respect to the resale of such Registrable Securities and use its best efforts to cause such registration statement to become effective thereafter (provided that before filing a registration statement or prospectus or any amendments or supplements thereto, the Company shall furnish to the counsel selected by the Holder of the Registrable Securities covered by such registration statement copies of all such documents proposed to be filed, which documents shall be subject to the review and consent of such counsel); (b) notify the Holder of Registrable Securities of the effectiveness of each registration statement filed hereunder and 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 a period of not less than 180 days and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement; (c) furnish to each seller of Registrable Securities such number of copies of such registration statement, each amendment and supplement thereto, the prospectus included in such registration statement (including each preliminary prospectus) and such other documents as such seller may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such seller; (d) use its best efforts to register or qualify such Registrable Securities under such other securities or blue sky laws of such jurisdictions as Holder reasonably requests and do any and all other acts and things which may be reasonably necessary or advisable to enable such seller to consummate the disposition of the Registrable Securities owned by the sellers in such -4- jurisdictions (provided that the Company shall not be required to (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subparagraph, (ii) subject itself to taxation in any such jurisdiction or (iii) consent to general service of process in any such jurisdiction); (e) notify each seller of such Registrable Securities, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement contains an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading, and, at the request of any such seller, the Company shall prepare a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not contain an untrue statement of a material fact or omit to state any fact necessary to make the statements therein not misleading; (f) cause all such Registrable Securities to be listed on each securities exchange or trading system on which similar securities issued by the Company are then listed; (g) provide a transfer agent and registrar for all such Registrable Securities not later than the effective date of such registration statement; (h) enter into such customary underwriting agreements (containing terms acceptable to the Company) as the Holder of Registrable Securities being sold or the underwriters, if any, reasonably requests (although the Company has no obligation to secure any underwriting arrangements on behalf of the Holder); and (i) make available for inspection during normal business hours by any seller of Registrable Securities, any underwriter participating in any disposition pursuant to such registration statement and any attorney, accountant or other agent retained by any such seller or underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors, employees and independent accountants to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement. -5- Article 5 REGISTRATION EXPENSES. All Registration Expenses in connection with any of the registration events identified within this Agreement shall be borne by the Company. All other expenses shall be borne by the Holder. Article 6 INDEMNIFICATION. (a) The Company agrees to indemnify, to the extent permitted by law, the Holder of Registrable Securities, 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. In connection with an underwritten offering, the Company shall provide reasonable and customary indemnification to such underwriters, their officers and directors and each Person who controls such underwriters (within the meaning of the Securities Act) to the same extent as provided above with respect to the indemnification of the Holder of Registrable Securities. (b) In connection with any registration statement in which the Holder of Registrable Securities is participating, 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 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. (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, -6- 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. Article 7 OBLIGATION OF HOLDERS. (a) In connection with each registration hereunder, Holder will furnish to the Company in writing such information with respect to such Holder and the securities held by such Holder, and the proposed distribution by 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 Holder's Registrable Securities in the registration statement. Each 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 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. Article 8 INFORMATION BLACKOUT. (a) At any time when a registration statement effected pursuant to this Agreement relating to Registrable Securities is effective, upon written notice from the Company to the Holders that the Company has determined in good faith that sale of Registrable Securities pursuant to the registration statement would require disclosure of non-public material information not otherwise required to be disclosed under applicable law (an "Information Blackout"), all Holders shall suspend sales of Registrable Securities pursuant to such registration statement until the earlier of: -7- (i) thirty (30) days after the Company makes such good faith determination; and (ii) such time as the Company notifies the Holders 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 (the number of days from such suspension of sales by the Holders until the day when such sale may be resumed hereunder is hereinafter called a "Sales Blackout Period"). (b) Notwithstanding the foregoing, there shall be no more than two (2) Information Blackouts during the term of this Agreement and no Sales Blackout Period shall continue for more than thirty (30) consecutive days. Article 9 MISCELLANEOUS. (a) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the current jurisdiction of incorporation of the Company without regard to that jurisdiction's conflict of laws provisions. For the purposes of this paragraph, the term "current" shall mean the time at which any dispute, issue or question shall arise hereunder. (b) Counterparts. This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. (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 Holders. (d) Notices. All communications under this Agreement shall be sufficiently given if delivered by hand or by overnight courier or mailed by registered or certified mail, postage prepaid, addressed, (i) if to the Company, to: VDC Corporation Ltd. 75 Holly Hill Lane, 3rd Floor Greenwich, CT 06830 Attention: Frederick A. Moran, Chief Executive Officer -8- with a copy to: Louis D. Frost, VDC Corporate Counsel VDC Corporation Ltd. 75 Holly Hill Lane, 3rd Floor Greenwich, CT 06830 or, in the case of the Holders, at such address as each such Holder shall have furnished in writing to the Company; or at such other address as any of the parties shall have furnished in writing to the other parties hereto. (e) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (f) 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, 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. IN WITNESS WHEREOF, intending to be legally bound hereby, the parties have executed this Agreement as of the date first written above. VDC CORPORATION LTD. By:/s Frederick A. Moran ----------------------------- Frederick A. Moran Chief Executive Officer HOLDER: /s/ Leonard Hausman --------------------------------- Dr. Leonard Hausman -9- EX-10.6 5 MATERIAL CONTRACTS Exhibit 10.6 DIRECTOR AGREEMENT DIRECTOR AGREEMENT effective as of the 4th day of November, 1998 by and among James Dittman (hereinafter referred to as "Mr. Dittman") and VDC Corporation Ltd., a Bermuda company having an address at 75 Holly Hill Lane, Greenwich, CT 06830 (hereinafter referred to as the "Company"). WITNESSETH WHEREAS, Mr. Dittman has been elected to serve as a member of the Company's Board of Directors (a "Director") and Mr. Dittman has agreed to serve as a Director, each upon the terms and conditions contained within this Director Agreement. