-----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, Ce2NHFa8aeI0FlhwqofQx6hoFgbXP2zm2Q24WzmtFXM+KSJy81t/SGBx4m4iVp/k s4DmxRk8/ipaiDSklLVYAw== 0000889812-99-000564.txt : 19990218 0000889812-99-000564.hdr.sgml : 19990218 ACCESSION NUMBER: 0000889812-99-000564 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 24 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19990217 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-K/A SEC ACT: SEC FILE NUMBER: 001-14281 FILM NUMBER: 99544466 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-K/A 1 AMENDED ANNUAL REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A /X/ Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended June 30, 1998 / / Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ---------------- --, ---- to ------------------- --, ---- Commission File Number: 0-14045 VDC CORPORATION LTD. ------------------------------------------------------ (Exact Name of Registrant as Specified in its Charter) BERMUDA 061510832 ------- --------- (State or Other (I.R.S. Employer Identification No.) Jurisdiction of Incorporation or Organization) 75 HOLLY HILL LANE GREENWICH, CONNECTICUT 06830 ------------------------------ ---------- (Address of Principal Offices) (Zip Code) Registrant's telephone number, including area code: (203) 869-5100 Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered ------------------- ----------------------------------------- Common Stock, $2.00 par value per share American Stock Exchange, Inc.
Securities registered under Section 12(g) of the Act: NONE Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. (1) Yes X No (2) Yes X No --- --- --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant, as of September 16, 1998, was approximately $24,811,058 based upon the closing price of the Common Stock on such date on the American Stock Exchange, Inc. of $5.125. The information provided shall in no way be construed as an admission that any person whose holdings are excluded from the figure is an affiliate or that any person whose holdings are included is not an affiliate, and any such admission is hereby disclaimed. The information provided is included solely for record keeping purposes of the Securities and Exchange Commission. (APPLICABLE ONLY TO CORPORATE REGISTRANTS) As of September 16, 1998, the number of shares outstanding of the registrant's common stock, par value $2.00 per share (the "Company Common Stock"), was 11,810,862 shares, and there were no shares outstanding of the registrant's common stock, par value $0.01 per share. All dollar amounts included in this Report are shown in U.S. dollars, unless otherwise indicated. DOCUMENTS INCORPORATED BY REFERENCE None. 2 PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT When used in this Annual Report on Form 10-K and in other public statements by the Company and Company officers, the words "expect," "anticipate," "estimate," "project," "intend," and similar expressions are intended to identify forward-looking statements regarding events and financial trends which may affect the Company's future operating results and financial condition. Such statements are subject to risks and uncertainties that could cause the Company's actual results and financial condition to differ materially. Such factors include, among others: (i) the Company's ability to secure the requisite regulatory licenses to provide international telecommunications services in the United States and abroad; (ii) the Company's ability to generate positive cash flow from the provision of such services; (iii) the highly competitive market conditions in the industry; (iv) the Company's ability to obtain financing on satisfactory terms, if at all, and the degree to which the Company is leveraged, including the extent to which currently outstanding options, warrants and other convertible securities are exercised; (v) the Company's ability to identify appropriate acquisition candidates, complete acquisitions on satisfactory terms, or successfully integrate acquired businesses; (vi) the sensitivity of the Company's business to general economic conditions; (vii) the sensitivity of the Company's business to technological obsolescence; and (viii) other economic, competitive, governmental and technological factors affecting the Company's operations, markets, products, services and prices. Additional factors are described in this Annual Report on Form 10-K and in the Company's other public reports filed 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. PART I ITEM 1. DESCRIPTION OF BUSINESS. Background VDC Corporation Ltd. (the "Company") was originally incorporated on January 18, 1980 under the Companies Act of the Province of British Columbia, Canada as "Murgold Resources Inc." During 1982, the Company's name was changed to "Arimathaea Resources Inc." in conjunction with a reincorporation into Bermuda by continuance proceedings and continued operations thereafter as "The Van Diemens Company Ltd." At an Annual General Meeting of its members held on July 3, 1995, the Company changed its name to "VDC Corporation Ltd." and implemented a 1 for 20 reverse stock split of its outstanding common stock. The Company's Board of Directors has recently approved a resolution to reincorporate the Company into the United States as a Delaware corporation. The distribution of shares anticipated to occur in conjunction with the reincorporation transaction is the subject of a Registration Statement on Form S-4 filed with the Securities and Exchange Commission ("SEC") on September 9, 1998. The reincorporation transaction will not occur until the Registration Statement is declared effective by the SEC and the matter is approved by the 3 Company's members at a Special Meeting which is expected to be held during the second quarter of the year ending June 30, 1999 ("Fiscal 1999"). From its inception through 1992, the principal business of the Company involved the acquisition and exploration of North American mineral resource properties. In recognition, however, of decreasing mineral prices and increasing drilling and exploration costs, during the early 1990's, the Company elected to phase-out of the mining business, and, by 1994, the Company had effectively suspended any further efforts in connection with its former mining business. In an effort to diversify its assets and base of operations, in 1992, the Company acquired a 74% interest in The Van Diemen's Land Company, a publicly traded company listed on The International Stock Exchange of Great Britain, for a purchase price of (pound)5,227,865 (approximately US $9.5 million) in cash and securities of the Company. The Van Diemen's Land Company was a pastoral company with property holdings and whose business activities included farming and ranching. The acquisition of its interest in The Van Diemen's Land Company was reflective of a shift in the principal focus of the Company's business to real estate ownership and development. From 1992 to 1994, the Company invested an additional $2.5 million in the acquisition of five commercial properties in and around the Isle of Man, British Isles, where the Company's executive offices were located at that time. In view of unanticipated development costs and delays in zoning approvals, among others, management thereafter concluded that the Company would not be able to complete the development of these properties in the manner originally intended. With returns on investments likely to be below management's expectations during 1995 and 1996, the Company commenced the sale of its real estate holdings while attempting to devise plans for the redeployment of its capital resources. During the year ended June 30, 1997 ("Fiscal 1997"), the Company made equity investments of an aggregate of approximately $5 million in two early-stage ventures and a publicly-held company whose shares traded on the London Stock Exchange. When expected yields from these investments failed to materialize, management concluded that it was in the best interests of the Company to: (i) suspend its venture capital activities; (ii) dispose of its investment assets; and (iii) select new management who would be in a better position to identify business opportunities that would more fully benefit from the Company's attributes as a public corporation. Towards this end, during the third quarter of the year ended June 30, 1998 ("Fiscal 1998"), the Company disposed in bulk of principally all of its investment assets and other holdings for cash totaling approximately $903,000, promissory notes in an aggregate principal amount of $4,300,000, and a subscription receivable in the principal amount of $632,500. Thereafter on March 6, 1998, through its wholly-owned subsidiary, VDC Communications, Inc. (formerly known as Sky King Communications, Inc. and VDC (Delaware), Inc.), a Delaware corporation, the Company acquired (the "Sky King Acquisition") Sky King Communications, Inc., a Connecticut corporation ("Sky King Connecticut"). As a result of the Sky King Acquisition, the former management and business of Sky King Connecticut became the management and business of the Company. Sky King Connecticut engaged in the business of managing and/or acting as agent for approximately 330 existing communications tower and building top sites. It 4 also maintained a data base of approximately 2,600 service providers using communications tower and building sites. Sky King Connecticut marketed the sites to communications companies, such as wireless telephony, paging and cable television service providers, who require the use of communications sites for communications transmitters and receivers necessary to provide the infrastructure needed by them to provide their services to customers. The Telecommunications Industry Following the Sky King Acquisition, the Company initiated an expansion program intended to increase the scope and focus of the historic Sky King Connecticut business and facilitate the Company's entry into the international telecommunications field. The Company initially planned to focus its business on building, owning and operating international telecommunications gateways and cellular systems in certain areas of Eastern Europe, Asia, Egypt and the United States. However, given recent political, economic and regulatory conditions, the Company has shifted its priority towards the development of opportunities in Northern and Central America, Asia, Egypt and other potential service locations. The Company is currently operating primarily as a U.S. long distance wholesale telecommunications carrier with facilities in the United States and Central America. Its present plan of operations anticipates the development of business opportunities in connection with: 1. Establishing a global network of international and domestic gateway and long distance services, initially for the wholesale market, i.e., a carriers' carrier; 2. Providing local telecommunications, long distance telecommunications, international long distance telecommunications and Internet access services to businesses and residences, primarily in the U.S. retail market; and 3. Providing wireless telephony service in developing countries and markets. Gateways, Switched and Long Distance Services Through two of its operating subsidiaries, the Company was granted global facilities-based and global resale authority pursuant to Section 214 of the Communications Act of 1934, as amended (the "Section 214 Authorization"). The facilities-based global Section 214 Authorization enables the Company to provide international basic switched, private line, data, television and business services using authorized facilities to virtually all countries in the world, while the global resale Section 214 Authorization enables the Company to resell the international services of authorized U.S. common carriers for the provision of international basic switched, private line, data, television and business services to virtually all countries. The Company recently installed communications switching equipment at its Denver, Colorado, New York City and Los Angeles facilities to provide international telecommunications gateways and domestic long distance telecommunications services under its Section 214 Authorization. All of the switches are gateway switches except for the Denver switch, which handles in-country long distance telecommunications traffic. Management expects the Denver, New York City and Los Angeles switches to operate commercially during the second quarter of Fiscal 1999. Additional 5 switches have also been ordered for Miami, Florida and Hong Kong, and the Company anticipates that it may order additional switches in the future to provide international gateway service in one or more other countries. Based upon the Company's relationships within the industry, management believes it will be able to sell time on its switches to carriers who originate or terminate telecommunications traffic. However, to date, the Company has not executed any contracts or received any firm commitments for the commercial use of its planned telecommunications capacity for the switches. Upon obtaining the appropriate regulatory approval, the Company expects to complete the acquisition of Masatepe Communications U.S.A., L.L.C., a Delaware limited liability company ("Masatepe"). Masatepe, which also has obtained 214 Authorization, operates an earth station in Managua, Nicaragua through an operating agreement with the Nicaraguan government. The earth station currently receives international long distance telephony traffic from the United States. The Company actively seeks to enter into operating agreements to expand the geographical scope of its international network and to attract domestic and foreign customers. Currently, the Company is focusing its resources on establishing routes primarily to Asia, Central America and Egypt. The Company believes that these markets offer opportunity for the Company to attain significant customer traffic. The Company continues to investigate the prospects for future gateways and switching operations in Russia, Ukraine and Kazakhstan, although it is not focusing primarily on its efforts in these areas due to uncertain political, economic and regulatory conditions there. The international telecommunications market consists of all telecommunications traffic that originates in one country and terminates in another. Services offered by the Company fall into two categories: switched services and switch-based value-added services. Bilateral operating agreements between international long distance carriers in different countries are key components of the international long distance telecommunications market. Under an operating agreement, each carrier agrees to terminate traffic in its country and provide proportional return traffic to its partner carrier. The implementation of a high quality international network is an important element in enabling a carrier to compete effectively in the international long distance telecommunications market. Switched services represent the largest component of telecommunications traffic. These services are provided through transmission facilities employing switches that automatically route telecom traffic to available circuits. A typical international telephone call first travels through the local carrier's switched network to the caller's domestic long distance carrier. The domestic long distance carrier then carries the call to an international gateway switch. An international carrier picks up the call at its gateway switch and sends it through a digital undersea, fiber optic cable or satellite circuit to the corresponding international gateway switch operated by an international carrier in the country of destination. The long distance carrier in that country then routes the call to its customer through the domestic telephone network. The U.S. wholesale market provides international telecommunications services to its target customer base of long distance service providers worldwide. The Company's U.S. wholesale marketing efforts are primarily directed to U.S.-based carriers that originate 6 international traffic, but do not have operating agreements with foreign carriers to terminate the traffic. In addition, international carriers with operating agreements may use the services of other international carriers, such as the Company, for overflow traffic or on routes with smaller traffic volumes. The Company's international network will enable it to compete in the international market outside the U.S. The Company is focusing its strategy on developing a significant presence in a defined set of geographical routes where it believes it has either competitive advantages through strong relationships with foreign partners or the opportunity to gain market share and increase its volume of higher-margin, value-added services. The Company's services in these markets will be predominantly wholesale. The Company also intends to provide value-added services consisting of enhanced facsimile services and Internet access. Internet The Internet had its origins in 1969 as a project of the Advanced Research Project Agency ("ARPA") of the U.S. Department of Defense. The network established by ARPA was designed to provide efficient connections between different types of computers separated by large geographic areas and to function even if part of the network became inoperative. Initially, the infrastructure was used by academic institutions and governmental agencies for remote access to host computers and electronic mail communications. Accordingly, the U.S. government provided the majority of funding for the infrastructure. However, as the modern Internet developed and became commercial, funding shifted to the private sector. The number of worldwide Internet users continues to increase significantly. The Company believes that the provision of Internet services is a rapidly developing industry that offers opportunity. In addition, the Company believes that there are significant telecommunications synergies between voice and Internet data transmission and that Internet Protocol may prove to be a viable and competitive alternative to current voice transmission technology. The Company may take advantage of these synergies after developing, mainly through acquisition, a base of Internet service customers. Towards that end, the Company has entered into a preliminary agreement with World Lynx, Inc., a Little Rock, Arkansas-based Internet service provider with approximately 9,500 customers. There can be no assurances regarding the completion of this, or any future, acquisition. Wireless Telephony Services The Company believes that wireless telecommunications services in certain strategic countries of emphasis are undergoing a period of rapid development and will experience substantial growth over the next several years. The Company's management and wireless telecommunications engineers are experienced at building and operating both fixed and mobile wireless telecommunications services. The Company is actively seeking wireless licenses outside the United States. There can be no assurances as to the Company's success in securing any wireless licenses. 7 Cellular (wireless mobile) telecommunications and wireless local loop (WILL) telecommunications eliminate the need for trenching and laying of wires for telecom services and thus permit the deployment of telecom service more rapidly and cost effectively. Cellular telecom enables a subscriber to move from one place in a city to another while using the service. Wireless local loop telecom is intended to provide fixed telecom services which can be deployed as rapidly as cellular telecom and at a lower cost. Cellular telecommunications systems are capable of providing high-quality, high-capacity voice and data communications to and from cellular handsets. Cellular telecommunications systems use analog or digital technology and are capable of providing service to large numbers of subscribers and handling a high volume of calls at any time. The radio frequency spectrum utilized by mobile telecommunications networks is divided into a number of bands, each of which is sub-divided into radio channels. The first generation of cellular telephony systems were analog systems, while newer systems employ digital technology. Digital cellular technology multiplies the number of users that can be served by the same amount of spectrum relative to analog systems, and therefore enhances the development of cellular telecommunications services. Wireless loop technology utilizes frequencies, instead of copper or fiber optic cable, to transmit between a central telecom switch and a subscriber's building. A cellular telephone can be operated in the same manner as a wireless local loop telephone in that either type of service can stimulate conventional telephony service by providing local and international calling from a fixed position in its service area. Both services are connected directly to a telecom switch operated by the local telecom company and therefore can initiate calls to or receive calls from anywhere in the world currently served by the international telecom network. The Company believes that wireless telecommunications in certain strategic locations would be the most cost effective manner to provide telecommunications services. Many developing countries have teledensity rates below 10% and potential customer waiting lists for telecommunications services. The Company believes that it could significantly increase the communications capacity of these countries by providing wireless technology and service. Proprietary Billing System The Company is continuing the development of state-of-the-art billing software that will provide customized billing information. Where appropriate, the billing software will produce a detailed billing statement specifying the time, origination, destination, rate and cost of each call. It is expected that the majority of payments will be made through either pre-paid deposits or an automated clearing house method, whereby charges are made directly against a customer's bank account, or advance credit card payments. The Company has determined to utilize this system internally at the current time. The Company does not currently intend to market this system, in order to focus on its core telecommunications business segments. 8 Site Tower Leasing The Company also continues to operate Sky King Connecticut's site tower leasing business of managing and/or acting as agent for approximately 330 existing communications tower and building top sites. The Company also maintains a database of approximately 2,600 service providers using communications tower and building sites. The Company markets the sites to communications companies, such as wireless telephony, paging and cable television service providers, who require the use of communications sites for communications transmitters and receivers necessary to provide the infrastructure needed by them to provide their services to customers. Metromedia China Corporation Investment On June 22, 1998 the Company acquired from PortaCom Wireless, Inc. ("PortaCom") two million shares of common stock (the "MCC Shares") of Metromedia China Corporation (formerly known as Metromedia Asia Corporation) ("MCC") and warrants to purchase four million shares of common stock of MCC at an exercise price of $4.00 per share, which expire on September 13, 1999 (the "MCC Warrants"). Management believes that the MCC Shares and Warrants represent a potential 8.7% interest in the outstanding common stock of MCC. According to information provided by its management, MCC is a privately-held, majority owned subsidiary of Metromedia International Group, Inc. ("MIG"). MIG is a publicly-held corporation whose shares are listed for trading on the American Stock Exchange. MCC is an early stage venture that provides telecommunications equipment and services to operators of wired and wireless local loop telephony technology, cellular telephony and other telecommunications services in China. MCC believes that its proposed wired and wireless local loop and cellular telephony systems are a time and cost effective means of improving the telecommunications infrastructure in China. In addition, the availability of fixed telephony systems in China is limited and it is difficult for consumers in these markets to obtain telephony service. In light of these difficulties and the economic growth China is capable of experiencing, MCC has focused its efforts on expanding the availability of telephony systems to China's vast population. The technology to be provided by MCC offers the current telephony service providers in China a rapid and cost effective method to expand their service base. The sale of the MCC Shares and MCC Warrants was undertaken pursuant to the terms of a voluntary petition for bankruptcy relief filed by PortaCom under Chapter 11 of the United States Bankruptcy Code. The MCC Shares and MCC Warrants were purchased for aggregate consideration consisting of: (i) the establishment by the Company of 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; (ii) 5,300,000 shares of Company Common Stock, subject to adjustment, valued at $6.98125 per share; (iii) the forgiveness of a loan in the original principal amount of $384,725; and (iv) a deferred purchase price payable, if at all, in the form of either cash or shares of Company Common Stock, in the event that on June 8, 1999, MCC is a publicly held company whose shares of common stock have a value in excess of the value of the Company Common Stock as determined in accordance with an agreed upon formula set forth in a Memorandum of Understanding, dated as of June 8, 1998, by the Company, PortaCom and other parties (collectively, the "MCC Purchase Price"). 9 The escrow fund shall be held in escrow pending the resolution of certain disputed claims against PortaCom's bankruptcy estate, and will be available to satisfy outstanding indebtedness owed to PortaCom's creditors and claimants. To the extent that more than $384,725 of the escrow portion of the MCC Purchase Price is used by PortaCom to satisfy certain of its indebtedness, the excess thereof will reduce the number of shares of Company Common Stock to which PortaCom is entitled as part of the MCC Purchase Price. The investment in MCC was recorded on the Company's financial statements based on the MCC Purchase Price. The Company will continue to assess the investment in MCC for asset impairment. It will assess the market value of MCC quarterly by applying a valuation technique commonly used in the telecommunications industry. It is based on the population in areas in China where MCC operates or has rights/licenses as well as the expected value of these rights/licenses. Additionally, the Company will be able to assess Metromedia International Group's reporting of their investment for possible impairment. The Company evaluated this investment based on: (i) the population of the Chinese markets where MCC has licenses to provide wireless and wireline telecommunications service, which the Company estimates at 116,000,000; (ii) the understanding that MCC would receive additional licenses in the future; and (iii) the possible synergy should the Company ever do business in China. The Company will continue to assess the investment in MCC for asset impairment. It will assess the market value of MCC quarterly by applying a valuation technique commonly used in the telecommunications industry. It is based on the population in areas in China where MCC operates or has rights/licenses as well as the expected value of these rights/licenses. Additionalloy, the Company will be able to value Metromedia International Group's reporting of their investment for possible impairment Government Regulation The Company's gateway and long distance telecommunications business is heavily regulated. The United States Federal Communications Commission ("FCC") exercises authority over all interstate and international facilities-based and resale services to be offered by the Company. Services that originate and terminate within the same state, also known as intrastate services, are regulated by state regulatory commissions. To the extent the Company seeks to engage in intrastate telecommunications, the Company will need to apply for and obtain any necessary state authorization. The Company also may be subject to regulation in foreign countries in connection with certain business activities. There can be no assurance that future regulatory, judicial and legislative changes will not have a materially adverse effect on the Company, or that domestic or international regulators or third parties will not raise material issues with regard to the Company's compliance or noncompliance with applicable regulations or that regulatory activities will not have a materially adverse effect on the Company. The Company will also be subject to other FCC requirements, including the filing of periodic reports and the payment of annual regulatory fees. In addition, FCC rules limit the routing of international traffic via international private lines and prohibit the accepting of "special concessions" from certain carriers. The FCC continues to refine its international service rules. Among other things, the FCC now allows U.S. carriers to enter into "flexible" international termination arrangements where such arrangements promote competition. FCC rules also require international carriers to notify the FCC sixty days in advance of an acquisition of a 25% or greater controlling interest by a foreign carrier in that U.S. carrier or an acquisition by the U.S. carrier of a 25% or greater controlling interest in a foreign carrier. After receiving this notification, the FCC reviews the proposed transaction and, among other things, can require a carrier to meet certain "dominant carrier" reporting and other conditions if the FCC finds that the acquisition creates an affiliation with a dominant foreign carrier. The Company's costs of providing long distance services may also be affected by changes in the access charge rates imposed by incumbent local exchange carriers ("LECs"). The 10 FCC has significantly revised its access charge rules to permit incumbent LECs greater pricing flexibility and relaxed regulation of new switched access services in certain circumstances. The FCC also recently revised its universal service rules and the Company may be required to contribute to the federal universal service fund. The Company must comply with the requirements of common carriage under the Communications Act of 1934, as amended (the "Communications Act"), including the offering of service on a non-discriminatory basis at just and reasonable rates, and obtaining FCC approval prior to any assignment of FCC authorizations or any transfer of de jure or de facto control of the Company. Under the Communications Act and the FCC's rules, all international carriers, including the Company, are required to obtain authority under Section 214 of the Communications Act prior to initiating international common carrier services, and must file and maintain tariffs containing the rates, terms and conditions applicable to their services. The Company, through its wholly-owned subsidiary VDC Telecommunications, Inc., received a Section 214 Authorization in July 1998 that authorizes the provision of international services on a facilities and resale basis. The Company has also applied for authority to assume control of Masatepe, which also holds a Section 214 Authorization. Voice & Data Communications (Hong Kong) Limited has also applied for and been granted a Section 214 Authorization. The Company expects to file international tariffs with the FCC. The FCC is considering changes to its rules regarding Section 214 Authorizations which may reduce certain regulatory requirements. Domestic interstate common carriers such as the Company are not required to obtain Section 214 or other authorization from the FCC for the provision of domestic interstate telecommunications services. Domestic interstate carriers currently must, however, file and maintain tariffs with the FCC containing the specific rates, terms and conditions applicable to their services. These tariffs are effective upon one day's notice. The Company expects to file a domestic tariff with the FCC. The Company must also conduct its international business in compliance with the FCC's international settlements policy. The international settlements policy establishes the permissible boundaries for U.S.-based carriers and their foreign correspondents to settle the cost of terminating each other's traffic over their respective networks. The precise terms of settlement are established in a correspondent agreement, also referred to as an operating agreement. Among other terms, the operating agreement establishes the types of service covered by the agreement, the division of revenues between the carrier that bills for the call and the carrier that terminates the call at the other end, the frequency of settlements (i.e. monthly or quarterly), the currency in which payments will be made, the formula for calculating traffic flows between countries, technical standards, procedures for the settlement of disputes, the effective date of the agreement and the term of the agreement. In August 1998, the FCC initiated a rulemaking proceeding in which it proposed significant changes to the FCC's international settlements policy and associated rules. Among other things, the FCC has proposed eliminating the requirement that U.S. carriers comply with the settlements policy in certain circumstances (e.g., between U.S. carriers and foreign carriers that lack market power in WTO member countries). The FCC is also proposing to allow carriers to enter into flexible settlement arrangements for agreements affecting less than 25 percent of the traffic on a particular route without naming the foreign correspondent and without filing the 11 terms and conditions of the actual agreement. However, the Company cannot predict the outcome of this proceeding, or its ultimate effect on the Company. The foregoing summary does not purport to describe all present and proposed federal, state and local regulation and legislation affecting the telecommunications industry. Existing regulations are currently the subject of judicial proceedings, legislative hearings, and administrative proposals which could change, in varying degrees, the manner in which the telecommunications industry operates. Neither the outcome of these proceedings, nor their impact upon the telecommunications industry or the Company can be predicted at this time. Employees As of September 16, 1998, the Company had 21 employees, of which 4 were executive officers, 3 were engaged in sales, 6 were engaged in operations, engineering and technical systems, and 7 were engaged in administration. The Company anticipates that the development of its business could require the hiring of a substantial number of new employees. The Company considers its employee relations to be good. Other Matters Operations Remain in Early Stage. Despite retaining key personnel in the telecommunications industry, installing and ordering telecommunications switching equipment, and entering into an agreement to acquire a telecommunications company operating in Central America, the Company remains in an early stage. The Company has installed three telecommunications switches in the United States for the provision of international and long distance telephony services, but none of these switches are operating commercially. The Company has also entered into an agreement to acquire 100% of the equity interests of Masatepe, which currently carries telecommunications traffic from the United States to Nicaragua. This acquisition agreement, however, is contingent upon Masatepe securing certain regulatory approvals of its business. There can be no assurances that Masatepe will secure these approvals. History of Operating Losses. The Company has incurred net losses of $3,154,810 and $32,429 for the fiscal years ended June 30, 1998 and 1997, respectively. The net loss of $3,154,810 incurred during the year ended June 30, 1998 is primarily attributable to noncash compensation of $2,254,000 (see Note 9 to the Consolidated Financial Statements) and selling, general and administrative expenses. The Company's ability to reach profitability and positive cash flow is dependent upon a number of factors, including the Company's ability to generate material revenues from its network of telecommunications services. Thus far, the Company has not yet begun to generate cash flow. There can be no assurances that the Company will be successful in implementing its developmental phases in a profitable manner in the future, and any such failure could have a material adverse effect on the Company's business, financial condition and results of operations. Management and Risks of Growth. The Company expects to experience a period of rapid growth, which could place a significant strain on the Company's management, operational and financial resources. In order to manage its growth effectively, the Company must continue to 12 implement and improve its operational and financial systems and controls, to purchase other transmission facilities and to expand, train and manage its employee base. Inaccuracies in the Company's forecasts of traffic could result in insufficient or excessive transmission facilities and disproportionate fixed expenses. The Company's overflow traffic could be handled by other international carriers to which the Company would pay per minute usage fees. The Company is not able to assure that the quality of these services is commensurate with the transmission quality provided by the Company. If the Company is not able to manage its growth effectively or maintain the quality of its service, the Company's business may be adversely affected. Risks Associated with International Operations. The Company expects to generate a significant portion of its revenues by providing international wholesale telecommunications services to its customers. The Company's operations are subject to certain risks, such as changes in foreign government regulations and telecommunications standards, licensing requirements, tariffs, taxes and other trade barriers, as well as political and economic instability. The Company's revenues and cost of long distance services are sensitive to changes in international settlement rates, changes in the ratios between outgoing and incoming traffic, foreign currency fluctuations, and import and export regulations. There can be no assurance that foreign countries will not adopt laws or regulatory requirements that could adversely affect the Company. There can be no assurance that future regulatory, judicial and legislative changes will not have a material adverse effect on the Company's business, financial condition or results of operations. Competition. The international telecommunications industry is highly competitive and subject to the introduction of new services facilitated by advances in technology. International telecommunications providers compete on the basis of price, customer service, transmission quality, breadth of service offerings and value-added services. The U.S.-based international telecommunications services market is dominated by AT&T, MCI Worldcom and Sprint. Nevertheless, the Company competes in the wholesale long distance market with many other carriers as well. As the Company's network develops further, the Company expects to encounter increasing competition from these and other major domestic and international communications companies, many of which may have significantly greater resources and more extensive domestic and international communications networks than the Company. The Company also faces competition from companies offering resold international and domestic retail telecommunications services. The operation of fixed telephony systems by governmental authorities in several of the countries targeted by the Company means that they are a source of competition for the Company's proposed wireless telephony operations. The Company will also face competition from governmental entities that provide such services and financing to their own national telecommunications operators and from those operators themselves as they attempt to provide such services and seek other sources of financing. In certain markets, cellular telecom operators already exist and represent a competitive alternative to the Company's proposed wireless telecom systems. In addition, the Company does not expect to have exclusive franchises with respect to its wireless telecom operations and may therefore face more significant competition in the future from highly capitalized entities seeking to provide services similar to or competitive with the Company in its markets. Providers of cellular services compete to attract and retain customers principally on the bases of services and enhancements offered, customer service, and price. Such 13 competition may be intense. The Company also faces competition in the provision of services to telecommunications companies. Consequently, there can be no assurance that the Company will not encounter competition which could limit its ability to obtain licenses, attract and retain subscribers or to develop its business and which could have a material adverse effect on the Company's financial condition, results of operations and prospects. Capital Expenditures-Need for Additional Financing. The facilities-based telecommunications industry requires substantial capital investment in switching and peripheral equipment. Growth in the number of minutes transmitted, international locations and customers served by the Company will require additional investment in equipment and facilities. Furthermore, entry into Internet data and voice provision and wireless telecom services requires significant capital. The Company may need to raise additional capital over the next twelve months in order to further fund its development. There can be no assurance that the Company will be able to raise additional financing, or, if raised, that the terms of such financing will be favorable to the Company. Dependence on Key Personnel. The Company does not maintain key person life insurance on any of its officers or employees. The Company's future success will depend on its ability to retain existing, as well as attract and retain additional management, technical and sales personnel required in connection with the growth and development of its business. Volatility of Stock Price. The Company believes there is a possibility of significant volatility in its stock price. Historically, the market prices for securities of emerging companies in the telecommunications industry have been highly volatile. Future announcements concerning the Company or its competitors, including results of operations, technological innovations, government regulations, proprietary rights or significant litigation, may have a significant impact on the market price of the Company Common Stock. Anticipated Increase in Publicly Tradable Shares. The Company's wholly-owned subsidiary VDC Communications, Inc., a Delaware corporation ("VDC Communications"), has filed a registration statement with the Securities and Exchange Commission on Form S-4 (the "S-4"). The S-4 was filed to register securities to be issued in connection with a merger of the Company and VDC Communications (the "Domestication Merger"). The effect of the Domestication Merger will be that shareholders of the Company will become shareholders of VDC Communications, which will then become the publicly traded company. The Domestication Merger will, if and when effective, have the effect (through the conversion of outstanding convertible preferred stock of VDC Communications) of increasing the number of shares eligible for public trading from approximately 3,000,000 to approximately 20,000,000. Significantly, 7,022,000 of those shares will be owned, directly or indirectly, by the Company's officers and directors. See "ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT." Sales of substantial amounts of the Company Common Stock in the public market could have an adverse effect on the market price of the stock and may make it more difficult for the Company to sell its equity securities in the future at times and at prices it deems appropriate. Although it is impossible to predict market influences and prospective values for securities, it is possible that the substantial increase in the 14 number of shares available for sale, in and of itself, could have a depressive effect upon the market value of the Company Common Stock. Dividend Policy. The Company has no plans to pay a cash dividend on its Common Stock in the foreseeable future. The Company intends to retain earnings to develop and expand its business. Natural Disasters and Other Catastrophic Events. The Company's business is susceptible to natural disasters and catastrophic events; such as earthquakes, fire, terrorism and war. Although the Company has taken a number of steps to prevent its network from being affected by natural disasters, such as building redundant systems for power supply to the switching equipment, there can be no assurance that any such systems will prevent the Company's switches from becoming disabled in the event of an earthquake, power outage or otherwise. The failure of the Company's network, or a significant decrease in telecom traffic, resulting from effects of a natural or man-made disaster, could have a materially adverse effect on the Company's relationship with its customers and the Company's business, results of operations and financial condition. The Year 2000 Issue The Company is presently attempting to respond to Year 2000 issues. Year 2000 issues are the result of computer programs being written using two digits rather than four to define the applicable year associated with the program or an associated computation. Any of the Company's computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculation causing disruptions of operations, including among other things, a temporary inability to process transactions, send invoices or engage in normal business activities. Management expects to have substantially all of the systems application changes completed by the end of the second quarter of Fiscal 1999 and believes that its level of preparedness is appropriate. The total cost to the Company of these Year 2000 compliance issues is not anticipated to be material to its financial position or results of operations in any given year. These costs and the date on which the Company plans to complete the Year 2000 modification and testing processes are based on management's best estimates, which were derived utilizing numerous assumptions of future events including the continued availability of certain resources, third party modification plans and other factors. However, there can be no assurances that these estimates will be achieved and actual results could differ from those plans. ITEM 2. DESCRIPTION OF PROPERTIES. The Company's headquarters are located in approximately 10,800 square feet of leased office space in Greenwich, Connecticut. The office space is leased from an unaffiliated third party pursuant to a five-year agreement at an annual rental of approximately $290,000. The Company also leases approximately 5,600 square feet of office space in Aurora, Colorado where the operations of its subsidiary, VDC Telecommunications, Inc., are located. The office is leased from an unaffiliated third party pursuant to a five-year agreement at an annual rental of approximately $94,000. 15 The Company leases three equipment site locations throughout the country with a combined square footage of approximately 8,500. The locations are leased from unaffiliated third parties pursuant to ten-year leases at a combined annual rental of approximately $199,000. ITEM 3. LEGAL PROCEEDINGS. The Company is not currently involved in any litigation or proceeding which is material, either individually or in the aggregate, and, to the Company's knowledge, no other legal proceeding of a material nature is currently contemplated by any individuals, entities or governmental authorities. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company Common Stock has traded on the American Stock Exchange, Inc. ("AMEX") since July 7, 1998 under the symbol "VDC". Prior to July 7, 1998, the Company Common Stock traded under the symbol "VDCLF" on the NASDAQ Small Cap Market from 1993 until November 26, 1997, and thereafter until July 7, 1998, on the OTC Bulletin Board. The following table sets forth certain information with respect to the high and low bid prices of the Company Common Stock during Fiscal 1998 (July 1, 1997 to June 30, 1998) and Fiscal 1997 (July 1, 1996 to June 30, 1997). Fiscal 1998 High Low - ----------- ---- --- First Quarter $5.38 $3.88 Second Quarter $6.50 $4.50 Third Quarter $6.50 $3.75 Fourth Quarter $8.63 $5.88 Fiscal 1997 High Low - ----------- ---- --- First Quarter $9.25 $7.37 Second Quarter $7.87 $5.00 Third Quarter $6.50 $5.00 Fourth Quarter $5.25 $3.00 16 The high and low bid prices for the Company's Common Stock are rounded to the nearest 1/8th. Such prices are inter-dealer prices without retail mark-ups or commissions and may not represent actual transactions. Holders As of September 16, 1998, the approximate number of holders of record of the Company's Common Stock was 414. The Company believes the number of beneficial owners of the Common Stock exceeds 1,600. Dividends The Company has not paid any cash dividends to date and does not anticipate or contemplate paying cash dividends in the foreseeable future. The Company intends to retain all the Company's earnings for use of the expansion of the Company's business for the foreseeable future. Recent Sales of Unregistered Securities In March 1998, the Company issued 700,000 shares in a non-public offering exempt from registration pursuant to Section 4(2) and Rule 506 of Regulation D of the Act as follows:
- --------------------------------------------------------------------------------------------------------------------- Shareholder Number of Shares Price Per Share - --------------------------------------------------------------------------------------------------------------------- Lancer Voyager Fund 58,500 $4.75 - --------------------------------------------------------------------------------------------------------------------- Lancer Offshore, Inc. 390,000 $4.75 - --------------------------------------------------------------------------------------------------------------------- Lancer Partners LP 132,000 $4.75 - --------------------------------------------------------------------------------------------------------------------- Michael Lauer 19,500 $4.75 - --------------------------------------------------------------------------------------------------------------------- Alan Snyder 100,000 $5.50 - ---------------------------------------------------------------------------------------------------------------------
In May 1998, the Company issued 583,430 shares in a non-public offering exempt from registration pursuant to Section 4(2) and Rule 506 of Regulation D of the Act as follows:
- --------------------------------------------------------------------------------------------------------------------- Shareholder Number of Shares Price Per Share - --------------------------------------------------------------------------------------------------------------------- Moran Equity Fund, Inc. 27,000 $6.00 - --------------------------------------------------------------------------------------------------------------------- Luke Moran 10,000 $6.00 - --------------------------------------------------------------------------------------------------------------------- Kent Moran 10,000 $6.00 - --------------------------------------------------------------------------------------------------------------------- Frederick A. Moran 85,667 $6.00 - --------------------------------------------------------------------------------------------------------------------- Anne Moran, IRA 11,667 $6.00 - --------------------------------------------------------------------------------------------------------------------- Anne Moran Trust 250 $6.00 - --------------------------------------------------------------------------------------------------------------------- Frederick A. Moran Trust 180 $6.00 - --------------------------------------------------------------------------------------------------------------------- Kent Moran, IRA 333 $6.00 - --------------------------------------------------------------------------------------------------------------------- Luke Moran, IRA 333 $6.00 - --------------------------------------------------------------------------------------------------------------------- Frederick A. Moran & Joan B. Moran 23,667 $6.00 - ---------------------------------------------------------------------------------------------------------------------
17
- --------------------------------------------------------------------------------------------------------------------- Alan B. Snyder 100,000 $6.00 - --------------------------------------------------------------------------------------------------------------------- Frederick W. Moran 100,000 $6.00 - --------------------------------------------------------------------------------------------------------------------- Lancer Voyager Fund 25,000 $6.00 - --------------------------------------------------------------------------------------------------------------------- Lancer Offshore, Inc. 150,000 $6.00 - --------------------------------------------------------------------------------------------------------------------- Anne Moran 39,333 $6.00 - ---------------------------------------------------------------------------------------------------------------------
On August 18, 1998, the Company issued 21,428 shares of common stock of the Company in the name of Marc Graubart in a non-public offering exempt from registration pursuant to Section 4(2) and Rule 506 of Regulation D of the Act (the "Graubart Shares"). The Graubart Shares were issued in escrow as payment for Mr. Graubart's assistance in structuring and facilitating the completion of the Company's acquisition of the equity ownership interests in Masatepe. The Graubart Shares will be released from escrow, if at all, in the event that the FCC approves certain regulatory filings made by Masatepe. On August 18, 1998, the Company issued 78,697 shares in the name of Activated Communications Limited Partnership ("Activated") in a non-public offering exempt from registration pursuant to Section 4(2) and Rule 506 of Regulation D of the Act (the "Activated Shares"). The Activated Shares were issued in escrow as partial consideration for Activated's equity ownership interest in Masatepe pursuant to the terms of a Purchase Agreement dated July 31, 1998, by and among the Company, Masatepe, Activated and Marc Graubart. The Activated Shares will be released from escrow, if at all, in the event that the FCC approves certain regulatory filings made by Masatepe. ITEM 6. SELECTED FINANCIAL DATA. The following selected consolidated financial data as of and for each of the period (s) ended June 30, 1998, 1997 and 1996 have been derived from the audited consolidated Financial Statements of the Company. The financial data presented above reflects the relevant Statement of Income data and Balance Sheet of Sky King Connecticut, which became publicly held by virtue of its acquisition by VDC on March 6, 1998. Since, as a result of the acquisition, the former stockholders of Sky King Connecticut acquired a controlling interest in VDC, the acquisition has been accounted for as a "reverse acquisition". Accordingly, for financial statement presentation purposes, Sky King Connecticut is viewed as the continuing entity and the related business combination is viewed as a recapitalization of Sky King Connecticut, rather than an acquisition by VDC. The following data should be read in conjunction with the Consolidated Financial Statements and the notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included herein.
Year Ended June 30 ------------------------------------------------------------ 1998 1997 1996 ---- ---- ---- (since inception) Operating Results Revenues $ 99,957 $ 43,248 $ 4,850 Loss from operations(1) $(3,349,932) $(32,429) $(26,702) Loss from operations per common share-basic(2) $ (.76) $ (.01) $ (.01) Net loss $(3,154,810) $(32,429) $(26,702) Balance Sheet Investment in Metromedia China Corp. $37,790,877 Working capital $ 5,307,801 $ 1,180 $ 2,389 Total assets $45,823,684 $ 15,000 $ 16,499
18 - ---------------- (1) The loss from operations of $3,349,932 incurred during the year ended June 30, 1998 is primarily attributable to noncash compensation of $2,254,000 (See Note 9 to the consolidated financial statements) and selling, general and administrative expenses. (2) Diluted earnings per share for this period is not calculated because inclusion of common share equivalents would be antidilutive. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Background From its inception in 1980 through Fiscal 1997, the Company has undertaken and thereafter suspended diverse lines of business including mineral resource exploration and real estate development, among others. When the Company's more recent venture capital efforts during Fiscal 1997 failed to yield expected levels of return, management concluded that it was in the Company's best interest to: (i) suspend its venture capital activities; (ii) dispose of its investment assets; and (iii) appoint new management who would be in a better position to identify business opportunities that would more fully benefit from the Company's attributes as a public corporation. Towards this end, during the third quarter of Fiscal 1998, the Company disposed in bulk of principally all of its investment assets and other holdings for cash totaling approximately $903,000, promissory notes in an aggregate principal amount of $4,300,000 and a subscription receivable in the principal amount of $632,500. Thereafter, on March 6, 1998, the Company acquired Sky King Connecticut and entered into the international telecommunications business. Based upon this acquisition, and the more recent expansion of the historic business of Sky King Connecticut, the Company now operates as a U.S. based global telecommunications company, focusing its activities upon three segments of the telecommunications business: International Telecommunications Gateways and Long Distance Telecom (wholesale) Services, Local, Long Distance, International Long Distance and Internet Service Provision (retail) Telecom Services, and Wireless Telecommunications. The Company also operates as a site tower manager for wireless communications services. The acquisition of Sky King Connecticut was undertaken through the issuance, to the former Sky King Connecticut shareholders, of two series of preferred stock which ultimately convert into 10 million shares of the Company's Common Stock. Since, as a result of the acquisition, the former shareholders of Sky King Connecticut acquired a controlling interest in VDC, the acquisition has been accounted for as a "reverse acquisition." Accordingly, for financial statement presentation purposes, Sky King Connecticut is viewed as the continuing entity and the related business combination is viewed as a recapitalization of Sky King Connecticut, rather than an acquisition by VDC. During Fiscal 1998, the Company derived revenue from site tower management and telecommunications consulting services. Monthly site tower management fees vary by service, location and length of agreement. The Company expects that the implementation of its new telecommunications services will provide new sources of revenue and that current results are not 19 indicative of future results, given the expected increase in scope and diversity of the Company's business. Masatepe began carrying telecommunications traffic to Managua, Nicaragua from the United States during the first quarter of Fiscal 1999. The Company expects that it will begin carrying telecommunications traffic over switches in New York City, Los Angeles and Denver, Colorado by the end of the second quarter of Fiscal 1999. In addition, the Company believes that it may begin deriving revenue from other sources over the next twelve months, including additional international calling routes. The Company's costs include site leasing expense, selling, general and administrative costs, and noncash compensation. With the implementation of its new telecommunications services, the Company will, most likely incur additional types of expenses, including payments to other providers of long distance services for transmission services, payments to domestic carriers for the termination of overseas-originated traffic in the United States and payments to local exchange companies for access charges for originating and terminating international and domestic traffic. In addition, costs may be incurred over the next twelve months associated with the provision of retail telecom service. The Company also expects that it will hire additional employees over the next twelve months. This will include an increased technical and marketing effort associated with the Company's gateways and switches. Fiscal 1998 Compared to Fiscal 1997 Revenues: Total revenues increased 131% to $99,957 in Fiscal 1998. This compares to $43,248 for Fiscal 1997. The increase reflects increased sites under management and consulting fees. The Company does not anticipate the continuation of its services as a consultant to other telecommunications companies. Site Leasing Expense: Site leasing expense increased 29.2% to $28,460 in Fiscal 1998 from $22,020 in Fiscal 1997. The increase is primarily due to an increase in radio tower and antenna space rentals. Selling, general & administrative: Selling, general and administrative expenses increased 2076% to $1,167,429 in Fiscal 1998 from $53,657 in Fiscal 1997. This increase was primarily attributable to professional fees, including consulting, legal and accounting expenses associated with the redeployment of the Company's assets and salaries of new personnel necessary for the Company's development of new telecommunications services, including the initial development of a domestic and global telecommunications network. Noncash Compensation Expense: Noncash compensation expense was $2,254,000 in Fiscal 1998 up from $0 in Fiscal 1997. During Fiscal 1998, 600,000 shares of Series B Convertible Preferred Stock of VDC Communications, par value $.0001 per share ("Series B Stock"), were earned out from escrow based upon performance criteria outlined in Note 9 to the Consolidated Financial Statements. Of the 600,000 20 shares released, 415,084 were considered compensatory. These are the "earned" shares that were owned by management, their family trusts and minor children and two employees. The remaining 3,900,000 shares of Series B Stock were earned out from escrow during Fiscal 1999, which will result in approximately 2,691,000 shares being considered compensatory. The compensatory shares multiplied by the fair value of the shares will be recognized as noncash compensation during the first quarter of Fiscal 1999. Net Loss: The Company incurred a net loss of $3,154,810 in Fiscal 1998, an increase of 9628% from the net loss of $32,429 in Fiscal 1997. The increase is attributable to noncash compensation and an increase in selling, general and administrative expenses. The Company believes that current results are not indicative of future results, given the expected increase in scope and diversity of the Company's business over the next twelve months. Future results will be more reflective of the revenues that are likely to be realized upon operation of the Company's gateways, switched and long distance services, and possibly Internet services and wireless telephony services. Fiscal 1997 Compared to Fiscal 1996 Revenues: Total revenues increased 792% to $43,248 in Fiscal 1997 compared to $4,850 for the fiscal year ended June 30, 1996 ("Fiscal 1996"). The increase was primarily the result of a longer operating period (inception-January 3, 1996) and higher volume of revenue associated with increased sites under management. Site Leasing Expense: Site leasing expense increased 1918% to $22,020 in Fiscal 1997 from $1,091 in Fiscal 1996. This increase is primarily the result of increased volume associated with a longer operating period and an increase in radio tower and antenna space rentals. Selling, general & administrative: Selling, general and administrative expenses increased 76% to $53,657 in Fiscal 1997 from $30,461 in Fiscal 1996. This increase was primarily due to a longer operating period. Net Loss: The Company incurred a net loss of $32,429 in Fiscal 1997, an increase of 21% from the net loss of $26,702 in Fiscal 1996. The increase in net loss is attributable to a longer operating period partially offset by an increase in revenue. Liquidity and Capital Resources Net cash used in operating activities increased to $859,390 in Fiscal 1998, from $28,573 in Fiscal 1997 and $25,378 in Fiscal 1996. The increase in Fiscal 1998 was mostly attributable to the increased losses from operations. Net cash used by investing activities totaled $3,201,433 in Fiscal 1998. Cash was used for the investment in MCC (See Note 5 to the Consolidated Financial Statements), purchase and/or deposits for capital equipment purchases and purchases of investment securities offset by proceeds from repayments of notes receivable. There were no cash flows from investing activities in Fiscal 1997 and 1996. 21 Proceeds provided by financing activities increased to $6,271,504 in Fiscal 1998 from $27,830 in Fiscal 1997 and $27,551 in Fiscal 1996. Fiscal 1998 proceeds reflect the issuance of Company Common Stock by way of private placements. The proceeds were used to fund operations during Fiscal 1998, to deposit into escrow the purchase price for the acquisition of Masatepe, and to deposit into escrow for the acquisition of MCC Shares and MCC Warrants. The funds will also be used for future working capital, the development of VDC Telecommunications, Inc.'s domestic network and the development of Voice & Data Communications (Hong Kong) Limited international telecommunications switches. Fiscal 1997 and 1996 proceeds reflect capital contributions by the owners of Sky King Connecticut and were used to fund operations. The Company's anticipated capital commitments for the next twelve months total approximately $1,000,000. These commitments include switching and peripheral equipment ordered for the Company's domestic network and for Voice & Data Communications (Hong Kong) Limited, but not growth opportunities that may arise in the future that management believes are beneficial to the Company. In addition, the Company also has fixed commitments associated with rental and leasehold obligations, operations, and personnel costs under its existing employment arrangements. As a facilities-based telecommunications company, the Company may also be required to make substantial additional capital investment in switching and peripheral equipment as growth opportunities arise. The Company is currently experiencing a short term cash flow issue, since, among other things, a significant amount of capital has been expended towards building corporate infrastructure and operating and capital expenditures in connection with certain acquisitions and the establishment of Company programs. These expenditures have been incurred in advance of the realization of revenue that is likely to occur as a result of such acquisitions and programs. These issues have been compounded by virtue of significant capital that remains in escrow in connection with the MCC transaction. Management anticipates that it will resolve its cash flow issues within the short term by a combination of any one or more of the following factors: (i) the realization of revenues from operations as the Company's telecommunications switches are likely to become commercially operational; (ii) the release of a significant portion of the funds held in escrow from the MCC transaction; (iii) collection on the promissory notes emanating from the bulk sale of its former investment assets; and (iv) continued financing activities. An inability to generate cash from any one or more of these factors within the short term could have the effect of adversely affecting the Company's plans for future growth. If these issues continue for more than the short term, management may be caused to materially reduce the size and scope of its overhead and planned operations. Acquisitions The Company completed the acquisition of substantially all of the assets of Blue Sky International L.L.C. in Fiscal 1998. In addition, in the first quarter of Fiscal 1999, the Company entered into an agreement to acquire Masatepe. This acquisition was closed in escrow, contingent upon the approval of certain regulatory filings made by Masatepe with the FCC. In 22 the event that these contingencies are not satisfied by October 15, 1998, or a later date agreed upon by the parties, the acquisition will not be consummated and all funds advanced by the Company to run the operations of Masatepe will be treated as a loan. 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 assurance that such financing will be available, or if available, will be available on terms attractive to the Company. The Company is also considering acquisitions using the Company's Common Stock. The Year 2000 Issue. The Company is presently attempting to respond to Year 2000 issues. Year 2000 issues are the result of computer programs being written using two digits rather than four to define the applicable year associated with the program or an associated computation. Any of the Company's computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculation causing disruptions of operations, including among other things, a temporary inability to process transactions, send invoices or engage in normal business activities. Management expects to have substantially all of the systems application changes completed by the end of the second quarter of Fiscal 1999 and believes that its level of preparedness is appropriate. The total cost to the Company of these Year 2000 compliance issues is not anticipated to be material to its financial position or results of operations in any given year. These costs and the date on which the Company plans to complete the Year 2000 modification and testing processes are based on management's best estimates, which were derived utilizing numerous assumptions of future events including the continued availability of certain resources, third party modification plans and other factors. However, there can be no assurances that these estimates will be achieved and actual results could differ from those plans. In the absence of significant contracts with suppliers and customers, the Company has not yet had to assess year 2000 compliance issues. To the extent the Company has entered into contracts that implicate the year 2000 compliance issue, the Company does not currently believe that said issue will involve a material economic cost or significant risk to the Company. The Company will continue to consider this issue in conjunction with all new contracts and develop contingency plans to the extent necessary. Recent Accounting Standards Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income," established standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, SFAS No. 130 requires that all items that are required to be recognized under current accounting standards as components of comprehensive income and reported in a financial statement that is displayed with the same prominence as other financial statements. Statement of Financial Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and Related Information", which supersedes SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise" establishes standards for the way that public enterprises report information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial statements issued to the public. It also establishes standards for disclosures regarding products and services, geographical areas and major customers. SFAS No. 131 defines operating segments as components of an enterprise about which separate financial information is available that is evaluated regularly by management in deciding how to allocate resources and in assessing performance. Both SFAS Nos. 130 and 131 are effective for financial statements for fiscal years beginning after December 15, 1997 and require comparative information for earlier years to be restated. The adoption of SFAS No. 130 is not expected to have a material effect on the Company's financial statement disclosures. The Company is currently reviewing the effect of SFAS No. 131 but has yet been unable to fully evaluate the impact, if any, it may have on future financial statement disclosures. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Item not applicable. ITEM 8. FINANCIAL STATEMENTS. The information required by this Item is found immediately following the signature page to this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. 23 Pursuant to the approval of the Company's Board of Directors, on May 21, 1998, the Company terminated the engagement of Neville Russell, chartered accountants ("Neville"), as the principal accountants to audit its financial statements, effective immediately. Neville's report dated December 24, 1997 on the Company's financial statements for Fiscal 1996 and 1997 did not contain any adverse opinion, disclaimer of opinion or qualification as to uncertainty, audit scope or accounting principles. During Fiscal 1996 and 1997, as well as the interim period from June 30, 1997 (the end of the Company's 1997 fiscal year) to May 21, 1998 (the date of Neville's dismissal as the Company's certifying accountants), there were no disagreements between the Company and Neville on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to the satisfaction of Neville, would have caused it to make a reference to the subject matter of the disagreements in connection with its report. During Fiscal 1996 and 1997, as well as the interim period from June 30, 1997 (the end of the Company's 1997 fiscal year) to May 21, 1998 (the date of Neville's dismissal as the Company's certifying accountants), Neville did not advise the Company (1) that the internal controls necessary for the Company to develop reliable financial statements do not exist, or (2) that information has come to Neville's attention that has led it to no longer be able to rely on management's representations or that has made it unwilling to be associated with the financial statements prepared by management, or (3)(A) of the need to expand significantly the scope of its audit, or that information has come to Neville's attention during such period that, if further investigated, may (i) materially impact the fairness or reliability of either a previously issued audit report or the underlying financial statements, or the financial statements issued or to be issued covering the fiscal periods subsequent to Fiscal 1997 (including information that may prevent it from rendering an unqualified audit report on those financial statements), or (ii) cause Neville to be unwilling to rely on management's representations or be associated with the Company's financial statements, and (B) due to Neville's dismissal, or for any other reason, Neville did not so expand the scope of its audit or conduct such further investigations, or (4)(A) that information has come to Neville's attention that it has concluded materially impacts the fairness or reliability of either a previously issued audit report or the underlying financial statements, or the financial statements issued or to be issued covering the fiscal periods subsequent to fiscal year 1997 (including information that, unless resolved to Neville's satisfaction, would prevent it from rendering an unqualified audit report on those financial statements), and (B) due to Neville's dismissal, or for any other reason, the issue has not been resolved to Neville's satisfaction prior to its dismissal. Pursuant to the approval of the Company's Board of Directors, the Company engaged BDO Seidman, LLP ("BDO") as the principal accountants to audit its financial statements effective as of May 12, 1998. During Fiscal 1996 and 1997 and the interim period subsequent to fiscal year 1997, as well as the interim period from June 30, 1997 (the end of the Company's 1997 fiscal year) to May 21, 1998 (the date of Neville's dismissal as the Company's certifying accountants), neither the Company nor anyone on its behalf consulted BDO regarding either the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company's financial statements, and neither a written report nor oral advice was provided to the Company by BDO. 24 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS. The Directors and Executive Officers of the Company are listed below. Name Age Position - ---- --- -------- Frederick A. Moran 56 Chairman, Chief Executive Officer, Chief Financial Officer and Director of the Company President, Chief Financial Officer and Director of VDC Communications Dr. James C. Roberts 45 Deputy Chairman, Chief Operating Officer and Director of the Company Chief Operating Officer, Secretary and Director of VDC Communications Dr. Hussein Elkholy 64 Director of the Company Director of VDC Communications Clayton F. Moran 27(1) Vice President, Finance, of the Company Charles W. Mulloy 33 Vice President, Corporation Development, of the Company - ---------- (1) An adult son of Frederick A. Moran All directors of the Company hold office until the next annual meeting of members/stockholders or until their successors are duly elected and qualified. There are currently no committees of the Board of the Company. Executive officers of the Company hold office at the pleasure of the Board of Directors. 25 Business Experience Frederick A. Moran Mr. Moran has served as the Chairman, Chief Executive Officer and Chief Financial Officer of the Company since March 6, 1998. Mr. Moran has served as a member of the Board of Directors of VDC since March 6, 1998. Mr. Moran was the Chairman of Sky King Connecticut prior to its merger with and into Sky King. Prior thereto, he was formerly Chairman and Chief Executive Officer of NovoComm, Inc., a privately owned company engaged in the telephony and communications businesses in Russia and Ukraine. Prior to his affiliation with NovoComm, Inc., Mr. Moran was the co-founder and Chairman and Chief Executive Officer of International Telcell, Inc. (now part of Metromedia International Group, Inc.) and the founder and President of Moran & Associates, Inc. Securities Brokerage, an investment banking and securities brokerage firm ("Moran Brokerage"), and Moran Asset Management, Inc., an investment advisory firm ("Moran Asset"). Mr. Moran has been listed in the "Who's Who of American Business Leaders." Dr. James C. Roberts Dr. Roberts has served as Deputy Chairman and Chief Operating Officer of the Company since March 6, 1998. Dr. Roberts has served on the Board of Directors of VDC since March 6, 1998. Dr. Roberts served as President and Chief Executive Officer of CGI Worldwide, Inc. ("CGI") since its inception in 1986 until 1997. CGI is a multifaceted telecommunications company which has designed, engineered, constructed and developed over 80 cellular, paging and cable television systems around the world. Prior to joining CGI, Dr. Roberts spent over 10 years in the telecommunications business, holding senior management positions with McCaw Cellular Communications, Inc., MCI Communications Corp. and Motorola, Inc. During this period, Dr. Roberts was responsible for building and operating over 50 cellular, paging and cable TV systems. Dr. Roberts is a charter member of the Cellular Telephone Industry Association and has been listed in the "Who's Who in Industry and Finance" since 1990 and "Who's Who of American Business Leaders" for the last five issues. Dr. Hussein Elkholy Dr. Elkholy has served as a member of the Board of Directors of the Company since July 6, 1998. From 1995 to the present, Dr. Elkholy has served as the Chairman of National Telecom Company and the President and Chief Executive Officer of Satellite Equipment Manufacturing Corporation, both located in Cairo, Egypt. Dr. Elkholy is also a full professor at the Department of Mathematics, Computer Science and Physics at Fairleigh Dickinson University, where he has taught undergraduate and graduate courses in physics, engineering and computer science for over 34 years. From 1979 to 1980, Dr. Elkholy served as acting Dean of the College of Arts and Sciences at Fairleigh Dickinson University. In addition, Dr. Elkholy has conducted research and taught classes in the fields of physics and computer science at several universities and institutes in the United States, Italy, Hungary, Egypt and Sudan. During the past several years, Dr. Elkholy has consulted numerous governmental agencies, private companies and research and educational institutions in the United States and abroad on computer and electronic technology. Dr. Elkholy holds doctorate degrees in natural sciences from Eotvos Lorand University and in solid state physics from the Hungarian Academy of Sciences, and a Bachelor of Science degree in physics from Cairo University. 26 Clayton F. Moran Mr. Moran has served as Vice President, Finance of the Company since June 1, 1998. Prior thereto, Mr. Moran was employed by Moran Real Estate Holdings, Inc. and Putnam Avenue Properties, Inc., entrepreneurial entities designed to seek out and develop business opportunities. From 1993 to 1995, Mr. Moran was an equity research analyst with Smith Barney, Inc. Mr. Moran is a graduate of Princeton University, with a Bachelor of Arts degree in Economics. Charles W. Mulloy Mr. Mulloy has served as Vice President, Corporate Development, of the Company since February 1, 1998. Mr. Mulloy has a broad background as a technologist and business development manager, having worked in California's Silicon Valley business community for over 10 years. From 1996 to 1998, Mr. Mulloy served as a business development and system design executive for the IBM Corporation and managed IBM's strategic relationship with the Intel Corporation. From 1994 to 1996, Mr. Mulloy served as Vice President of Inacom Information Systems. Prior to that, from 1987 to 1994, Mr. Mulloy served as National Sales Manager for California Computer Options. Mr. Mulloy has extensive experience in developing data and telecommunications solutions with a foundation in network strategy and deployment. He has designed and managed business solutions for several telecommunications companies. Mr. Mulloy graduated from San Francisco State University with a Bachelor of Arts degree in Telecommunications. Involvement in Certain Legal Proceedings In a civil action filed by the Securities and Exchange Commission ("SEC") during June 1995, Frederick A. Moran ("Mr. Moran") and Moran Asset were found by the United States District Court for the Southern District of New York to have violated Section 206(2) of the Investment Advisers Act of 1940 (the "Advisers Act") for negligently allocating shares of stock to Mr. Moran's personal, family and firm accounts at a slightly lower price than shares of stock purchased for Moran Asset's advisory clients the following day. The Court also found that Mr. Moran, Moran Asset and Moran Brokerage had violated the disclosure requirements of Section 204 of the Advisers Act and the corresponding broker-dealer registration requirements of Section 15(b) of the Securities Exchange Act of 1934 (the "Exchange Act") by willfully failing to disclose that Mr. Moran's two eldest sons were members of Moran Asset's and Moran Brokerage's board of directors. Mr. Moran was the President and principal portfolio manager of Moran Asset, as well as the President and Director of Research for Moran Brokerage. As a result of these findings, Mr. Moran, Moran Asset and Moran Brokerage were permanently enjoined from violating Sections 204, 206(2), and 207 of the Advisers Act and Section 15(b) of the Exchange Act. The Court ordered Moran Asset and Moran Brokerage to pay civil monetary penalties in the respective amounts of $50,000 and $25,000. The Court also ordered Mr. Moran to disgorge $9,551.17 plus prejudgment interest and pay a civil monetary penalty in the amount of $25,000. Although Mr. Moran and the other named parties accepted and fully complied with the findings of the District Court, they believe that the outcome of the matter and the sanctions 27 imposed failed to take into account a number of mitigating circumstances, the first of which is that the basis for the violation of Section 206(2) of the Advisers Act was an isolated incident of negligence resulting in the allocation of 15,000 shares of stock to Moran family and firm accounts at a slightly lower price than those purchased for firm clients the following day, resulting in $9,551.17 in higher purchase cost incurred by these clients. In the opinion of Mr. Moran, the scope of this infraction was not properly considered in view of the following circumstances, among others: (i) the extraordinary volume of the daily business undertaken by Moran Asset and Moran Brokerage which, on the date in question, purchased approximately $34,000,000 of stocks for advisory clients and proprietary accounts; (ii) that the appropriate personnel had inadvertently allocated shares to certain personal and family accounts on the belief that all client purchases had been completed; and (iii) shares of an additional stock had been purchased that day for certain personal and family accounts at prices higher than those paid by advisory clients the following day. Second, with respect to the violation of the disclosure requirements of Section 204 of the Advisers Act and Section 15(b) of the Exchange Act, the Court found Mr. Moran and others to be liable for failure to disclose additional directors of Moran Asset and Moran Brokerage. However, the additional directors in question were Mr. Moran's two older sons who had been appointed as directors as a matter of clerical convenience. In fact, they never participated in any Board of Directors meetings, nor made any decisions concerning Moran Asset or Moran Brokerage, and were never informed that they were directors. Furthermore, if their directorships had been disclosed, as the Court had determined to be required, Mr. Moran believes that any such disclosure would have, in fact, enhanced the Form ADV of Moran Asset and the Form BD of Moran Brokerage, since both adult sons were professional securities analysts with major investment banks and held college degrees from prestigious universities. Third, during his twenty-four years as a full time investment professional, Mr. Moran has not otherwise been the subject of any SEC, NASD or other regulatory or judicial matters. To the best of the Company's knowledge, other than the events specified above, there have been no events under any state or federal bankruptcy laws, no criminal proceedings, no judgments, orders, decrees or injunctions entered against any officer or director, and no violations of federal or state securities or commodities laws material to the ability and integrity of any director or executive officer during the past five years. Section 16(a) Beneficial Ownership Reporting Compliance To the knowledge of the Company, each of the Company's directors, executive officers and 10% beneficial owners has complied with the requirements of Section 16(a) of the Securities Exchange Act of 1934. ITEM 11. EXECUTIVE COMPENSATION. Report of the Board of Directors on Compensation The Company's executive compensation strategy is administered by the Board of Directors of the Company. The Board has oversight responsibility for the implementation of executive compensation for the Company. The primary functions of the Board include: 28 (i) reviewing, approving and determining, in its discretion, the annual salary, bonus and other benefits, direct and indirect, of the chief executive officer, directors, all executive officers and other employees; (ii) reviewing stock option issuances; and (iii) establishing and periodically reviewing the Company's policies in the area of management perquisites. Goals: In determining the amount and composition of executive compensation, the Board will be guided by the following goals: 1. Attract, motivate and retain the executives necessary to the Company's success by providing compensation comparable to that offered by companies with which the Company competes for such employees; 2. Afford the executives an opportunity to acquire or increase their proprietary interest in the Company through the grant of options that align the interests of the executives more closely with those of the overall goals of the Company; and 3. Ensuring that a portion of the executives' compensation is variable and is tied to short-term goals (annual performance) and long-term measures (stock-based incentives awards) of the Company's performance. The Board may consider several factors in establishing the components of the executives' compensation package, including: (i) a base salary which reflects individual performance and is designed primarily to be competitive with salary levels of companies with which the Company competes; (ii) annual discretionary bonuses, if any, tied to the Company's achievement of performance goals; and (iii) long-term incentives in the form of stock options or other Company securities which the Board believes strengthen the mutuality of interest between the executive and the Company's stockholders. The Board may, in its discretion, apply entirely different factors, particularly different measures of financial performance, in recommending and/or setting executive compensation for future fiscal years, but all compensation decisions will be designed to further the general goals as indicated above. Base Salary: As a general matter, the Company intends to establish base salaries for each of its executives based upon their individual performance and contribution to the organization, as measured against executives of comparable position in similar industries and companies. Certain of the Company's executives, including Mr. Moran, the Chief Executive Officer, are employed under employment agreements that were established in connection with the Sky King Acquisition. Accordingly, these arrangements were negotiated in the context of an acquisition transaction and are generally based upon the executive's level of compensation prior to the acquisition as well as other factors. Annual Incentive Compensation: The Company anticipates awarding bonuses on a discretionary basis based upon what the Board views as extraordinary contributions to the organization when measured against the Company's achievement of certain performance goals. 29 Stock Options: The Company does not have a stock option plan. The Board intends to periodically consider the grant of stock options to certain of its executives. The grants would be designed to align the interests of each executive with those of the stockholders and provide each individual with a significant incentive to manage the Company from the perspective of an owner with an equity stake in the business. Each grant is intended to permit the executive to acquire shares of the Company's Common Stock at a fixed price per share (typically, the market price on the grant date) over a specified period of time, thus providing a return to the executive only if the market price of the shares appreciates over the option term. The size of the option grant to each executive is intended to take into account the individual's potential for future responsibility over the option term, the individual's personal performance in recent periods and the individual's current holdings of the Company's stock and options. Additional information regarding stock options granted in Fiscal 1998 is included in the "Option/SAR Grants in Last Fiscal Year" table below. Compensation of the Chief Executive Officer: Frederick A. Moran is the Chairman of the Board, Chief Executive Officer and Chief Financial Officer of the Company. Mr. Moran's compensation is determined pursuant to the terms of his employment agreement, which was negotiated and entered into by the Company in connection with the Sky King Acquisition and is intended to align his interests with those of the stockholders and to compensate him for guiding the Company to achieve its goals and objectives. Additional information regarding Mr. Moran's employment contract is contained in the "Employment Arrangements" section below. Employee Compensation Strategy: The Board believes the Company's employee compensation strategy will enable the Company to attract, motivate and retain employees by providing competitive total compensation opportunity based on performance. Base salaries that reflect each individual's level of responsibility and annual variable performance-based incentive awards are intended to be important elements of the Company's compensation policy. The Board believes that the grant of options not only aligns the interests of the executive with stockholders, but creates a competitive advantage for the Company as well. The Board believes the Company's executive compensation policies strike an appropriate balance between short and long-term performance objectives. Board of Directors Frederick A. Moran Dr. James C. Roberts Dr. Hussein Elkholy 30 The following table sets forth the compensation of the Company's principal executive officers for the fiscal year ended June 30, 1998. Further, the Company was not a party to any plans or arrangements providing cash or noncash forms of compensation to its principal executive officers, other than as listed below. SUMMARY COMPENSATION TABLE(1)
============================================================================================================================= Long Term Compensation ----------------------------------- Annual Compensation Awards Payouts - ----------------------------------------------------------------------------------------------------------------------------- Name Other Restricted Securities and Annual Stock Underlying LTIP All Other Principal Compen- Award(s) Options/ Payouts Compen- Position Year(s) Salary($) Bonus($) sation($) ($) SARs(#) ($) sation($) - ----------------------------------------------------------------------------------------------------------------------------- Frederick A. Moran(2) 1998 $40,625.05(3) - - - - - - Chief Executive 1997 - - - - - - - Officer, Chief 1996 - - - - - - - Financial Officer, Chairman and Director of the Company - ----------------------------------------------------------------------------------------------------------------------------- Dr. James C. Roberts(4) 1998 $41,666.72(3) - - - - - $ 12,550(5) Deputy Chairman, 1997 - - - - - - - Chief Operating 1996 - - - - - - - Officer and Director of the Company - ----------------------------------------------------------------------------------------------------------------------------- Charles W. Mulloy(6) 1998 $33,333.36(3) - - - 60,000(7) - - Vice President, 1997 - - - - - - - Corporate 1996 - - - - - - - Development, of the Company - ----------------------------------------------------------------------------------------------------------------------------- Graham F. Lacey(8) 1998 $42,367.37(3) - - $760,937.50(9) 45,000(10) - - Former Chief 1997 $35,257 - - - - - $352,860(11) Executive 1996 $45,000 - - $117,500(12) - - - Officer, President, and Director of the Company =============================================================================================================================
31 - ---------- (1) Based upon the fiscal years ending June 30, 1998, 1997 and 1996. (2) Mr. Moran became Chief Executive Officer, Chief Financial Officer, Chairman, and Director of the Company in March 1998 in connection with the Sky King Acquisition. Mr. Moran was neither an officer nor a director of the Company prior to the Sky King Acquisition. (3) Reflects compensation for partial year employment. (4) Dr. Roberts became Deputy Chairman, Chief Operating Officer, and Director of the Company in March 1998 in connection with the Sky King Acquisition. Dr. Roberts was neither an officer nor a director of the Company prior to the Sky King Acquisition. (5) Represents house rental payments paid by the Company for Dr. Roberts. The Company does not anticipate making any further rental payments on behalf of Dr. Roberts. (6) Mr. Mulloy became Vice President Corporate Development of the Company on February 1, 1998. Mr. Mulloy was not an officer of the Company prior to February, 1998. (7) The Company granted Mr. Mulloy options to purchase 10,000 shares of Company Common Stock on February 1, 1998. The Company granted Mr. Mulloy options to purchase 50,000 shares of Company Common Stock on September 2, 1998. Additional information regarding these stock option grants is contained in the "Option/SAR Grants in Last Fiscal Year" table below. (8) Mr. Lacey resigned as Chief Executive Officer, President and Director of the Company in connection with the Sky King Acquisition. (9) On March 2, 1998, the Company issued 25,000 shares of Company Common Stock to Mr. Lacey as compensation for his services rendered to the Company as a Director. Said shares were valued at $135,937.50 based upon a closing price of the Company Common Stock on March 2, 1998 of $5.4375 per share. On July 1, 1997, the Company issued 28,000 shares of Company Common Stock to Mr. Lacey as compensation for his services rendered to the Company as a Director. Said shares were valued at $131,250 based upon a closing price of the Company Common Stock on July 1, 1997 of $4.6875 per share. On July 31, 1997, the Company issued 100,000 shares of Company Common Stock to Mr. Lacey as compensation for his services rendered to the Company as a Director. Said shares were valued at $493,750 based upon a closing price of the Company Common Stock on July 31, 1997 of $4.9375 per share. (10) The Company granted Mr. Lacey warrants to purchase 45,000 shares of Company Common Stock on March 7, 1998. Additional information regarding this warrant grant is contained in the "Option/SAR Grants in Last Fiscal Year" table below. (11) Includes $60,000 applied towards the exercise of warrants during the year, $17,680 of waived accrued interest on a $340,000 note, and $275,000 which represents the difference between market value ($5.75) and exercise price ($3.00) on 100,000 options granted to Mr. Lacey, which were subsequently exercised. (12) The Company issued 20,000 shares of Company Common Stock to Mr. Lacey on June 28, 1996 valued at $117,500, as set forth in the Company's Form 20-F filed with the SEC for the Company's fiscal year ended June 30, 1997. 32
- --------------------------------------------------------------------------------------------------------------------------- Option/SAR Grants in Last Fiscal Year - --------------------------------------------------------------------------------------------------------------------------- Individual Grants - --------------------------------------------------------------------------------------------------------------------------- Potential Potential Realizable Realizable Value at Value at Assumed Assumed Annual Number of % of Total Annual Rates of Rates of Stock Securities Options/SARs Stock Price Price Underlying Granted to Exercise or Appreciation for Appreciation for Options/SARs Employees in Base Price Expiration Option Term Option Term Name Granted (#) Fiscal Year ($/Share) Date 5% 10% - --------------------------------------------------------------------------------------------------------------------------- Charles W. Mulloy 10,000(1) 4.3%(2) $5.00 02/01/08 31,444.50 79,687 - --------------------------------------------------------------------------------------------------------------------------- Charles W. Mulloy 50,000(1) 1.6%(2) $5.75 09/02/08 180,805.87 458,200.25 - --------------------------------------------------------------------------------------------------------------------------- Graham F. Lacey 45,000(3) 19.4%(2) $5.00 08/30/98(4) 23,062.50(5) 47,250(5) - ---------------------------------------------------------------------------------------------------------------------------
(1) The options vest in equal installments over five years commencing on the first anniversary of the date of grant. The options are exercisable upon vesting. (2) Based upon an aggregate of 231,500 options (186,500) and warrants (45,000) granted to employees during Fiscal 1998. (3) The warrants are exercisable upon issuance. (4) The Company extended the expiration date of the warrants from August 30, 1998 to the date that is 30 days following the effective date of a registration statement registering the resale of the shares issuable upon the exercise of the warrants. (5) Assumes the warrants will expire within two years of grant. However, there can be assurance that a registration statement registering the resale of the shares issuable upon the exercise of the warrants will become effective within said two years.