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereto, intending to be legally bound, hereby agree as follows: 1. Term, Duties and Acceptance a. The Company hereby retains Mr. Dittman as a Director to render his services to the Company in such capacity. b. Mr. Dittman hereby agrees to serve as a Director and agrees to devote his best efforts, energy and skill to such position. c. Mr. Dittman agrees to serve as a Director for the term for which he was elected unless he retires or is removed from office. 2. Compensation and Expense Reimbursement a. As compensation (the "Compensation") for his service as a Director, Mr. Dittman shall receive options to purchase the Company's stock upon the terms and conditions set forth in that certain Option to Purchase Common Shares of VDC Corporation Ltd. by and between Mr. Dittman and the Company dated November 4, 1998. b. Other than the Compensation, Mr. Dittman shall not receive a salary, payments or reimbursement of any kind for his service as a Director. c. The Company shall not pay or reimburse Mr. Dittman for out-of-pocket expenses incurred by him in the performance of his duties as a Director, nor for attending telephonic or physical meetings of the Company's Board of Directors (the "Board"). 3. Resignation and Removal from Office a. Mr. Dittman may resign from his position as a Director upon thirty (30) days written notice to the Board. b. Mr. Dittman may be removed from office as Director on the terms and conditions set forth in the corporate law of the current jurisdiction of incorporation of the Company and on the terms and conditions set forth in the Company's governing documents. 4. Trade Secrets and Confidential Information Mr. Dittman recognizes and acknowledges that certain information including, without limitation, information pertaining to the financial condition of the Company, its systems, methods of doing business, agreements with customers or suppliers or other aspects of the business of the Company or which is sufficiently secret to derive economic value from not being disclosed ("Confidential Information") may be made available or otherwise come into the possession of Mr. Dittman by reason of his service to the Company. Accordingly, Mr. Dittman agrees that he will not at any time disclose any Confidential Information to any person, firm, corporation, association or other entity for any reason or purpose whatsoever or make use to his personal advantage or to the advantage of any third party, of any Confidential Information, without the prior written consent of the Board. Mr. Dittman shall, upon termination of his service to the Company, return to the Company all documents which reflect Confidential Information (including copies thereof). Notwithstanding anything heretofore stated in this Section 4, Mr. Dittman's obligations under this Section 4 shall not, after termination of Mr. Dittman's service to the Company, apply to information which has become generally available to the public without any action or omission of Mr. Dittman (except that any Confidential Information which is disclosed to any third party by an employee or representative of the Company who is not authorized to make such disclosure shall be deemed to remain confidential and protectable by Mr. Dittman under this Section 4). 5. Severability 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; and this Agreement and such other terms 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 in entering into this Agreement. 6. Breach Mr. Dittman hereby recognizes and acknowledges that irreparable injury or damage shall result to the Company in the event of a breach or threatened breach by Mr. Dittman of any of the terms of Section 4 hereunder, and Mr. Dittman therefore agrees that the Company shall be entitled to an injunction restraining Mr. Dittman from engaging in any activity constituting such breach or threatened breach. Nothing contained herein shall be construed as prohibiting the 2 Company from pursuing any other remedies available to the Company at law or in equity for breach or threatened breach of this Agreement, including but not limited to, the recovery of damages from Mr. Dittman and removal from office as a Director. 7. Arbitration All controversies which may arise between the parties hereto including, but not limited to, those arising out of or related to this Agreement shall be determined by binding arbitration applying the laws of the State of Delaware as set forth in Section 11 hereof. Any arbitration pursuant to this Agreement shall be conducted in Stamford, Connecticut before the American Arbitration Association in accordance with its arbitration rules. The arbitration shall be final and binding upon all the parties (so long as the award was not procured by corruption, fraud or undue means) and the arbitrator's award shall not be required to include factual findings or legal reasoning. Nothing in this Section 7 will prevent either party from resorting to judicial proceedings if interim injunctive relief under the laws of the State of Delaware from a court is necessary to prevent serious and irreparable injury to one of the parties, and the parties hereto agree that the federal and state courts located in Stamford, Connecticut shall have exclusive subject matter and in personam jurisdiction over the parties and any such claims or disputes arising from the subject matter contained herein. 8. Remedies Cumulative Except as otherwise expressly provided herein, each of the rights and remedies of the parties set forth in this Agreement shall be cumulative with all other such rights and remedies, as well as with all rights and remedies of the parties otherwise available at law or in equity. 9. Counterparts This Agreement may be executed via facsimile transmission signature and in counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 10. Waiver The failure of either party at any time or times to require performance of any provision hereof shall in no manner affect the right at a later time to enforce the same. To be effective, any waiver must be contained in a written instrument signed by the party waiving compliance by the other party of the term or covenant as specified. The waiver by either party of the breach of any term or covenant contained herein, whether by conduct or otherwise, in any one or more instances, shall not be deemed to be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other term or covenant contained in this Agreement. 11. Governing Law This Agreement shall be governed by the laws of the State of Delaware without regard to principles of conflict of laws. 3 12. Complete Agreement This Agreement constitutes the complete and exclusive agreement between the parties hereto which supersedes all proposals, oral and written, and all other communications between the parties relating to the subject matter contained herein. 