- ------------------------------------------------------------------------------------------------------------------ Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year End Option/SAR Values - ------------------------------------------------------------------------------------------------------------------ Number of Securities Value of Unexercised Underlying Unexercised In-the-Money Options/SARs Options/SARs at FY-End(#) at FY-End($) Shares Acquired Value Exercisable/ Exercisable/ Name on Exercise(#) Realized($) Unexercisable Unexercisable(1) - ------------------------------------------------------------------------------------------------------------------ Charles W. Mulloy 0 0 0(E)/10,000(U) 0(E)/$31,250(U) - ------------------------------------------------------------------------------------------------------------------ Charles W. Mulloy 0 0 0(E)/50,000(U) 0(E)/$118,750(U) - ------------------------------------------------------------------------------------------------------------------ Graham F. Lacey 0 0 45,000(E)/0(U) $140,625(E)/0(U) - ------------------------------------------------------------------------------------------------------------------
(1) Based upon the closing price for Company Common Stock as reported on the NASDAQ OTC Bulletin Board for June 30, 1998 of $8.125 per share. Effective July 7, 1998, the Company Common Stock commenced trading on the American Stock Exchange, Inc. Director's Compensation As compensation for their service to the Company, outside Directors are granted options to purchase the Company's Common Stock. Other than the stock options granted to outside Directors, Directors do not receive a salary, payment or reimbursement of any kind for their service to the Company. By way of illustration, Directors are not reimbursed for out-of-pocket expenses incurred in the performance of Company duties, nor are they compensated for attending meetings of the Company's Board of Directors, whether by telephone or in person. On July 8, 1998, in connection with his service as Director, the Company issued to Dr. Hussein Elkholy stock options to purchase 25,000 shares of Company Common Stock at an exercise price of $7.625 per share. The options vest in equal installments over five years commencing on the first anniversary of the date of grant and are contingent upon continued service as a member of the Company's Board of Directors. On March 2, 1998, the Company issued 25,000 shares of Company Common Stock to Mr. Graham F. Lacey as compensation for his services rendered to the Company as a Director. Said shares were valued at $135,937.50 based upon a closing price of the Company Common Stock on March 2, 1998 of $5.4375 per share. On July 31, 1997, the Company issued 100,000 shares of Company Common Stock to Mr. Lacey as compensation for his services rendered to the Company as a Director. Said shares were valued at $493,750, based upon a closing price of the Company Common Stock on July 31, 1997 of $4.9375 per share. Mr. Lacey received these shares prior to the change in management accompanying the Sky King Acquisition and the adoption of the current management's director's compensation policy. On July 1, 1997, the Company issued 28,000 shares of Company Common Stock to Mr. Lacey as compensation for his services rendered to the Company as a Director. Said shares were valued at $131,250 based upon a closing price of the Company Common Stock on July 1, 1997 33 of $4.6875 per share. Mr. Lacey received these shares prior to the change in management accompanying the Sky King Acquisition and the adoption of the current management's director's compensation policy. Employment Arrangements The Company has employment agreements with Messrs. Moran and Mulloy and Dr. Roberts. Mr. Moran's annual salary is $125,000. Mr. Mulloy's annual salary is $100,000. Dr. Roberts' annual salary is $125,000. Mr. Moran and Dr. Roberts are employed for an initial term of five years, commencing March, 1998, with successive year-to-year renewals in the event that neither they nor the Company elect to terminate the agreement after the initial term. Mr. Mulloy is employed for an initial term of two years commencing February 1, 1998 with successive year-to-year renewals in the event that neither he nor the Company elects to terminate the agreement after the initial term. The employment agreements of Messrs. Moran and Mulloy and Dr. Roberts contain non-competition and non-solicitation provisions which survive their actual employment for a term of one year. Mr. Mulloy has been granted options to purchase an aggregate of 60,000 shares of Company Common Stock in connection with his employment agreement. See "SUMMARY COMPENSATION TABLE and Option/SAR Grants in Last Fiscal Year Table." Stock Option Plan The Company does not currently have a stock option plan. However, VDC Communications has recently adopted a Stock Option Plan. In the event the Domestication Merger is consumated, officers, directors and employees of the Company will be eligible to participate in said Stock Option Plan. Compensation Interlocks and Insider Participation in Compensation Decisions Mr. Frederick A. Moran and Dr. James C. Roberts have served as executive officers and directors since March 1998. See "ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY." As directors they participate in the Board of Director's administration of the Company's executive compensation policies. In March 1998, the employment agreements between the Company and Mr. Moran and Dr. Roberts were negotiated and entered into in connection with the Sky King Acquisition. Moreover, during Fiscal 1998, Mr. Moran and Dr. Roberts were involved in certain related party transactions. See "ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." Mr. Graham F. Lacey served as Chairman and Director of the Company until his resignation in March 1998 in connection with the Sky King Acquisition. See "ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY." Comparison of 5 Year Cumulative Total Returns The following Performance Graph sets forth the Company's total stockholder return(1) as compared to: (i) the University of Chicago Graduate School of Business CRSP Total Return Index for the NASDAQ Stock Market (U.S. & Foreign) ("CRSP Index")(2), and (ii) a Peer Group selected on the Basis of a 3-Digit SIC Group (SIC 4810-4819 U.S. & Foreign). The table assumes that $100 was invested on June 30, 1993 in the Company's Common Stock, the CRSP Index and the peer group index, and that all dividends were reinvested. In addition, the graph weighs the peer group on the basis of its respective market capitalization, measured at the beginning of each relevant time period. 34 - ---------- (1) The Company has been involved in the telecommunications industry since only March 6, 1998. Prior to March 6, 1998 the Company was involved in other unrelated industries. See "ITEM 1. DESCRIPTION OF BUSINESS." The Peer Group reflects the Company's current SIC Group and does not reflect the Company's SIC Groups for periods prior to the Sky King Acquisition. Consequently, a comparision of the Peer Groups performance to the performance of the Company during the period March 6, 1998 to June 30, 1998 may be meaningful, however, a comparison of the Peer Groups performance to that of the Company for periods prior to the Sky King Acquisition is unlikely to be meaningful. Accordingly, the comparisions presented may not be indicative of the Company's performance. (2) The Performance Graph contains a NASDAQ index because the Company's Common Stock traded on NASDAQ through June 30, 1998. The Company's Common Stock has traded on the American Stock Exchange since July 7, 1998. Company Market Market Peer Peer Date Index Index Count Index Count - ---------- ------- ------- ------ ------- ----- 06/30/1993 100.000 100.000 4347 100.000 70 07/30/1993 77.778 100.175 4380 102.084 71 08/31/1993 88.889 105.387 4422 107.187 74 09/30/1993 111.111 108.343 4463 105.061 75 10/29/1993 133.333 110.845 4512 106.614 75 11/30/1993 127.778 107.349 4596 100.540 75 12/31/1993 144.444 110.509 4675 101.382 76 01/31/1994 111.111 114.032 4703 106.474 77 02/28/1994 77.778 112.796 4745 99.893 79 03/31/1994 111.111 105.886 4801 95.517 80 04/29/1994 111.111 104.503 4828 96.915 82 05/31/1994 66.667 104.628 4870 99.317 84 06/30/1994 66.667 100.507 4889 98.287 92 07/29/1994 55.556 102.889 4909 100.872 92 08/31/1994 38.889 109.145 4926 102.249 90 09/30/1994 105.556 108.993 4932 101.377 92 10/31/1994 77.778 110.890 4953 101.703 93 11/30/1994 55.556 107.003 4970 94.269 96 12/30/1994 50.000 107.190 4979 93.037 96 01/31/1995 41.667 107.568 4974 94.994 96 02/28/1995 38.889 113.068 4976 95.167 96 03/31/1995 50.000 116.610 4969 96.208 100 04/28/1995 50.000 120.401 4984 98.460 100 05/31/1995 44.444 123.360 4986 97.916 101 06/30/1995 47.222 133.299 5009 101.587 102 07/31/1995 53.611 142.826 5031 105.913 103 08/31/1995 51.667 145.616 5055 110.890 100 09/29/1995 57.778 149.176 5054 120.663 98 10/31/1995 44.444 148.016 5099 118.990 99 11/30/1995 44.444 151.478 5134 122.749 99 12/29/1995 50.000 150.551 5182 127.074 98 01/31/1996 52.222 151.570 5175 129.120 98 02/29/1996 52.222 157.525 5207 125.021 103 03/29/1996 52.222 157.858 5252 122.913 103 04/30/1996 63.889 170.760 5298 126.645 104 05/31/1996 75.556 178.541 5354 127.320 107 06/28/1996 80.000 170.093 5420 126.985 111 07/31/1996 77.778 154.729 5458 116.160 113 08/30/1996 73.333 163.594 5489 115.928 113 09/30/1996 65.556 175.864 5496 119.412 115 10/31/1996 67.778 173.991 5544 118.490 118 11/29/1996 55.556 184.576 5595 127.015 122 12/31/1996 46.667 184.314 5599 129.954 122 01/31/1997 52.222 197.559 5588 133.590 122 02/28/1997 52.222 186.988 5603 136.139 126 03/31/1997 45.556 174.898 5611 125.764 126 04/30/1997 33.333 180.125 5594 130.387 122 05/30/1997 30.000 200.468 5589 142.299 122 06/30/1997 37.778 206.689 5573 149.243 123 07/31/1997 43.889 228.252 5571 156.198 124 08/29/1997 44.444 227.673 5562 148.526 125 09/30/1997 40.556 241.921 5549 164.887 127 10/31/1997 50.000 228.868 5563 169.967 133 11/28/1997 45.556 229.341 5588 183.479 135 12/31/1997 45.556 225.422 5543 190.091 133 01/30/1998 45.556 232.225 5515 202.756 132 02/27/1998 45.556 254.344 5498 211.683 135 03/31/1998 90.554 264.056 5459 237.151 135 04/30/1998 110.336 268.643 5439 235.753 137 05/29/1998 98.174 254.336 5431 227.064 142 06/30/1998 112.970 270.628 5409 241.492 145 35 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information regarding the beneficial ownership of the Company Common Stock as of September 16, 1998 with respect to: (i) each person known by the Company to beneficially own 5% or more of the outstanding shares of Company Common Stock; (ii) each of the Company's directors; (iii) each of the Company's executive officers; and (iv) all directors and executive officers of the Company as a group. Except as otherwise indicated, each person set forth below has sole voting and investment power on the shares reported. Amount and Nature of Percent Name and Address of Beneficial Owner Beneficial Ownership(1) of Class - ------------------------------------ ----------------------- -------- Frederick A. Moran 2,849,150(2) 14.0% 75 Holly Hill Lane Greenwich, CT 06830 Roberts Family Trust 2,750,000 13.5% Dr. James C. Roberts, Trustee 75 Holly Hill Lane Greenwich, CT 06830 Dr. Hussein Elkholy 0(3) - 781 Oneida Trail Franklin Lakes, NJ 07417 Charles W. Mulloy 0(4) - 75 Holly Hill Lane Greenwich, CT 06830 Clayton F. Moran 1,422,850(5) 7.0% 75 Holly Hill Lane Greenwich, CT 06830 Frederick W. Moran 1,522,850(6) 7.5% 230 Park Avenue 13th Floor New York, NY 10169 PortaCom Wireless, Inc. 5,300,000(7) 26.1% 10061 Talbert Avenue Suite 200 Fountain Valley, CA 92708 All officers and directors of 7,022,000 34.6% VDC as a group (5 persons) 36 - ---------- (1) The securities "beneficially owned" by an individual are determined in accordance with the definition of "beneficial ownership" set forth in the regulations promulgated under the Securities Exchange Act of 1934, and, accordingly, may include securities owned by or for, among others, the spouse and/or minor children of an individual and any other relative who has the same home as such individual, as well as other securities as to which the individual has or shares voting or investment power or which each person has the right to acquire within 60 days of September 16, 1998 through the exercise of options, or otherwise. Beneficial ownership may be disclaimed as to certain of the securities. This table has been prepared based on 20,298,362 shares of common stock, par value $.0001 per share of VDC Communications ("VDC Communications Common Stock") outstanding after the consummation of the Domestication Merger (including the 11,810,862 shares presently outstanding, 3,987,500 shares issuable upon conversion of the Series A Convertible Preferred Stock of VDC Communications, par value $.0001 per share ("Series A Stock") and 4,500,000 shares issuable upon conversion of the Series B Stock). (2) Includes 219,184 shares owned directly by Mr. Moran as well as 2,629,966 shares owned, directly or indirectly, by Mr. Moran's minor children, whose ownership is attributed to Mr. Moran. The 2,849,150 cited in the table above includes 45,468.5 shares of Series A Stock and 37,201.5 shares of Series B Stock owned in the name of Frederick A. Moran and Joan B. Moran, husband and wife. Also includes 717,557.5 shares of Series A Stock and 587,092.5 shares of Series B Stock owned by of Kent F. Moran and 717,557.5 Shares of Series A Stock and 587,092.5 shares of Series B Stock owned by Luke F. Moran, both of whom are minor children of Frederick A. Moran. Does not include 51,250 shares beneficially owned by Mr. Moran's mother. Also, does not include 1,522,850 shares beneficially owned by Frederick W. Moran and 1,422,850 shares beneficially owned by Clayton F. Moran, both of whom are Mr. Moran's adult children. (3) Does not include options to purchase 25,000 shares of Company Common Stock which may vest on and after July, 1999. (4) Does not include options to purchase 60,000 shares of Company Common Stock which may vest on and after January 31, 1999. (5) An adult son of Frederick A. Moran and employed as Vice-President Finance of the Company. Includes 782,567.5 shares of Series A Stock and 640,282.5 shares of Series B Stock. Does not include options to purchase 10,000 shares of Company Common Stock which may vest on and after June 1, 1999. (6) An adult son of Frederick A. Moran. Includes 782,567.5 shares of Series A Stock and 640,282.5 shares of Series B Stock. (7) All of these shares were issued in connection with the acquisition of certain securities from PortaCom Wireless, Inc. ("PortaCom") and in conjunction with a Plan of Reorganization submitted by PortaCom in its pending Chapter 11 bankruptcy proceedings. Certain of these shares may be returned to the Company for surrender and cancellation based upon settlements between PortaCom and its creditors in its bankruptcy proceedings. These shares are subject to certain limitations upon resale and redistribution requirements. 37 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Private Placement Through Securities Purchase Agreements dated May 27, 1998, the Company issued 583,430 shares of Company Common Stock in a non-public offering pursuant to Section 4(2) and Regulation D of the Act, including 308,430 shares of Company Common Stock to certain affiliates and family members of Frederick A. Moran as follows: Shareholder Number of Shares Price Per Share - ----------- ---------------- --------------- Moran Equity Fund, Inc.(1) 27,000 $6.00 Luke Moran(2) 10,000 $6.00 Kent Moran(3) 10,000 $6.00 Frederick A. Moran, IRA(4) 85,667 $6.00 Anne Moran, IRA(5) 11,667 $6.00 Anne Moran, Trust 250 $6.00 Frederick A. Moran, Trust 180 $6.00 Kent Moran, IRA 333 $6.00 Luke Moran, IRA 333 $6.00 Frederick A. Moran & Joan B. Moran(6) 23,667 $6.00 Frederick W. Moran 100,000 $6.00 Anne Moran 39,333 $6.00 Total 308,430 - ---------- (1) The Moran Equity Fund, Inc. (the "Fund") is a mutual fund with two shareholders: Frederick A. Moran and Kent Moran, a minor child of Frederick A. Moran. Frederick A. Moran owns an interest exceeding 99% in the Fund. Kent Moran owns an interest of less than 1% in the Fund. (2) Luke Moran is a minor child of Frederick A. Moran. (3) Kent Moran is a minor child of Frederick A. Moran. (4) Frederick A. Moran is the Chairman, Chief Executive Officer, Chief Financial Officer and Director of the Company. (5) Anne Moran is Frederick A. Moran's mother. (6) Joan B. Moran is Frederick A. Moran's wife. Domestication Merger On September 9, 1998, VDC Communications filed a Registration Statement with the Securities and Exchange Commission on Form S-4. The S-4 was filed to register securities to be issued in connection with the merger of the Company with and into VDC Communications. Prior to filing the S-4, and as documented 38 in the S-4, the Board of Directors of both the Company and VDC Communications approved the Domestication Merger and decided to recommend the Domestication Merger to their respective members and shareholders. In considering this recommendation, it should be noted that certain members of the management and Boards of Directors of the Company and VDC Communications, among others, have interests in the Domestication Merger that are in addition to the interests of the members and stockholders. Upon the consummation of the Domestication Merger, all of the outstanding shares of Company Common Stock, as well as shares of Series A Stock and Series B Stock, will automatically convert, on a share-for-share basis, into shares of VDC Communications Common Stock. Upon the consummation of the Domestication Merger, Mr. Frederick A. Moran, Chairman, Chief Executive Officer, Chief Financial Officer and a Director of the Company and President, Chief Financial Officer and a Director of VDC Communications, together with his spouse and minor children, will receive 2,849,150 shares of VDC Communications Common Stock; a trust for the benefit of Dr. James C. Roberts, Deputy Chairman and Chief Operating Officer and a Director of the Company and Chief Operating Officer and a Director of VDC Communications, and his family will receive 2,750,000 shares of VDC Communications Common Stock; and Clayton F. Moran, Vice President of Finance of the Company, will receive 1,422,850 shares of VDC Communications Common Stock. Even absent the consummation of the Domestication Merger, however, the terms of the Series A and Series B Stock nevertheless permit conversion into shares of Company Common Stock on a share-for-share basis commencing March 6, 1999. Earn Out of Preferred Stock On August 31, 1998, the Board of Directors of the Company determined that the performance criteria set forth in the Escrow Agreement, dated as of March 6, 1998, entered into by and among the Company, VDC Communications and Sky King Connecticut (the "Sky King Connecticut Escrow Agreement") had been satisfied such that the 3,900,000 shares of Series B Stock remaining in escrow had been earned out. The Board of Directors had previously determined in May, 1998 that 600,000 shares of Series B Stock had been earned out based on the performance criteria set forth in the Sky King Connecticut Escrow Agreement. Conversion of Preferred Stock In June, 1998, with the approval of the respective Boards of Directors of the Company and VDC Communications, 1,512,500 shares of Series B Stock owned by The Roberts Family Trust were converted into 1,512,500 shares of Company Common Stock. The beneficiaries of The Roberts Family Trust are Dr. James C. Roberts, the Chief Operating Officer and a Director of the Company, and his spouse and children. Securities Issued to Director and Former Directors On July 8, 1998, in connection with his service as Director, the Company issued to Dr. Hussein Elkholy stock options to purchase 25,000 shares of Company Common Stock, who, at that time was a member of the Company's Board of Directors. 39 On March 7, 1998, the Company issued warrants to purchase 45,000 shares of Company Common Stock to Mr. Graham Ferguson Lacey, who, at that time, served as the Company's Chairman and was a member of the Company's Board of Directors. On March 2, 1998, the Company issued 25,000 shares of Company Common Stock to Mr. Lacey, who, at that time, served as the Company's Chairman and was a member of the Company's Board of Directors. On March 2, 1998, the Company issued warrants to purchase 10,000 shares of Company Common Stock to Mr. Robert Alexander, who, at that time, served as the Company's Deputy Chairman and was a member of the Company's Board of Directors. On July 31, 1997, the Company issued 100,000 shares of Company Common Stock to Mr. Lacey, who, at that time, served as the Company's Chairman and was a member of the Company's Board of Directors. On July 1, 1997, the Company issued 28,000 shares of Company Common Stock to Mr. Lacey, who, at that time, served as the Company's Chairman and was a member of the Company's Board of Directors. Options Issued to Officer On September 2, 1998, the Company issued options to purchase 50,000 shares of Company Common Stock to Mr. Charles W. Mulloy, who, at that time, served as the Company's Vice President, Corporate Development. On February 1, 1998, the Company issued options to purchase 10,000 shares of Company Common Stock to Mr. Charles W. Mulloy, who, at that time, served as the Company's Vice President, Corporate Development. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K A. Financial Statements filed as part of this Report: Auditors' Report of BDO Seidman LLP, Independent Auditors, on Company's Consolidated Financial Statements for the fiscal years ending June 30, 1998 and 1997 and the period January 3, 1996 (inception) to June 30, 1996. Consolidated Balance Sheets of the Company as at June 30, 1998 and 1997 Consolidated Statements of Operations of the Company for the fiscal years ended June 30, 1998 and 1997 and the period January 3, 1996 (inception) to June 30, 1996. 40 Consolidated Statements of Cash Flows of the Company for the fiscal years ended June 30, 1998 and 1997 and the period January 3, 1996 (inception) to June 30, 1996. Consolidated Statements of Stockholders' Equity of the Company for the fiscal years ended June 30, 1998 and 1997 and the period January 3, 1996 (inception) to June 30, 1996. Notes to Consolidated Financial Statements of the Company B. The following Exhibits are filed as part of this Report:
Exhibit No. Description Method of Filing - ----------- ----------- ---------------- 2.1 Amended and Restated Agreement and Plan of Merger, dated as of December 10, 1997, by and among VDC Corporation Ltd., VDC Communications, Inc. (formerly known as VDC (Delaware), Inc.) and Sky King Communications, Inc. (1) 2.2 Amendment to Amended and Restated Agreement and Plan of Merger, dated as of March 6, 1998, by and among VDC Corporation Ltd., VDC Communications, Inc. (formerly known as VDC (Delaware), Inc.) and Sky King Communications, Inc. (1) 2.3 Certificate of Merger of Sky King Communications, Inc. into VDC Communications, Inc. (formerly known as VDC (Delaware), Inc.) (1) 3.1 Memorandum of Association, as amended (2) 3.2 Bye-laws, as amended (2) 4.1 Certificate of Designation, Preferences and Rights of Series A Convertible Preferred Stock. (1) 4.2 Certificate of Designation, Preferences and Rights of Series B Convertible Preferred Stock. (1) 4.3 Specimen of Common Stock Certificate (2) 4.4 Specimen of Series A Convertible Preferred Stock Certificate (1) 4.5 Specimen of Series B Convertible Preferred Stock Certificate (1) 10.1 Purchase Agreement, dated as of July 31, 1998, by and among VDC Corporation Ltd., Masatepe Communications U.S.A., L.L.C, Activated Communications Limited Partnership and Marc Graubart (2) 10.2 Bridge Loan Agreement, dated as of August 1, 1998, by and among Masatepe Communications U.S.A., L.L.C. and VDC Corporation Ltd. (2) 10.3 Bridge Note, dated as of August 1, 1998, made by Masatepe Communications U.S.A., L.L.C. in favor of VDC Corporation Ltd. (2) 10.4 Guaranty, dated as of August 1, 1998, by Activated Communications Limited Partnership to VDC Corporation Ltd. (2) 10.5 Amended and Restated Asset Purchase Agreement between VDC Corporation Ltd. and PortaCom Wireless, Inc., dated as of March 23, 1998, as amended by two Bankruptcy Court Stipulations and Orders in Lieu of Objection, dated as of April 3, 1998 and April 23, 1998, respectively (4) 10.6 Escrow Agreement by and among VDC Corporation Ltd., PortaCom Wireless, Inc., the Official Committee of Unsecured Creditors of PortaCom Wireless, Inc. and Klehr, Harrison, Harvey, Branzburg & Ellers, LLP, dated as of April __, 1998 (4) 10.7 Memorandum of Understanding, dated June 8, 1998, by and among VDC Corporation Ltd., PortaCom Wireless, Inc. and the Official Committee of Unsecured Creditors of PortaCom Wireless, Inc. (5) 10.8 Closing Escrow Agreement, dated June 8, 1998, by and among VDC Corporation Ltd., PortaCom Wireless, Inc., Metromedia China Corporation, the Official Committee of Unsecured Creditors of PortaCom Wireless, Inc. and Klehr, Harrison, Harvey, Branzburg & Ellers LLP (5) 10.9 Promissory Note, dated June 9, 1998, made by VDC Corporation Ltd. in favor of PortaCom Wireless, Inc. (5) 10.10 Assignment, dated June 8, 1998, by PortaCom Wireless, Inc. (5) 10.11 Loan Agreement, dated November 10, 1997, between VDC Corporation Ltd. and PortaCom Wireless, Inc. (5)
41 10.12 Pledge Agreement, dated November 10, 1997, between VDC Corporation Ltd. and PortaCom Wireless, Inc. (5) 10.13 Security Agreement, dated November 10, 1997, between VDC Corporation Ltd. and PortaCom Wireless, Inc (5) 10.14 Debtor-in-Possession Loan, Pledge and Security Agreement, dated March 23, 1998 between VDC Corporation Ltd and PortaCom Wireless, Inc. (5) 10.15 Waiver, dated June 8, 1998, by VDC Corporation Ltd. (5) 10.16 Asset Purchase Agreement between VDC Corporation Ltd. and Rozel International Holdings Limited, dated December 18, 1997, including Exhibits thereto (1) 10.17 Asset Purchase Agreement between VDC Corporation Ltd. and Tasmin Limited, dated February 10, 1998, including Exhibits thereto (1) 10.18 Promissory Note from HPC Corporate Services Limited, dated March 2, 1998 (1) 10.19 Employment Agreement of Frederick A. Moran, as amended (1) 10.20 Employment Agreement of Dr. James C. Roberts (1) 10.21 Employment Agreement of Charles W. Mulloy (2) 10.22 Option to Purchase 10,000 Shares Granted to Charles W. Mulloy (2) 10.23 Option to Purchase 50,000 Shares Granted to Charles W. Mulloy (2) 10.24 Registration Rights Agreements between VDC Corporation Ltd. and Charles W. Mulloy (2) 10.25 Employment Agreement of Clayton F. Moran (2) 10.26 Option to Purchase 10,000 Shares Granted to Clayton F. Moran (2) 10.27 Registration Rights Agreement between VDC Corporation Ltd. and Clayton F. Moran (2) 10.28 Director Agreement with Dr. Hussein Elkholy 10.29 Option to Purchase 25,000 Shares Granted to Dr. Hussein Elkholy (2) 10.30 Registration Rights Agreement between VDC Corporation Ltd. and Dr. Hussein Elkholy (2) 10.31 Warrant to Purchase 45,000 Shares Granted to Graham Ferguson Lacey (2) 16.1 Letter regarding change in certifying accountant (3) 21.1 Subsidiaries of Registrant (2) 27.1 Financial Data Schedule (2)
- ---------- (1) Filed as an Exhibit to Registrant's Current Report on Form 8-K, dated March 6, 1998, and incorporated by reference herein. (2) Filed herewith. (3) Filed as an Exhibit to Current Report on Form 8-K, dated May 21, 1998, as amended by Form 8-K/A, filed with the SEC on June 19, 1998, and incorporated by reference herein. (4) Filed as an Exhibit to Registrant's Form 10-Q for the quarter ended March 31, 1998, and incorporated by reference herein. (5) Filed as an Exhibit to Registrant's Current Report on Form 8-K, dated June 22, 1998, and incorporated by reference herein. C. Reports on Form 8-K Report on Form 8-K dated June 22, 1998 reporting acquisition of assets of PortaCom Wireless, Inc. Report on Form 8-K dated May 21, 1998, as amended by Form 8-K/A, filed with the SEC on June 19, 1998, reporting changes in registrant's independant public accountants. 42 VDC Corporation Ltd. and Subsidiaries Index to Financial Statements - -------------------------------------------------------------------------------- VDC Corporation Ltd. (Formerly Sky King Communications, Inc.) Consolidated Financial Statements: Report of Independent Certified Public Accountants F-2 Balance sheets F-3 Statements of operations F-4 Statements of stockholders' equity F-5 Statements of cash flows F-6 Notes to consolidated financial statements F-7 - F-23 F-1 Report of Independent Certified Public Accountants Board of Directors and Stockholders VDC Corporation Ltd. Greenwich, Connecticut We have audited the accompanying consolidated balance sheets of VDC Corporation Ltd. and subsidiaries (formerly Sky King Communications, Inc.) as of June 30, 1997 and 1998, and the related consolidated statements of operations, stockholders' equity, and cash flows for the period January 3, 1996 (inception) to June 30, 1996 and each of the two years in the period ended June 30, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of VDC Corporation Ltd. and subsidiaries at June 30, 1997 and 1998, and the results of their operations and their cash flows for the period January 3, 1996 (inception) to June 30, 1996 and each of the two years in the period ended June 30, 1998 in conformity with generally accepted accounting principles. BDO Seidman, LLP Valhalla, New York September 1, 1998 F-2 VDC Corporation Ltd. and Subsidiaries (Formerly Sky King Communications, Inc.) Consolidated Balance Sheets
================================================================================================================== June 30, June 30, 1997 1998 - ------------------------------------------------------------------------------------------------------------------ Assets Current Assets: Cash and cash equivalents $ 1,430 $ 2,212,111 Marketable securities (Note 3) -- 451,875 Notes receivable - current (Note 4) -- 2,800,000 - ------------------------------------------------------------------------------------------------------------------ Total current assets 1,430 5,463,986 Property, plant and equipment, less accumulated depreciation (Note 7) 13,570 331,316 Notes receivable, less current portion (Note 4) -- 1,500,000 Investment in MCC (Note 5) 37,790,877 Deposits (Note 7) -- 567,775 Other assets -- 169,730 - ------------------------------------------------------------------------------------------------------------------ Total assets $ 15,000 $ 45,823,684 ================================================================================================================== Liabilities and Stockholders' Equity Current Liabilities: Accounts payable and accrued expenses $ 250 $ 156,185 - ------------------------------------------------------------------------------------------------------------------ Total current liabilities 250 156,185 - ------------------------------------------------------------------------------------------------------------------ Commitments (Notes 5, 7, 11 and 13) Stockholders' equity: Convertible Preferred Stock Series A (Note 8) 550 399 Convertible Preferred Stock Series B (Note 8) -- 60 Common stock (Note 8) -- 22,923,214 Additional paid-in capital 73,331 29,417,561 Accumulated deficit (59,131) (5,323,559) Stock subscriptions receivable (Note 6) -- (1,425,951) Unrealized gain on marketable securities (Note 3) -- 75,775 - ------------------------------------------------------------------------------------------------------------------ Total stockholders' equity 14,750 45,667,499 - ------------------------------------------------------------------------------------------------------------------ Total liabilities and stockholders' equity $ 15,000 $ 45,823,684 ==================================================================================================================
See accompanying notes to consolidated financial statements. F-3 VDC Corporation Ltd. and Subsidiaries (Formerly Sky King Communications, Inc) Consolidated Statements of Operations ================================================================================
January 3, 1996 (inception) to June Year Ended Year Ended 30, 1996 June 30, 1997 June 30, 1998 - -------------------------------------------------------------------------------------------------------------- Revenue (Note 11) $ 4,850 $ 43,248 $ 99,957 - -------------------------------------------------------------------------------------------------------------- Site leasing expense (Note 11) 1,091 22,020 28,460 Selling, general and administrative 30,461 53,657 1,167,429 Noncash compensation expense (Note 9) -- -- 2,254,000 - -------------------------------------------------------------------------------------------------------------- Loss from operations (26,702) (32,429) (3,349,932) - -------------------------------------------------------------------------------------------------------------- Interest income -- -- 195,122 - -------------------------------------------------------------------------------------------------------------- Net loss $ (26,702) $ (32,429) $(3,154,810) ============================================================================================================== Net loss per common share - basic $ (.01) $ (.01) $ (.72) ============================================================================================================== Weighted average number of shares outstanding 3,699,838 3,699,838 4,390,423 ==============================================================================================================
See accompanying notes to consolidated financial statements. F-4 VDC Corporation Ltd. and Subsidiaries (Formerly Sky King Communications, Inc.) Consolidated Statements of Stockholders' Equity ================================================================================
Convertible Convertible Preferred Stock Preferred Stock Series A Series B Common Stock -------------------- -------------------- -------------------- Shares Amount Shares Amount Shares Amount - ----------------------------------------------------------------------------------------------------------------------------- Balance, January 3, 1996 - $ - - $ - - $ - Issuance of stock (Note 2) 5,500,000 550 - - - - Capital contribution - - - - - - Net loss - - - - - - - ----------------------------------------------------------------------------------------------------------------------------- Balance - June 30, 1996 5,500,000 550 - - - - Capital contribution - - - - - - Net loss - - - - - - - ----------------------------------------------------------------------------------------------------------------------------- Balance - June 30, 1997 5,500,000 550 - - - - Issuance of stock subscription receivable (Note 6) - - - - - - Reverse acquisition (Note 9) - - - - 3,698,373 7,396,724 Collections on stock subscriptions receivable - - - - - - Release of escrow shares (Note 9) - - 600,000 60 - - Issuance of common stock in connection with investment in MCC (Note 5) - - - - 4,965,828 9,931,678 Issuance of common stock - - - - 1,130,584 2,261,168 Issuance of stock for notes (Note 6) - - - - 154,322 308,644 Preferred stock conversion to common stock (1,512,500) (151) - - 1,512,500 3,025,000 Unrealized gain on marketable securities - - - - - - Net loss - - - - - - - ----------------------------------------------------------------------------------------------------------------------------- 3,987,500 $ 399 600,000 $60 11,461,607 $22,923,214 ============================================================================================================================= Unrealized Additional Stock gain on Paid-in Accumulated Subscriptions Marketable Capital Deficit Receivable Securities Total - ------------------------------------------------------------------------------------------------------------ Balance, January 3, 1996 $ $ - $ - $ - $ - Issuance of stock (Note 2) 450 - - - 1,000 Capital contribution 41,951 - - - 41,951 Net loss - (26,702) - - (26,702) - ------------------------------------------------------------------------------------------------------------ Balance - June 30, 1996 42,401 (26,702) - - 16,249 Capital contribution 30,930 - - - 30,930 Net loss - (32,429) - - (32,429) - ------------------------------------------------------------------------------------------------------------ Balance - June 30, 1997 73,331 (59,131) - - 14,750 Issuance of stock subscription receivable (Note 6) 164,175 - (164,175) - - Reverse acquisition (Note 9) (237,506) (1,105,524) (465,838) - 5,587,856 Collections on stock subscriptions receivable - - 287,800 - 287,800 Release of escrow shares (Note 9) 3,258,034 (1,004,094) - - 2,254,000 Issuance of common stock in connection with investment in MCC (Note 5) 24,686,946 - - - 34,618,624 Issuance of common stock 3,722,336 - - - 5,983,504 Issuance of stock for notes (Note 6) 775,094 - (1,083,738) - - Preferred stock conversion to common stock (3,024,849) - - - - Unrealized gain on marketable securities - - - 75,775 75,775 Net loss - (3,154,810) - - (3,154,810) - ------------------------------------------------------------------------------------------------------------ $29,417,561 $(5,323,559) $(1,425,951) $75,775 $45,667,499 ============================================================================================================
See accompanying notes to consolidated financial statements. F-5 VDC Corporation Ltd. and Subsidiaries (Formerly Sky King Communications, Inc.) Consolidated Statements of Cash Flows Increase (Decrease) in Cash and Cash Equivalents
=================================================================================================================================== Period Ended June 30, 1996 Year Ended Year Ended (since inception) June 30, 1997 June 30, 1998 - ----------------------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net loss $ (26,702) $ (32,429) $ (3,154,810) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation 1,540 3,390 6,205 Noncash compensation expense -- -- 2,254,000 Changes in operating assets and liabilities: Prepaid expenses and other assets (466) 466 122,770 Deposits -- -- (78,624) Accounts payable and accrued expenses 250 -- (8,931) - ----------------------------------------------------------------------------------------------------------------------------------- Net cash flows used by operating activities (25,378) (28,573) (859,390) - ----------------------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Purchase of investment securities -- -- (288,600) Proceeds from repayment of notes receivable -- -- 700,000 Cash paid for investment in MCC (2,799,731) Deposits on fixed assets -- -- (489,151) Fixed asset acquisition -- -- (323,951) - ----------------------------------------------------------------------------------------------------------------------------------- Net cash flows used by investing activities -- -- (3,201,433) - ----------------------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Proceeds from issuance of common stock 1,000 -- 6,271,504 Capital contribution 26,551 27,830 -- - ----------------------------------------------------------------------------------------------------------------------------------- Net cash flows from financing activities 27,551 27,830 6,271,504 - ----------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 2,173 (743) 2,210,681 Cash and cash equivalents, beginning of period -- 2,173 1,430 - ----------------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 2,173 1,430 $ 2,212,111 =================================================================================================================================== Supplemental schedule of noncash investing and financing activities: Net assets acquired in exchange for capital stock $ -- $ -- $ 5,587,856 Investment in MCC in exchange for capital stock -- -- 34,618,624 Investment in MCC in exchange for loan receivable -- -- 372,522 Stock subscription for common stock -- -- 1,083,738 Fixed assets contributed by stockholders 15,400 3,100 -- ===================================================================================================================================
See accompanying notes to consolidated financial statements. F-6 VDC Corporation Ltd. and Subsidiaries (Formerly Sky King Communications, Inc.) Notes to Consolidated Financial Statements ==================================================================================================================== 1. Organization and VDC Corporation Ltd. (formerly Sky King Communications, Inc.) (the "Company") Business Operations was incorporated in Connecticut on January 3, 1996 to engage in the international telecommunications and wireless communications businesses. 2. Significant Accounting (a) Basis of Presentation Policies On March 6, 1998 ("Effective date"), Sky King Communications, Inc. ("Sky King") entered into a merger agreement with VDC Corporation Ltd. ("VDC") and VDC (Delaware), Inc. ("Sub", a wholly-owned subsidiary of VDC). Under the agreement, all of the outstanding shares of Sky King's common stock were exchanged for Sub preferred stock convertible into up to 10 million newly issued shares of Sub common stock. Sub Preferred Stock Series A that is convertible into 5.5 million shares of Sub common stock was issued at the closing, and Sub Preferred Stock Series B convertible into the remaining 4.5 million shares of Sub common stock was placed and held in escrow pending the achievement of certain performance criteria. The Merger Agreement requires the Company to use diligent efforts to domesticate as a United States corporation within one year following the Effective Date. The domestication is anticipated to occur through the merger of the Company into the Sub (the "Domestication Merger"). Upon the occurrence of the Domestication Merger, the shares of Sub Preferred Stock issued to the former Sky King Shareholders in the Merger would automatically convert into shares of Sub Common Stock. In the event that the Domestication Merger does not occur within one year following the Effective Date, the Sub Preferred Stock would be converted for common shares of the Company (the "Company Common Shares"), on a share for share basis, resulting in the issuance of up to 10,000,000 Company Common Shares. Based upon the number of Company Common Shares outstanding as of the Effective Date, the former Sky King Shareholders would become the majority shareholders of the Company Common Shares through either the Domestication Merger or through the issuance of Company Common Shares in lieu of the Domestication Merger. Simultaneous with the merger, Sub changed its name to Sky King Communications, Inc. ("Sky King Communications, Inc."). This transaction was accounted for as a reverse acquisition whereby Sky King is the acquirer for accounting purposes. Accordingly, the historical financial statements presented are those of Sky King prior to the merger on March 6, 1998 and reflect the consolidated results of Sky King and VDC, and VDC's wholly-owned subsidiary subsequent to the merger. For periods prior to the merger, the Sky King shares outstanding have been retroactively restated to reflect the number of shares and par value of VDC (Delaware), Inc. shares received in the merger. In September 1998, Sky King Communications, Inc. changes its name to VDC Communications, Inc. (b) Cash and Cash Equivalents 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. At June 30, 1998, cash equivalents of $2,158,159 was held in money market funds.
F-7 VDC Corporation Ltd. and Subsidiaries (Formerly Sky King Communications, Inc.) Notes to Consolidated Financial Statements ==================================================================================================================== (c) Investments Investments in marketable securities are classified as available-for-sale and are reported at fair values in accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The fair values are based on quoted market prices, and any unrealized gains or losses are excluded from earnings and reported in stockholders' equity. Realized gains and losses are recorded in the income statement and the cost assigned to securities sold is based on the specific identification method. The Company's investment in MCC has been recorded under the cost method (see Note 5) (d) Property, Plant and Equipment and Depreciation Property, plant and equipment are stated at cost. Depreciation is computed over the estimated lives of the assets using the straight-line method. (e) Credit Risk Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments. The Company's cash investments are placed with high credit quality financial institutions and may exceed the amount of federal deposit insurance. (f) Principles of Consolidation The financial statements include the consolidated accounts of the company and subsidiaries with significant intercompany accounts and transactions eliminated. (g) Income Taxes Deferred income taxes are provided, when applicable, on differences between the financial reporting and income tax bases of assets and liabilities based upon statutory tax rates enacted for future periods.
F-8 VDC Corporation Ltd. and Subsidiaries (Formerly Sky King Communications, Inc.) Notes to Consolidated Financial Statements ==================================================================================================================== (h) Use of Estimates In preparing the financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the reporting period. The Investment in MCC was valued based on criteria discussed at Note 5. Actual results could differ from those estimates. (i) Financial Instruments The carrying amounts of financial instruments including cash and cash equivalents and accounts payable approximated fair value as of June 30, 1998, because of the relatively short maturity of these financial instruments. The carrying value of long-term notes receivable, including the current portion, approximated fair value as of June 30, 1998, based upon quoted market prices for similar debt issues. The Investment in MCC approximated fair value as of June 30, 1998 based on valuation criteria discussed at Note 5. (j) Loss Per Share of Common Stock During February 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 128 "Earning Per Share," which replaces the presentation of primary earnings per share ("EPS"), with basic EPS. It also requires dual presentation of basic and diluted EPS. The Company adopted SFAS 128 as of July 1, 1997. The adoption of SFAS 128 did not effect the Company's financial statement disclosures. Loss per common share-basic is computed on the weighted average number of shares outstanding. If dilutive, common equivalent shares (common shares assuming exercise of options and warrants) utilizing the treasury stock method, as well as the conversion of convertible preferred stock are considered in presenting diluted earnings per share. Diluted loss per share is not presented because the effect of the convertible securities is antidilutive. 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. If the preferred shares issued were considered to be common shares, loss per share would have been $(0.00), $(0.00) and $(0.44) for the periods ended June 30, 1996, June 30, 1997 and June 30, 1998.
F-9 VDC Corporation Ltd. and Subsidiaries (Formerly Sky King Communications, Inc.) Notes to Consolidated Financial Statements ==================================================================================================================== (k) Long-Lived Assets The Company reviews certain long-lived assets and identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. In that regard, the Company assesses the recoverability of such assets based upon estimated non- discounted cash flow forecasts. (l) Revenue and Cost Recognition Revenues are derived under sub-lease agreements for radio tower and antenna space. Revenues and the associated site-leasing costs are recognized under the terms of the operating lease agreements. (m) Recent Accounting Standards Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income," established standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, SFAS No. 130 requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be recognized under current accounting standards as components of comprehensive income and reported in a financial statement that is displayed with the same prominence as other financial statements. Statement of Financial Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and Related Information", which supersedes SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise" establishes standards for the way that public enterprises report information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial statements issued to the public. It also establishes standards for disclosures regarding products and services, geographical areas and major customers. SFAS No. 131 defines operating segments as components of an enterprise about which separate financial information is available that is evaluated regularly by management in deciding how to allocate resources and in assessing performance.
F-10 VDC Corporation Ltd. and Subsidiaries (Formerly Sky King Communications, Inc.) Notes to Consolidated Financial Statements ==================================================================================================================== Both SFAS Nos. 130 and 131 are effective for financial statements for fiscal years beginning after December 15, 1997 and require comparative information for earlier years to be restated. The adoption of SFAS No. 130 is not expected to have a material effect on the Company's financial statement disclosures. The Company is currently reviewing the effect of SFAS No. 131 but has yet been unable to fully evaluate the impact, if any, it may have on future financial statement disclosures. 3. Marketable Securities Marketable equity securities, which are available for sale are measured at fair value, with net unrealized gains and losses included as a component of stockholders' equity. Gross unrealized holding gains of $75,775 were included as changes in the component of stockholders' equity during the periods ended June 30, 1998 ($0 in 1996 and 1997). The Company uses the specific identification method to determine the cost of securities sold. 4. Notes Receivable Notes receivable which resulted from the sale of certain VDC Corporation, Ltd. investments to unrelated parties prior to the March 6, 1998 merger (Note 9) have repayment terms through September, 1999 and bear interest at 8%. The notes are with recourse against the general assets of the debtors and are collateralized by the related investments sold which consisted of its investments in private and publicly- traded companies. As of June 30, 1998, the notes receivable and related collateral consisted of the following: $3,500,000 due from Rozel International Holdings Limited, collateralized by 3,972,877 shares of netValue, Inc., notes in the aggregate principal amount of $200,000 due from netValue, 100,000 shares of Informatix, Inc., and $700,000 principal amount note due from Informatix. $800,000 due from Tasmin Limited, collateralized by 15,836,364 shares of Tamaris PLC, a note in the principal amount of $167,842 due from Silk Securities, notes receivable in the aggregate principal amount of $161,990 due from MJZ Securities Ltd., advances amounting to $119,264 due from EPSOM Investment Services and an investment in FIP Holdings, Ltd. in the aggregate amount of $330,000. Under the agreements, principal payments due under these notes are $450,000 in June 1998, $1,350,000 in February 1999, $1,000,000 in May 1999, $1,000,000 in August 1999 and $500,000 in September 1999. The borrowers have made payments of $1,000,000 since the inception of these notes, including $700,000 through June 30, 1998. Interest of $161,333 has been accrued on these notes through June 30, 1998.
F-11 VDC Corporation Ltd. and Subsidiaries (Formerly Sky King Communications, Inc.) Notes to Consolidated Financial Statements ==================================================================================================================== 5. Investment in MCC On June 8, 1998 the Company acquired from Portacom Wireless, Inc. ("PortaCom") two million shares of common stock of Metromedia China Corporation (formerly Metromedia Asia Corporation) ("MCC") and warrants to purchase four million shares of common stock of MCC at $4.00 per share. The warrants expire on September 13, 1999. 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 purchase price and number of shares under the warrant agreement are subject to adjustments based on capital changes of MCC. The investment was recorded at cost, based on the consideration given which included 4,915,828 common shares of the Company at the market value of $6.98125, the elimination of a loan receivable and accrued interest of $390,522 and $2,781,731 in cash. The Company's management has stated that they intend to raise the necessary funds to exercise the warrants. The MCC common shares and warrants represent a potential 8.7% interest in the outstanding common stock of MCC on a fully exercised basis. In connection with the MCC acquisition, the Company incurred an investment advisory fee of 50,000 common shares at $6.00 per share. 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. In connection with PortaCom's bankruptcy proceedings, the acquisition agreement provides that the Company will fund an escrow account in the amount of up to $2,682,000 (included in the $2,781,731 noted above) for the benefit of holders of priority unsecured claims and general unsecured claims against PortaCom's bankruptcy estate. The extent that the cash escrow is used by PortaCom, it will receive fewer VDC shares. The number of VDC shares that will ultimately be issued shall be the difference between 5,300,000 shares and the principal amount of the cash escrow divided by the value of the Company's stock. The escrow fund and VDC shares shall be held in escrow pending the resolution of the disputed claims against PortCom's bankruptcy estate.
F-12 VDC Corporation Ltd. and Subsidiaries (Formerly Sky King Communications, Inc.) Notes to Consolidated Financial Statements ==================================================================================================================== In the event that on the one year anniversary of the closing date of the acquisition agreement with PortaCom, MCC is a publicly held company whose shares are registered with the Securities and Exchange Commission under the securities act of 1933, the Company may be required to pay PortaCom additional purchase consideration in accordance with an agreed upon formula as follows: (MCC Market Price/$12) - (VDC Market Price/$5) X $5,000,000. 6. Stock Subscriptions In December 1997, a shareholder acquired 465.3 shares of Sky King Communications, Receivable Inc. for a note amounting to $164,175. These shares were subsequently exchanged for VDC (Delaware), Inc. Preferred Stock issued in connection with the Merger (See Note 9). The note, which bears interest at 8%, matures in December, 1999. This note has been presented as a reduction of stockholders' equity. In March 1998, prior to the merger (note 9), 253,000 shares of VDC were issued in exchange for a $632,500 note which bears interest at 8% and is due in March, 1999. The stock subscription receivable arose in connection with the merger as a component of the capital structure of VDC Corporation Ltd., which was assumed in the reverse acquisition merger. It was entered into with an unrelated third party at fair value prior to the merger. The unpaid balance at June 30, 1998 of $344,700 has been presented as a reduction of stockholders' equity. In May 1998, 583,430 shares of VDC were issued in exchange for $3,500,580. As of June 30, 1998, $917,076 had not yet been funded and has been presented as a reduction of stockholders' equity. 7. Property, Plant and Major classes of property, plant and equipment consist of the following: Equipment
June 30, June 30, 1997 1998 ----------------------------------------------------------------------------------- Long distance communication equipment $ -- $115,538 Computers and office equipment 11,900 191,219 Furniture and fixtures 6,600 34,442 ----------------------------------------------------------------------------------- 18,500 341,199 Less accumulated depreciation 4,930 9,883 ----------------------------------------------------------------------------------- $13,570 $331,316 ===================================================================================
F-13 VDC Corporation Ltd. and Subsidiaries (Formerly Sky King Communications, Inc.) Notes to Consolidated Financial Statements ==================================================================================================================== The Company had approximately $444,000 on deposit, and has additional firm purchase commitments in the amount of $946,000 for long distance communication equipment at June 30, 1998. 8. Capital Stock and Capital stock is comprised of the following: Capital Transactions
June 30, June 30, 1997 1998 ---------------------------------------------------------------------------------- Convertible Preferred Stock Series A of VDC (Delaware), Inc., non-voting, $.0001 par value, shares authorized, 5,500,000 issued, outstanding 5,500,000 at June 30, 1997 and 3,987,500 at June 30, 1998(a) $ 550 $ 399 Convertible Preferred Stock Series B of VDC (Delaware), Inc. non-voting $.0001 par value shares authorized 4,500,000 issued and outstanding 600,000 at June 30, 1998(a) -- 60 Common stock of VDC Corporation, Ltd. $2 par value, shares authorized 50,000,000, issued and outstanding 11,461,607 at June 30, 1998 $ -- $22,923,214 ================================================================================== (a) The convertible preferred stock, which is non voting, is convertible into up to 10 million newly issued shares of VDC (Delaware), Inc. common stock upon the domestication of VDC Corporation Ltd. into VDC (Delaware), Inc. If the domestication does not occur within one year of the merger (Note 9), the convertible preferred stock will be exchangeable into common stock of VDC Corporation Ltd. on a share for share basis. There are 3.9 million shares of Series B Preferred Stock held in escrow at June 30, 1998 under the merger agreement (See Note 9). In June, 1998, with the approval of the Boards of Directors of VDC and Sub, 1,512,500 shares of Convertible Preferred Stock Series A were converted into 1,512,500 shares of VDC Corporation Ltd. Common Stock. The exchange was accounted for on a share for share basis with the cumulative difference in par values reflected as an adjustment to additional paid in capital. On March 6, 1998, Sky King Communications, Inc. entered into a merger agreement with VDC Corporation Ltd. and VDC (Delaware), Inc. wherein all of the outstanding shares of Sky King Communications, Inc. were exchanged for preferred shares of VDC (Delaware), Inc. (See Note 9). For periods prior to the merger, the Sky King Communications, Inc. shares outstanding have been retroactively restated to reflect the number of shares and par value of VDC (Delaware), Inc. shares received in the merger.
F-14 VDC Corporation Ltd. and Subsidiaries (Formerly Sky King Communications, Inc.) Notes to Consolidated Financial Statements ==================================================================================================================== On March 31, 1998, the Company sold 100,000 shares of common stock at $5.50 and on March 24, 1998, 600,000 shares of common stock at $4.75, each to unrelated investors for total cash consideration of $3,400,000 less an investment fee of $85,500. The 600,000 shares have not been issued, but for financial statement purposes such shares have been treated as if they had been issued and outstanding. During the year ended June 1998, the Company issued options to purchase an aggregate of 61,500 common stock shares of VDC Corporation, Ltd. for prices ranging from $5.00 to $6.00 per share. 9,000 of these options vest immediately. The remaining options vest over five years. All the options expire after ten years. At June 30, 1998, the Company had outstanding warrants to acquire an aggregate of 938,546 shares of common stock at prices ranging from $4.00 to $5.00. These warrants were issued prior to the March 6, 1998 merger in connection with obligations arising prior to that date. The warrants were assumed by Sky King in the merger. The warrants originally were to expire in August 1998. At that date, they were extended until 30 days following the effective date of a registration statement for the underlying common stock. In May, 1998 the Company sold 275,000 shares of common stock to unrelated investors and 308,430 shares to the Chief Executive Officer and his family for $6.00 per share less an investment banking fee of $31,500. These shares have not been issued, but for financial statement purposes such shares have been treated as if they had been issued and outstanding. In June 1998, the Company issued to escrow 5,300,000 shares of common stock for PortaCom in exchange for the investment in MCC (See Note 5). 4,915,828 shares have been reflected as outstanding under the agreement as of June 30, 1998. In addition, as of June 30, 1998 50,000 common shares representing an investment advisory fee had not been issued, but for financial statement purposes such shares have been treated as if they had been issued and outstanding. The Company is obligated to pay investment banking fees in connection with the merger in an aggregate amount equal to 5% of the total merger consideration or 444,852 common shares of VDC Corporation, Ltd. (Note 9). The issuance of the shares is subject to the satisfaction of certain contingencies relating to the collection of stock subscriptions receivable existing at the date of merger which have not yet been satisfied. Upon issuance, the shares will be accounted for as an additional cost of acquiring the net monetary assets of VDC Corporation, Ltd. This will result in the recognition of the shares at the fair value as of the date of the merger ($2.50 a share) and a corresponding increase in accumulated deficit.
F-15 VDC Corporation Ltd. and Subsidiaries (Formerly Sky King Communications, Inc.) Notes to Consolidated Financial Statements ==================================================================================================================== 9. Merger On March 6, 1998, Sky King Communications, Inc. entered into a merger agreement with VDC Corporation Ltd. and VDC (Delaware), Inc. (See Note 2). This transaction is being accounted for as a reverse acquisition whereby Sky King is the acquirer for accounting purposes. Since the assets and liabilities of VDC Corporation Ltd. acquired were monetary in nature, the merger has been recorded at the value of the net monetary assets. VDC Corporation Ltd. operated as an investment company prior to the merger. Its assets and liabilities consisted of cash, notes receivable, investments in and advances to PortaCom and accounts payable. Operations of VDC Corporation Ltd. consisted of the management of its investments. 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 Sub (the "Sub Preferred Stock") which is convertible, in the aggregate, into 10,000,000 shares of common stock of Sub (the "Sub Common Stock"). Of the consideration paid to the Sky King Shareholders, Sub Preferred Stock convertible in the aggregate into 4,500,000 shares of Sub Common Stock (the "Escrow Shares") was placed in escrow to be held and released from time to time as the Sub achieves certain performance criteria described below. To the extent that any of the Escrow Shares have not been released at the expiration of an escrow period of five (5) years (the "Escrow Period"), the remaining Escrow Shares shall be surrendered to the Company for cancellation. The historical financial statements presented are those of Sky King prior to the merger and reflect the consolidated results of Sky King and VDC, and VDC's wholly-owned subsidiaries subsequent to the merger. Pro forma unaudited consolidated results of operations as if the merger had taken place as of July 1, 1996, rather than at March 6, 1998 are as follows: Years ended June 30, ------------------------------ 1997 1998 ---------------------------------------------------------------------------------- Revenue $43,248 $99,957 Loss before extraordinary items (1,205,416) (4,764,998) Net loss (1,637,691) (4,764,998) Net loss per common share - basic (.44) (1.06) ==================================================================================
F-16 VDC Corporation Ltd. and Subsidiaries (Formerly Sky King Communications, Inc.) Notes to Consolidated Financial Statements ==================================================================================================================== Escrow shares will be released to the Sky King shareholders from time to time in accordance with the following schedule: Number of Shares to be Released(1) Performance Criteria ---------------------------------------------------------------------------------- 500,000 Upon each procurement of one or more frequency, operating and/or business licenses ("Licenses") to provide the following types of services (the "Services") to an aggregate minimum population of 500,000 people: wireless or wired telephony, local loop telephony, and in country long distance telephony services, international long distance telephony gateways or internet service provision; plus 100,000 for each 100,000 people in excess of the aggregate minimum population of 500,000 covered by the Licenses. ---------------------------------------------------------------------------------- 500,000 The provision of billing services at an average rate of 100,000 bills per month for a consecutive three month period. ---------------------------------------------------------------------------------- 100,000 Upon each procurement of $1,000,000 of appropriate financing for the provision of Services or for capital expenditures or other expenses associated with the Services; or procurement of $200,000 of appropriate financing for the provision of paging services or for capital expenditures or other expenses associated with the provision of paging services. ---------------------------------------------------------------------------------- 100,000 Upon each procurement of one or more for Licenses to provide paging services an aggregate minimum population of 500,000 people; plus 100,000 for each 100,000 people in excess of the aggregate minimum population of 500,000 covered by the Licenses. ================================================================================== (1) The aggregate number of shares of Sub Common Stock (or if the Domestication Merger does not occur with in one year after the Effective Date, the VDC Common Shares) to be released resulting from the conversion of Escrow Shares. During the year ended June 30, 1998, 600,000 shares were released from escrow. Of the 600,000 shares released, 415,084 shares were considered to be compensatory resulting in noncash compensation of $2,254,000 based on the fair value of the Company's common stock when released. Compensatory shares are related to members of the Company's management, their family trusts and minor children and two employees. Noncompensatory shares released related to former Sky King shareholders who are neither employee shareholders nor 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. The future release of escrow shares which are considered compensatory could have a significant impact on the Company's future operating results.
F-17 VDC Corporation Ltd. and Subsidiaries (Formerly Sky King Communications, Inc.) Notes to Consolidated Financial Statements ==================================================================================================================== 10. Income Taxes The Company has net operational loss carryforwards in the amount of approximately $900,000 at June 30, 1998 which expire in 2018. As of June 30, 1998, the Company had deferred tax assets of approximately $360,000, for which a valuation allowance has been established. Deferred income taxes result primarily from net operating loss carryforwards. 11. Leases The Company leases radio tower and antenna space under various operating leases. The future remaining minimum lease payments under these leases are as follows: Years ending June 30, ---------------------------------------------------------------------------------- 1999 $ 35,460 2000 35,973 2001 31,686 2002 21,307 2003 2,135 ---------------------------------------------------------------------------------- Total $126,561 ================================================================================== The Company sub-leases the radio tower and antenna space with future remaining minimum lease payments due to the Company as follows: Years ending June 30, ---------------------------------------------------------------------------------- 1999 $ 72,709 2000 83,519 2001 41,361 2002 15,159 ---------------------------------------------------------------------------------- Total $212,748 ==================================================================================
F-18 VDC Corporation Ltd. and Subsidiaries (Formerly Sky King Communications, Inc.) Notes to Consolidated Financial Statements ==================================================================================================================== 11. Lease (continued) The Company occupies office and equipment space and equipment pursuant to operating leases expiring through 2008. Future minimum lease payments are as follows: Year ending June 30, ---------------------------------------------------------------------------------- 1999 $ 935,213 2000 953,803 2001 959,678 2002 965,181 2003 970,590 Thereafter 1,036,702 ---------------------------------------------------------------------------------- $5,821,167 ================================================================================== Rent expense for the years ended June 30, 1998 and 1997 and period ended June 30, 1996 was not material to the financial statements. 12. Stock Option Plans The Company granted 61,500 stock options during the year ended June 30, 1998. All stock options have been granted to employees at exercise prices equal to the market value on the date of the grant. The Company applies APB Opinion 25, "Accounting for Stock Issued to Employees" and related Interpretations in accounting for its stock option plan by recording as compensation expense the excess of the fair market value over the exercise price per share as of the date of grant. Under APB Opinion 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of the grant, no compensation cost is recognized. In September 1998, VDC Communications, Inc. established the Voice and Data Communications 1998 Stock Option Plan (the "1998 Plan"). The 1998 Plan provides for the grant of incentive stock options to purchase up to 5,000,000 shares of common stock to employees of VDC Communications, Inc. and non-qualified stock options to employees, officers, directors and consultants of VDC Communications, Inc. The 1998 Plan is administered by a committee appointed by the Board which determines the terms of the options granted, including the exercise price, the number of shares subject to option, and the option vesting period. The exercise price of all options granted under the Plan must be at least 100% of the fair market value on the date of the grant. Options generally vest in equal annual increments over a five-year period.
F-19 VDC Corporation Ltd. and Subsidiaries (Formerly Sky King Communications, Inc.) Notes to Consolidated Financial Statements ==================================================================================================================== SFAS No. 123 requires the Company to provide pro forma information regarding net loss per share as if compensation cost for the Company's stock option plan has been determined in accordance with the fair value based method prescribed in FASB 123. The Company estimates the fair value of each stock option at the grant date by using the Black-Scholes pricing model with the following weighted-average assumptions used for grants in 1998. Years ended June 30, 1998 ---------------------------------------------------------------------------------- Dividend yield 0.0% Risk free interest rate 5.6% Expected volatility 46.5% Expected lives 6 years ================================================================================== Under the accounting provisions of FASB Statement 123, the Company's net loss and net loss per share would have been adjusted to the pro forma amounts indicated below: Year ended June 30, 1998 ---------------------------------------------------------------------------------- Pro forma results Net loss: As reported $(3,154,810) Pro forma $(3,188,260) Loss per common share-basic As reported $ (0.72) Pro forma $ (0.73) ==================================================================================
F-20 VDC Corporation Ltd. and Subsidiaries (Formerly Sky King Communications, Inc.) Notes to Consolidated Financial Statements ==================================================================================================================== A summary of status of the Company's stock option plan as of June 30, 1998 and changes for the year ending June 30, 1998 is presented below: Weighted Average Exercise Stock option Plan Grants Shares Price ---------------------------------------------------------------------------------- Outstanding at June 30, 1997 -- -- Granted 61,500 $5.16 Outstanding at June 30, 1998 61,500 $5.16 ================================================================================== Options exercisable and weighted average fair-value of options granted during the year ended June 30, 1998 is shown below: ---------------------------------------------------------------------------------- Options exercisable at year-end 9,000 Weighted average exercise price $5.00 Weighted average fair value of options granted during the year $2.88 ================================================================================== The following table summarizes information about stock options outstanding at June 30, 1998. Weighted Weighted Average Average Number Remaining Exercise Range of Prices Outstanding Contractual Life Price ---------------------------------------------------------------------------------- $5 to $6 61,500 9.8 years $5.16 ================================================================================== During the initial phase-in period of SFAS 123, the effects on the pro-forma results are not likely to be representative of the effect on pro forma results in future years since options vest over several years and additional awards could be made each year.
F-21 VDC Corporation Ltd. and Subsidiaries (Formerly Sky King Communications, Inc.) Notes to Consolidated Financial Statements ==================================================================================================================== 13. Commitments Employment Agreements The Company has entered into eleven multi-year employment agreements expiring through 2003 with officers of the Company, which provide for aggregate annual base salaries as follows: Years ended June 30, ---------------------------------------------------------------------------------- 1999 $ 996,000 2000 990,000 2001 861,000 2002 269,000 2003 188,000 ---------------------------------------------------------------------------------- $3,304,000 ================================================================================== 14 Subsequent Events Asset Purchases On July 31, 1998 the Company acquired Masatepe Communications USA, L.L.C. ("Masatepe") for $1,140,043 in cash and stock. The consideration has been placed in escrow pending Federal Communications Commission approval. Masatepe provides voice and data telecommunications services between the United States and Central American markets. In addition, there may be compensation due a former 20% shareholder of Masatepe who is now a current employee of VDC that is contingent upon future cash flows (as defined) under the following formula: Cash flows of Masatepe for the twelve months prior to July 31, 2001 plus, cash flows for the three months prior to July 31, 2001 times four. This product is divided by two and multiplied by 2.4. A finders fee consisting of warrants to purchase 4,504 shares of Company common stock at $7.00 per share was issued in connection with the transaction. In July 1998, the Company entered into a preliminary agreement, which is subject to due diligence review, to acquire substantially all the assets of World Lynx, Inc. ("WL") for $3,100,000 in common stock and $500,000 in debt assumption. WL is an Internet service provider based in Little Rock, Arkansas.
F-22 VDC Corporation Ltd. and Subsidiaries (Formerly Sky King Communications, Inc.) Notes to Consolidated Financial Statements ==================================================================================================================== 15. Fourth Quarter During the fourth quarter of the year ended June 30, 1998, the Company recorded Financial Information noncash compensation expense of $1,453,000, related to the release of Preferred Series B shares from escrow (See Note 9).
F-23 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: September 28, 1998 VDC CORPORATION LTD. By: /s/ Frederick A. Moran ----------------------- Chief Executive Officer and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Form 10-K has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date /s/ Frederick A. Moran Chairman, Chief Executive September 28, 1998 - ------------------------ Officer, Chief Financial Frederick A. Moran Officer and Director /s/ Dr. James C. Roberts Chief Operating Officer September 28, 1998 - ------------------------ and Director Dr. James C. Roberts /s/ Dr. Hussein Elkholy Director September 28, 1998 - ------------------------ Dr. Hussein Elkholy
EXHIBIT INDEX Exhibit No. Description Method of Filing - ----------- ----------- ---------------- 3.1 Memorandum of Association (2) 3.2 By-Laws (2) 4.3 Certificate (2) 10.1 Purchase Agreement, dated as of July 31, 1998, by and among VDC Corporation Ltd., Masatepe Communications U.S.A., L.L.C, Activated Communications Limited Partnership and Marc Graubart (2) 10.2 Bridge Loan Agreement, dated as of August 1, 1998, by and among Masatepe Communications U.S.A., L.L.C. and VDC Corporation Ltd. (2) 10.3 Bridge Note, dated as of August 1, 1998, made by Masatepe Communications U.S.A., L.L.C. in favor of VDC Corporation Ltd. (2) 10.4 Guaranty, dated as of August 1, 1998, by Activated Communications Limited Partnership to VDC Corporation Ltd. (2) 10.21 Employment Agreement of Charles W. Mulloy (2) 10.22 Option to Purchase 10,000 Shares Granted to Charles W. Mulloy (2) 10.23 Option to Purchase 50,000 Shares Granted to Charles W. Mulloy (2) 10.24 Registration Rights Agreements between VDC Corporation Ltd. and Charles W. Mulloy (2) 10.25 Employment Agreement of Clayton F. Moran (2) 10.26 Option to Purchase 10,000 Shares Granted to Clayton F. Moran (2) 10.27 Registration Rights Agreement between VDC Corporation Ltd. and Clayton F. Moran (2) 10.28 Director Agreement with Dr. Hussein Elkholy 10.29 Option to Purchase 25,000 Shares Granted to Dr. Hussein Elkholy (2) 10.30 Registration Rights Agreement between VDC Corporation Ltd. and Dr. Hussein Elkholy (2) 10.31 Warrant to Purchase 45,000 Shares Granted to Graham Ferguson Lacey (2) 21.1 Subsidiaries of Registrant (2) 27.1 Financial Data Schedule (2)
EX-3.1 2 MEMORANDUM OF ASSOCIATION FORM NO. 7a Registration No. 17222 [SEAL] BERMUDA CERTIFICATE OF DEPOSIT OF MEMORANDUM OF INCREASE OF SHARE CAPITAL THIS IS TO CERTIFY that a Memorandum of Increase of Share Capital of VDC CORPORATION LTD. -------------------- was delivered to the Registrar of Companies on the 9th day of April, 1998 in accordance with section 45(3) of the Companies Act 1981 ("the Act"). Given under my hand this 1st day of May, 1998. /s/ Registrar --------------------------------- for Acting Registrar of Companies Capital prior to increase: US $ 12,012,000.00 ------------------ Amount of increase: US $ 89,988,000.00 ------------------ Present Capital: US $102,000,000.00 ------------------ FORM NO. 3a [SEAL] BERMUDA CERTIFICATE OF INCORPORATION ON CHANGE OF NAME I hereby certify that THE VAN DIEMEN'S COMPANY LTD. having by resolution and with the approval of the Registrar of Companies changed its name, is now registered under the name of VDC CORPORATION LTD. Given under my hand this 11th day of September 1995. [SEAL] /s/ Registrar ----------------------------- Acting Registrar of Companies FORM NO. 3a [SEAL] BERMUDA CERTIFICATE OF INCORPORATION ON CHANGE OF NAME I hereby certify that CapitalCorp Ltd. having by resolution and with the approval of the Registrar of Companies changed its name, is now registered under the name of THE VAN DIEMEN'S COMPANY LTD. Given under my hand this 12th day of May 1992. [SEAL] /s/ Registrar -------------------------- for Registrar of Companies FORM NO. 6 [SEAL] BERMUDA CERTIFICATE OF INCORPORATION I hereby in accordance with the provisions of section 14 of the Companies Act, 1981, issue this Certificate of Incorporation and do certify that on the 10th day of March 1992 CapitalCorp Ltd. was registered by me in the Register maintained by me under the provisions of the said section and that the status of the said company is that of an exempted company. Given under my hand this 10th day of March 1992. [SEAL] /s/ Registrar ---------------------- Registrar of Companies FORM NO. 2 BERMUDA THE COMPANIES ACT 1981 MEMORANDUM OF ASSOCIATION OF COMPANY LIMITED BY SHARES (Section 7(1) and (2)) MEMORANDUM OF ASSOCIATION OF CapitalCorp Ltd. - -------------------------------------------------------------------------------- (hereinafter referred to as "the Company") 1. The liability of the members of the Company is limited to the amount (if any) for the time being unpaid on the shares respectively held by them. 2. We, the undersigned, namely,
NAME ADDRESS BERMUDIAN NATIONALITY NUMBER OF STATUS SHARES (Yes/No) SUBSCRIBED William Milner "Mayflower", Yes British 1 Cox Mayflower Drive, Middle Road, Devonshire, Bermuda. Michael Llewellyn Limerston House, No British 1 Jones Trinity Church Rd., Bailey's Bay, Hamilton Parish, Bermuda. Douglas Harvey "Ridgemount" No British 1 Pullen Harrington Hundred's, Smith's, Bermuda.