13. Warranties Mr. Dittman represents, warrants, covenants and agrees that he has a right to enter into this Agreement, that he is not a party to any agreement or understanding whether or not written which would prohibit or restrict his performance of his obligations under this Agreement and that he will not use in the performance of his obligations hereunder any proprietary information of any other party which he is legally prohibited from using. 14. Notice Any notice, demand, or communication given in connection with this Agreement shall be in writing and shall be deemed received (a) when delivered if given in person or by courier or courier service, or (b) on the date and at the time of transmission if sent by facsimile (receipt confirmed) or (c) five (5) business days after being deposited in the mail postage prepaid. 15. Key Man Insurance The Company shall have the right to obtain what is commonly known as "Key Man Insurance" on the life of Mr. Dittman in such amount as the Company deems appropriate. Mr. Dittman agrees to cooperate in all manner in the obtaining of such a policy. All expenses involved in connection with the obtaining and maintaining of such a policy shall be that of the Company. 16. Assignment This Agreement shall inure to the benefit of and be binding upon the Company, its successors and assigns. By way of illustration, and not limitation, if the Company merges with and into VDC Communications, Inc., (the "Subsidiary") and Mr. Dittman serves as a Director of the Subsidiary following the merger, then the terms of this Agreement shall inure to the benefit of and be binding upon the Subsidiary. 4 IN WITNESS WHEREOF, the parties have executed this Agreement as of the 4th day of November 1998. WITNESS: VDC CORPORATION LTD. /s/ Louis D. Frost By:/s/ Frederick A. Moran - ------------------ --------------------------------------------- Frederick A. Moran, Chief Executive Officer WITNESS: /s/ Earl Standard /s/ James Dittman - ----------------- ---------------------------------- James Dittman
Agreed to and accepted this 4th day of November, 1998 VDC COMMUNICATIONS, INC. By:/s/ Frederick A. Moran -------------------------------------- Frederick A. Moran, President 5 EX-10.7 6 MATERIAL CONTRACTS Exhibit 10.7 THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 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 1933 ACT, BASED ON AN OPINION LETTER OF COUNSEL SATISFACTORY TO THE COMPANY OR A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION. OPTION TO PURCHASE COMMON SHARES OF VDC CORPORATION LTD. Void after November 4, 2008 This certifies that, for value received, James Dittman ("Holder"), is entitled, subject to the terms set forth below and prior to the Expiration Date (as hereinafter defined), to purchase from VDC Corporation Ltd. (the "Company"), a Bermuda company, Common Shares of the Company (as defined below), commencing on the date hereof (the "Option Issue Date"), with the Notice of Exercise attached hereto duly executed, and simultaneous payment therefor in lawful money of the United States, at the Exercise Price as set forth in Section 2 below. The number, character and Exercise Price of the shares are subject to adjustment as provided below. The options granted hereunder are intended to be treated as non-qualified stock options and will not be treated as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended. 1. Term of Option. Subject to compliance with the vesting provisions identified at Paragraph 2.3 hereafter, this Option shall be exercisable, in whole or in part, during the term commencing on the Option Issue Date and ending at 5:00 p.m. on November 4, 2008 (the "Expiration Date"), and shall be void thereafter. 2. Exercise Price, Number of Shares and Vesting Provisions. 2.1. Number of Shares. The number of shares of the Company's Common Shares, $2.00 par value per share ("Common Shares"), which may be purchased pursuant to this Option shall be 25,000 shares, as adjusted pursuant to Section 11 hereof. 2.2. Exercise Price. The Exercise Price at which this Option may be exercised shall be $4.00 per common share, as adjusted pursuant to Section 11 hereof. 2.3. Vesting. The Options granted hereunder shall vest in accordance with the following schedule on an aggregate basis: (i) 8,333 provided Holder serves as a member of the Company's Board of Directors (a "Director") continuously from November 4, 1998 through November 3, 1999; (ii) 16,666 provided Holder serves as a Director continuously from November 4, 1998 through November 3, 2000; and (iii) 25,000 provided Holder serves as a Director continuously from November 4, 1998 through November 3, 2001. Except as otherwise specifically provided herein, Holder's right in and to any Options that do not vest at the date of termination of Holder's service as Director of the Company shall lapse and terminate. 2.4. Death of Holder and Termination. (a) If the Holder shall die, he or his estate, personal representatives, or beneficiary, as applicable, shall have the right, subject to the provisions of this Paragraph 2 hereof, to continue to vest and exercise the Options as if no termination in service to the Company had occurred. (b) In the event Holder resigns or is removed from office pursuant to Section 3 of the Director Agreement by and between the Holder and the Company effective as of November 4, 1998, Holder shall have 30 days in which to exercise the Options (only to the extent that the Holder would have been entitled to do so as of the date of his termination) and thereafter, Holder's right in and to the Options shall lapse and terminate. 3. Exercise of Option. (a) The Exercise Price shall either be payable in cash or by bank or certified check; or by cashless exercise through the delivery by the Holder to the Company of Common Shares for which Holder is the record and beneficial owner which have been held for at least six (6) months, or by delivering to the Company a notice of exercise with an irrevocable direction to a broker/dealer registered under the Securities Exchange Act of 1934 to sell a sufficient portion of the shares and deliver the sale proceeds directly to the Company to pay the Exercise Price, or by any combination thereof. If Common Shares of the Company are tendered as payment of the Exercise Price, the value of such shares shall be their "market value" as of the trading date immediately preceding the date of exercise. The "market value" shall be: (i) If the Company's Common Shares are traded in the over-the-counter market and not on any national securities exchange nor in the NASDAQ Reporting System, the market value shall be the average of the mean between the last bid and ask prices per share, as reported by the National Quotation Bureau, Inc., or an equivalent generally accepted reporting service, for the consecutive 20 trading days immediately preceding the date of exercise, or if not so reported, the average of the closing bid and asked prices for a share for the consecutive 20 trading days immediately preceding the date of exercise, as furnished to the Company by any member of the National Association of Securities Dealers, Inc., selected by the Company for that purpose. (ii) If the Company's Common Shares are traded on a national securities exchange or in the NASDAQ Reporting System, the market value shall be either (1) the simple average of the high and low prices at which a share of the Company's Common Shares traded, as quoted on the NASDAQ-NMS or its other principal exchange, for the consecutive 20 