do hereby respectively agree to take such number of shares of the Company as may be allotted to us respectively by the provisional directors of the Company, not exceeding the number of shares for which we have respectively subscribed, and to satisfy such calls as may be made by the directors, provisional directors or promoters of the Company in respect of the shares allotted to us respectively. 3. The Company is to be an exempted Company as defined by the Companies Act 1981. 4. The Company has power to hold land situated in Bermuda not exceeding in all, including the following parcels: None 5. The Company does not propose to carry on business in Bermuda, save as permitted by Sections 129 and 129A of The Companies Act 1981 ("the Act"). 6. The authorised share capital of the Company is US$12,000.00 divided into 120,000 shares of US$0.10 each. The minimum subscribed share capital of the Company is US$12,000.00. 7. The objects for which the Company is formed and incorporated are: 1. To carry on all or any of the business of explorers for, miners, refiners, storers, suppliers, distributors, brokers and factors of and dealers and traders in metals, ores and minerals of all kinds and oil, gas and hydrocarbon products. 2. To carry on the business of venture capitalists, promoters and financiers of and to procure capital for companies of all kinds and to subscribe for purchase, dispose of and otherwise deal in the shares, bonds and securities of such companies. 3. To carry on the business of an investment company and for that purpose to acquire and hold either in the name of the company or in that of any nominee shares, stocks, debentures, debenture stock, bonds, notes obligations and securities issued or guaranteed by any company wherever incorporated or carrying on business and debentures, debenture stock, bonds, notes, obligations and securities issued or guaranteed by any government, sovereign, ruler, commissioners, public body or authority, supreme, dependent, municipal, local or otherwise in any part of the world. 4. The objects set out in paragraphs (b) to (n) and (p) to (t) inclusive of the Second Schedule to the Act. 5. To enter into any guarantee, contract of indemnity of suretyship and to assure support or secure with or without consideration or benefit the performance of any obligations of any person or persons and to guarantee the fidelity of individuals filling or about to fill situations of trust or confidence. 8. The Company shall not have the power set out in paragraph 1 of the First Schedule to the Act. Signed by each subscriber in the presence of at least one witness attesting the signature thereof: /s/ William Milner Cox /s/ Witness - -------------------------------------- --------------------------- WILLIAM MILNER COX /s/ Michael Llewellyn Jones /s/ Witness - -------------------------------------- --------------------------- MICHAEL LLEWELLYN JONES /s/ Douglas Harvey Pullen /s/ Witness - -------------------------------------- --------------------------- DOUGLAS HARVEY PULLEN (Subscribers) (Witnesses) SUBSCRIBED this 21st day of February, 1992 FORM NO. 1a [SEAL] BERMUDA THE COMPANIES ACT 1981 CONSENT Pursuant to section 6(1) In exercise of the powers conferred upon him by section 6(1) of the Companies Act 1981,the Minister of Finance hereby gives his consent to CapitalCorp Ltd. to be registered as an exempted Company under the Companies Act 1981, subject to the provisions of the said Act. Dated this 5th day of March, 1992. /s/ David J. Saul --------------------------- Minister of Finance EX-3.2 3 BY-LAWS BYE-LAWS OF VDC CORPORATION LTD. Index
Bye-Law Subject Page - ------- ------- ---- 1 Interpretation 3 2. Registered Office 4 3. Share Rights 4 5. Modification of Rights 4 7. Shares 5 10. Certificates 5 13. Lien 6 17. Calls on Shares 7 22. Forfeiture of Shares 7 28. Register of Members 8 29 Transfer of Shares 8 33. Transmission of Shares 9 37. Transfer Agents and Registrars 10 38 Increase of Capital 10 41 Alteration of Capital 10 43. Reduction of Capital 11 45. General Meetings 11 46. Notice of General Meetings 11 47. Proceedings at General Meetings 12 62. Proxies and Corporate Representatives 13 68. Directors 14 75. Alternate Directors 15 78. Directors Fees and Remuneration 16 79. Directors Interests 16 80. Powers and Duties of Directors 17 83. Delegation of the Directors' Powers and Duties 17 86. Proceedings of the Directors 18 94 Officers 19 96. Minutes 19 97. Secretary 19 98. The Seal 20 100. Execution of Instruments 20 101. Dividends and other Payments 21 107. Reserves 22 108. Capitalisation of Profits 22 110. Record Dates for Notices 22 111. Accounting Records 23 114. Audit 23 115. Service of Notices and Other Documents 24 118. Winding up 24 119. Indemnity 24 121. Alteration of Bye-Laws 25
2 BYE-LAWS of VDC CORPORATION LTD. Interpretation 1. In these Bye-laws unless the context otherwise requires: "Bermuda" means the Islands of Bermuda; "Company" means the company incorporated in Bermuda under the name of CapitalCorp Ltd. on the 10th day of March, 1992 and the name of which was changed to The Van Diemen's Company Ltd on the 12th day of May, 1992 and which was amalgamated with Arimathaea Resources Ltd pursuant to the provisions of the Private Act on the 30th day of June, 1992 and the name of which was changed to VDC Corporation Ltd. on 10th April, 1995; "the Companies Act" means collectively The Companies Act, 1981 and every other statute governing companies and any statutory modification thereof from time to time in force in Bermuda insofar as the same apply to the Company; "the Directors" means the duly appointed Board of Directors of the Company for the time being; "Member" means a person registered in the register as a holder of shares in the Company; "Register" means the Register of Members of the Company; "Seal" means the Common Seal of the Company; "Secretary" means the person appointed to perform the duties of the Secretary of the Company and includes an acting or assistant Secretary; "In writing" and "written" include typewriting, printing, lithography, photography, and other modes of representing or reproducing works in visible form; "May" shall be construed as permissive; "The Private Act" means the Arimathaea Resources Company Act 1992; "Shall" shall be construed as imperative; "Special resolution" shall mean a resolution of the members of the Company passed with the affirmative vote of the holder of not less than ninety per cent of the issued common shares of the Company and which shares give the holder thereof the right to attend and vote at meetings of the members; 3 Words importing the singular number only include the plural number and vice versa; Words importing the masculine gender only include the feminine and neuter genders respectively; Words importing persons include companies or associations or bodies of persons, whether corporate or unincorporated; Any words or expressions defined in the Companies Acts in force at the date when these Bye-laws are adopted shall bear the same meaning in these Bye-laws. Registered Office And Meetings 2. The Registered Office shall be at such place outside the United States and United Kingdom as the Directors shall from time to time appoint. All meetings of the Directors or any Committee thereof and all General Meetings of the Members shall take place outside the United States and United Kingdom. Share Rights 3. (a) The share capital of the Company at the date of adoption of these Bye-laws is US$10,012,000 divided into 100,120,000 common shares having a par value of US$10 cents each which, subject as otherwise provided in these Bye-laws, shall rank pari passu with each other in all respects. (b) Subject to any rights conferred by these Bye-laws on the holders of any share or class of shares, and without prejudice to any special rights previously conferred on the holders of any existing shares or class of shares, any share in the Company may be issued with or have attached thereto such preferred, deferred, qualified or other special rights or such restrictions, whether in regard to dividend, voting, return of capital or otherwise, as the Company may in general meeting from time to time determine. 4. Subject to the Companies Act, any preference shares may, with the sanction of a resolution of the Members, be issued on terms: (a) that they are to be redeemed on a given date or otherwise in accordance with the terms of issue of the shares determined by the Company; and/or (b) that they are liable to be redeemed at the option of the Company; and/or, (c) if authorised by the Memorandum of Association or Incorporating Act of the Company, that they are liable to be redeemed at the option of the holder. The redemption of preference shares hereunder shall be effected on such terms and in such manner as the Members of the Company shall, before the issue of such shares, determine by way of amendment of these Bylaws. 4A. Subject to the Companies Act, 1981, the Company may from time to time purchase its own shares. Modification of Rights 4 5. Subject to the Companies Act, all or any of the special rights for the time being attached to any class of shares (unless otherwise provided by the terms of issue of the shares of that class) may from time to time (whether or not the Company is being wound up) be varied with the consent in writing of the holders of not less than fifty-one percent of the issued shares of that class or with the sanction of a resolution passed at a separate general meeting of the holders of the shares of the class. To every such separate general meeting, all the provisions of these Bye-laws relating to general meetings shall apply but so that the necessary quorum shall be two or more persons holding or representing by proxy twenty per cent of the issued shares of the class and that any holder of shares of the class present in person or by proxy may demand a poll. 6. The special rights conferred upon the holders of any class of shares shall not, unless otherwise expressly provided in the rights attaching to or the terms of issue of that class, be deemed to be altered by the creation or issue of further shares ranking pari passu therewith. Shares 7. The unissued shares of the Company shall be under the control of the Directors who may offer, allot, grant options over or otherwise dispose of them to such persons at such times and for such consideration and upon such terms and conditions as the Directors may determine provided that the Directors shall not allot or issue any shares as partly paid without the prior approval of a special resolution of the members of the Company. 8. The Directors may in connection with the issue of any shares exercise all powers of paying commission and brokerage conferred or permitted by law and may satisfy any obligation in respect of such payments in cash or by the allotment of fully paid shares or partly in one way and partly in the other. 9. (a) Subject to the provisions of the Act, the Company may treat as absolute owner of any share the person in whose name the share is registered in the Register of Members as if that person had full legal capacity and authority to exercise all rights of ownership, irrespective of any indication to the contrary through knowledge or notice or description in the Company's records or on the share certificate (b) Except as required by law no person shall be recognised by the Company as holding any share upon trust and the Company shall not be bound by or required in any way to recognise (even when having notice thereof) any equitable, contingent, future or partial interest in any share or any interest in any fractional part of a share or (except only as otherwise provided in these Bye-laws) any other right in respect of any share except an absolute right to the entirety thereof in the registered holder. Certificates 10. Subject to the Companies Act, every person to whom shares or debentures are issued by the Company as fully paid shall be entitled without payment to receive a certificate specifying the shares or debentures held. Certificates for shares shall be of such form and style, printed or otherwise, as the directors may designate, and each certificate shall state the certificate number, the date of issue, the name of the record holder, the amount paid on the shares and such other information as may be required by The Companies Act. 5 In respect of a share or shares held jointly by several persons the Company shall not be bound to issue more than one certificate and the delivery of a certificate to one of several joint holders shall be sufficient delivery to all. 11. (a) If a share certificate is worn out, defaced, mutilated, lost or destroyed it may be replaced on payment of such fee not exceeding US$3 as the Directors may from time to time determine and on such terms (if any) as to evidence and indemnity and to payment of the costs and out of pocket expenses of the Company in investigating such evidence and preparing such indemnity as the Directors may think fit and, if the old certificate is worn out, defaced or mutilated on delivery of that certificate to the Company for cancellation. (b) If the Bye-laws are amended in any way affecting the statement contained in the certificates for issued shares, or it becomes desirable for any reason to cancel any outstanding certificate for shares and issue a new certificate therefor conforming to the rights of the holder, the directors may order any holders of certificates for issued shares to surrender and exchange them for new certificates within a reasonable time to be fixed by the directors. 12. All certificates for shares, debentures or other securities of the Company shall be issued under the Common Seal of the Company and shall be signed manually or by facsimile by the President or any other director and the Secretary or by two directors. Even though an officer who signed, or whose facsimile signature has been written, printed or stamped on, a certificate for shares shall have ceased by death, resignation or otherwise to be an officer of the Company before such certificate is delivered by the Company, such certificate shall be as valid as though signed by a duly elected, qualified and authorised officer. Lien 13. Subject to the requirement for the prior approval by special resolution for the allotment and issue of any partly paid shares contained in Bye-law 7 hereof the Company shall have a first and paramount lien on every partly paid share for all moneys, whether presently payable or not, called or payable at a fixed time in respect of that share and the Company shall also have a first and paramount lien on all partly paid shares standing registered in the name of a Member, for all the debts and liabilities of that Member or his estate to the Company, whether the same shall have been incurred before or after notice to the Company of any interest of any person other than that Member and notwithstanding that the same are joint debts or liabilities of that Member or his estate and any other person, whether a member or not. The Company's lien on a partly paid share shall extend to all dividends payable thereon. The Directors shall not save with the authority of a special resolution of the members at any time waive any lien that has arisen or declare any share to be wholly or in part exempt from the provisions of this Bye-law. 14. The Company may sell, in such manner as the Directors may think fit, any partly paid share on which the Company has a lien but no sale shall be made unless some sum in respect of which the lien exists is presently payable nor until the expiration of fourteen days after a notice in writing, stating and demanding payment of the sum presently payable and giving notice of the intention to sell in default of such payment has been served on the Member or the person entitled thereto by reason of his death or bankruptcy. 15. To give effect to any such sale the Directors may authorise some person to transfer the partly paid shares sold to the purchaser thereof. The purchaser shall be registered as the holder of the shares comprised in any such transfer and he shall not be bound to see to the application of the purchase 6 money, nor shall his title to the share be affected by any irregularity or invalidity in the proceedings relating to the sale. 16. The net proceeds of sale by the Company of any shares on which it has a lien shall be applied in or towards payment or discharge of the debt or liability in respect of which the lien exists so far as the same is presently payable, and any residue shall (subject to a like lien for debts or liabilities not presently payable as existed upon the share prior to the sale) be paid to the person entitled to the shares at the date of sale. Calls on Shares 17. The Directors may not allot any shares of the Company save upon a 100 per cent call being made thereon by the terms of issue thereof and made payable at fixed times, and each Member shall (subject to the Company serving upon him at least fourteen days notice specifying the time or times and place of payment) pay to the Company at the time or times and place so specified in the amount called on his shares. A call may be revoked or postponed as the Directors may determine. 18. A call shall be deemed to have been made at the time when the resolution of the Directors authorizing the call was passed and may be required to be paid by instalments. 19. The joint holders of a share shall be jointly and severally liable to pay all calls in respect thereof. 20. If a sum called in respect of a share shall not be paid before or on the day appointed for payment thereof in the terms of issue of the same, the person from whom the sum is due shall pay interest on the sum from the day appointed for payment thereof to the time of actual payment at such rate as the Directors may determine, but in any event not less than seven per cent. 21. Any sum which by the terms of issue of a share becomes payable on allotment or at any fixed date shall for all the purposes of these Bye-laws be deemed to be a call duly made and payable on the date on which by the terms of issue the same becomes payable and, in case of nonpayment, all the relevant provisions of these Bye-laws as to payment of interest, forfeiture or otherwise shall apply as if such sum had become payable by virtue of a call duly made and notified. Forfeiture of Shares 22. If a Member fails to pay any call or instalment of a call of the day appointed for payment thereof, the Directors may at any time thereafter during such time as any part of such call or instalment remains unpaid serve a notice on him in the Form "C" in the Schedule hereto requiring payment by a date not less than 14 days from the date of the notice of so much of the call or instalment as is unpaid together with any interest which may have accrued. The Directors may accept the surrender of any share liable to be forfeited hereunder and, in such case, references in these Bye-laws to forfeiture shall include surrender. 23. If the requirements of such forfeiture notice are not complied with, any share in respect of which such notice has been given may at any time thereafter, before payment of all calls or instalments and interest due in respect thereof has been made, be forfeited by a resolution of the Directors to that effect. Such forfeiture shall include all dividends declared in respect of the forfeited shares and not actually paid before the forfeiture. 7 24. When any share shall have been so forfeited, notice of the forfeiture shall be served upon the person who was immediately before forfeiture the holder of the share and an entry of the forfeiture, with the date thereof, shall forthwith be made in the Register; but no forfeiture shall be in any manner invalidated by any omission or neglect to give such notice as aforesaid. 25. A forfeited share shall be deemed to be the property of the Company and the Directors may sell re-allot or otherwise dispose of the same upon such terms and in such manner as they shall think fit in accordance with and subject to Bye-law 7 hereof. 26. Any person whose shares have been forfeited shall thereupon cease to be a Member in respect of the forfeited shares but shall, notwithstanding the forfeiture, remain liable to pay to the Company all moneys which at the date of forfeiture were presently payable by him to the Company in respect of the shares with interest thereon at such rate as the Directors may determine from the date of forfeiture until payment, and the Company may enforce payment without being under any obligation to make any allowance for the value of the shares forfeited. 27. An affidavit in writing that the deponent is a Director or the Secretary of the Company and that a share in the Company has been duly forfeited on the date stated in the affidavit shall be conclusive evidence of the facts therein stated as against all persons claiming to be entitled to the share. The Company may receive the consideration (if any) given for the share on any sale, re-allotment or disposition thereof and the Directors may authorise some person to transfer the share to the person to whom the same is sold, re-allotted or disposed of, and he shall thereupon be registered as the holder of the share and shall not be bound to see to the application of the purchase money (if any) nor shall his title to the share be affected by any irregularity or invalidity in the proceedings relating to the forfeiture, sale, re-allotment or disposal of the share. Register of Members 28. The Secretary shall establish and maintain the Register of Members at the Registered Office in the manner prescribed by the Companies Act. Unless the Directors otherwise determine and subject to any period of closure permitted under the Act, the Register of Members shall be open for inspection in the manner prescribed by the Companies Act between 10:00 a.m. and 12:00 noon on every working day. Unless the Directors so determine, no Member or intending Member shall be entitled to have entered in the Register any indication of any trust or any equitable, contingent, future or partial interest in any share or any interest in any fractional part of a share and if any such entry exists or is permitted by the Directors it shall not be deemed to abrogate any of the provisions of Bye-law 9. Transfer of Shares 29. Subject to the Companies Act and to such of the restrictions contained in these Bye-laws as may be applicable in particular, but not by way of limitation, Bye-Law 4(c) hereof, any member may transfer all or any of his shares by an instrument of transfer in writing in the Form "A" in the Schedule hereto or in such other form as the Directors may approve. The instrument of transfer may be on the back of the share certificate. 30. The instrument of transfer of a share shall be signed by or on behalf of the transferor and in like manner by the transferee if by an individual in the presence of two witnesses and if by a Company in manner prescribed by its charter. The transferor shall be deemed to remain the holder of the share until the name of the transferee is entered in the Register in respect thereof. All instruments of transfer when registered may be retained by the Company. The Directors shall decline to register any transfer of 8 shares upon which the Company has a lien save in the event of a sale by the Company or its designee in accordance with Bye-laws 14 and 15 hereof. The directors may also decline to register any transfer unless: (a) the instrument of transfer has been duly stamped and lodged with the Company, at its Registered Office or such other place as the Directors shall determine and of which notice shall be given, accompanied by the certificate for the shares to which it relates and such other evidence as the Directors may reasonably require to show the right of the transferor to make the transfer; (b) the instrument of transfer is in respect of only one class of share; (c) where applicable, the permission of the Bermuda Monetary Authority or any other relevant governmental or regulatory authority with respect thereto has been obtained. Subject to any direction of the Directors from time to time in force, the Secretary may exercise the powers and discretions of the Board under this Bye-law. 31. If the Directors decline to register a transfer they shall, within two months after the date on which the instrument of transfer was lodged, send to the transferee notice of such refusal. 32. No fee shall be charged by the Company for registering any transfer, probate, letters of administration, certificate of death or marriage, power of attorney, distringas or stop notice, order of court or other instrument relating to or affecting the title to any share, or otherwise making an entry in the Register relating to any share. Transmission of Shares 33. In the case of the death of a Member, the survivor or survivors, where the deceased was a joint holder, and the legal personal representatives of the deceased where he was sole holder, shall be the only person recognised by the Company as having any title to his shares; but nothing herein contained shall release the estate of a deceased holder (whether the sole or joint) from any liability in respect of any share held by him solely or jointly with other persons. 34. Any person becoming entitled to a share in consequence of the death or bankruptcy of a Member or otherwise by operation of applicable law may, upon such evidence being produced as may from time to time be required by the Directors as to his entitlement, be registered as the holder of the share or subject to the completion of the form of transfer set out in Form "B" hereto have some person nominated by him registered as the transferee thereof, but the Directors shall, in either case, have the same right to decline or suspend registration as they would have had in the case of the transfer of the share by that Member before his death or bankruptcy, as the case may be. 35. A person becoming entitled to a share in consequence of the death of a Member or otherwise by operation of applicable law shall, upon such evidence being produced as may from time to time be required by the Board as to his entitlement, be entitled to receive and may give a discharge for any dividends or other moneys payable in respect of the share, but he shall not be entitled in respect of the share to receive notices of or to attend or vote at general meetings of the Company or, save as aforesaid, to exercise in respect of the share any of the rights or privileges of a Member until he shall have become registered as the holder thereof. The Directors may at any time give notice requiring such person to elect either to be registered himself or to transfer the share and if the notice is not complied 9 with within sixty days the Directors may thereafter withhold payment of all dividends and other moneys payable in respect of the shares until the requirements of the notice have been complied with. 36. Subject to any directions of the Directors from time to time in force, the Secretary may exercise the powers and discretions of the Board under Bye-laws 33, 34 and 35. Transfer of Agents and Registrars 37. The Directors may from time to time appoint one or more agents to maintain, in respect of each class of shares of the Company issued by it in registered form, a she register and one or more branch share registers. Such a person may be designated as transfer agent and registrar according to his functions and one person may be designated both registrar and transfer agent. The Directors may at any time terminate such appointment. In the absence of any such appointment such functions shall be carried out by the Secretary of the Company. Increase of Capital 38. The Company may from time to time by resolution passed at a general meeting and whether or not all of the existing authorised capital shall have been issued increase its capital by such sum to be divided into shares of such par value as the resolution shall prescribe. 39. The Company may, by the resolution increasing the capital, direct that the new shares or any of them shall be offered in the first instance either at par or at a premium or (subject to the provisions of the Companies Act) at a discount to all the holders for the time being of shares of any class or classes in proportion to the number of such shares held by them respectively or make any other provision as to the issue of the new shares provided that no such shares shall be issued as partly paid save with the prior authority of a special resolution of the members. 40. The new shares shall be subject to all the provisions of these Bye-laws with reference to lien, the payment of calls, forfeiture, transfer, transmission and otherwise. Alteration of Capital 41. The Company may from time to time in general meeting: (a) divide its shares into several classes and attach thereto respectively any preferential, deferred, qualified or special rights, privileges or conditions; (b) consolidate and divide all or any of its share capital into shares of larger par value than its existing shares provided that no partly paid shares shall result therefrom save with the prior authority of a special resolution of the members; (c) sub-divide its shares or any of them into shares of smaller par value than is fixed by its Memorandum of Association, so, however, that in the sub-division in the case of any partly paid share issued pursuant to the authority of a special resolution of the members the proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in the case of the share from which the reduced share is derived; (d) make provision for the issue and allotment of shares which do not carry any voting rights; and 10 (e) cancel shares which, at the date of the passing of the resolution in that behalf, have not been taken or agreed to be taken by any person, and diminish the amount of its share capital by the amount of the shares so cancelled. Within the authority conferred by the Members in general meeting, the Directors may settle any issues relating to such division, consolidation or sub-division under this Bye-law as they think fit and, in particular may arrange for the sale of any shares representing fractions and the distribution of the net proceeds of sale in due proportion amongst the Members who would have been entitled to the fractions, and for this purpose the Directors may authorise some person to transfer the shares representing fractions to the purchaser thereof, who shall not be bound to see to the application of the purchase money nor shall his title to the shares be affected by any irregularity or invalidity in the proceedings relating to the sale. 42. Subject to the Companies Act and to any confirmation or consent required by law or these Bye-laws the Company may by resolution in general meeting from time to time convert any preference shares into redeemable preference shares. Reduction of Capital 43. Subject to the Companies Act, its Memorandum of Association and any confirmation or consent required by law or these Bye-laws, the Company may from time to time in general meeting authorise the reduction of its issued share capital or any capital redemption reserve fund or any share premium or contributed surplus account in any manner. 44. In relation to any such reduction, the Company may in general meeting determine the terms upon which such reduction is to be effected including in the case of a reduction of part only of a class of shares, those shares to be affected. General Meetings 45. The Company shall hold an Annual General Meeting once in every calendar year in accordance with the requirements of the Companies Act on a day and at a time and place fixed by the Directors. The Directors may, whenever they think fit, and shall, when required by the Companies Act or by the Chairman of the Board of Directors (if any) or the President of the Company convene general meetings other than Annual General Meetings which shall be called Special General Meetings. Special General Meetings may be convened by requisitionists in accordance with the Companies Act in the event of the failure of the Directors so to do. Notice of General Meetings 46. Any General Meeting shall be called by not less than 21 days' notice in writing. The notice shall be exclusive of the day on which it is served or deemed to be served and of the day for which it is given, and shall specify the place, day and time of the meeting, and, in the case of a Special General Meeting, the general nature of the business to be considered. Notice of every general meeting shall be given in any manner permitted by Bye-laws 115 to all Members other than such as, under the provisions of these Bye-laws or the terms of issue of the shares they hold, are not entitled to receive such notice from the Company. Proceedings at General Meetings 11 47. No business shall be transacted at any general meeting unless a quorum is present when the meeting proceeds to business. At least two Members present in person/or by proxy shall be a quorum for all purposes.(1) 48. If within half an hour from the time appointed for the meeting, a quorum is not present, the meeting, if convened upon the requisition of Members, shall be dissolved; in any other case it shall stand adjourned to such other day and such other time and place as the Directors shall determine of which notice shall be given in the same manner as for the original meeting. The same quorum requirement shall again apply. 49. The Chairman (if any) of the Directors or, in his absence, the President shall preside as Chairman at every general meeting. If there is no such Chairman or President, or if at any meeting neither of the Chairman nor the President is present within fifteen minutes from the time appointed for holding the meeting the Directors present shall elect one of their number to act. If no Director is present the Members present shall elect one of their number to be Chairman of the meeting. 50. The Chairman may, with the consent of any meeting at which a quorum is present (and shall if so directed by the meeting), adjourn the meeting from time to time and from place to place but no business shall be transacted at any adjourned meeting except business which might lawfully have been transacted at the meeting from which the adjournment took place. 51. Subject to any rights or restrictions attached to any class of shares at any meeting of the Company on a show of hands every Member present in person shall have one vote and on a poll every Member shall be entitled to one vote for each share held by him. 52. Save where a greater majority is required by the Companies Act or these Bye-laws any question proposed for consideration at a general meeting shall be decided by a simple majority of votes cast. 53. If a share is held by two or more joint holders, the member whose name is listed first on the register shall be entitled to vote that share. 54. A Member who is a patient for any purpose under any statute or applicable law relating to mental health or in respect of whom an order has been made by any Court having jurisdiction for the protection or management of the affairs of persons incapable of managing their own affairs may vote, whether on a show of hands or on a poll, by his receiver, committee, curator bonis or other person in the nature of a receiver, committee, curator bonis appointed by such Court and such receiver, committee, curator bonis or other person may vote on a poll by proxy, and may otherwise act and be treated as such Member for the purpose of general meetings of the Company. 55. No Member other than the holder of a fully paid share shall be entitled to vote at any general meeting. 56. At any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands unless before or on the declaration of the result of the show of hands a poll is demanded by: (a) The Chairman of the meeting; or (b) At least three Members present in person or represented by proxy; or 12 (c) Any Member or Members present in person or represented by proxy and holding between them not less than one tenth of the total voting rights of all the Members having the right to vote at such meeting; or (d) A Member or Members present in person or represented by proxy holding shares conferring the right to vote at such meeting, being shares on which an aggregate sum has been paid up equal to not less than one tenth of the total sum paid up on all such shares conferring such right. Unless a poll is so demanded a declaration by the Chairman as to the result of the voting on a show of hands shall be final and conclusive, and any entry to that effect in the Minute Book of the Company shall be conclusive evidence of the fact without proof of the number of votes recorded for or against such resolution. 57. If a poll is duly demanded, the result of the poll shall be deemed to be the resolution of the meeting at which the poll is demanded. 58. A poll demanded on any question shall be taken forthwith and the result thereof declared by the Chairman prior to the termination of the meeting. 59. The demand for a poll shall not prevent the continuance of the meeting for the transaction of any business which is not related to the question on which the poll has been demanded. 60. A person entitled to more than one vote on a poll need not use all his votes or cast all the votes he uses in the same way. 61. In the case of an equality of votes at a general meeting, whether on a show of hands or on a poll, the Chairman of such meeting shall not be entitled to a second or casting vote. Proxies and Corporate Representatives 62. The instrument appointing a proxy shall be in writing in whichever of Forms "D" or "E" in the Schedule hereto is applicable or in such other form as the Directors may approve. It shall be executed under the hand of the appointor or of his attorney authorised by him in writing or, if the appointor is a corporation, either under its Seal or under the hand of an officer, attorney or other person authorised to sign the same. 63. Any member may appoint any person as his proxy and a corporation may appoint a representative as permitted by the Companies Act and such representative need not be a Member. 64. Any Member may appoint a standing proxy or, if a corporation, a representative by depositing such appointment at the Registered Office of the Company. Any such standing proxy or appointment of representative shall be valid for all general meetings and adjournments thereof until notice of revocation is received by the Secretary at the Registered Office. Where a standing proxy or appointment of representative exists, its operation shall be deemed to have been suspended at any general meeting or adjournment thereof at which the Member is present or in respect to which the Member has specially appointed a proxy or representative. The Directors may from time to time require such evidence as they shall deem necessary as to the due execution and continuing validity of any such standing proxy or authorisation and the operation of any such standing proxy or appointment of representative shall be deemed to be suspended until such time as the Directors determine that they have received the requested evidence or other evidence satisfactory to them. 13 65. The instrument appointing a proxy together with any power of attorney under which it is signed or a notarially certified copy thereof or such other evidence as to its due execution as the Directors may from time to time require, shall be delivered at the Registered Office (or at such place as may be specified in the notice convening the meeting) not later than 24 hours prior to the holding of the meeting at which the person named in the instrument proposes to vote and in default the instrument of proxy shall not be treated as valid. 66. The instrument of proxy shall be deemed to confer authority to demand or join in demanding a poll and to vote on any amendment of a resolution put to the meeting for which it is given as the proxy thinks fit. The instrument of proxy shall unless the contrary is stated therein be valid as well for any adjournment of the meeting as for the meeting to which it relates provided always that no proxy votes shall be accepted at any such adjournment unless the instrument of proxy shall have been delivered prior to the original meeting in the manner and by the time specified in Bye-law 67 hereof. 67. Subject to the Companies Act the Chairman may at his discretion determine the right of any person not being a Member, a Director or the Auditor of the Company to attend any General meeting. Directors 68. The number of directors shall not be less than two or such number in excess of two as the Company in general meeting may from time to time determine. 69. No shareholding in the Company shall be required of any Director. 70. (a) The directors shall be elected by the members of the Company in accordance with the following provisions: (b) The members at the first election of directors which election will take place at the time of adoption of this Bye-law (the "First Election"), may designate the period of election of such directors of the Company and such director shall- be deemed to retire on the date so designated. After the respective terms for directors elected at the First Election have lapsed, then at each Annual General Meeting of Members the directors shall be elected by the Members to serve until the subsequent Annual General Meeting of the Members. (c) During the period when that certain loan made to the Company pursuant to a loan agreement dated as of March 31st, 1995 (as amended) with Crawsfield Limited remains outstanding or 18 months following the date of adoption of this Bye-law, whichever is sooner which said period shall for the purposes of this Bye-law be referred to as the "Loan Period") the Company may from time to time, only by resolution of eighty percent of the issued and outstanding shares of the Company or by resolution of a majority of the Board of Directors, increase the number of directors above 3 or (except for cause in which case a simple majority shall suffice) remove any director prior to expiration of his respective period of election as elected at the First Election. After the expiry of the Loan Period, the resolution of the shareholders in favour of any arrangement" provided for in this sub paragraph (c) shall be effective if it is passed by an ordinary resolution. (d) A retiring director shall be eligible for re-election. (e) The Company at the Annual General Meeting at which a director retires in manner aforesaid, may fill up the vacated office by electing a person thereto, but no person other than a retiring director shall, unless recommended by the directors, be eligible for election to the office of 14 director at any Annual General Meeting unless not less than three nor more than twenty-one days before the date appointed for the Meeting there shall have been left at the registered office of the Company notice in writing signed by a member duly qualified to attend and vote at the meeting for which such notice i. given, of his intention to propose such person for election and also notice in writing signed by that person of his willingness to be elected. (f) Any casual vacancy on the Board of directors shall be filled by the remaining directors PROVIDED that during the Loan Period a vacancy created for any reason by a director nominated by Crawsfield Limited shall be filled by another person nominated by Crawsfield Limited.(2) 71. Subject to the provision of Bye-law 70, the removal of a director shall be effected by resolution of the Members in general meeting and otherwise in accordance with the Companies Act.(3) 72. Any person who may have been appointed to be alternate director of the Company to a Director who has been removed from office shall cease to be an alternate director immediately upon the removal of such Director as aforesaid. 73. Any vacancy created by the removal of a director at a special General Meeting may be filled by the members at that meeting or subsequently by the Directors and any casual vacancy otherwise arising may be filled by the Directors. 74. The office of a Director shall be vacated upon the happening of any of the following events: (a) if he resigns his office by notice in writing delivered to the Secretary of the Company either at the Registered Office of the Company or tendered at a meeting of the Directors. Such resignation shall take effect at the time of receipt unless another time is specified. The acceptance of such resignation shall not be necessary to make it effective; (b) if he becomes of unsound mind or a patient for any purpose of any statute or applicable law relating to mental health and the Directors resolve that his office is vacated; (c) if he becomes bankrupt or compounds with his creditors; (d) if he is prohibited by law from being a Director; or (e) if he ceases to be a director by virtue of the Companies Act or is removed from office pursuant to these Bye-laws. Alternate Directors 75. (a) The members may elect any person duly qualified to be a director to serve as an alternate director or may authorise the Directors to appoint alternate directors. (b) An alternate director may also be a director in his own right and may act as alternate to more than one director. 76. An alternate director shall be entitled to receive notices of all meetings of Directors, to attend, be counted in the quorum and vote at any such meeting at which any Director to whom he is alternate is not personally present, and generally to perform all the functions of any Director to whom he is alternate in his absence. 15 77. Every person acting as an alternate director shall be subject in all respects to the provisions of these Bye-laws relating to Directors and shall alone be responsible to the Company for his acts and defaults and shall not be deemed to be the agent of or for any Director for whom he is alternate. An alternate director may be paid expenses and shall be entitled to be indemnified by the Company to the same extent mutatis mutandis as if he were a Director. Every person acting as an alternate director shall have one vote for each Director for whom he acts as alternate (in addition to his own vote if he is also a Director). The signature of an alternate director to any resolution in writing of the Directors or a committee of the Directors, shall unless the terms of his appointment provides to the contrary, be as effective as the signature of the Director or Directors to whom he is alternate. Directors fees and Remuneration 78. The amount, if any, of Directors' fees shall from time to time be determined by the Company in general meeting and in the absence of a determination to the contrary in general meeting. Such fees shall be deemed to accrue from day to day. The payment of reasonable traveling, hotel and incidental expenses incurred by Directors in attending and returning from meetings of the Board of Directors or committees constituted pursuant to these Bye-laws or general meetings together with all expenses properly and reasonably incurred by any Director in the conduct of the Company's business or in the discharge of his duties as a Director shall be within the power of the Directors to determine. A managing director shall receive such remuneration (whether by way of salary, commission or participation in profits, or partly in one way and partly in another) as the Directors may resolve. Directors Interest 79. (a) A Director may hold any other office with the Company in conjunction with his appointment as a Director for such period and upon such terms as the Directors may determine, and may be paid such extra remuneration by way of salary, as the Directors may determine, and such extra remuneration shall be in addition to any remuneration provided for by or pursuant to any other Bye-law. (b) A Director may act by himself or his firm in a professional capacity for the Company and he or his firm shall be entitled to remuneration for professional services as if he were not a Director; Provided that nothing herein contained shall authorise a Director or his firm to act as auditors of the Company. (c) Subject to the provisions of the Companies Act, a Director may notwithstanding his office be a party to, or otherwise interested in, any transaction or arrangement with the Company or in which the Company is otherwise interested; and be a Director or other officer of, or employed by, or a party to any transaction or arrangement with, or otherwise interested in, any body corporate promoted by the Company or in which the Company is interested. (d) So long as, where it is necessary, he declares the nature of his interest at the first opportunity at a meeting of the Directors or by writing to the Directors as required by the Companies Act, a Director shall not by reason of his office be accountable to the Company for any benefit which he derives from any office or employment to which these Bye-laws allow him to be appointed or from any transaction or arrangement in which these Bye-laws allow him to be interested, and no such transaction or arrangement shall be liable to be avoided on the ground of any interest or benefit. (e) Subject to the Companies Act and any further disclosure required thereby, a general notice to the Directors by a Director or officer declaring that he is a director or officer or has an interest in any business entity and is to be regarded as interested in any transaction or arrangement made 16 with that business entity shall be sufficient declaration of interest in relation to any transaction or arrangement so made. Powers and Duties of Directors 80. Subject as may otherwise be required by the provisions of the Companies Act and these Bye-laws and subject to any directions given by the Company in general meeting, the Directors shall manage the business of the Company and may pay all expenses incurred in promoting and incorporating the Company and may exercise all the powers of the Company including, but not by way of limitation, the power to borrow money. No alteration of these Bye-laws and no such direction shall invalidate any prior act of the Directors which would have been valid if that alteration had not been made or that direction had not been given. A validly convened meeting of the Directors at which a quorum is present shall be competent to exercise all the powers, authorities and discretions for the time being vested in or exercisable by the Board. 81. All cheques, promissory notes, drafts, bills of exchange and other instruments, whether negotiable or transferable or not, and all receipts for money paid to the Company shall be signed drawn accepted endorsed or otherwise executed, as the case may be, in such manner as the Directors shall from time to time by resolution determine. 