2 trading days immediately preceding the date of exercise or (2) the average price of the last sale of a Common Share as similarly quoted for the consecutive 20 trading days immediately preceding the date of exercise, whichever is higher, and rounding out such figure to the next higher multiple of 12.5 cents (unless the figure is already a multiple of 12.5 cents). If such tender would result in an issuance of a whole number of shares and a fractional Common Share, the value of such fractional share shall be paid to the Company in cash or by check by the Holder. (b) The purchase rights represented by this Option are exercisable by the Holder in whole or in part, at any time, or from time to time, by the surrender of this Option and the Notice of Exercise annexed hereto duly completed and executed on behalf of the Holder, at the office of the Company (or such other office or agency of the Company as it may designate by notice in writing to the Holder at the address of the Holder appearing on the books of the Company). (c) This Option shall be deemed to have been exercised immediately prior to the close of business on the date of its surrender for exercise as provided above, and the person entitled to receive the Common Shares issuable upon such exercise shall be treated for all purposes as the holder of record of such shares as of the close of business on such date. As promptly as practicable on or after such date and in any event within ten (10) days thereafter, the Company at its expense shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for the number of shares issuable upon such exercise. In the event that this Option is exercised in part, the Company at its expense will execute and deliver a new Option of like tenor exercisable for the number of shares for which this Option may then be exercised. 4. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Option. In lieu of any fractional share to which the Holder would otherwise be entitled, the Company shall make a cash payment equal to the Exercise Price multiplied by such fraction. 3 5. Replacement of Option. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Option and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and substance to the Company or, in the case of mutilation, on surrender and cancellation of this Option, the Company at its expense shall execute and deliver, in lieu of this Option, a new Option of like tenor and amount. 6. Rights of Stockholder. The Holder shall not be entitled to vote or receive dividends or be deemed the holder of Common Shares or any other securities of the Company that may at any time be issuable on the exercise hereof for any purpose, nor shall anything contained herein be construed to confer upon the Holder, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of stock, reclassification of stock, change of par value, or change of stock to no par value, consolidation, merger, conveyance or otherwise) or to receive notice of meetings, or to receive dividends or subscription rights or otherwise until the Option shall have been exercised as provided herein. 7. Transfer of Option. 7.1. Non-Transferability. Prior to vesting in accordance with paragraph 2 herein, the Option shall not be assigned, transferred, pledged or hypothecated in any way, nor subject to execution, attachment or similar process, otherwise than by will or by the laws of descent and distribution. To the extent the Options have vested, transfers thereof which comply with the remaining provisions of this paragraph 7 may be undertaken upon the prior written consent of the Company, which consent shall not be unreasonably withheld. Any attempted assignment, transfer, pledge, hypothecation or other disposition of the Option contrary to the provisions hereof, and the levy of an execution, attachment, or similar process upon the Option, shall be null and void and without effect. 7.2. Exchange of Option Upon a Transfer. On surrender of this Option for exchange, properly endorsed, the Company at its expense shall issue to or on the order of the Holder a new Option or Options of like tenor, in the name of the Holder or as the Holder (on payment by the Holder of any applicable transfer taxes) may direct, of the number of shares issuable upon exercise hereof. 7.3. Compliance with Securities Laws; Restrictions on Transfers. (a) The Holder of this Option, by acceptance hereof, acknowledges that this Option and the Shares to be issued upon exercise hereof are being acquired solely for the Holder's own account and not as a nominee for any other party, and for investment (unless such shares are subject to resale pursuant to an effective prospectus), and that the Holder will not offer, sell or otherwise dispose of this Option or any Shares to be issued upon exercise hereof except under circumstances that will not result in a violation of applicable federal and state securities laws. Upon exercise of this Option, the Holder shall, if requested by the Company, 4 confirm in writing, in a form satisfactory to the Company, that the Common Shares so purchased are being acquired solely for the Holder's own account and not as a nominee for any other party, for investment (unless such shares are subject to resale pursuant to an effective prospectus), and not with a view toward distribution or resale. (b) Neither this Option nor any Common Shares issued upon exercise of this Option may be offered for sale or sold, or otherwise transferred or sold in any transaction which would constitute a sale thereof within the meaning of the Securities Act of 1933, as amended (the "1933 Act"), unless (i) such security has been registered for sale under the 1933 Act and registered or qualified under applicable state securities laws relating to the offer an sale of securities, or (ii) exemptions from the registration requirements of the 1933 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 satisfactory to the Company that the proposed sale or other disposition of such securities may be effected without registration under the 1933 Act and would not result in any violation of any applicable state securities laws relating to the registration or qualification of securities for sale, such counsel and such opinion to be satisfactory to the Company. (c) All Common Shares issued upon exercise hereof shall be stamped or imprinted with a legend in substantially the following form (in addition to any legend required by state securities laws). "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 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 1933 ACT, BASED ON AN OPINION LETTER OF COUNSEL SATISFACTORY TO THE COMPANY OR A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION." 8. Reservation and Issuance of Stock; Taxes. (a) The Company covenants that during the term that this Option is exercisable, the Company will reserve from its authorized and unissued Common Shares a sufficient number of shares to provide for the issuance of the shares upon the exercise of this Option, and from time to time will take all steps necessary to amend its Memorandum of Association to provide sufficient reserves of Common Shares issuable upon the exercise of the Option. (b) The Company further covenants that all Common Shares issuable upon the due exercise of this Option will be free and clear from all taxes or liens, charges and security interests created by the Company with respect to the issuance thereof, however, the Company shall not be obligated or liable for the payment of any taxes, liens or charges of Holder, or any other party contemplated by