82. The Directors may, from time to time, appoint one or more of their body to be a Managing Director or Managing Directors of the Company, either for a fixed term or without any limitation as to the period for which he or they is or are to hold such office, and may from time to time remove or dismiss him or them from office and appoint another or others in his or their place or places but without prejudice to any claim which either party may have against the other at the date of such removal or dismissal. Delegation of the Directors' Powers and Duties 83. The Directors may by power of attorney appoint any company, firm or person, whether nominated directly or indirectly by the Directors, to be the attorney or attorneys of the Company for such purposes and with such powers, authorities and discretions (not exceeding those vested in or exercisable by the Directors under these Bye-laws) and for such period and subject to such conditions as they may think fit, and any such power of attorney may contain such provisions for the protection and convenience of persons dealing with any such attorney as the Directors may think fit, and may also confer a power of substitution upon such attorney whereby he shall be authorised further to delegate all or any of the powers, authorities and discretions vested in him. 84. (a) The Directors may entrust to and confer upon any Director or officer any of the powers exercisable by them upon such terms and conditions with such restrictions as they think fit, and either collaterally with, or to the exclusion of, their own powers, and may from time to time revoke or vary all or any of such powers but no person dealing in good faith and without notice of such revocation or variation shall be affected thereby. (b) The directors may delegate any of their powers, authorities and discretions to committees, consisting of two or more directors as they think fit. Any committee so formed shall, in the exercise of the powers authorities and discretions so delegated, conform to any directions which may be given to it by the Directors. 17 85. The meetings and proceedings of any committee of directors shall be governed by the provision of Bye-laws 86 to 89 of these Bye-laws which relate to meetings of the Directors so far as the same are applicable thereto. Proceedings of the Directors 86. Subject to the provisions of these Bye-laws, the Directors may meet together for the despatch of business, adjourn and otherwise regulate their meetings as they think fit. Questions arising at any meeting shall be decided by a majority of votes. In the case of an equality of votes the motion shall be deemed to have been lost. A Director may, and the Secretary on the requisition of a Director shall, at any time summon a meeting of the Directors. 87. Notice of a meeting of the Directors may be given by telephone or otherwise and if by mail, cable or telex shall be sent to the last known address of each director or any other address given by him to the Company for this purpose. A Director may waive notice before or after the date of the meeting for which the notice is given. It shall not be necessary to specify the business to be considered at the meeting. The length of notice shall be reasonable in all the circumstances and in any event shall not be less than 24 hours. 88. The quorum necessary for the transaction of the business of the Directors shall be either a majority of the Directors or two whichever shall be the greater. In the event that a director resigns at a meeting of the Directors it may be resolved that his resignation should take effect at the end of such meeting and that he be counted in the quorum and continue to act if otherwise a quorum of directors would not be present. 89. A Director who to his knowledge is in any way, whether directly or indirectly, interested in a contract or proposed contract, transaction or arrangement with the Company and has complied with the provisions of the Companies Act and these Bye-laws with regard to disclosure of his interest shall be entitled to vote in respect of any contract, transaction or arrangement in which he is so interested and if he shall do so his vote shall be counted, and he shall be taken into account in ascertaining whether a quorum is present. 90. So long as a quorum of Directors remains in office, the continuing Directors may act notwithstanding any vacancy in their number but if no quorum of Directors remains, the continuing Directors or a sole continuing Director may act only for the purpose of calling a general meeting. 91. The Directors may elect one of their number to be Chairman of the Directors. If no Chairman of the Directors is elected or he is absent, the President shall act as Chairman of a meeting of the Directors. If at any meeting neither the Chairman of the Board nor the President is present within fifteen minutes after the time appointed for holding the same, the Directors present may choose one of their number to act as Chairman of the meeting. 92. A resolution in writing signed by all the Directors for the time being entitled to receive notice of a meeting of the Directors or by all the members of a committee for the time being shall be as valid and effectual as a resolution passed at a duly convened meeting of the Directors or, as the case may be, of such committee. 93. All acts done at any meeting of the Directors or any committee of the Directors or by any person acting as a Director shall, notwithstanding that it is afterwards discovered that there was some defect in the appointment of any such Director or person acting as aforesaid or that they or any of them 18 were disqualified, be as valid as if every such person had been duly appointed and was qualified to be a Director. Officers 94. The officers of the Company shall comprise a President, a Vice-President, a Secretary and such other officers (including a Chairman of the Board or additional VicePresidents) as the Directors may from time to time determine. 95. The Directors shall as soon as possible after the election of Directors by the Members at the statutory meeting and at each Annual General Meeting thereafter choose or elect one of their number to be the President of the Company, another to be the Vice-President and in addition may appoint any person whether or not he is a Director to hold such other office as the Directors shall determine. Any person elected or appointed pursuant to this Bye-law shall hold office for such period and upon such terms as may be fixed by the Directors. Any such election or appointment may be revoked or terminated by the Directors but without prejudice to any claim for damages that such officer may have against the Company for any breach of any contract of service between him and the Company which may be involved in such revocation or termination. Save as provided in the Companies Act or these Bye-laws, the powers and duties of the officers of the Company shall be such (if any) as are determined from time to time by the Directors. Minutes 96. The Directors shall cause minutes to be made for the purpose of recording: (a) all appointments of officers made by the Directors; (b) the names of the Directors and other persons (if any) present at each meeting of Directors and of any committee; (c) of all proceedings at general meetings of the Company, at separate meetings of holders of any class of shares in the Company and of meetings of the Directors and committees. (d) of all proceedings of managers (if any). Such meetings shall be duly entered in books provided for such purpose and any minutes duly entered in the Minute Book signed by the Chairman of that meeting or by the Chairman of any succeeding meeting shall be receivable as prima facie evidence of the matters stated in such minutes. Secretary 97. The Secretary shall be appointed by the Directors at such remuneration (if any) and upon such terms as they may think fit and any Secretary so appointed may be removed by them. The Secretary shall whenever possible, attend all meetings of the Company and of the Directors, keep correct minutes of such meetings and enter such minutes in proper books provided for the purpose. The Secretary shall also perform such other duties as shall from time to time be prescribed or delegated by the Directors. The duties of the Secretary may when required be carried out by an assistant or acting secretary or any other director or officer so authorised in that behalf by the Directors. 19 The Seal 98. (a) The Seal shall consist of a circular metal device with the name of the Company around the outer margin thereof and the country and year of incorporation across the center thereof. Should the Seal not have been received and be available at the Registered Office in such form at the date of adoption of this Bye-law then, pending such receipt, any document requiring to be sealed with the Seal shall be sealed by affixing a red wafer seal to the document with the name of the Company, and the country and year of incorporation typed or hand written across the center thereof. (b) The Directors shall provide for the safe custody of the Seal, which Seal shall only be used by authority of the Directors or a committee authorised by the Directors in that behalf. Provided that the Secretary or a Director may affix the seal over his signature only to authenticate copies of these Bye-laws, the Minutes of any meeting or any other document requiring authentication. 99. The Company may possess and use a duplicate seal upon the same terms and conditions as apply to the Seal in the event that the Directors determine that such duplicate seal is warranted by and in the best interests of the Company's business. Execution of Instruments 100. Contracts, documents or instruments in writing requiring execution by the Company may be signed on behalf of the Company by (a) the Chairman of the Board (if any), the President or a Vice President and by the Secretary or the Treasurer or an Assistant Secretary or an Assistant Treasurer or (b) any two directors and all contracts, documents and instruments in writing so signed shall be binding upon the Company without any further authorisation or formality. The Board shall have the power from time to time by resolution to appoint any officer or any person or persons on behalf of the company either to sign contracts, documents and instruments in writing generally or to sign specific contracts, documents or instruments in writing. The seal of the Company may when required be affixed to contracts, documents and instruments in writing signed as aforesaid or by any officer or officers, person or persons, appointed as aforesaid by resolution of the Board. The term "contracts, documents or instruments in writing" as used in this Bye-law shall include deeds, mortgages, hypothecs, charges, conveyances, transfers and assignments of property, real or personal, movable or immovable, agreements, releases, receipts and discharges for the payment of money or other obligations, conveyances, transfers and assignments of shares, share warrants, stocks, bonds, debentures, notes or other securities and all paper writings. In particular without limiting the generality of the foregoing (a) any one of the Chairman of the Board (if any) or the President or a Vice-President together with the Secretary or the Treasurer or an Assistant Secretary or an Assistant Treasurer, or (b) any two directors shall have authority to sell, assign, transfer, exchange, convert or convey any and all shares, stocks, bonds, debentures, notes, rights, warrants or other securities owned by or registered in the name of the Company and to sign and execute (under the seal of the Company or otherwise) all assignments, transfers, conveyances, powers of attorney and other instruments that may be necessary for the purpose of selling, assigning, transferring, exchanging, converting or conveying any such shares, stocks, bonds, debentures, notes, rights, warrants or other securities. 20 The signature or signatures of the Chairman of the Board (if any), the President, a Vice-President, the Secretary, the Treasurer, an Assistant Secretary, an Assistant Treasurer or any director of the Company and/or any other officer or officers, person or persons, appointed as aforesaid by resolution of the Board may, if specifically authorised by resolution of the directors, be printed, engraved, lithographed or otherwise mechanically reproduced upon any contracts, documents or instruments in writing or bonds, debentures, notes or other securities of the Company executed or issued by or on behalf of the Company and all contracts, documents or instruments in writing or bonds, debentures, notes or other securities of the Company on which the signature or signatures of any of the foregoing officers or directors or persons authorised as aforesaid shall be so reproduced pursuant to special authorisation by resolution of the Board, shall be deemed to have been manually signed by such officers or directors or persons whose signature or signatures is or are so reproduced and shall be as valid to all intents and purposes as if they had been signed manually and notwithstanding that the officers or directors or persons whose signature or signatures is or are so reproduced may have ceased to hold office at the date of the delivery or issue of such contracts, documents or instruments in writing or bonds, debentures, notes or other securities of the Company. Dividends and other Payments 101. The Directors may from time to time declare cash dividends to be paid to the Members according to their rights and interests in the profits including such interim dividends as appear to the Directors to be justified by the financial position of the Company. For the purpose of this Bye-law, contributed surplus shall be deemed not to be a profit of the Company and shall not be taken account of in calculating the amount of the profits available for distribution to the Members and shall not be available for distribution other than in the manner provided for in Bye-law 106 102. Except insofar as the rights attaching to, or the terms of issue of, any share otherwise provide all dividends may be declared and paid according to the amounts paid up on the shares in respect of which the dividend is paid. 103. No dividend or other moneys payable by the Company on or in respect of any share shall bear interest against the Company. 104. Any dividend, interest or other sum payable in cash to the holder of shares may be paid by cheque or warrant sent through the post addressed to the holder at his address in the Register or, in the case of joint holders, addressed to the holder whose name stands first in the Register in respect of the shares at his registered address as appearing in the Register. Every such cheque or warrant shall, unless the holder or joint holders otherwise direct, be made payable to the order of the holder or, in the case of joint holders, to the order of the holder whose name stands first in the Register in respect of such shares, and shall be sent at his or their risk and payment of the cheque or warrant by the bank on which it is drawn shall constitute a good discharge to the Company. Any one of two or more joint holders may give effectual receipts for any dividends or other moneys payable or property distributable in respect of the shares held by such joint holders. 105. Any dividend unclaimed for a period of six years from the date of declaration of such dividend shall be forfeited and shall revert to the Company and the payment by the Directors of any unclaimed dividend, interest or other sum payable on or in respect of the share into a separate account shall not constitute the Company a trustee in respect thereof. 21 106. With the sanction of the Company in general meeting, the Directors may (a) declare a distribution to any Member out of contributed surplus and (b) may direct payment or satisfaction of such distribution or any dividend wholly or in part by the distribution of specific assets, and in particular of paid-up shares or debentures of any other company, and where any difficulty arises in regard to such distribution or dividend the Directors may settle it as they think expedient, and in particular, may authorise any person to sell and transfer any fractions or may ignore fractions altogether, and may fix the value for distribution or dividend purposes of any such specific assets and may determine that cash payments shall be made to any Members upon the basis of the values so fixed in order to secure equality of distribution and may vest any such specific assets in trustees as may seem expedient to the Directors. Reserves 107. The Directors may, before recommending or declaring any dividend set aside out of the profits of the Company such sums as they think proper as a reserve fund to be used to meet contingencies or for equalizing dividends or for any other special purpose. Pending the application of such reserve fund it may be invested in such manner as the directors shall think fit. Capitalisation of Profits 108. The Company may at any time and from time to time resolve in general meeting to the effect that it is desirable to capitalise any undivided profits (including profits standing to the credit of any reserve or other special account) not required for the payment of any fixed dividend or any moneys held on any share premium account or any capital redemption reserve fund and accordingly that such amount be set free for distribution amongst the Members or any class of Members who would be entitled thereto if distributed by way of dividend and in the same proportions, on the basis that the same be not paid in cash but be applied in payment up in full of unissued shares, debentures or other obligations of the Company, to be allotted and distributed credited as fully paid amongst such Members, or partly in one way and partly in the other, and the Directors shall give effect to such resolution provided that for the purpose of this Bye-law, a share premium account and a capital redemption reserve fund may be applied only in paying up unissued shares to be issued to such Members credited as fully paid. 109. Where any difficulty arises in regard to any distribution under the last preceding Bye-law the Directors may settle the same as they think expedient and, in particular, may authorise any person to sell and transfer any fractions or may resolve that the distribution should be as nearly as may be practicable in the correct proportion but not exactly so or may ignore fractions altogether, and may determine that cash payments should be made to any Members in order to adjust the rights of all parties, as may seem expedient to the Directors. The Directors may appoint any person to sign on behalf of the persons entitled to participate in the distribution any contract necessary or desirable for giving effect thereto and such appointment shall be effective and binding upon the Members. Record Dates for Notices 110. Notwithstanding any other provision of these Bye-laws, the directors may fix in advance a date, preceding the date of any allotment or issue of shares or any general meeting of members by not more than 50 days and not less than 21 days, as a record date for the determination of the members entitled to receive notice of such allotment or issue of new shares or of notice of the meeting. If any shares of the Company are listed for trading on a stock exchange, notice of the record date shall be given by written notice to each such stock exchange in accordance with the rules (if any) of such stock exchange. If no record date is so fixed, the record date for the determination of the members entitled to 22 notice of the meeting shall be at the close of business on the day immediately preceding the day on which the notice is given or, if no notice is given, the day on which the meeting is held. Accounting Records 111. The Directors shall exercise a general supervision over the financial affairs of the Company and shall cause to be kept accounting records sufficient to give a true and fair view of the state of the Company's affairs and to show and explain its transactions, in accordance with the Companies Act. 112. The records of account shall be kept at the Registered Office or at such other place or places as the Directors think fit, and shall at all times be open to inspection by the Directors: PROVIDED that if the records of account are kept at some place outside Bermuda, there shall be kept at an office of the Company in Bermuda such records as will enable the Directors to ascertain with reasonable accuracy the financial position of the Company at the end of each three month period. No Member (other than an officer of the Company) shall have any right to inspect any accounting record or book or document of the Company except as conferred by law or authorised by the Directors or by the Company in general meeting. 113. A copy of every balance sheet and statement of income and expenditure, including every document required by law to be annexed thereto, which is to be laid before the Company in general meeting, together with a copy of the auditor's report, shall be sent to each person entitled thereto in accordance with the requirements of the Companies Act. Audit 114. Save and to the extent that an audit is waived in the manner permitted by the Companies Act, auditors shall be appointed at each Annual General Meeting of the Company and their duties regulated in accordance with the Companies Act, any other applicable law and such requirements not inconsistent with the Companies Act as the Directors may from time to time determine. The remuneration of the auditor shall be fixed by the Members in general meeting or referred by them to the Directors. 23 Service of Notices and Other Documents 115. Any notice or other document (including a share certificate) may be served on or delivered to any member by the Company either personally or by sending it through the post (by airmail where applicable) in a pre-paid letter addressed to such Member at his address as appearing in the Register or by delivering it to or leaving it at such registered address. In the case of joint holders of a share, service or delivery of any notice or other document on or to one of the joint holders shall for all purposes be deemed as sufficient service on or delivery to all the joint holders. Any notice or other document if sent by post shall be deemed to have been served on the day it is committed to the post, and in proving such service it shall be sufficient to prove that the notice or document was properly addressed, stamped and committed to the post. 116. Any notice of a general meeting of the Company shall be deemed to be duly given to a Member if it is sent to him by cable, telex, or telecopier at his address as appearing in the Register or any other address advised by him in writing to the Secretary of the Company for this purpose. Any such notice shall be deemed to have been served on the day it is transmitted. 117. Any notice or other document delivered, sent or given to a Member in any manner permitted by these Bye-laws shall, notwithstanding that such Member is then dead or bankrupt or that any other event has occurred, and whether or not the Company has notice of the death or bankruptcy or other event, be deemed to have been duly served or delivered in respect of any share registered in the name of such Member as sole or joint holder unless his name shall, at the time of service or delivery of the notice or document, have been removed from the Register as the holder of the share, and such service or delivery shall for all purposes be deemed as sufficient service or delivery of such notice or document on all persons, interested (whether jointly with or as claiming through or under him) in the share. Winding up 118. If the Company shall be wound up, the liquidator may, with the sanction of a resolution of the Company and any other sanction required by the Companies Act, divide amongst the Members in specie or kind the whole or any part of the assets of the Company (whether they shall consist of a property of the same kind or not) and may for such purposes set such values as he deems fair upon any property to be divided as aforesaid and may determine how such division shall be carried out as between the Members or different classes of Members. The liquidator may, with the like sanction, vest the whole or any part of such assets in trustees upon such trust for the benefit of the contributories as the liquidator, with the like sanction, shall think fit, but so that no Member shall be compelled to accent any shares or other assets upon which there is any liability. Indemnity 119. Subject to the proviso, below, every Director, officer of the Company and member of a duly constituted committee shall be indemnified out of the funds of the Company against all civil liabilities, loss, damage or expense (including but not limited to liabilities under contract, tort and statute or any applicable foreign law or regulation and all reasonable legal and other costs and expenses properly payable) incurred or suffered by him as such Director, officer or committee member and the indemnity contained in this Bye-law shall extend to any person acting as a Director, officer or committee member in the reasonable belief that he has been so appointed or elected not withstanding any defect in such appointment or election PROVIDED ALWAYS that the indemnity contained in this Bye-law shall not extend to any matter which would render it void pursuant to the Companies Act. 24 120. To the extent that any Director, officer or member of a duly constituted committee is entitled to claim an indemnity pursuant to these Bye-laws in respect of amounts paid or discharged by him, the relative indemnity shall take effect as an obligation of the Company to reimburse the person making such payment or effecting such discharge. Alteration of Bye-Laws 121. These Bye-Laws may be amended from time to time in the manner provided for in the Companies Act save that any amendment of these Bye-laws affecting the provisions of Bye-laws 7, 13, 14, 15, 17, 38, 39, 41 or 55 hereof or any other provisions contained in these Bye-laws relating to the allotment or issue of partly paid shares of the Company shall require the authority of a special resolution. - ---------------- (1) Adopted by Shareholders on 12th November, 1997 (2) Adopted by Shareholders on 3rd July, 1995 (3) Adopted by Shareholders on 3rd July, 1995 EX-4.3 4 CERTIFICATE COMMON SHARES COMMON SHARES NUMBER VDC CORPORATION LTD. SHARES VDC - ------ Authorized Share Capital 50,000,000 Shares having a par value of US$2.00 each INCORPORATED IN THE ISLANDS OF BERMUDA UNDER THE COMPANIES ACT, 1981 THIS IS TO CERTIFY THAT is the registered holder of FULLY PAID AND NON-ASSESSABLE COMMON SHARES OF US$0.10 EACH OF ____________________________ ________________________ ______________________________ VDC CORPORATION LTD. __________________________ ____________________________ ________________________ transferable on the books of the Company by the holder thereof in person or by duly authorized attorney upon surrender of this certificate properly endorsed. This certificate and the shares represented hereby are issued and shall be held subject to all of the provisions of the Memorandum of Association and bye-laws of the Company and all amendments thereof to all of which the holder by acceptance hereof assents and shall be transferable in accordance therewith. This certificate is not valid unless countersigned by the Transfer Agent. WITNESS the facsimile seal of the Company and the facsimile signatures of its duly authorized officers. Dated [SEAL] - ---------------------- -------------------------- SECRETARY CHAIRMAN AND PRESIDENT EX-10.1 5 PURCHASE AGREEMENT PURCHASE AGREEMENT by and among VDC CORPORATION LTD. as Buyer, MASATEPE COMMUNICATIONS U.S.A., L.L.C. as the Target Company, and ACTIVATED COMMUNICATIONS LIMITED PARTNERSHIP and MARC GRAUBART as Sellers Dated: July 31, 1998 TABLE OF CONTENTS Page ---- 1. DEFINITIONS 1 2. SALE AND PURCHASE OF INTERESTS; CLOSING 11 2.1 SALE AND PURCHASE OF INTERESTS 11 2.2 PURCHASE PRICE 11 2.3 CLOSING 15 2.4 CLOSING OBLIGATIONS 15 3. REPRESENTATIONS AND WARRANTIES OF SELLERS 16 3.1 ORGANIZATION AND GOOD STANDING 16 3.2 AUTHORITY; NO CONFLICT 17 3.3 CAPITALIZATION 18 3.4 FINANCIAL DATA 18 3.5 BOOKS AND RECORDS 19 3.6 TITLE TO PROPERTIES; ENCUMBRANCES 19 3.7 CONDITION AND SUFFICIENCY OF ASSETS 19 3.8 ACCOUNTS RECEIVABLE 19 3.9 MASATEPE S.A. LICENSE AUTHORITY 20 3.10 NO UNDISCLOSED LIABILITIES 20 3.11 TAXES 20 3.12 NO MATERIAL ADVERSE CHANGE 20 3.13 EMPLOYEE BENEFITS 20 3.14 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS 21 3.15 LEGAL PROCEEDINGS; ORDERS 23 3.16 ABSENCE OF CERTAIN CHANGES AND EVENTS 24 3.17 CONTRACTS; NO DEFAULTS 25 - i - 3.18 INSURANCE 27 3.19 ENVIRONMENTAL MATTERS 27 3.20 EMPLOYEES 27 3.21 Intentionally omitted. 27 3.22 INTELLECTUAL PROPERTY 27 3.23 CERTAIN PAYMENTS 28 3.24 DISCLOSURE 28 3.25 RELATIONSHIPS WITH RELATED PERSONS 28 3.26 ALL BUSINESS CONDUCTED BY COMPANY 29 3.27 MAJORITY SHAREHOLDER OF MASATEPE S.A. 29 3.28 FINANCIAL CONDITION OF ACTIVATED 29 4. REPRESENTATIONS AND WARRANTIES OF BUYER 29 4.1 ORGANIZATION AND GOOD STANDING 29 4.2 AUTHORITY; NO CONFLICT 29 4.3 INVESTMENT INTENT 30 4.4 CERTAIN PROCEEDINGS 30 4.5 FINDER'S FEES 30 5. COVENANTS OF SELLERS 31 5.1 OPERATION OF THE BUSINESSES OF THE COMPANY 31 5.2 REQUIRED APPROVALS 31 5.3 AUDIT 31 5.4 NOTIFICATION 31 5.5 BEST EFFORTS 31 5.6 BRIDGE LOANS 32 - ii - 5.7 NO TRADING 32 5.8 DEFENSE AND SETTLEMENT OF LITIGATION 32 6. COVENANTS OF BUYER PRIOR TO FCC APPROVAL DATE 33 6.1 APPROVALS OF GOVERNMENTAL BODIES 33 6.2 BEST EFFORTS 33 7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE AND TO THE RELEASE OF THE PURCHASE PRICE FROM ESCROW 33 7.1 ACCURACY OF REPRESENTATIONS 33 7.2 SELLERS' PERFORMANCE 34 7.3 CONSENTS 34 7.4 ADDITIONAL DOCUMENTS 34 7.5 NO PROCEEDINGS 34 7.6 NO CLAIM REGARDING BUSINESS OR MEMBERSHIP INTEREST OWNERSHIP OR SALE PROCEEDS 34 7.7 NO PROHIBITION 35 8. CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE 35 8.1 ACCURACY OF REPRESENTATIONS 35 8.2 BUYER'S PERFORMANCE 35 8.3 CONSENTS 36 8.4 ADDITIONAL DOCUMENTS 36 8.5 NO INJUNCTION 36 9. TERMINATION 36 9.1 TERMINATION EVENTS 36 9.2 EFFECT OF TERMINATION 37 - iii - 10. INDEMNIFICATION; REMEDIES 37 10.1 SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY KNOWLEDGE 37 10.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLERS 38 10.3 Intentionally omitted. 39 10.4 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER 39 10.5 TIME LIMITATIONS 39 10.6 Intentionally omitted. 39 10.7 ESCROW CLAIM 39 10.8 PROCEDURE FOR INDEMNIFICATION--THIRD-PARTY CLAIMS 39 10.9 PROCEDURE FOR INDEMNIFICATION--OTHER CLAIMS 41 11. GENERAL PROVISIONS 41 11.1 EXPENSES 41 11.2 PUBLIC ANNOUNCEMENTS 41 11.3 CONFIDENTIALITY 41 11.4 NOTICES 42 11.5 JURISDICTION; SERVICE OF PROCESS 43 11.6 FURTHER ASSURANCES 43 11.7 WAIVER 43 11.8 ENTIRE AGREEMENT AND MODIFICATION 44 11.9 DISCLOSURE LETTER 44 11.10 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS 44 11.11 SEVERABILITY 44 11.12 SECTION HEADINGS, CONSTRUCTION 45 11.13 TIME OF ESSENCE 45 11.14 GOVERNING LAW 45 11.15 COUNTERPARTS 45 - iv - Purchase Agreement This Purchase Agreement ("Agreement") is dated as of the 31st day of July, 1998 (the "Effective Date"), by and among VDC CORPORATION LTD., a Bermuda corporation ("Buyer"), MASATEPE COMMUNICATIONS, U.S.A., L.L.C., a Delaware limited liability company ("Company"), ACTIVATED COMMUNICATIONS LIMITED PARTNERSHIP, a Texas limited partnership with offices at 767 Fifth Avenue, New York, New York 10153 ("Activated"), and MARC GRAUBART, an individual residing at 200 East 64th Street, New York, New York 10021 ("Graubart") (Activated and Graubart shall be collectively referred to herein as "Sellers"). WITNESSETH: WHEREAS, Sellers own all of the membership interests (the "Interests") of the Company; and WHEREAS, Sellers desire to sell, and Buyer desires to purchase, all of the Interests for the consideration and on the terms set forth in this Agreement. NOW, THEREFORE, for and in consideration of the premises and the mutual covenants and agreements set forth in this Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto agree as follows: 1. DEFINITIONS For purposes of this Agreement, the following terms have the meanings specified or referred to in this Article 1: "Applicable Contract"--any Contract (a) under which the Company has or may acquire any rights, (b) under which the Company has or may become subject to any obligation or liability, or (c) by which the Company or any of the assets owned or used by it is or may become bound. "Balance Sheet"--as defined in Section 3.4. "Best Efforts"--the efforts that a prudent Person desirous of achieving a result would use in similar circumstances to ensure that such result is achieved as expeditiously as possible. "Breach"--a "Breach" of a representation, warranty, covenant, obligation, or other provision of this Agreement or any instrument delivered pursuant to this Agreement will be deemed to have occurred if there is or has been (a) any inaccuracy in or breach of, or any failure to perform or comply with, such representation, warranty, covenant, obligation, or other provision, or (b) any claim by any Person or other occurrence or circumstance that is or was inconsistent with such representation, warranty, covenant, obligation, or other provision, and the term "Breach" means any such inaccuracy, breach, failure, claim, occurrence, or circumstance. "Bridge Loan Agreement"--as defined in Section 2.4(d). "Bridge Note"--as defined in Section 5.6. "Buyer"--as defined in the first paragraph of this Agreement. "Closing"--as defined in Section 2.3. "Closing Date"--the date and time as of which the Closing actually takes place. "Company"--as defined in the Recitals of this Agreement. "Consent"--any approval, consent, ratification, waiver, or other authorization (including any Governmental Authorization). "Contemplated Transactions"--all of the transactions contemplated by this Agreement, including: (a) the purchase and sale of the Interests; (b) the execution, delivery, and performance of the Graubart Note, Employment Agreements, the Noncompetition Agreement, the Sellers' Release, the Escrow Agreement, the Bridge Loan Agreement and the Guaranty; (c) the performance by Buyer and Sellers of their respective covenants and obligations under this Agreement; and (d) Buyer's acquisition and ownership of the Interests and exercise of control over the Company. "Contract"--any agreement, contract, obligation, promise, or undertaking (whether written or oral and whether express or implied) that is legally binding. "Damages"--as defined in Section 10.2. "Deferred Delivery Date" "- the six month anniversary of the Closing Date. "Deferred Purchase Shares" "- as defined in Section 2.2(b). "Disclosure Letter"--the disclosure letter delivered by Sellers to Buyer concurrently with the execution and delivery of this Agreement. "Employment Agreements"--as defined in Section 2.4(f). - 2 - "Encumbrance"--any charge, claim (including any claim made in any Proceeding), community property interest, condition, equitable interest, lien, option, pledge, security interest, right of first refusal, or restriction of any kind, including any restriction on use, voting, transfer, receipt of income, or exercise of any other attribute of ownership. "Environment"--soil, land surface or subsurface strata, surface waters (including navigable waters, ocean waters, streams, ponds, drainage basins, and wetlands), groundwaters, drinking water supply, stream sediments, ambient air (including indoor air), plant and animal life, and any other environmental medium or natural resource. "Environmental, Health, and Safety Liabilities"--any cost, damages, expense, liability, obligation, or other responsibility arising from or under Environmental Law or Occupational Safety and Health Law and consisting of or relating to: (a) any environmental, health, or safety matters or conditions (including on-site or off-site contamination, occupational safety and health, and regulation of chemical substances or products); (b) fines, penalties, judgments, awards, settlements, legal or administrative proceedings, damages, losses, claims, demands and response, investigative, remedial, or inspection costs and expenses arising under Environmental Law or Occupational Safety and Health Law; (c) financial responsibility under Environmental Law or Occupational Safety and Health Law for cleanup costs or corrective action, including any investigation, cleanup, removal, containment, or other remediation or response actions ("Cleanup") required by applicable Environmental Law or Occupational Safety and Health Law (whether or not such Cleanup has been required or requested by any Governmental Body or any other Person) and for any natural resource damages; or (d) any other compliance, corrective, investigative, or remedial measures required under Environmental Law or Occupational Safety and Health Law. The terms "removal," "remedial," and "response action," include the types of activities covered by the United States Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. ss. 9601 et seq., as amended ("CERCLA"). "Environmental Law"--any Legal Requirement that requires or relates to: (a) advising appropriate authorities, employees, and the public of intended or actual releases of pollutants or hazardous substances or materials, violations of discharge limits, or other prohibitions and of the commencements of activities, such as resource extraction or construction, that could have significant impact on the Environment; (b) preventing or reducing to acceptable levels the release of pollutants or hazardous substances or materials into the Environment; - 3 - (c) reducing the quantities, preventing the release, or minimizing the hazardous characteristics of wastes that are generated; (d) assuring that products are designed, formulated, packaged, and used so that they do not present unreasonable risks to human health or the Environment when used or disposed of; (e) protecting resources, species, or ecological amenities; (f) reducing to acceptable levels the risks inherent in the transportation of hazardous substances, pollutants, oil, or other potentially harmful substances; (g) cleaning up pollutants that have been released, preventing the threat of release, or paying the costs of such cleanup or prevention; or (h) making responsible parties pay private parties, or groups of them, for damages done to their health or the Environment, or permitting self-appointed representatives of the public interest to recover for injuries done to public assets. "ERISA"--the Employee Retirement Income Security Act of 1974 or any successor law, and regulations and rules issued pursuant to that Act or any successor law. "Escrow Agent"--shall mean Buchanan Ingersoll Professional Corporation. "Escrow Agreement"--as defined in Section 2.4(c). "Facilities"--any real property, leaseholds, or other interests currently or formerly owned or operated by the Company and any buildings, plants, structures, or equipment (including motor vehicles, tank cars, and rolling stock) currently or formerly owned or operated by the Company. "FCC "--means the Federal Communications Commission of the United States, or any successor agency thereof. "FCC Approval Date"--means the date on which the FCC consents to or approves each of the FCC Filings, including any settlement arrangements and accounting rates stated therein. "FCC Filings"--collectively means the following documents filed or to be filed by the Company with the FCC: (i) transfer of control application with respect to the Company's Overseas Common Carrier Section 214 Authority for consent to transfer control of the Company resulting from the consummation of the Contemplated Transactions; (ii) the Carrier Service Agreement, dated as of May 12, 1998, between the Company and D-Comm, Inc.; and (iii) an operating agreement in form and substance acceptable to Buyer between the Company and Masatepe S.A. which shall set forth the settlement arrangements and accounting rates charged thereunder. - 4 - "Governmental Authorization"--any approval, consent, license, permit, waiver, or other authorization issued, granted, given, or otherwise made available by or under the authority of any Governmental Body or pursuant to any Legal Requirement. "Governmental Body"--any: (a) nation, state, county, city, town, village, district, or other jurisdiction of any nature; (b) federal, state, local, municipal, foreign, or other government; (c) governmental or quasi-governmental authority of any nature (including any governmental agency, branch, department, official, or entity and any court or other tribunal); (d) multinational organization or body; or (e) body exercising, or entitled to exercise, any administrative, executive, judicial, legislative, police, regulatory, or taxing authority or power of any nature. "Graubart Note"--means the promissory note dated as of July 31, 1998 made by Buyer in favor of Graubart, the form of which is attached hereto as Exhibit 2.4(b)(iii). "Guaranty"--as defined in Section 2.4(e). "Hazardous Activity"--the distribution, generation, handling, importing, management, manufacturing, processing, production, refinement, Release, storage, transfer, transportation, treatment, or use (including any withdrawal or other use of groundwater) of Hazardous Materials in, on, under, about, or from the Facilities or any part thereof into the Environment, and any other act, business, operation, or thing that increases the danger, or risk of danger, or poses an unreasonable risk of harm to persons or property on or off the Facilities, or that may affect the value of the Facilities or the Company. "Hazardous Materials"--includes any (i) "hazardous substance," "pollutants," or "contaminant" (as defined in Sections 101(14) and (33) of CERCLA or the regulations issued pursuant to Section 102 of CERCLA and found at 40 C.F.R. ss. 302), including any element, compound, mixture, solution, or substance that is or may be designated pursuant to Section 102 of CERCLA; (ii) substance that is or may be designated pursuant to Section 311(b)(2)(A) of the Federal Water Pollution Control Act, as amended (33 U.S.C. ss.ss. 1251, 1321(b)(2)(A)) ("FWPCA"); (iii) hazardous waste having the characteristics identified under or listed pursuant to Section 3001 of the Resource Conservation and Recovery Act, as amended (42 U.S.C. ss.ss. 6901, 6921) ("RCRA") or having characteristics that may subsequently be considered under RCRA to constitute a hazardous waste; (iv) substance containing petroleum, as that term is defined in Section 9001(8) of RCRA; (v) toxic pollutant that is or may be listed under Section 307(a) of FWPCA; (vi) hazardous air pollutant that is or may be listed under Section 112 of the Clean Air Act, as amended (42 U.S.C. ss.ss. 7401, 7412); (vii) imminently hazardous chemical substance or - 5 - mixture with respect to which action has been or may be taken pursuant to Section 7 of the Toxic Substances Control Act, as amended (15 U.S.C. ss.ss. 2601, 2606); (viii) source, special nuclear, or byproduct material as defined by the Atomic Energy Act of 1954, as amended (42 U.S.C. ss. 2011 et seq.); (ix) asbestos, asbestos-containing material, or urea formaldehyde or material that contains it; (x) waste oil and other petroleum products; and (xii) any other toxic materials, contaminants, or hazardous substances or wastes pursuant to any Environmental Law. "Indemnified Persons"--as defined in Section 10.2. "Intellectual Property Assets"--The term "Intellectual Property Assets" includes: (i) the Company's name, all fictional business names, trading names, registered and unregistered trademarks, service marks, and applications (collectively, "Marks"); (ii) all patents, patent applications, and inventions and discoveries that may be patentable (collectively, "Patents"); (iii) all copyrights in both published works and unpublished works (collectively, "Copyrights"); (iv) all rights in mask works (collectively, "Rights in Mask Works"); and (v) all know-how, trade secrets, confidential information, customer lists, software, technical information, data, process technology, plans, drawings, and blueprints (collectively, "Trade Secrets"); owned, used, or licensed by the Company as licensee or licensor. "IRC"--the Internal Revenue Code of 1986, as amended, or any successor law, and regulations issued by the IRS pursuant to the Internal Revenue Code or any successor law. "IRS"--the United States Internal Revenue Service or any successor agency, and, to the extent relevant, the United States Department of the Treasury. "Knowledge"--an individual will be deemed to have "Knowledge" of a particular fact or other matter if: (a) such individual is actually aware of such fact or other matter; or (b) a prudent individual could be expected to discover or otherwise become aware of such fact or other matter in the course of conducting a reasonably comprehensive investigation concerning the existence of such fact or other matter. A Person (other than an individual) will be deemed to have "Knowledge" of a particular fact or other matter if any individual who is serving, or who has at - 6 - any time served, as a director, officer, member, partner, executor, or trustee of such Person (or in any similar capacity) has, or at any time had, Knowledge of such fact or other matter. "Legal Requirement"--any federal, state, local, municipal, foreign, international, multinational, or other administrative order, constitution, law, ordinance, principle of common law, regulation, statute, or treaty. "Litigation"--the legal proceeding pending before the U.S. District Court for the Southern District of New York under the caption Worldstar Communications vs. Activated Communications, et. al (Civ. No. 98-CV-4093). "Market Price"--as defined in Section 2.2. "Masatepe, S.A"--Masatepe, S.A., a Nicaraguan corporation. "Net Assets"--the total assets of the Company less (a) the Company's total current liabilities other than the current portion of long-term obligations and less (b) the Company's deferred income taxes. "Noncompetition Agreement"--as defined in Section 2.4(a)(iii). "Occupational Safety and Health Law"--any Legal Requirement designed to provide safe and healthful working conditions and to reduce occupational safety and health hazards, and any program, whether governmental or private (including those promulgated or sponsored by industry associations and insurance companies), designed to provide safe and healthful working conditions. "Order"--any award, decision, injunction, judgment, order, ruling, subpoena, or verdict entered, issued, made, or rendered by any court, administrative agency, or other Governmental Body or by any arbitrator. "Ordinary Course of Business"--an action taken by a Person will be deemed to have been taken in the "Ordinary Course of Business" only if: (a) such action is consistent with the past practices of such Person and is taken in the ordinary course of the normal day-to-day operations of such Person; (b) such action is not required to be authorized by the board of directors of such Person (or by any Person or group of Persons exercising similar authority) and is not required to be specifically authorized by the parent company (if any) of such Person; and (c) such action is similar in nature and magnitude to actions customarily taken, without any authorization by the board of directors (or by any Person or group of Persons exercising similar authority), in the ordinary course of the normal day-to-day operations of other Persons that are in the same line of business as such Person. - 7 - "Organizational Documents"--(a) the articles or certificate of incorporation and the bylaws of a corporation; (b) the partnership agreement and any statement of partnership of a general partnership; (c) the limited partnership agreement and the certificate of limited partnership of a limited partnership; (e) the certificate of formation and the operating agreement of a limited liability company; (e) any charter or similar document adopted or filed in connection with the creation, formation, or organization of a Person; and (f) any amendment to any of the foregoing. "Person"--any individual, corporation (including any non-profit corporation), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, labor union, or other entity or Governmental Body. "Plaintiff"--means any and all plaintiffs to the Litigation, including, without limitation, Worldstar Communications Corporation. "Proceeding"--any action, arbitration, audit, hearing, investigation, litigation, or suit (whether civil, criminal, administrative, investigative, or informal) commenced, brought, conducted, or heard by or before, or otherwise involving, any Governmental Body or arbitrator. "Related Person"--with respect to a particular individual: (a) each other member of such individual's Family; (b) any Person that is directly or indirectly controlled by such individual or one or more members of such individual's Family; (c) any Person in which such individual or members of such individual's Family hold (individually or in the aggregate) a Material Interest; and (d) any Person with respect to which such individual or one or more members of such individual's Family serves as a director, officer, partner, executor, or trustee (or in a similar capacity). With respect to a specified Person other than an individual: (a) any Person that directly or indirectly controls, is directly or indirectly controlled by, or is directly or indirectly under common control with, such specified Person; (b) any Person that holds a Material Interest in such specified Person; (c) each Person that serves as a director, officer, partner, executor, or trustee of such specified Person (or in a similar capacity); (d) any Person in which such specified Person holds a Material Interest; - 8 - (e) any Person with respect to which such specified Person serves as a general partner or a trustee (or in a similar capacity); and (f) any Related Person of any individual described in clause (b) or (c). For purposes of this definition, (a) the "Family" of an individual includes (i) the individual, (ii) the individual's spouse and former spouses, (iii) any other natural person who is related to the individual or the individual's spouse within the second degree, and (iv) any other natural person who resides with such individual, and (b) "Material Interest" means direct or indirect beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) of voting securities or other voting interests representing at least 40% of the outstanding voting power of a Person or equity securities or other equity interests representing at least 40% of the outstanding equity securities or equity interests in a Person. "Release"--any spilling, leaking, emitting, discharging, depositing, escaping, leaching, dumping, or other releasing into the Environment, whether intentional or unintentional. "Representative"--with respect to a particular Person, any director, officer, employee, agent, consultant, advisor, or other representative of such Person, including legal counsel, accountants, and financial advisors. "Securities Act"--the Securities Act of 1933, as amended, or any successor law, and regulations and rules issued pursuant to that Act or any successor law. "Sellers"--as defined in the first paragraph of this Agreement. "Sellers' Release"--as defined in Section 2.4. "Interests"--as defined in the Recitals of this Agreement. "Subsidiary"--with respect to any Person (the "Owner"), any corporation or other Person of which securities or other interests having the power to elect a majority of that corporation's or other Person's board of directors or similar governing body, or otherwise having the power to direct the business and policies of that corporation or other Person (other than securities or other interests having such power only upon the happening of a contingency that has not occurred) are held by the Owner or one or more of its Subsidiaries. "Tax"--any tax (including any income tax, capital gains tax, value-added tax, sales tax, property tax, gift tax, or estate tax), levy, assessment, tariff, duty (including any customs duty), deficiency, or other fee, and any related charge or amount (including any fine, penalty, interest, or addition to tax), imposed, assessed, or collected by or under the authority of any Governmental Body or payable pursuant to any tax-sharing agreement or any other Contract relating to the sharing or payment of any such tax, levy, assessment, tariff, duty, deficiency, or fee. "Tax Return"--any return (including any information return), report, statement, schedule, notice, form, or other document or information filed with or submitted to, or required to be filed with or submitted to, any Governmental - 9 - Body in connection with the determination, assessment, collection, or payment of any Tax or in connection with the administration, implementation, or enforcement of or compliance with any Legal Requirement relating to any Tax. "Threat of Release"--a substantial likelihood of a Release that may require action in order to prevent or mitigate damage to the Environment that may result from such Release. "Threatened"--a claim, Proceeding, dispute, action, or other matter will be deemed to have been "Threatened" if any demand or statement has been made (orally or in writing) or any notice has been given (orally or in writing), or if any other event has occurred or any other circumstances exist, that would lead a prudent Person to conclude that such a claim, Proceeding, dispute, action, or other matter is likely to be asserted, commenced, taken, or otherwise pursued in the future. 2. SALE AND PURCHASE OF INTERESTS; CLOSING 2.1 SALE AND PURCHASE OF INTERESTS Subject to the terms and conditions of this Agreement, at the Closing, Sellers will sell and transfer the Interests to Buyer, and Buyer will purchase the Interests from Sellers. 2.2 PURCHASE PRICE The total purchase price (the "Purchase Price") for all the Interests will be $1,140,042.84 in cash and stock, plus the Deferred Purchase Shares, if any, plus the delivery of the Graubart Note. The Purchase Price shall be payable to each of the Sellers in the following manner: (a) To Activated: (i) The Buyer shall deposit with the Escrow Agent at the Closing the sum of $500,000 in immediately available funds (the "Cash Escrow Fund") and, within ten days following the Closing Date, 78,697 shares of common stock of the Buyer, $2.00 par value (the "VDC Shares"), both of which shall serve as non-exclusive sources for payment of any liability of Sellers to Buyer under this Agreement, which sum shall be held and disbursed in accordance with the terms of the Escrow Agreement; and (ii) At the Closing, the Buyer shall deposit with the Escrow Agent the sum of $89,169 in immediately available funds (the "Accounts Receivable Escrow Fund") which sum shall be held and disbursed in accordance with the terms of the Escrow Agreement; and - 10 - (iii) On the Deferred Delivery Date, if the Market Price of one VDC Share is less than $7.00, as adjusted for any stock splits, extraordinary dividends, exchanges, recapitalizations or mergers, then, within sixty days following the Deferred Delivery Date, the Buyer shall issue to Activated that number of shares of common stock of VDC, par value $2.00 (the "Deferred Purchase Shares"), calculated in accordance with the following formula: [$550,873.84 - (78,697 x the Market Price of one VDC Share on the Deferred Delivery Date)] / the Market Price of one VDC Share on the Deferred Delivery Date = the number of Deferred Purchase Shares payable by Buyer For example, if the Market Price of one VDC Share on the Deferred Delivery Date was $6.00, then the number of Deferred Purchase Shares payable by Buyer would equal 13,116 [($550,873.84 - $472,182) / $6.00]. If the number of Deferred Purchase Shares calculated in accordance with the above formula results in a fractional share, one Deferred Purchase Share shall be payable in lieu of such fractional share. (iv) Notwithstanding anything to the contrary in this Section 2.2, in the event that Buyer becomes entitled to receive from escrow all or any portion of the VDC Shares (the "Returned Shares") on or before the Deferred Delivery Date by virtue of Sellers' obligation to pay any liability of Sellers to Buyer under this Agreement, and the market value of one VDC Share is less than $7.00 on the Deferred Delivery Date (as adjusted for any stock splits, extraordinary dividends, exchanges, recapitalizations or mergers), then the Buyer , within sixty days following the Deferred Delivery Date, shall issue to Sellers the number of Deferred Purchase Shares calculated in accordance with the following formula: [(78,697 - number of Returned Shares) x $7.00] - [(78,697 - number of Returned Shares) x the Market Price of one VDC Share on the Deferred Delivery Date)] / the Market Price of one VDC Share on the Deferred Delivery Date = the number of Deferred Purchase Shares payable by Buyer. For example, if the Market Price of one VDC Share on the Deferred Delivery Date was $6.00, and the number of Returned Shares was 10,000, then the number of Deferred Purchase Shares payable by Buyer would equal 11,450 [($480,879 - $412,182) / $6.00]. If the number of Deferred Purchase Shares calculated in accordance with the above formula results in a fractional share, one Deferred Purchase Share shall be payable in lieu of such fractional share. (v) For the purposes of this Section 2.2, the market price of the VDC Shares (the "Market Price") shall be calculated as follows: (A) If the VDC Shares are traded in the over-the-counter market and not on any national securities exchange nor in the NASDAQ Reporting System, the market price 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 - 11 - an equivalent generally accepted reporting service, for the consecutive 45 trading days following the Deferred Delivery Date, or if not so reported, the average of the closing bid and asked prices for a share of VDC common stock for the consecutive 45 trading days following the Deferred Delivery Date as furnished to Buyer by any member of the National Association of Securities Dealers, Inc., selected by Buyer for that purpose. (B) If the VDC Shares are traded on a national securities exchange or in the NASDAQ Reporting System, the market price shall be the simple average of the closing prices at which a VDC Share traded, as quoted on the NASDAQ Reporting System or its other principal exchange for the consecutive 45 trading days following the Deferred Delivery Date. (vi) Upon the release of the VDC Shares from escrow in accordance with the terms of the Escrow Agreement, Activated may cause the VDC Shares which it is entitled to receive on such date to be registered by Buyer as follows: (A) After Buyer's domestication from Bermuda into the United States under the Securities Act of 1933, as amended (the "Act"), Buyer shall advise Activated by written notice prior to the earlier to occur of (x) the filing of the first registration statement by Buyer (excluding registration on Forms S-8, S-4, or any successor forms thereto), covering securities of Buyer to be offered and sold by Buyer to the public generally or (y) the six month anniversary of the Closing Date, and shall, upon the request of Activated given at least three (3) business days prior to the filing of such registration statement, include in any such registration statement such information as may be required to permit a public offering of the VDC Shares. Buyer shall supply prospectuses, qualify the VDC Shares for sale in such states as Buyer qualifies its securities; provided, however, that Buyer will not be required to maintain the registration of the VDC Shares for any longer period than it shall require for its own purposes. Activated shall furnish such information as may be reasonably requested by Buyer in order to include such VDC Shares in the registration statement. In the event that any registration pursuant to this Section 2.2(a)(vi) shall be, in whole or in part, an underwritten public offering of common stock, the number of VDC Shares to be included in such underwriting may be reduced (and the registration of such VDC Shares may be postponed by Buyer for up to 180 days following the completion of any such underwritten offering) if and to the extent the managing underwriter shall be of the opinion that such inclusion would adversely affect the marketing of the securities to be sold by Buyer therein. Notwithstanding the foregoing, Buyer may withdraw any registration statement referred to in subclause (x) of this Section 2.2(a)(vi)(A) without thereby incurring liability to Activated if Buyer files a registration statement including the VDC Shares within six months after the Closing Date. (B) The following provisions shall also be applicable: (i) Buyer shall bear the entire cost and expense of any registration of securities initiated by it under subsection (A) of this Section 2.2(a)(vi) notwithstanding that VDC Shares may be included in any such registration. If VDC Shares are included in any such registration statement pursuant to this Section 2.2(a)(vi), Activated shall, however, bear the fees of its own counsel and any registration fees, transfer taxes or - 12 - underwriting discounts or commissions applicable to the VDC Shares sold by it pursuant thereto and bear any other costs imposed by applicable federal or state securities laws, rules or regulations. (ii) Buyer shall indemnify and hold harmless Activated and each underwriter, within the meaning of the Act, who may purchase from or sell for Activated any VDC Shares from and against any and all losses, claims, damages and liabilities caused by any untrue statement or alleged untrue statement of a material fact contained in any registration statement under the Act filed by or at the direction of the Buyer or any prospectus included therein required to be filed or furnished by reason of this Section 2.2(a)(vi) or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages or liabilities are caused by any such untrue statement or alleged untrue statement or omission or alleged omission based upon information furnished or required to be furnished in writing to the Buyer by Activated or any underwriter expressly for use therein, which indemnification shall include each person, if any, who controls any such underwriter within the meaning of such Act; provided, however, that the Buyer shall not be obliged so to indemnify Activated or any underwriter or controlling person unless Activated or the underwriter shall at the same time indemnify the Buyer, its directors, each officer signing the related registration statement and each person, if any, who controls the Buyer within the meaning of such Act, from and against any and all losses, claims, damages and liabilities caused by any untrue statement or alleged untrue statement of a material fact contained in any registration statement or any prospectus required to be filed or furnished by reason of this Section 2.2(a)(vi) or caused by any omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, insofar as such losses, claims, damages or liabilities are caused by any untrue statement or alleged untrue statement or omission based upon information furnished in writing to the Buyer by Activated or any underwriter expressly for use therein. (iii) Except as set forth herein, Buyer shall have no obligation whatsoever to (1) assist or cooperate in the offering or disposition of the VDC Shares; (2) obtain a commitment from an underwriter relative to the sale of the VDC Shares; (3) include the VDC Shares within an underwritten offering of Buyer; or (4) indemnify or hold harmless Activated or any underwriter designated by Activated; (iii) The VDC Shares shall bear the following restrictive legend: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION, OR THE AVAILABILITY OF AN EXEMPTION FROM REGISTRATION, UNDER THE SECURITIES ACT OF 1933, AS AMENDED, BASED ON - 13 - AN OPINION LETTER OF COUNSEL FOR THE COMPANY OR A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION. (b) To Graubart: (1) At the Closing, Buyer shall deliver the Graubart Note, due and payable upon the earlier to occur (subject to extension as set forth in the Graubart Note, the "Maturity Date") of (i) the third year anniversary of the Closing Date or (ii) the effective date of any transaction pursuant to which a change of control of Buyer results (other than a merger to effectuate a change in Buyer's jurisdiction of incorporation from Bermuda to the United States) as set forth in the Graubart Note for that number of shares of common stock of Buyer, par value $2.00 per share, calculated in accordance with the terms of the Graubart Note. 2.3 CLOSING The purchase and sale (the "Closing") provided for in this Agreement will occur by telephone, with each of the parties hereto participating in such Closing, on Friday, August 7, 1998 at 3:00 p.m., or at such other time as the parties may agree. Subject to the provisions of Article 9, failure to consummate the purchase and sale provided for in this Agreement on the date and time and at the place determined pursuant to this Section 2.3 will not result in the termination of this Agreement and will not relieve any party of any obligation under this Agreement. 2.4 CLOSING OBLIGATIONS At the Closing: (a) Sellers will deliver to Buyer: (i) this Agreement and the Interests, duly executed and assigned to Buyer; (ii) a release in the form of Exhibit 2.4(a)(ii) executed by Activated, Lindemann Capital Partners and each of the partners thereof (the "Release"); (iii) a noncompetition agreement in the form of Exhibit 2.4(a)(iii), executed by Activated (the "Noncompetition Agreement"); (iv) a license from the Federal Communications Commission granting special temporary authorization of the Company continuing as a licensee under its Overseas Common Carrier Section 214 License after the change in control of the Company resulting from the consummation of the transactions contemplated by this Agreement; - 14 - (v) a certificate executed by Sellers representing and warranting to Buyer that each of Sellers' representations and warranties in this Agreement was accurate in all respects as of the date of this Agreement and is accurate in all respects as of the Closing Date as if made on the Closing Date (giving full effect to any supplements to the Disclosure Letter that were delivered by Sellers to Buyer prior to the Closing Date in accordance with Section 5.4); (vi) a legal opinion of Fleischman and Walsh, L.L.P. in the form attached hereto as Exhibit 2.4(a)(vi); and (vii) a legal opinion of Yali Molina Palacios in the form attached hereto as Exhibit 2.4(a)(vii). (b) Buyer will deliver to the Escrow Agent: (i) the sum of $589,169.00 by wire transfer, bank cashier's or certified check; (ii) instructions to the Buyer's transfer agent to issue 78,697 shares of common stock of the Buyer, $2.00 par value (the "VDC Shares") in the name of Activated, which VDC Shares shall be deposited with the Escrow Agent within ten days after the Closing Date; and (iii) the Graubart Note. (c) Buyer and Sellers will enter into an escrow agreement in the form of Exhibit 2.4(c) (the "Escrow Agreement") with the Escrow Agent. (d) Buyer and the Company will enter into a Bridge Loan Agreement in the form of Exhibit 2.4(d) (the "Bridge Loan Agreement"). (e) Buyer and Activated will enter into a Guaranty in the form of Exhibit 2.4(e) (the "Guaranty"). (f) Buyer shall enter into employment agreements with each of Marc Graubart and Michael Mazzone in the forms attached hereto as Exhibit 2.4(f). - 15 - 3. REPRESENTATIONS AND WARRANTIES OF SELLERS Sellers jointly and severally (except as expressly indicated otherwise) represent and warrant to Buyer as follows: 3.1 ORGANIZATION AND GOOD STANDING (a) The Company is a limited liability company duly organized, validly existing, and in good standing under the laws of the State of Delaware, with full power and authority to conduct its business as it is now being conducted, to own, lease or use the properties and assets that it purports to own, lease or use, and to perform all its obligations under Applicable Contracts. The Company is duly qualified to do business as a foreign corporation and is in good standing under the laws of each state or other jurisdiction in which either the ownership or use of the properties owned or used by it, or the nature of the activities conducted by it, requires such qualification. Part 3.1 of the Disclosure Letter contains a complete and accurate list of other jurisdictions in which the Company is authorized to do business, all fictitious names under which the Company or any of its predecessors have conducted business, and its capitalization (including the identity of each member and the membership interest percentage held by each). Except as set forth in Part 3.1 of the Disclosure Letter, the Company has not, during the six-year period immediately preceding the date hereof, changed its name, been the surviving entity of a merger, consolidation or other reorganization, or acquired all or substantially all of the assets of any Person. (b) Sellers have delivered to Buyer complete and accurate copies of the Organizational Documents of the Company, as currently in effect. 3.2 AUTHORITY; NO CONFLICT (a) This Agreement constitutes the legal, valid, and binding obligation of Sellers, enforceable against Sellers in accordance with its terms. Upon the execution and delivery by Sellers of the Escrow Agreement, the Employment Agreements, the Sellers' Release, the Noncompetition Agreement and the Guaranty (collectively, the "Sellers' Closing Documents"), the Sellers' Closing Documents and the Bridge Loan Agreement will constitute the legal, valid, and binding obligations of Sellers, enforceable against Sellers in accordance with their respective terms. Sellers have the absolute and unrestricted right, power, authority, and capacity to execute and deliver this Agreement and the Sellers' Closing Documents and to perform their obligations under this Agreement and the Sellers' Closing Documents. - 16 - (b) Except as set forth in Part 3.2 of the Disclosure Letter, neither the execution and delivery of this Agreement nor the consummation or performance of any of the Contemplated Transactions will, directly or indirectly (with or without notice or lapse of time): (i) contravene, conflict with, or result in a violation of (A) any provision of the Organizational Documents of the Company, or (B) any resolution adopted by the board of directors or the members of the Company; (ii) contravene, conflict with, or result in a violation of, or give any Governmental Body or other Person the right to challenge any of the Contemplated Transactions or to exercise any remedy or obtain any relief under, any Legal Requirement or any Order to which the Company or any Seller, or any of the assets owned or used by the Company, may be subject; (iii) contravene, conflict with, or result in a violation of any of the terms or requirements of, or give any Governmental Body the right to revoke, withdraw, suspend, cancel, terminate, or modify, any Governmental Authorization that is held by the Company or that otherwise relates to the business of, or any of the assets owned or used by, the Company; (iv) cause Buyer or the Company to become subject to, or to become liable for the payment of, any Tax; (v) cause any of the assets owned by the Company to be reassessed or revalued by any taxing authority or other Governmental Body; (vi) contravene, conflict with, or result in a violation or breach of any provision of, or give any Person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate, or modify, any Applicable Contract; or (vii) result in the imposition or creation of any Encumbrance upon or with respect to any of the assets owned or used by the Company. Except as set forth in Part 3.2 of the Disclosure Letter, neither the Company nor any Seller is or will be required to give any notice to or obtain any Consent from any Person in connection with the execution and delivery of this Agreement or the consummation or performance of any of the Contemplated Transactions. - 17 - 3.3 CAPITALIZATION Sellers are and will be on the Closing Date all of the record and beneficial owners and holders of the Interests, free and clear of all Encumbrances. No legend or other reference to any purported Encumbrance appears upon any certificate representing equity securities of the Company. All of the outstanding Interests have been duly authorized and validly issued and are fully paid and nonassessable. There are no Contracts relating to the issuance, sale, or transfer of any Interests or other securities of the Company, including, without limitation, securities which are convertible into or exchangeable for, equity securities or other securities of the Company. None of the outstanding Interests or other securities of the Company was issued in violation of the Securities Act or any other Legal Requirement. The Company does not own, nor has any Contract to acquire, any equity securities or other securities of any Person or any direct or indirect equity or ownership interest in any other business, other than 49% of the share capital of Masatepe S.A. 3.4 FINANCIAL DATA Sellers have delivered to Buyer complete and accurate information with respect to the uses of funds by the Company prior to the Closing Date . The Company has paid in full all accounts payable owing as of July 31, 1998. In addition, the Company has prepaid the aggregate amount of $50,873.84 which will be due owing on or before August 31, 1998 under the Company's existing agreements with (1) Valucom World Services, Inc. for uplink and downlink services and (2) IDB Systems, A Division of WorldCom, Inc., for local loops from WorldCom TOC to a teleport. 3.5 BOOKS AND RECORDS The books of account, minute books, membership interest record books, and other records of the Company, all of which have been made available to Buyer, are complete and correct and have been maintained in accordance with sound business practices, including the maintenance of an adequate system of internal controls. The minute books of the Company contain accurate and complete records of all meetings held of, and corporate action taken by, the members, the Board of Directors, and committees of the Board of Directors of the Company, and no meeting of any such members, Board of Directors, or committee has been held for which minutes have not been prepared and are not contained in such minute books. At the Closing, all of those books and records will be in the possession of the Company. 3.6 TITLE TO PROPERTIES; ENCUMBRANCES Part 3.6 of the Disclosure Letter contains a complete and accurate list of leaseholds, or other interests therein owned by the Company. The Company owns (with good and marketable title in the case of real property, subject only to the matters permitted by the following sentence) all the properties and assets (whether real, personal, or mixed and whether tangible or intangible) that it purports to own, including all of the properties and assets reflected in the Balance Sheet (except for assets held under capitalized leases disclosed or not - 18 - required to be disclosed in Part 3.6 of the Disclosure Letter), and all of the properties and assets purchased or otherwise acquired by the Company since the date of the Balance Sheet, which subsequently purchased or acquired properties and assets (other than inventory and short-term investments) are listed in Part 3.6 of the Disclosure Letter. All material properties and assets reflected in the Balance Sheet are free and clear of all Encumbrances. 3.7 CONDITION AND SUFFICIENCY OF ASSETS The assets of the Company are in good operating condition and repair, and are adequate for the uses to which they are being put, and none of such assets are in need of maintenance or repairs except for ordinary, routine maintenance and repairs that are not material in nature or cost. The assets of the Company are sufficient for the continued conduct of the Company' businesses after the Closing in substantially the same manner as conducted prior to the Closing. 3.8 ACCOUNTS RECEIVABLE All accounts receivable of the Company that are described in Part 3.8 of the Disclosure Letter or on the accounting records of the Company as of the Closing Date (collectively, the "Accounts Receivable") represent or will represent valid obligations arising from sales actually made or services actually performed in the Ordinary Course of Business and are equal to or in excess of $89,169. Unless paid prior to the Closing Date, the Accounts Receivable are or will be as of the Closing Date current and collectible. Each of the Accounts Receivable either has been or will be collected in full, without any setoff, within ninety days after the day on which it first becomes due and payable. There is no contest, claim, or right of setoff, other than returns in the Ordinary Course of Business, under any Contract with any obligor of an Accounts Receivable relating to the amount or validity of such Accounts Receivable. Part 3.8 of the Disclosure Letter contains a complete and accurate list of all Accounts Receivable of the Company as of its date. 3.9 MASATEPE S.A. LICENSE AUTHORITY The Contemplated Transactions shall not result in a violation or termination of Masatepe S.A.'s contract of services with Empresa Nicaraguense de Telecomunicaciones ("ENITEL") to supply direct telecommunications service between Nicaragua and the United States. 3.10 NO UNDISCLOSED LIABILITIES Except as set forth in Part 3.10 of the Disclosure Letter, the Company has no liabilities or obligations of any nature (whether known or unknown and whether absolute, accrued, contingent, or otherwise) except for current liabilities incurred in the Ordinary Course of Business since the respective dates thereof. The Company has no liabilities, contingent or otherwise, to the Sellers or any of Activated's partners. 3.11 TAXES (a) The charges, accruals, and reserves with respect to Taxes on the respective books of the Company are adequate (determined in - 19 - accordance with GAAP) and are at least equal to that Company's liability for Taxes. There exists no proposed tax assessment against the Company. All Taxes that the Company is or was required by Legal Requirements to withhold or collect have been duly withheld or collected and, to the extent required, have been paid to the proper Governmental Body or other Person. (b) The Company has filed no Tax Returns. There is no tax sharing agreement that will require any payment by the Company after the date of this Agreement. 3.12 NO MATERIAL ADVERSE CHANGE Since July 15, 1998, there has not been any material adverse change in the business, operations, properties, prospects, assets, or condition of the Company or Masatepe S.A., and no event has occurred or circumstance exists that may result in such a material adverse change. 3.13 EMPLOYEE BENEFITS (a) The Company has no employment arrangements, pension, retirement, profit sharing and bonus plans, and all deferred compensation, health, welfare, all severance management, and other similar plans for the benefit of any employees of the Company, including employee plans ("Employee Benefit Plan"). Subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), the Company at present is not, and since its organization, has not been a sponsor of, party to or obligated to contribute to any employee benefit plan (as defined inss. 3(3) of ERISA), and has not been a party to any collective bargaining agreement. The Company has never been a member of a "controlled group of corporations" within the meaning of Internal Revenue Code Section 414(b) or (c) is or has ever maintained a defined benefit pension plan or contributed to a multiemployer plan as defined in Section 3(37) of ERISA. (b) The Company is not obligated to and does not (directly or indirectly) provide death benefits or health care coverage to any former employees or retirees. (c) The Company has complied with all applicable provisions of the Immigration Reform and Control Act of 1986. - 20 - 3.14 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS (a) Except as set forth in Part 3.14 of the Disclosure Letter: (i) the Company is, and at all times since its organization, has been, in full compliance with each Legal Requirement that is or was applicable to it or to the conduct or operation of its business or the ownership or use of any of its assets; (ii) no event has occurred or circumstance exists that (with or without notice or lapse of time) (A) may constitute or result in a violation by the Company of, or a failure on the part of the Company to comply with, any Legal Requirement, or (B) may give rise to any obligation on the part of the Company to undertake, or to bear all or any portion of the cost of, any remedial action of any nature; and (iii) the Company has not received, at any time since its organization, any notice or other communication (whether oral or written) from any Governmental Body or any other Person regarding (A) any actual, alleged, possible, or potential violation of, or failure to comply with, any Legal Requirement, or (B) any actual, alleged, possible, or potential obligation on the part of the Company to undertake, or to bear all or any portion of the cost of, any remedial action of any nature. (b) Part 3.14 of the Disclosure Letter contains a complete and accurate list of each Governmental Authorization that is held by the Company or that otherwise relates to the business of, or to any of the assets owned or used by, the Company. Each Governmental Authorization listed or required to be listed in Part 3.14 of the Disclosure Letter is valid and in full force and effect. Except as set forth in Part 3.14 of the Disclosure Letter: (i) the Company is, and at all times since its organization, has been, in full compliance with all of the terms and requirements of each Governmental Authorization identified or required to be identified in Part 3.14 of the Disclosure Letter; (ii) no event has occurred or circumstance exists that may (with or without notice or lapse of time) (A) constitute or result directly or indirectly in a violation of or a failure to comply with any term or requirement of any Governmental Authorization listed or required to be listed in Part 3.14 of the Disclosure Letter, or (B) result directly or indirectly in the revocation, withdrawal, suspension, cancellation, or termination of, or any modification to, any Governmental - 21 - Authorization listed or required to be listed in Part 3.14 of the Disclosure Letter; (iii) the Company has not received, at any time since its organization, any notice or other communication (whether oral or written) from any Governmental Body or any other Person regarding (A) any actual, alleged, possible, or potential violation of or failure to comply with any term or requirement of any Governmental Authorization, or (B) any actual, proposed, possible, or potential revocation, withdrawal, suspension, cancellation, termination of, or modification to any Governmental Authorization; and (iv) all applications required to have been filed for the renewal of the Governmental Authorizations listed or required to be listed in Part 3.14 of the Disclosure Letter have been duly filed on a timely basis with the appropriate Governmental Bodies, and all other filings required to have been made with respect to such Governmental Authorizations have been duly made on a timely basis with the appropriate Governmental Bodies. The Governmental Authorizations listed in Part 3.14 of the Disclosure Letter collectively constitute all of the Governmental Authorizations necessary to permit the Company to lawfully conduct and operate their businesses in the manner they currently conduct and operate such businesses and to permit the Company to own and use its assets in the manner in which it currently owns and uses such assets. 3.15 LEGAL PROCEEDINGS; ORDERS (a) Except as set forth in Part 3.15 of the Disclosure Letter, there is no pending Proceeding: (i) that has been commenced by or against the Company or that otherwise relates to or may affect the business of, or any of the assets owned or used by, the Company; or (ii) that challenges, or that may have the effect of preventing, delaying, making illegal, or otherwise interfering with, any of the Contemplated Transactions. To the Knowledge of Sellers and the Company, (1) no such Proceeding has been Threatened, and (2) no event has occurred or circumstance exists that may give rise to or serve as a basis for the commencement of any such Proceeding. The Proceedings listed in Part 3.15 of the Disclosure Letter will not have a material adverse effect on the business, operations, assets, condition, or prospects of the Company or Masatepe S.A., or result in any change in the - 22 - ownership of the Company or Masatepe S.A. The Sellers have delivered to Buyer all copies of the pleadings relating to the Litigation. (b) There is no Order to which any of the Company, or any of the assets owned or used by the Company, is subject. (c) No Seller is subject to any Order that relates to the business of, or any of the assets owned or used by, the Company. (d) No officer, director, agent, or employee of the Company is subject to any Order that prohibits such officer, director, agent, or employee from engaging in or continuing any conduct, activity, or practice relating to the business of the Company. (e) The Company is, and at all times since its organization, has been, in full compliance with all of the terms and requirements of each Order to which it, or any of the assets owned or used by it, is or has been subject. (f) No event has occurred or circumstance exists that may constitute or result in (with or without notice or lapse of time) a violation of or failure to comply with any term or requirement of any Order to which the Company, or any of the assets owned or used by the Company, is subject. (g) The Company has not received, at any time since its organization, any notice or other communication (whether oral or written) from any Governmental Body or any other Person regarding any actual, alleged, possible, or potential violation of, or failure to comply with, any term or requirement of any Order to which the Company, or any of the assets owned or used by the Company, is or has been subject. 3.16 ABSENCE OF CERTAIN CHANGES AND EVENTS Since the date of its formation, the Company has conducted its business only in the Ordinary Course of Business and there has not been any: (a) change in the Company's authorized or issued capital stock; grant of any option or right to purchase membership interests of the Company; issuance of any security convertible into such membership interests; grant of any registration rights; purchase, redemption, retirement, or other acquisition by the Company of any shares of any such capital stock; or declaration or payment of any distribution or payment in respect of membership interests; (b) amendment to the Organizational Documents of the Company; (c) payment or increase by the Company of any bonuses, salaries, or other compensation to any member, director, officer, or (except in - 23 - the Ordinary Course of Business) employee or entry into any employment, severance, or similar Contract with any director, officer, or employee; (d) adoption of, or increase in the payments to or benefits under, any profit-sharing, bonus, deferred compensation, savings, insurance, pension, retirement, or other employee benefit plan for or with any employees of the Company; (e) damage to or destruction or loss of any asset or property of the Company, whether or not covered by insurance, materially and adversely affecting the properties, assets, business, financial condition, or prospects of the Company, taken as a whole; (f) other than in the Ordinary Course of Business, entry into, termination of, or receipt of notice of termination of any contract, license, dealer, sales representative, joint venture, credit, or similar agreement; (g) sale (other than sales of telephony minutes in the Ordinary Course of Business), lease, or other disposition of any asset or property of the Company or mortgage, pledge, or imposition of any lien or other encumbrance on any material asset or property of the Company, including the sale, lease, or other disposition of any of the Intellectual Property Assets; (h) cancellation or waiver of any claims or rights with a value to the Company; or (i) agreement, whether oral or written, by the Company to do any of the foregoing. 3.17 CONTRACTS; NO DEFAULTS (a) Part 3.17(a) of the Disclosure Letter contains a complete and accurate list, and Sellers have delivered to Buyer true and complete copies, of: (i) each Applicable Contract that involves performance of services or delivery of goods or materials by the Company; (ii) each Applicable Contract that involves performance of services or delivery of goods or materials to the Company; (iii) each Applicable Contract that was not entered into in the Ordinary Course of Business; (iv) each lease, rental or occupancy agreement, license, installment and conditional sale agreement, and other - 24 - Applicable Contract affecting the ownership of, leasing of, title to, use of, or any leasehold or other interest in, any real or personal property; (v) each licensing agreement or other Applicable Contract with respect to patents, trademarks, copyrights, or other intellectual property, including agreements with current or former employees, consultants, or contractors regarding the appropriation or the nondisclosure of any of the Intellectual Property Assets; (vi) each joint venture, partnership, and other Applicable Contract (however named) involving a sharing of profits, losses, costs, or liabilities by the Company with any other Person; (vii) each Applicable Contract containing covenants that in any way purport to restrict the business activity of the Company or any Affiliate of the Company or limit the freedom of the Company or any Affiliate of the Company to engage in any line of business or to compete with any Person; (viii) each Applicable Contract providing for payments to or by any Person based on sales, purchases, or profits, other than direct payments for goods; (ix) each power of attorney that is currently effective and outstanding; (x) each Applicable Contract entered into other than in the Ordinary Course of Business that contains or provides for an express undertaking by the Company to be responsible for consequential damages; (xi) each Applicable Contract for capital expenditures; (xii) each written warranty, guaranty, and or other similar undertaking with respect to contractual performance extended by the Company other than in the Ordinary Course of Business; and (xiii) each amendment, supplement, and modification (whether oral or written) in respect of any of the foregoing. Part 3.17(a) of the Disclosure Letter sets forth reasonably complete details concerning such Contracts not delivered by Sellers to Buyer prior to the Closing, including details regarding the parties to the Contracts, the amount of the remaining commitment of the Company under the Contracts, and the Company' office where details relating to the Contracts are located. (b) No Seller (and no Related Person of any Seller) has or may acquire any rights under, and no Seller has or may become subject to any - 25 - obligation or liability under, any Contract that relates to the business of, or any of the assets owned or used by, the Company. (c) No officer, director, agent, employee, consultant, or contractor of the Company is bound by any Contract that purports to limit the ability of such officer, director, agent, employee, consultant, or contractor to (A) engage in or continue any conduct, activity, or practice relating to the business of the Company, or (B) assign to the Company or to any other Person any rights to any invention, improvement, or discovery. (d) Each Contract identified or required to be identified in Part 3.17(a) of the Disclosure Letter is in full force and effect and, to Sellers' Knowledge, is valid and enforceable against the Company in accordance with its terms. (e) The Company is, and at all times since its organization has been, in full compliance with all applicable terms and requirements of each Contract under which the Company has or had any obligation or liability or by which the Company or any of the assets owned or used by the Company is or was bound. (f) Each other Person that has or had any obligation or liability under any Contract under which the Company has or had any rights is, and at all times since the Company's organization has been, in full compliance with all applicable terms and requirements of such Contract (g) No event has occurred or circumstance exists that (with or without notice or lapse of time) may contravene, conflict with, or result in a violation or breach of, or give the Company or other Person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate, or modify, any Applicable Contract. (h) The Company has not given to or received from any other Person, at any time since its organization, any notice or other communication (whether oral or written) regarding any actual, alleged, possible, or potential violation or breach of, or default under, any Contract. (i) There are no renegotiations of, attempts to renegotiate, or outstanding rights to renegotiate any material amounts paid or payable to the Company under current or completed Contracts with any Person and no such Person has made written demand for such renegotiation. (j) The Contracts relating to the sale, design, manufacture, or provision of products or services by the Company have been entered into in the Ordinary Course of Business and have been entered into - 26 - without the commission of any act alone or in concert with any other Person, or any consideration having been paid or promised, that is or would be in violation of any Legal Requirement. 3.18 INSURANCE The Company is not a party to any policies of insurance. 3.19 ENVIRONMENTAL MATTERS The Company is, and at all times has been, in full compliance with, and has not been and is not in violation of or liable under, any Environmental Law. Neither the Company nor any Seller has any basis to expect, nor has any of them or any other Person for whose conduct they are or may be held to be responsible received, any actual or Threatened order, notice, or other communication from any Governmental Body or private citizen acting in the public interest. 3.20 EMPLOYEES (a) The Company has no employees. 3.21 Intentionally omitted. 3.22 INTELLECTUAL PROPERTY The Company has no Intellectual Property Assets. 3.23 CERTAIN PAYMENTS Since its organization, neither the Company nor any director, officer, agent, or employee of the Company, or any other Person associated with or acting for or on behalf of the Company, has directly or indirectly (a) made any contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other payment to any Person, private or public, regardless of form, whether in money, property, or services, (i) to obtain favorable treatment in securing business, (ii) to pay for favorable treatment for business secured, (iii) to obtain special concessions, or for special concessions already obtained, for or in respect of the Company or any Affiliate of the Company, or (iv) in violation of any Legal Requirement; or (b) established or maintained any fund or asset that has not been recorded in the books and records of the Company. 3.24 DISCLOSURE (a) No representation or warranty of Sellers in this Agreement and no statement in the Disclosure Letter omits to state a material fact necessary to make the statements herein or therein, in light of the circumstances in which they were made, not misleading. - 27 - (b) No notice given pursuant to Section 5.4 will contain any untrue statement or omit to state a material fact necessary to make the statements therein or in this Agreement, in light of the circumstances in which they were made, not misleading. (c) There is no fact known to any Seller that has specific application to any Seller or the Company (other than general economic or industry conditions) and that materially adversely affects the assets, business, prospects, financial condition, or results of operations of the Company that has not been set forth in this Agreement or the Disclosure Letter. 3.25 RELATIONSHIPS WITH RELATED PERSONS No Seller or any Related Person of any Seller or of the Company has, or since the Company's organization, has had, any interest in any property (whether real, personal, or mixed and whether tangible or intangible), used in or pertaining to the Company's business. No Seller or any Related Person of Sellers or of the Company is, or since the Company's organization, has owned (of record or as a beneficial owner) an equity interest or any other financial or profit interest in, a Person that has (i) had business dealings or a material financial interest in any transaction with the Company, or (ii) engaged in competition with the Company with respect to any line of the products or services of the Company (a "Competing Business") in any market presently served by the Company except for less than one percent of the outstanding capital stock of any Competing Business that is publicly traded on any recognized exchange or in the over-the-counter market. Other than the Employment Agreement between Buyer and Graubart to be delivered at Closing, no Seller or any Related Person of Sellers or of the Company is a party to any Contract with, or has any claim or right against, the Company. 3.26 ALL BUSINESS CONDUCTED BY COMPANY The business and operations of the Company are conducted exclusively by the Company and/or Masatepe S.A., and not by any other Person whether or not affiliated with the Company. All assets, whether tangible or intangible, used by the Company in its business or operations are owned or leased by the Company or Masatepe S.A. 3.27 MAJORITY SHAREHOLDER OF MASATEPE S.A. As the owner of 51% of the capital stock of Masatepe S.A., Jorge Solis Farias, Anel Flores and their associates (collectively, the "Majority Shareholder") are entitled to an aggregate of 51% or less of the profits generated by the business of Masatepe S.A. The Majority Shareholder has no rights to share in the profits generated by the business of the Company. 3.28 FINANCIAL CONDITION OF ACTIVATED Activated represents and warrants to Buyer that Activated is the primary investment vehicle for the Lindemann family and that Activated holds liquid assets in an amount in excess of $50,000,000. - 28 - 4. REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to Sellers as follows: 4.1 ORGANIZATION AND GOOD STANDING Buyer is a corporation duly organized, validly existing, and in good standing under the laws of the Commonwealth of Bermuda. 4.2 AUTHORITY; NO CONFLICT (a) This Agreement constitutes the legal, valid, and binding obligation of Buyer, enforceable against Buyer in accordance with its terms. Upon the execution and delivery by Buyer of the Escrow Agreement and the Employment Agreements (collectively, the "Buyer's Closing Documents"), the Buyer's Closing Documents will constitute the legal, valid, and binding obligations of Buyer, enforceable against Buyer in accordance with their respective terms. Buyer has the absolute and unrestricted right, power, and authority to execute and deliver this Agreement and the Buyer's Closing Documents and to perform its obligations under this Agreement and the Buyer's Closing Documents. (b) Except as set forth in Schedule 4.2, neither the execution and delivery of this Agreement by Buyer nor the consummation or performance of any of the Contemplated Transactions by Buyer will give any Person the right to prevent, delay, or otherwise interfere with any of the Contemplated Transactions pursuant to: (i) any provision of Buyer's Organizational Documents; (ii) any resolution adopted by the board of directors or the stockholders of Buyer; iii) any Legal Requirement or Order to which Buyer may be subject; or (iv) any Contract to which Buyer is a party or by which Buyer may be bound. Except as set forth in Schedule 4.2, Buyer is not and will not be required to obtain any Consent from any Person in connection with the execution and delivery of this Agreement or the consummation or performance of any of the Contemplated Transactions. - 29 - 4.3 INVESTMENT INTENT Buyer is acquiring the Interests for its own account and not with a view to their distribution within the meaning of Section 2(11) of the Securities Act. 4.4 CERTAIN PROCEEDINGS There is no pending Proceeding that has been commenced against Buyer and that challenges, or may have the effect of preventing, delaying, making illegal, or otherwise interfering with, any of the Contemplated Transactions. To Buyer's Knowledge, no such Proceeding has been Threatened. 4.5 FINDER'S FEES Buyer has agreed to pay ING Baring Furman Selz LLC a finder's fee for arranging the transactions contemplated by this Agreement (the "Finder's Fee"). The Finder's Fee is payable on the FCC Approval Date in the form of warrants to purchase 4,504 shares of common stock of Buyer, par value $2.00 per share, at an exercise price of $7.00 per share, expiring on the three year anniversary of the Closing Date. Buyer has not incurred any liability for brokers' fees, finders' fees, agents' commissions or other similar form of compensation in connection with this Agreement and the transactions contemplated hereby for which Sellers shall have any responsibility. 5. COVENANTS OF SELLERS 5.1 OPERATION OF THE BUSINESSES OF THE COMPANY (a) After the Closing Date and until this Agreement is terminated, Buyer shall operate the business of the Company. 5.2 REQUIRED APPROVALS As promptly as practicable after the date of this Agreement, Sellers will make all filings required by Legal Requirements to be made by them in order to consummate the Contemplated Transactions, including, without limitation, all of the FCC Filings. Between the Closing Date and the FCC Approval Date, Sellers will (a) cooperate with Buyer with respect to all filings that Buyer elects to make or is required by Legal Requirements to make in connection with the Contemplated Transactions, including the FCC Filings, and (b) cooperate with Buyer in obtaining all consents identified in Schedule 4.2. 