Paragraph 7, incurred in connection with the issuance of this Option or the Common Shares upon the due exercise of this Option. The Company agrees that its issuance of this Option shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Common Shares upon the exercise of this Option. The Common Shares issuable upon the due exercise of 5 this Option, will, upon issuance in accordance with the terms hereof, be duly authorized, validly issued, fully paid and non-assessable. (c) Upon exercise of the Option, the Company shall have the right to require the Holder 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 Common Shares purchased pursuant to the Option. (d) A Holder 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 Company's Chief Executive Officer, through the delivery to the Company of previously-owned Common Shares having an aggregate market value equal to the tax obligation provided that the previously owned shares delivered in satisfaction of the withholding obligations must have been held by the Holder for at least six (6) months; (iii) in the discretion of the Company's Chief Executive Officer, through the withholding of Common Shares otherwise issuable to the Holder in connection with the Option exercise; or (iv) in the discretion of the Company's Chief Executive Officer, through a combination of the procedures set forth in subsections (i), (ii) and (iii) of this Paragraph 8(d). 9. Notices. (a) Whenever the Exercise Price or number of shares purchasable hereunder shall be adjusted pursuant to Section 11 hereof, the Company shall issue a certificate signed by its Chief Executive Officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the Exercise Price and number of shares purchasable hereunder after giving effect to such adjustment, and shall cause a copy of such certificate to be mailed (by first-class mail, postage prepaid) to the Holder of this Option. (b) All notices, advices and communications under this Option shall be deemed to have been given, (i) in the case of personal delivery, on the date of such delivery and (ii) in the case of mailing, on the third business day following the date of such mailing, addressed as follows: If to the Company: VDC Corporation Ltd. 75 Holly Hill Lane, 3rd Floor Greenwich, CT 06830 Attn: Frederick A. Moran, Chief Executive Officer 6 With a Copy to: Louis D. Frost, VDC Corporate Counsel VDC Corporation Ltd. 75 Holly Hill Lane, 3rd Floor Greenwich, CT 06830 and to the Holder: at the address of the Holder appearing on the books of the Company or the Company's transfer agent, if any. Either of the Company or the Holder may from time to time change the address to which notices to it are to be mailed hereunder by notice in accordance with the provisions of this Paragraph 9. 10. Amendments. (a) Any term of this Option may be amended with the written consent of the Company and the Holder. Any amendment effected in accordance with this Section 10 shall be binding upon the Holder, each future holder and the Company. (b) No waivers of, or exceptions to, any term, condition or provision of this Option, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, condition or provision. 11. Adjustments. The number of Shares purchasable hereunder and the Exercise Price are subject to adjustment from time to time upon the occurrence of certain events, as follows: 11.1. Reorganization, Merger or Sale of Assets. If at any time while this Option, or any portion thereof, is outstanding and unexpired there shall be (i) a reorganization (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), (ii) a merger or consolidation of the Company with or into another corporation in which the Company is not the surviving entity, or a merger in which the Company is the surviving entity but the shares of the Company's capital stock outstanding immediately prior to the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise, or (iii) a sale or transfer of substantially all of the Company's properties and assets as, or substantially as, an entirety to any other person, then, as a part of such reorganization, merger, consolidation, sale or transfer, lawful provision shall be made so that the holder of this Option shall upon such reorganization, merger, consolidation or sale or transfer, have the right by exercising such Option, to purchase the kind and number of Common Shares or other securities or property (including cash) otherwise receivable upon such reorganization, merger, consolidation or sale or transfer by a holder of the number of Common Shares that might 7 have been purchased upon exercise of such Option immediately prior to such reorganization, merger, consolidation or sale or transfer. The foregoing provisions of this Section 11.1 shall similarly apply to successive reorganizations, consolidations, mergers, sales and transfers and to the stock or securities of any other corporation that are at the time receivable upon the exercise of this Option. If the per-share consideration payable to the Holder hereof for shares in connection with any such transaction is in a form other than cash or marketable securities, then the value of such consideration shall be determined in good faith by the Company's Board of Directors. In all events, appropriate adjustment (as determined in good faith by the Company's Board of Directors) shall be made in the application of the provisions of this Option with respect to the rights and interests of the Holder after the transaction, to the end that the provisions of this Option shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable after that event upon exercise of this Option. 11.2. Reclassification. If the Company, at any time while this Option, or any portion thereof, remains outstanding and unexpired, by reclassification of securities or otherwise, shall change any of the securities as to which purchase rights under this Option exist into the same or a different number of securities of any other class or classes, this Option shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities that were subject to the purchase rights under this Option immediately prior to such reclassification or other change and the Exercise Price therefor shall be appropriately adjusted, all subject to further adjustment as provided in this Section 11. 11.3. Split, Subdivision or Combination of Shares. If the Company at any time while this Option, or any portion thereof, remains outstanding and unexpired shall split, subdivide or combine the securities as to which purchase rights under this Option exist, into a different number of securities of the same class, the Exercise Price and the number of shares issuable upon exercise of this Option shall be proportionately adjusted. 11.4. Adjustments for Dividends in Stock or Other Securities or Property. If while this Option, or any portion hereof, remains outstanding and unexpired the holders of the securities as to which purchase rights under this Option exist at the time shall have received, or, on or after the record date fixed for the determination of eligible Stockholders, shall have become entitled to receive, without payment therefor, other or additional stock or other securities or property (other than cash) of the Company by way of dividend, then and in each case, this Option shall represent the right to acquire, in addition to the number of shares of the security receivable upon exercise of this Option, and without payment of any additional consideration therefor, the amount of such other or additional stock or other securities or property (other than cash) of the Company that such holder would hold on the date of such exercise had it been the holder of record of the security receivable upon exercise of this Option on the date hereof and had thereafter, during the period from the date hereof to and including the date of such exercise, retained such shares and/or all other additional stock, other securities or property available by this Option as aforesaid during such period. 8 11.5 Necessary or Appropriate Action. The Company will not, by any voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Section 11 and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holders of this Option against impairment. 12. Registration Rights. The Holder shall be entitled to the registration rights set forth in that certain Registration Rights Agreement of even date herewith by and between the Company and such Holder. 13. Severability. Whenever possible, each provision of this Option shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Option is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of any other provision of this Option in such jurisdiction or affect the validity, legality or enforceability of any provision in any other jurisdiction, but this Option shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. 14. Governing Law. The corporate law of the current jurisdiction of incorporation of the Company shall govern all issues and questions concerning the relative rights of the Company and its stockholders. All other questions concerning the construction, validity, interpretation and enforceability of this Option and the exhibits and schedules hereto shall be governed by, and construed in accordance with, the laws of the current jurisdiction of incorporation of the Company, without giving effect to any choice of law or conflict of law rules or provisions that would cause the application of the laws of any jurisdiction other than those of the current jurisdiction of incorporation of the Company. For the purposes of this Section 14, the term "current" shall mean the time at which any dispute, issue or question shall arise hereunder. 15. Jurisdiction. The Holder and the Company agree to submit to personal jurisdiction and to waive any objection as to venue in the federal or state courts located in Stamford, Connecticut. Service of process on the Company or the Holder in any action arising out of or relating to this Option shall be effective if mailed to such party at the address listed in Section 9 hereof. 16. Arbitration. If a dispute arises as to interpretation of this Option, it shall be decided finally by three arbitrators in an arbitration proceeding conforming to the Rules of the American Arbitration Association applicable to commercial arbitration. The arbitrators shall be appointed as follows: one by the Company, one by the Holder and the third by the said two arbitrators, or, if they cannot agree, then the third arbitrator shall be appointed by the American Arbitration Association. The third arbitrator shall be chairman of the panel and shall be impartial. The arbitration shall take place in Stamford, Connecticut. The decision of a majority of the Arbitrators shall be conclusively binding upon the parties and final, and such decision shall be enforceable as a judgment in any court of competent jurisdiction. Each party shall pay the 9 fees and expenses of the arbitrator appointed by it, its counsel and its witnesses. The parties shall share equally the fees and expenses of the impartial arbitrator. 17. Corporate Power; Authorization; Enforceable Obligations. The execution, delivery and performance by the Company of this Agreement: (i) are within the Company's corporate power; (ii) have been duly authorized by all necessary or proper corporate action; (iii) are not in contravention of the Company's memorandum of association or bye-laws; (iv) will not violate in any material respect, any law or regulation, including any and all Federal and state securities laws, or any order or decree of any court or governmental instrumentality; and (v) will not, in any material respect, conflict with or result in the breach or termination of, or constitute a default under any agreement or other material instrument to which the Company is a party or by which the Company is bound. 18. Successors and Assigns. This Option shall inure to the benefit of and be binding on the respective successors, assigns and legal representatives of the Holder and the Company. IN WITNESS WHEREOF, the Company has caused this Option to be executed by its officers thereunto duly authorized. Dated: November 4, 1998 VDC CORPORATION LTD. /s/ Frederick A. Moran -------------------------------------------------- By: Frederick A. Moran, Chief Executive Officer HOLDER: /s/ James Dittman -------------------- James Dittman
10 NOTICE OF EXERCISE TO: [_____________________________] (1) The undersigned hereby elects to purchase _______ Common Shares of VDC Corporation Ltd. pursuant to the terms of the attached Option, and tenders herewith payment of the purchase price for such shares in full. (2) In exercising this Option, the undersigned hereby confirms and acknowledges that the Common Shares to be issued upon conversion thereof are being acquired solely for the account of the undersigned and not as a nominee for any other party, and for investment (unless such shares are subject to resale pursuant to an effective prospectus), and that the undersigned will not offer, sell or otherwise dispose of any such Common Shares except under circumstances that will not result in a violation of the Securities Act of 1933, as amended, or any state securities laws. (3) Please issue a certificate or certificates representing said Common Shares in the name of the undersigned or in such other name as is specified below: ----------------------------------- (Name) ----------------------------------- (Name) - -------------------------- ----------------------------------- (Date) (Signature) 11 EX-10.8 7 MATERIAL CONTRACTS Exhibit 10.8 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT made and entered into as of this 4th day of November, 1998, by and between VDC Corporation Ltd., a Bermuda company (the "Company"), and James Dittman ("Holder"). BACKGROUND WHEREAS, pursuant to an Option to Purchase Common Shares of VDC Corporation Ltd. dated November 4, 1998, by and between the Company and the Holder (the "Option Agreement"), the Company has agreed to issue to Holder options to purchase Common Shares of the Company, par value $2.00 per share ("Common Stock") in accordance with the terms of the Option Agreement. WHEREAS, in order to induce Holder and the Company to enter into the foregoing transactions, the Company has agreed to provide Holder with the registration rights set forth in this Agreement. Article 1 CERTAIN DEFINITIONS. In addition to the other terms defined in this Agreement, the following terms shall be defined as follows: "Brokers' Transactions" has the meaning ascribed to such term pursuant to Rule 144 under the Securities Act. "Business Day" means any day on which the New York Stock Exchange ("NYSE") is open for trading. "Common Stock" means any outstanding Common Shares of the Company. "Company" means VDC Corporation Ltd., a Bermuda company, or any successor thereof. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC thereunder, all as the same shall be in effect at the relevant time. "Holder" means Holder for so long as (and to the extent that) he owns any Registrable Securities, and each of his heirs and personal representatives who become registered owners of Registrable Securities or securities exercisable, exchangeable or convertible into Registrable Securities. "Outstanding" means with respect to any securities as of any date, all such securities therefore issued, except any such securities therefore canceled or held by the Company or any successor thereto (whether in its treasury or not) or any affiliate of the Company or any successor thereto shall not be deemed "Outstanding" for the purpose of this Agreement. "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. "Registrable Security(ies)" means the Common Stock issued to the Holder pursuant to the Option 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 Registrable Securities, such securities shall cease to constitute Registrable Securities (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 publicly sold pursuant to Rule 144 (or any successor provision to such Rule) under the Securities Act or are otherwise freely transferable to the public without further registration under the Securities Act, or (iii) when such securities shall have ceased to be Outstanding and, in the case of clause (ii), the Company shall, if requested by the Holder or Holders thereof, have delivered to such Holder or Holders the written opinion of independent counsel to the Company to such effect. "Registration Expenses" means all expenses incident to the Company's performance of or compliance with the registration requirements set forth in this Agreement including, without limitation, the following: (i) the fees, disbursements and expenses of the Company's counsel(s), accountants, and experts in connection with the registration under the Securities Act of Registrable Securities; (ii) all expenses in connection with the preparation, printing and filing of the registration statement, any preliminary prospectus or final prospectus, any other offering documents and amendments and supplements thereto, and the mailing and delivery of copies thereof to the underwriters and dealers, if any; (iii) the cost of printing or producing any agreement(s) among underwriters, underwriting agreement(s) and blue sky or legal investment memoranda, any selling agreements, and any other documents in connection with the offering, sale or delivery of Registrable Securities to be disposed of; (iv) any other expenses in connection with the qualification of Registrable Securities for offer and sale under state securities laws, including the fees and disbursements of counsel for the underwriters in connection with such qualification and in connection with any blue sky and legal investment surveys; (v) the filing fees incident to securing any required review by the NASDAQ Stock Market of the terms of the sale of Registrable Securities to be disposed of and any blue sky registration or filing fees, and (vi) the fees and expenses incurred in connection with the listing of Registrable Securities on each securities exchange (or the NASDAQ Stock Market) on which Company securities of the same class are then listed; provided, however, that Registration Expenses -2- with respect to any registration pursuant to this Agreement shall not include (x) expenses of any Holder's counsel, or (y) any underwriting discounts or commissions attributable to Registrable Securities, each of which shall be borne by the Holder. "SEC" means the United States Securities and Exchange Commission, or such other federal agency at the time having the principal responsibility for administering the Securities Act. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations of the SEC thereunder, all as the same shall be in effect at the relevant time. Article 2 PIGGYBACK REGISTRATIONS. (a) Right to Piggyback. If at any time after the date hereof, the Company proposes to file a registration statement under the Securities Act (except with respect to registration statements on Forms S-4, S-8, or any other form not available for registering the Registrable Securities for sale to the public), with respect to an offering of newly issued Common Stock for its own account, then the Company shall in each case give written notice of such proposed filing to the Holders of Registrable Securities at least 45 days before the anticipated filing date of the registration statement with respect thereto (the "Piggyback Registration"), and shall, subject to Sections 2(b) and 2(c) below, include in such Piggyback Registration such amount of Registrable Securities as the Holder may request within 20 days of the receipt of such notice. (b) Priority on Primary Registrations. If a Piggyback Registration is an underwritten primary registration on behalf of the Company, and the managing underwriter advises the Company in writing that in its 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, (ii) second, the Registrable Securities 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 underwriter, adversely affect the offering of the securities pursuant to clause (i), pro rata among the Holders of such Registrable Securities on the basis of the number of shares owned by such Holder and (iii) third, provided that all Registrable Securities requested to be included in the registration statement have been so included, any other securities requested to be included in such registration. (c) Priority on Secondary Registrations. If a Piggyback Registration is an underwritten secondary registration on behalf of holders of the Company's securities other than the Holders of Registrable Securities, and the managing underwriter advises 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 holders initially requesting such registration, the Company shall include in such registration (i) first, the securities requested to be included therein by the holders requesting such registration, (ii) second, the Registrable Securities 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 underwriter, adversely affect the offering of the securities pursuant to clause (i), pro rata among the -3- Holders of such securities on the basis of the number of shares so requested to be included therein owned by each such Holder, and (iii) third, other securities requested to be included in such registration. Article 3 HOLDBACK AGREEMENTS. The Holder of Registrable Securities 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 60 days prior to and the 120-day period beginning on the effective date of any underwritten primary registration undertaken by the Company (except as part of such underwritten registration), unless the underwriter managing the registered public offering otherwise agrees. Article 4 REGISTRATION PROCEDURES. Whenever the Holder of Registrable Securities has requested that any Registrable Securities be registered pursuant to this Agreement, the Company shall use its best efforts to effect the registration of the resale of such Registrable Securities and pursuant thereto the Company shall as soon as practicable: (a) prepare and file with the SEC a registration statement with respect to the resale of such Registrable Securities and use its best efforts to cause such registration statement to become effective thereafter (provided that before filing a registration statement or prospectus or any amendments or supplements thereto, the Company shall furnish to the counsel selected by the Holder of the Registrable Securities covered by such registration statement copies of all such documents proposed to be filed, which documents shall be subject to the review and consent of such counsel); (b) notify the Holder of Registrable Securities of the effectiveness of each registration statement filed hereunder and 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 a period of not less than 180 days and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement; (c) furnish to each seller of Registrable Securities such number of copies of such registration statement, each amendment and supplement thereto, the prospectus included in such registration statement (including each preliminary prospectus) and such other documents as such seller may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such seller; (d) use its best efforts to register or qualify such Registrable Securities under such other securities or blue sky laws of such jurisdictions as Holder reasonably requests and do any and all other acts and things which may be reasonably necessary or advisable to enable such seller to consummate the disposition of the Registrable Securities owned by the sellers in such -4- jurisdictions (provided that the Company shall not be required to (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subparagraph, (ii) subject itself to taxation in any such jurisdiction or (iii) consent to general service of process in any such jurisdiction); (e) notify each seller of such Registrable Securities, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement contains an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading, and, at the request of any such seller, the Company shall prepare a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not contain an untrue statement of a material fact or omit to state any fact necessary to make the statements therein not misleading; (f) cause all such Registrable Securities to be listed on each securities exchange or trading system on which similar securities issued by the Company are then listed; (g) provide a transfer agent and registrar for all such Registrable Securities not later than the effective date of such registration statement; (h) enter into such customary underwriting agreements (containing terms acceptable to the Company) as the Holder of Registrable Securities being sold or the underwriters, if any, reasonably requests (although the Company has no obligation to secure any underwriting arrangements on behalf of the Holder); and (i) make available for inspection during normal business hours by any seller of Registrable Securities, any underwriter participating in any disposition pursuant to such registration statement and any attorney, accountant or other agent retained by any such seller or underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors, employees and independent accountants to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement. -5- Article 5 REGISTRATION EXPENSES. All Registration Expenses in connection with any of the registration events identified within this Agreement shall be borne by the Company. All other expenses shall be borne by the Holder. Article 6 INDEMNIFICATION. (a) The Company agrees to indemnify, to the extent permitted by law, the Holder of Registrable Securities, 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. In connection with an underwritten offering, the Company shall provide reasonable and customary indemnification to such underwriters, their officers and directors and each Person who controls such underwriters (within the meaning of the Securities Act) to the same extent as provided above with respect to the indemnification of the Holder of Registrable Securities. (b) In connection with any registration statement in which the Holder of Registrable Securities is participating, 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 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. (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, -6- 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. Article 7 OBLIGATION OF HOLDERS. (a) In connection with each registration hereunder, Holder will furnish to the Company in writing such information with respect to such Holder and the securities held by such Holder, and the proposed distribution by 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 Holder's Registrable Securities in the registration statement. Each 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 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. Article 8 INFORMATION BLACKOUT. (a) At any time when a registration statement effected pursuant to this Agreement relating to Registrable Securities is effective, upon written notice from the Company to the Holders that the Company has determined in good faith that sale of Registrable Securities pursuant to the registration statement would require disclosure of non-public material information not otherwise required to be disclosed under applicable law (an "Information Blackout"), all Holders shall suspend sales of Registrable Securities pursuant to such registration statement until the earlier of: -7- (i) thirty (30) days after the Company makes such good faith determination; and (ii) such time as the Company notifies the Holders 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 (the number of days from such suspension of sales by the Holders until the day when such sale may be resumed hereunder is hereinafter called a "Sales Blackout Period"). (b) Notwithstanding the foregoing, there shall be no more than two (2) Information Blackouts during the term of this Agreement and no Sales Blackout Period shall continue for more than thirty (30) consecutive days. Article 9 MISCELLANEOUS. (a) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the current jurisdiction of incorporation of the Company without regard to that jurisdiction's conflict of laws provisions. For the purposes of this paragraph, the term "current" shall mean the time at which any dispute, issue or question shall arise hereunder. (b) Counterparts. This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. (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 Holders. (d) Notices. All communications under this Agreement shall be sufficiently given if delivered by hand or by overnight courier or mailed by registered or certified mail, postage prepaid, addressed, (i) if to the Company, to: VDC Corporation Ltd. 75 Holly Hill Lane, 3rd Floor Greenwich, CT 06830 Attention: Frederick A. Moran, Chief Executive Officer -8- with a copy to: Louis D. Frost, VDC Corporate Counsel VDC Corporation Ltd. 75 Holly Hill Lane, 3rd Floor Greenwich, CT 06830 or, in the case of the Holders, at such address as each such Holder shall have furnished in writing to the Company; or at such other address as any of the parties shall have furnished in writing to the other parties hereto. (e) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (f) 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, 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. IN WITNESS WHEREOF, intending to be legally bound hereby, the parties have executed this Agreement as of the date first written above. VDC CORPORATION LTD. By: /s/ Frederick A. Moran ---------------------------- Frederick A. Moran Chief Executive Officer HOLDER: /s/ James Dittman ---------------------------- James Dittman -9- EX-27 8 FINANCIAL DATA SCHUDULE
5 This schedule contains Summary Financial information extracted from the Financial Statements for the Six-months ended December 31, 1998 and is qualified in its entirety by reference to such statements. 1,000 U.S. Dollars 6-MOS JUN-30-1999 JUN-30-1998 DEC-31-1998 1.000 627 93 2,328 0 0 3,455 4,935 118 33,718 3,450 127 0 0 2 30,266 33,718 0 729 0 19,408 1,671 0 0 (18,679) 0 (20,713) 0 0 0 (20,713) (1.15) (1.15)
-----END PRIVACY-ENHANCED MESSAGE-----