5.3 AUDIT After the Closing Date, Sellers shall cooperate with Buyer, its accountants and Representatives in furnishing information on the Company and its business for the purposes of conducting an audit of the Company. - 30 - 5.4 NOTIFICATION Between the Closing Date and the FCC Approval Date, each Seller will promptly notify Buyer in writing if such Seller becomes aware of any fact or condition that causes or constitutes a Breach of any of Sellers' representations and warranties as of the date of this Agreement, or if such Seller or the Company becomes aware of the occurrence after the date of this Agreement of any fact or condition that would (except as expressly contemplated by this Agreement) cause or constitute a Breach of any such representation or warranty had such representation or warranty been made as of the time of occurrence or discovery of such fact or condition. Should any such fact or condition require any change in the Disclosure Letter if the Disclosure Letter were dated the date of the occurrence or discovery of any such fact or condition, Sellers will promptly deliver to Buyer a supplement to the Disclosure Letter specifying such change. During the same period, each Seller will promptly notify Buyer of the occurrence of any Breach of any covenant of Sellers in this Article 5 or of the occurrence of any event that may make the satisfaction of the conditions in Article 7 impossible or unlikely. 5.5 BEST EFFORTS Between Closing Date and the FCC Approval Date, Sellers will use their Best Efforts to cause the conditions in Articles 7 and 8 to be satisfied. 5.6 BRIDGE LOANS Any funding by Buyer of the operations of the Company from the Closing Date to the FCC Approval Date shall be evidenced by a promissory note in the form attached hereto as Exhibit 5.6 (the "Bridge Note"). Upon the earlier to occur of (i) repayment in full by the Company of all of its obligations under the Bridge Note; (ii) payment in full by Guarantor of all of its obligations under the Guaranty; or (iii) the FCC Approval Date, all of the obligations underlying the Bridge Note shall be forgiven by Buyer. 5.7 NO TRADING Activated agrees on behalf of itself, Lindemann Capital Partners and each of the partners thereof that they will refrain from any and all transactions directly or indirectly involving the purchase, sale, transfer or other disposition of or trading in securities of Buyer during the period commencing as of the tenth day prior to the Deferred Delivery Date and ending fourty-five days after the Deferred Delivery Date. 5.8 DEFENSE AND SETTLEMENT OF LITIGATION Sellers covenant and agree that Activated shall continue to conduct the defense of the Litigation on behalf of the Company and have sole responsibility to bear all costs and expenses incurred in connection with the defense of such Proceeding, including, without limitation, all attorneys' fees, until the Litigation is finally settled or otherwise resolved. After the date of this - 31 - Agreement, Sellers agree that in connection with any settlement of the Litigation, Sellers will obtain a written release from Plaintiff releasing the Company, Masatepe S.A.,, VDC and each of their respective Representatives from any and all liability in connection with the Litigation and any other relationship between the Company and Plaintiff and between Masatepe S.A. and the Plaintiff prior to the Closing Date. Sellers covenant and agree that Sellers shall obtain the prior written consent of Buyer before entering into any settlement of the Litigation involving the transfer of any ownership interest of the Company to the Plaintiff. 6. COVENANTS OF BUYER PRIOR TO FCC APPROVAL DATE 6.1 APPROVALS OF GOVERNMENTAL BODIES As promptly as practicable after the date of this Agreement, Buyer will, and will cause each of its Related Persons to, make all filings required by Legal Requirements to be made by them to consummate the Contemplated Transactions. Between the Closing Date and the FCC Approval Date, Buyer will, and will cause each Related Person to, (i) cooperate with Sellers with respect to all filings that Sellers are required by Legal Requirements to make in connection with the Contemplated Transactions, and (ii) cooperate with Sellers in obtaining all consents identified in Part 3.2 of the Disclosure Letter; provided that this Agreement will not require Buyer to dispose of or make any change in any portion of its business or to incur any other burden to obtain a Governmental Authorization. 6.2 BEST EFFORTS Except as set forth in the proviso to Section 6.1, between the Closing Date and the FCC Approval Date, Buyer will use its Best Efforts to cause the conditions in Articles 7 and 8 to be satisfied. 7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE AND TO THE RELEASE OF THE PURCHASE PRICE FROM ESCROW Buyer's obligation to purchase the Interests and to take the other actions required to be taken by Buyer at the Closing, and the obligation of the Escrow Agent to release the Purchase Price from escrow, are subject to the satisfaction, at or prior to the Closing, or at or prior to the FCC Approval Date, as the case may be, of each of the following conditions (any of which may be waived by Buyer, in whole or in part): 7.1 ACCURACY OF REPRESENTATIONS All of Sellers' representations and warranties in this Agreement (considered collectively) and each of these representations and warranties (considered individually) must have been accurate in all material respects as of the Closing Date, without giving effect to any supplement to the Disclosure Letter. - 32 - 7.2 SELLERS' PERFORMANCE (a) All of the covenants and obligations that Sellers are required to perform or to comply with pursuant to this Agreement at or prior to the Closing or at or prior to the FCC Approval Date (considered collectively) and each of these covenants and obligations (considered individually) must have been duly performed and complied with in all material respects. (b) Each document required to be delivered pursuant to Section 2.4 must have been delivered, and each of the other covenants and obligations in Sections 5.2 and 5.5 must have been performed and complied with in all material respects. 7.3 CONSENTS Each of the Consents identified in Part 3.2 of the Disclosure Letter and each Consent identified in Schedule 4.2 must have been obtained and must be in full force and effect. 7.4 ADDITIONAL DOCUMENTS Sellers must have caused to be delivered to Buyer such documents as Buyer may reasonably request for the purpose of (i) enabling Sellers' counsel to provide the opinions referred to in Sections 2.4(a)(vi) and 2.4(a)(vii), (ii) evidencing the accuracy of any of Sellers' representations and warranties, (iii) evidencing the performance by each Seller of, or the compliance by each Seller with, any covenant or obligation required to be performed or complied with by such Seller, (iv) evidencing the satisfaction of any condition referred to in this Article 7, or (v) otherwise facilitating the consummation or performance of any of the Contemplated Transactions. 7.5 NO PROCEEDINGS Since the date of this Agreement, other than Proceedings commenced or Threatened by Plaintiff in connection with the Litigation, there must not have been commenced or Threatened against Buyer, or against any Person affiliated with Buyer, any Proceeding (a) involving any challenge to, or seeking damages or other relief in connection with, any of the Contemplated Transactions, or (b) that may have the effect of preventing, delaying, making illegal, or otherwise interfering with any of the Contemplated Transactions, in each case arising from events prior to the Closing. 7.6 NO CLAIM REGARDING BUSINESS OR MEMBERSHIP INTEREST OWNERSHIP OR SALE PROCEEDS Other than the claims asserted by Plaintiff in the Litigation, there must not have been made or Threatened by any Person any claim asserting that such Person (a) is the holder or the beneficial owner of, or has the right to acquire or to obtain beneficial ownership of, any stock of, or any other voting, equity, or ownership interest in, the Company, or (b) is entitled to all or any portion - 33 - of the Purchase Price payable for the Interests. In addition, except as otherwise disclosed in Part 3.15 or Part 7.6 of the Disclosure Letter, there must not have been made or Threatened by any Person any claim asserting that such Person is entitled to all or any portion of the proceeds, control or ownership of the business of the Company or Masatepe, S.A. 7.7 NO PROHIBITION Neither the consummation nor the performance of any of the Contemplated Transactions will, directly or indirectly (with or without notice or lapse of time), materially contravene, or conflict with, or result in a material violation of, or cause Buyer or any Person affiliated with Buyer to suffer any material adverse consequence under, (a) any applicable Legal Requirement or Order, or (b) any Legal Requirement or Order that has been published, introduced, or otherwise proposed by or before any Governmental Body and which is applicable as of the Closing Date. 8. CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE Sellers' obligations to sell the Interests and to take the other actions required to be taken by Sellers at the Closing are subject to the satisfaction, at or prior to the Closing, or at or prior to the FCC Approval Date, as the case may be, of each of the following conditions (any of which may be waived by Sellers, in whole or in part): 8.1 ACCURACY OF REPRESENTATIONS All of Buyer's representations and warranties in this Agreement (considered collectively) and each of these representations and warranties (considered individually) must have been accurate in all material respects as of the Closing Date and must be accurate in all material respects as of the FCC Approval Date as if made on the FCC Approval Date. 8.2 BUYER'S PERFORMANCE (a) All of the covenants and obligations that Buyer is required to perform or to comply with pursuant to this Agreement at or prior to the Closing or at or prior to the FCC Approval Date (considered collectively) and each of these covenants and obligations (considered individually) must have been performed and complied with in all material respects. (b) Buyer must have delivered each of the documents required to be delivered by Buyer pursuant to Section 2.4 and must have made the cash payment and delivered the VDC Shares and Graubart Note required to be made and delivered by Buyer pursuant to Sections 2.4(b)(i), 2.4(b)(ii) and 2.4(b)(iii) respectively. - 34 - 8.3 CONSENTS Each of the Consents identified in of Part 3.2 of the Disclosure Letter must have been obtained and must be in full force and effect. 8.4 ADDITIONAL DOCUMENTS Buyer must have caused to be delivered to Sellers such documents as Sellers may reasonably request for the purpose of (i) evidencing the accuracy of any representation or warranty of Buyer, (ii) evidencing the performance by Buyer of, or the compliance by Buyer with, any covenant or obligation required to be performed or complied with by Buyer, (iii) evidencing the satisfaction of any condition referred to in this Article 8, or (iv) otherwise facilitating the consummation of any of the Contemplated Transactions. 8.5 NO INJUNCTION There must not be in effect any Legal Requirement or any injunction or other Order that (a) prohibits the sale of the Interests by Sellers to Buyer, and (b) has been adopted or issued, or has otherwise become effective, since the date of this Agreement. 9. TERMINATION 9.1 TERMINATION EVENTS This Agreement may, by notice given prior to the FCC Approval Date , be terminated: (a) by either Buyer or Sellers if a material Breach of any provision of this Agreement has been committed by the other party and such Breach has not been waived; (b) (i) by Buyer if any of the conditions in Article 7 have not been satisfied as of the Closing Date or the FCC Approval Date, as the case may be, or if satisfaction of such a condition is or becomes impossible (other than through the failure of Buyer to comply with its obligations under this Agreement), and Buyer has not waived such condition on or before the Closing Date or the FCC Approval Date, as the case may be; or (ii) by Sellers, if any of the conditions in Article 8 have not been satisfied as of the Closing Date or the FCC Approval Date, as the case may be or if satisfaction of such a condition is or becomes impossible (other than through the failure of Sellers to comply with their obligations under this Agreement), and Sellers have not waived such condition on or before the Closing Date or the FCC Approval Date, as the case may be; (c) by mutual consent of Buyer and Sellers; or - 35 - (d) by either Buyer or Sellers if the FCC Approval Date has not occurred (other than through the failure of any party seeking to terminate this Agreement to comply fully with its obligations under this Agreement) on or before October 15, 1998 or such later date as the parties may agree upon. 9.2 EFFECT OF TERMINATION Each party's right of termination under Section 9.1 is in addition to any other rights it may have under this Agreement or otherwise, and the exercise of a right of termination will not be an election of remedies. If this Agreement is terminated pursuant to Section 9.1, the Escrow Agent shall release the Purchase Price to Buyer, the Interests shall be reconveyed to Sellers and all further obligations of the parties under this Agreement will terminate, except that the obligations in Sections 10.1, 10.2, 10.4, 10.5, 10.6, 11.1 and 11.3 will survive; provided, however, that if this Agreement is terminated by a party because of the Breach of the Agreement by the other party or because one or more of the conditions to the terminating party's obligations under this Agreement is not satisfied as a result of the other party's failure to comply with its obligations under this Agreement, the terminating party's right to pursue all legal remedies will survive such termination unimpaired. 10. INDEMNIFICATION; REMEDIES 10.1 SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY KNOWLEDGE All representations and warranties of the Sellers contained in this Agreement, the Disclosure Letter, the supplements to the Disclosure Letter, the certificate delivered pursuant to Section 2.4(a)(v), and any other certificate or document delivered pursuant to this Agreement will survive the Closing indefinitely. The representations and warranties of the Buyer contained in this Agreement and any other certificate or document delivered pursuant to this Agreement will survive the Closing indefinitely. The covenants and obligations of the parties contained in this Agreement shall survive the Closing indefinitely. The right to indemnification, payment of Damages or other remedy based on such representations, warranties, covenants, and obligations will not be affected by any investigation conducted with respect to, or any Knowledge acquired (or capable of being acquired) at any time, whether before or after the execution and delivery of this Agreement or the Closing Date, with respect to the accuracy or inaccuracy of or compliance with, any such representation, warranty, covenant, or obligation. The waiver of any condition based on the accuracy of any representation or warranty, or on the performance of or compliance with any covenant or obligation, will not affect the right to indemnification, payment of Damages, or other remedy based on such representations, warranties, covenants, and obligations. - 36 - 10.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLERS Activated will indemnify and hold harmless Buyer, the Company, and their respective Representatives, stockholders, controlling persons, and affiliates (collectively, the "Indemnified Persons") for, and will pay to the Indemnified Persons the amount of, any loss, liability, claim, damage (including incidental and consequential damages), expense (including costs of investigation and defense and reasonable attorney fees) or diminution of value, whether or not involving a third-party claim (collectively, "Damages"), arising, directly or indirectly, from or in connection with: (a) any Breach of any representation or warranty made by Sellers in this Agreement, including, without limitation, those set forth in Sections 3.4 and 3.8 (without giving effect to any supplement to the Disclosure Letter), the Disclosure Letter, the supplements to the Disclosure Letter, or any other certificate or document delivered by Sellers pursuant to this Agreement; (b) any Breach of any representation or warranty made by Sellers in this Agreement as if such representation or warranty were made on and as of the Closing Date without giving effect to any supplement to the Disclosure Letter, other than any such Breach that is disclosed in a supplement to the Disclosure Letter and is expressly identified in the certificate delivered pursuant to Section 2.4(a)(v) as having caused the condition specified in Section 7.1 not to be satisfied; (c) any Breach by any Seller of any covenant or obligation of such Seller in this Agreement; (d) any services provided by the Company prior to the Closing Date and prior to the FCC Approval Date; or (e) any matter disclosed in Part 3.15 of the Disclosure Letter; provided, however, that in addition to any other remedy to which Buyer is entitled under this Agreement, in the event that the Litigation listed in Part 3.15 of the Disclosure Letter has a material adverse effect on the business, operations, assets, condition or prospects of the Company or Masatepe S.A., or results in any change in the ownership of the Company or Masatepe S.A., Sellers agree that, upon Buyer's written demand, Activated shall immediately purchase from Buyer all or any part of the Interests for an amount (the "Repurchase Amount") calculated pursuant to the following formula: [(Percentage of Interests to be resold by Buyer to Sellers) divided by (Percentage of Interests owned by Buyer after a material adverse effect or change of ownership in the Company described in Section 10.2(e) of this - 37 - Agreement)] multiplied by the aggregate Purchase Price paid to the Sellers under this Agreement = the Repurchase Amount. The remedies provided in this Section 10.2 will not be exclusive of or limit any other remedies that may be available to Buyer or the other Indemnified Persons. 10.3 Intentionally omitted. 10.4 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER Buyer will indemnify and hold harmless Sellers, and will pay to Sellers the amount of any Damages arising, directly or indirectly, from or in connection with (a) any Breach of any representation or warranty made by Buyer in this Agreement or in any certificate delivered by Buyer pursuant to this Agreement, or (b) any Breach by Buyer of any covenant or obligation of Buyer in this Agreement. 10.5 TIME LIMITATIONS A claim for indemnification or reimbursement based upon any covenant or obligation may be made at any time. If the Closing occurs, Buyer will have no liability (for indemnification or otherwise) with respect to any representation or warranty, unless on or before July 31, 1999, Sellers notify Buyer of a claim specifying the factual basis of that claim in reasonable detail to the extent then known by Sellers. If the FCC Approval Date does not occur, Buyer will have no liability (for indemnification or otherwise) with respect to any covenant or obligation hereunder. 10.6 Intentionally omitted. 10.7 ESCROW CLAIM Upon notice to Sellers specifying in reasonable detail the basis for such setoff, Buyer may give notice of a Claim under the Escrow Agreement in such amount to which it may be entitled under this Article 10. Neither the exercise of nor the failure to give a notice of a Claim under the Escrow Agreement will constitute an election of remedies or limit Buyer in any manner in the enforcement of any other remedies that may be available to it. 10.8 PROCEDURE FOR INDEMNIFICATION--THIRD-PARTY CLAIMS (a) Promptly after receipt by an indemnified party under Section 10.2, 10.4, or (to the extent provided in the last sentence of Section 10.3) Section 10.3 of notice of the commencement of any Proceeding against it, such indemnified party will, if a claim is to be made against an indemnifying party under such Section, give notice to the indemnifying party of the commencement of such claim, but the failure to notify the indemnifying party will not relieve the indemnifying party of any liability that it may have to any indemnified party, except to the extent that the indemnifying - 38 - party demonstrates that the defense of such action is prejudiced by the indemnifying party's failure to give such notice. (b) If any Proceeding referred to in Section 10.8(a) is brought against an indemnified party and it gives notice to the indemnifying party of the commencement of such Proceeding, the indemnifying party will, unless the claim involves Taxes, be entitled to participate in such Proceeding and, to the extent that it wishes (unless (i) the indemnifying party is also a party to such Proceeding and the indemnified party determines in good faith that joint representation would be inappropriate, or (ii) the indemnifying party fails to provide reasonable assurance to the indemnified party of its financial capacity to defend such Proceeding and provide indemnification with respect to such Proceeding), to assume the defense of such Proceeding with counsel satisfactory to the indemnified party and, after notice from the indemnifying party to the indemnified party of its election to assume the defense of such Proceeding, the indemnifying party will not, as long as it diligently conducts such defense, be liable to the indemnified party under this Article 10 for any fees of other counsel or any other expenses with respect to the defense of such Proceeding, in each case subsequently incurred by the indemnified party in connection with the defense of such Proceeding, other than reasonable costs of investigation. If the indemnifying party assumes the defense of a Proceeding, (i) it will be conclusively established for purposes of this Agreement that the claims made in that Proceeding are within the scope of and subject to indemnification; (ii) no compromise or settlement of such claims may be effected by the indemnifying party without the indemnified party's consent unless (A) there is no finding or admission of any violation of Legal Requirements or any violation of the rights of any Person and no effect on any other claims that may be made against the indemnified party, and (B) the sole relief provided is monetary damages that are paid in full by the indemnifying party; and (iii) the indemnified party will have no liability with respect to any compromise or settlement of such claims effected without its consent. If notice is given to an indemnifying party of the commencement of any Proceeding and the indemnifying party does not, within ten days after the indemnified party's notice is given, give notice to the indemnified party of its election to assume the defense of such Proceeding, the indemnifying party will be bound by any determination made in such Proceeding or any compromise or settlement effected by the indemnified party. (c) Notwithstanding the foregoing, if an indemnified party determines in good faith that there is a reasonable probability that a Proceeding may adversely affect it or its affiliates other than as a result of monetary damages for which it would be entitled to indemnification under this Agreement, the indemnified party may, by notice to the indemnifying party, assume the exclusive right to - 39 - defend, compromise, or settle such Proceeding, but the indemnifying party will not be bound by any determination of a Proceeding so defended or any compromise or settlement effected without its consent (which may not be unreasonably withheld). (d) Sellers hereby consent to the nonexclusive jurisdiction of any court in which a Proceeding is brought against any Indemnified Person for purposes of any claim that an Indemnified Person may have under this Agreement with respect to such Proceeding or the matters alleged therein, and agree that process may be served on Sellers with respect to such a claim anywhere in the world. 10.9 PROCEDURE FOR INDEMNIFICATION--OTHER CLAIMS A claim for indemnification for any matter not involving a third-party claim may be asserted by notice to the party from whom indemnification is sought. 11. GENERAL PROVISIONS 11.1 EXPENSES Except as otherwise expressly provided in this Agreement, each party to this Agreement will bear its respective expenses incurred in connection with the preparation, execution, and performance of this Agreement and the Contemplated Transactions, including all fees and expenses of agents, representatives, counsel, and accountants. In the event of termination of this Agreement, the obligation of each party to pay its own expenses will be subject to any rights of such party arising from a breach of this Agreement by another party. 11.2 PUBLIC ANNOUNCEMENTS Any public announcement or similar publicity with respect to this Agreement or the Contemplated Transactions will be issued, if at all, at such time and in such manner as Buyer determines, with the prior consent of Activated, which consent shall not be unreasonably withheld. Unless consented to by Buyer in advance or required by Legal Requirements, prior to the Closing, Sellers shall, and shall cause the Company to, keep this Agreement strictly confidential and may not make any disclosure of this Agreement to any Person. Sellers and Buyer will consult with each other concerning the means by which the Company' employees, customers, and suppliers and others having dealings with the Company will be informed of the Contemplated Transactions, and Buyer will have the right to be present for any such communication. 11.3 CONFIDENTIALITY Between the date of this Agreement and the Closing Date, Buyer and Sellers will maintain in confidence, and will cause the directors, officers, employees, agents, and advisors of Buyer and the Company to maintain in confidence, any - 40 - written, oral, or other information obtained in confidence from another party or the Company in connection with this Agreement or the Contemplated Transactions, unless (a) such information is already known to such party or to others not bound by a duty of confidentiality or such information becomes publicly available through no fault of such party, (b) the use of such information is necessary or appropriate in making any filing or obtaining any consent or approval required for the consummation of the Contemplated Transactions, or (c) the furnishing or use of such information is necessary or appropriate in connection with legal proceedings. If the Contemplated Transactions are not consummated, each party will return or destroy as much of such written information as the other party may reasonably request. Whether or not the Closing takes place, Sellers waive, and will upon Buyer's request cause the Company to waive, any cause of action, right, or claim arising out of the access of Buyer or its representatives to any trade secrets or other confidential information of the Company except for the intentional competitive misuse by Buyer of such trade secrets or confidential information. 11.4 NOTICES All notices, consents, waivers, and other communications under this Agreement must be in writing and will be deemed to have been duly given when (a) delivered by hand (with written confirmation of receipt), (b) sent by telecopier (with written confirmation of receipt), provided that a copy is mailed by registered mail, return receipt requested, or (c) when received by the addressee, if sent by a nationally recognized overnight delivery service (receipt requested), in each case to the appropriate addresses and telecopier numbers set forth below (or to such other addresses and telecopier numbers as a party may designate by notice to the other parties): Sellers: Activated Communications Limited Partnership 757 Fifth Avenue New York, NY with a copy to: Jones, Day, Reavis & Pogue 599 Lexington Avenue New York, NY 10022 Attn: Glenn S. Arden, Esquire Facsimile: (212) 755-7306 Marc Graubart 200 East 64th Street Apartment 4C New York, NY 10021 with a copy to: - 41 - Rosenfeld Jacobs & King, L.L.P. 1133 Avenue of the Americas Suite 3825 New York, NY 10036 Attn: Tab Rosenfeld, Esquire Facsimile: (212) 376-8320 Buyer: VDC Corporation Ltd. 75 Holly Hill Lane Greenwich, CT 06830 Attention: Frederick A. Moran, CEO Facsimile: (203) 552-0908 with a copy to: Buchanan Ingersoll Professional Corporation Eleven Penn Center, 14th Floor 1835 Market Street Philadelphia, PA 19103 Attention: Stephen M. Cohen, Esquire Facsimile: (215) 665-8760 11.5 JURISDICTION; SERVICE OF PROCESS Any action or proceeding seeking to enforce any provision of, or based on any right arising out of, this Agreement may be brought against any of the parties in the courts of the State of Delaware or, if it has or can acquire jurisdiction, in the United States District Court for the District of Delaware, and each of the parties consents to the jurisdiction of such courts (and of the appropriate appellate courts) in any such action or proceeding and waives any objection to venue laid therein. Process in any action or proceeding referred to in the preceding sentence may be served on any party anywhere in the world. 11.6 FURTHER ASSURANCES The parties agree (a) to furnish upon request to each other such further information, (b) to execute and deliver to each other such other documents, and (c) to do such other acts and things, all as the other party may reasonably request for the purpose of carrying out the intent of this Agreement and the documents referred to in this Agreement. 11.7 WAIVER The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay by any party in exercising any right, power, or privilege under this Agreement or the documents referred to in this Agreement will operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege. To the maximum extent - 42 - permitted by applicable law, (a) no claim or right arising out of this Agreement or the documents referred to in this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party; (b) no waiver that may be given by a party will be applicable except in the specific instance for which it is given; and (c) no notice to or demand on one party will be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the documents referred to in this Agreement. 11.8 ENTIRE AGREEMENT AND MODIFICATION This Agreement supersedes all prior agreements between the parties with respect to its subject matter and constitutes (along with the documents referred to in this Agreement) a complete and exclusive statement of the terms of the agreement between the parties with respect to its subject matter. This Agreement may not be amended except by a written agreement executed by the party to be charged with the amendment. 11.9 DISCLOSURE LETTER (a) The disclosures in the Disclosure Letter, and those in any Supplement thereto, must relate only to the representations and warranties in the Section of the Agreement to which they expressly relate and not to any other representation or warranty in this Agreement. (b) In the event of any inconsistency between the statements in the body of this Agreement and those in the Disclosure Letter (other than an exception expressly set forth as such in the Disclosure Letter with respect to a specifically identified representation or warranty), the statements in the body of this Agreement will control. 11.10 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS Neither party may assign any of its rights under this Agreement without the prior consent of the other parties, except that Buyer may assign any of its rights under this Agreement to any Subsidiary of Buyer. Subject to the preceding sentence, this Agreement will apply to, be binding in all respects upon, and inure to the benefit of the successors and permitted assigns of the parties. Nothing expressed or referred to in this Agreement will be construed to give any Person other than the parties to this Agreement any legal or equitable right, remedy, or claim under or with respect to this Agreement or any provision of this Agreement. This Agreement and all of its provisions and conditions are for the sole and exclusive benefit of the parties to this Agreement and their successors and assigns. 11.11 SEVERABILITY If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or - 43 - unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable. 11.12 SECTION HEADINGS, CONSTRUCTION The headings of Articles and Sections in this Agreement are provided for convenience only and will not affect its construction or interpretation. All references to "Article" or "Articles" and "Section" or "Sections" refer to the corresponding Article or Articles and Section or Sections of this Agreement. All words used in this Agreement will be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the word "including" does not limit the preceding words or terms. 11.13 TIME OF ESSENCE With regard to all dates and time periods set forth or referred to in this Agreement, time is of the essence. 11.14 GOVERNING LAW This Agreement will be governed by the laws of the State of Delaware without regard to conflict of laws principles. 11.15 COUNTERPARTS This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement. - 44 - IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first written above. Buyer: VDC CORPORATION LTD. Attest:_______________________ By: /s/ Frederick A. Moran Name: --------------------------------------- Frederick A. Moran, Chief Executive Officer Sellers: ACTIVATED COMMUNICATIONS LIMITED PARTNERSHIP By: Cellular Dynamics, Inc., its General Partner Witness:_______________________ By: /s/ Adam Lindemann ---------------------------------- Adam Lindemann, its Vice President Witness:_______________________ /s/ Marc Graubart ------------------------------------- Marc Graubart Company: MASATEPE COMMUNICATIONS, U.S.A., L.L.C. By: Activated Communications Limited Partnership, its Managing Member By: Cellular Dynamics, Inc., its General Partner Witness:_______________________ By: /s/ Adam Lindemann ---------------------------------- Adam Lindemann, its Vice President - 45 - EX-10.2 6 BRIDGE LOAN AGREEMENT BRIDGE LOAN AGREEMENT BRIDGE LOAN AGREEMENT, dated as of August 1, 1998 between MASATEPE COMMUNICATIONS U.S.A., L.L.C., a Delaware limited liability company (the "Borrower"), and VDC CORPORATION LTD., a Bermuda corporation (the "Lender"). W I T N E S S E T H: WHEREAS, the Borrower has requested that the Lender make the Bridge Loan (as hereinafter defined) and the Lender has agreed to make the Bridge Loan on and subject to the terms and conditions hereof; NOW, THEREFORE, each of the parties hereto, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, hereby agree as follows: 1. GENERAL DEFINITIONS 1.1. Definitions. When used herein, the following terms shall have the following meanings: Affiliate shall mean any person which, directly or indirectly, owns or controls, on an aggregate basis, including all beneficial ownership and ownership or control as a trustee, guardian or other fiduciary, at least ten percent (10%) of the outstanding capital stock having ordinary voting power to elect the Board of Directors (irrespective of whether, at the time, stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) of the Borrower, or which otherwise controls, is controlled by or is under common control with the Borrower, or any stockholders of the Borrower or any person which controls any stockholder of the Borrower. For the purpose of this definition, "control" means the possession, directly or indirectly, of the power to direct or to cause the direction of management and policies, whether through the ownership of voting securities, by contract or otherwise. Agreement shall mean this Loan Agreement as the same may be amended, extended, supplemented, modified, restated or replaced from time to time. Borrower shall mean Masatepe Communications U.S.A., L.L.C., a Delaware limited liability company. Bridge Loan shall mean the term loan made pursuant to Section 2.1. Bridge Note shall mean the Bridge Note made by the Borrower to the Lender pursuant to Section 2.1 in the form of Exhibit "A". Business Day shall mean a day that is not a Saturday, a Sunday or a day on which banks are required or permitted to be closed in the State of Delaware. Unless specifically denoted "Business Days" herein, references to "days" shall mean calendar days. Closing Date shall mean the date hereof. The closing shall take place on the Closing Date via telephone conference call or by such other means as the parties may provide at such time as the parties agree. Default Rate shall mean the rate or rates determined from time to time pursuant to Section 3.2. Dollars and the symbol $ shall mean lawful money of the United States of America. Event of Default shall mean any of the Events of Default described in Section 9.1. FCC Approval Date shall mean the later to occur of (A) the date on which the FCC consents to or approves each of the FCC Filings, including any accounting rates stated therein; or (B) sixty days after the Closing Date. FCC Filings shall mean, collectively, the following documents filed or to be filed by the Company with the FCC: (i) transfer of control application with respect to the Company's Overseas Common Carrier Section 214 Certificate authorizing the change in control of the Company resulting from the consummation of the transactions contemplated by the Purchase Agreement; (ii) the Carrier Service Agreement, dated as of May 12, 1998, between the Company and D-Comm, Inc.; and (iii) an operating agreement in form and substance acceptable to Buyer between the Company and Masatepe S.A. which shall set forth the accounting rates charged thereunder. Financials shall mean the unaudited financial statements of the Borrower dated July 31, 1998. U.S. GAAP shall mean generally accepted accounting principles as are in effect from time to time and applied on a consistent basis (except for changes in application in which the Borrower's independent certified public accountants concur) both as to classification and amounts. Guaranty shall mean the Guaranty Agreement entered into by the Guarantor in favor of Lender in the form of Exhibit "B". Guarantor shall mean Activated Communications Limited Partnership. Indebtedness shall mean all of the Borrower's liabilities, obligations and indebtedness of any and every kind and nature, including, without limitation, the Liabilities and all obligations (including but not limited to obligations pursuant to operating leases) to trade creditors, whether heretofore, now or hereafter owing, due or payable from the Borrower to any person and howsoever evidenced, created, incurred, acquired or owing, whether primary, 2 secondary, direct, contingent, fixed, matured, liquidated or otherwise. Without in any way limiting the generality of the foregoing, Indebtedness specifically includes (i) all indebtedness guaranteed, directly or indirectly, in any manner, or endorsed (other than for collection or deposit in the ordinary course of business) or discounted with recourse; (ii) all obligations or liabilities of any person that are secured by any Lien upon property owned by the Borrower, even though the Borrower has not assumed or become liable for the payment thereof; (iii) all obligations or liabilities created or arising under any lease of real or personal property or conditional sale or other title retention agreement with respect to property used or acquired by the Borrower, even though the rights and remedies of the lessor, seller or lender thereunder are limited to repossession of such property; (iv) all unfunded pension fund obligations and liabilities; and (v) deferred taxes. Law shall mean any law (including common law), constitution, statute, treaty, regulation, rule, ordinance, opinion, release, ruling, order, injunction, writ, decree or award of any national, federal, state, local or other government or political subdivision or any agency, authority, bureau, central bank, commission, department or instrumentality of either, or any court, tribunal, grand jury or arbitrator, in each case whether foreign or domestic. Lender shall mean VDC Corporation Ltd., a Bermuda corporation. Liabilities shall mean all of the Borrower's liabilities, obligations and Indebtedness to the Lender of any and every kind and nature (including, without limitation, interest, fees, charges, expenses, attorneys' fees, indemnities and other sums chargeable to the Borrower by the Lender and future advances made to or for the benefit of the Borrower), whether arising under this Agreement or under any of the other Loan Documents or acquired by the Lender from any other source or otherwise, whether heretofore, now or hereafter owing, arising, due or payable from the Borrower to the Lender, whether as drawer, maker, endorser, guarantor, surety or otherwise and howsoever evidenced, created, incurred, acquired or owing, whether primary, secondary, direct, contingent, fixed or liquidated or otherwise, including obligations of performance. Lien shall mean any mortgage, pledge, security interest, encumbrance, lien, charge, or claim upon property of any kind, whether or not voluntarily given (including, without limitation, any agreement to give any of the foregoing, any conditional sale or other title retention agreement, any lease in the nature thereof, the filing of or agreement to give any financing statement under the Uniform Commercial Code of any jurisdiction, and the recording of or agreement to provide any instrument for recording under the recording or other laws of any state or other jurisdiction). Loan Documents shall mean all agreements, instruments and documents whether heretofore, now or hereafter executed by or on behalf of the Borrower with respect to or in connection with this Agreement including, without limitation, the Bridge Note, the Pledge Agreement, notes, guarantees, mortgages, deeds of trust, chattel mortgages, pledges, powers of attorney, consents, assignments, contracts, notices, security agreements, leases, deposit agreements, financing statements, warehouse receipts, bills of lading, notices of assignment of 3 accounts, schedules of accounts assigned, landlord's and mortgagee's waivers, trust account agreements and all other written matter. Material Adverse Change shall mean any set of circumstances or events which (a) has or could reasonably be expected to have any material adverse effect whatsoever upon the validity or enforceability of this Agreement or any other Loan Document, (b) is or could reasonably be expected to be material and adverse to the condition (financial or otherwise) or business operations of the Borrower or to the prospects of the Borrower, (c) impairs materially or could reasonably be expected to impair materially the ability of the Borrower to duly and punctually pay or perform the Liabilities, or (d) materially impairs or could reasonably be expected to materially impair the ability of the Lender to enforce its legal remedies pursuant to this Agreement or any other Loan Document. Maturity Date shall mean the earlier to occur of (i) the FCC Approval Date and (ii) October 15, 1998. Official Body shall mean any national, federal, state, local or other government or political subdivision or any agency, authority, bureau, central bank, commission, department or instrumentality of either, or any court, tribunal, grand jury or arbitrator, in each case whether foreign or domestic. Person shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, institution, entity, party or government (whether national, federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). Potential Default shall mean any event or condition which with notice, passage of time, or a determination by the Lender, or any combination of the foregoing, would constitute an Event of Default. Solvent shall mean (i) at fair valuation thereof, the sum of all of the Borrower's assets exceeds all Indebtedness, and (ii) the Borrower is able to pay all of its Indebtedness as it becomes due. Subsidiary shall mean of any person at any time (i) any corporation or trust of which fifty percent (50%) or more (by number of shares or number of votes) of the outstanding capital stock or shares of beneficial interest normally entitled to vote for the election of one or more directors or trustees (regardless of any contingency which does or may suspend or dilute the voting rights) is at such time owned directly or indirectly by such person or one or more of such person's Subsidiaries, or any partnership of which such person is a general partner or of which fifty percent (50%) or more of the partnership interests is at the time directly or indirectly owned by such person or one or more of such person's Subsidiaries, and (ii) any corporation, trust, partnership or other entity which is controlled or capable of being controlled by such person or one or more of such person's Subsidiaries. 4 Uniform Commercial Code shall mean the Uniform Commercial Code of the State of Delaware or any other applicable jurisdiction, as amended from time to time. 1.2. Construction. Unless the context of this Agreement otherwise clearly requires, references to the plural include the singular, the singular the plural and the part the whole; "or" has the inclusive meaning represented by the phrase "and/or," and "including" has the meaning represented by the phrase "including without limitation." References in this Agreement to "determination" of or by the Lender shall be deemed to include good faith estimates by the Lender (in the case of quantitative determinations) and good faith beliefs by the Lender (in the case of qualitative determinations). Whenever the Lender is granted the right herein to act in its sole discretion or to grant or withhold consent, such right shall be exercised in good faith. The words "hereof," "herein," "hereunder" and similar terms in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. The section and other headings contained in this Agreement and the Table of Contents preceding this Agreement are for reference purposes only and shall not control or affect the construction of this Agreement or the interpretation thereof in any respect. Section, subsection, schedule and exhibit references are to this Agreement unless otherwise specified. 1.3. Accounting Principles. Except as otherwise provided in this Agreement, all computations and determinations as to accounting or financial matters and all financial statements to be delivered pursuant to this Agreement shall be made and prepared in accordance with GAAP (including principles of consolidation where appropriate), and all accounting or financial terms shall have the meanings ascribed to such terms by U.S. GAAP. 2. BRIDGE LOAN 2.1. Bridge Loan. (a) Subject to the terms and conditions hereof, the Lender hereby agrees to make a bridge loan (the "Bridge Loan") to the Borrower in such amounts as the Lender may advance from time to time after the date of this for the Borrower's general corporate purposes. The Lender shall have no obligation to make advances hereunder at any time after October 15, 1998. 2.2. Repayment of Bridge Loan; Evidence of Debt. (a) The Borrower hereby unconditionally promises to pay to the Lender the full outstanding principal amount of the Bridge Loan, together with all unpaid interest thereon and all other outstanding unpaid amounts owing to Lender under or in connection with the Loan Documents, on the Maturity Date (or on such earlier date that the Bridge Loan becomes due and payable pursuant to Section 7). The Borrower hereby agrees to pay interest on the unpaid principal amount of the Bridge Loan and unpaid overdue interest from time to time outstanding, from the Closing Date until payment in full thereof at the rates per annum, on the dates, and in the form and manner set forth herein. 5 (b) The Bridge Loan shall be evidenced by the Bridge Note. The Bridge Note shall (i) be dated the Closing Date, (ii) be payable in full on the Maturity Date (or such earlier date that the Bridge Loan becomes due and payable pursuant to Section 7) and (iii) provide for the accrual of interest for the period from the date thereof until paid in full on the unpaid principal amount and on unpaid overdue interest from time to time outstanding at the rates per annum, on the dates, and in the form and manner set forth herein. 2.3. Optional Prepayments. (a) The Borrower, may, at its option, upon not less than three Business Days prior, irrevocable written notice to Lender of the date and amount of such prepayment, be permitted to prepay the Bridge Loan, in whole, without penalty or premium. (b) Any prepayment made pursuant to this subsection 2.3 shall be accompanied by all accrued but unpaid interest thereon to the date of such prepayment. (c) Amounts paid or prepaid on account of the Bridge Loan may not be re-borrowed. 2.4. Interest Rates. (a) The Bridge Loan shall not bear interest. (b) If all or a portion of the principal amount of the Bridge Loan any other amount payable hereunder or under any other Loan Document shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue amount shall, to the fullest extent permitted by law, bear interest at a rate per annum equal to 12% in each case from the date of such non-payment until such amount is paid in full (as well after as before judgment and during the pending of any bankruptcy, insolvency or similar proceeding). (c) Interest accruing pursuant to paragraph (b) of this subsection shall be payable from time to time on demand. 2.5. Computation of Interest. (a) Interest shall be calculated on the basis of a 360 day year for the actual number of days elapsed. (b) Notwithstanding any other provisions of any of the Loan Documents, the Borrower shall not be required to make any payments of interest or other amounts hereunder or under any other Loan Document to the extent such payments would cause the rate of interest charged hereunder to exceed the highest rate permitted under applicable law. Any such payments which are received by Lender may, at Lender's option, be applied against payment of principal of the Bridge Loan or other obligations payable to Lender hereunder or returned to Borrower. 6 2.6. Intentionally omitted. 2.7. Payments, Etc. (a) All payments (including prepayments) to be made by the Borrower hereunder or under any other Loan Document, whether on account of principal, interest or otherwise, shall be made without set off or counterclaim and shall be made prior to 12:00 Noon, New York City time, on the due date thereof to the Lender at the following address: VDC Corporation, Ltd. 75 Holly Hill Lane Greenwich, CT 06831 or such other account or place as Lender may from time to time designate, in Dollars and in immediately available funds. If any payment hereunder becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day, and, interest thereon shall be payable at the then applicable rate during such extension. (b) All amounts which are or may become payable to Lender hereunder or under or in connection with this Agreement or any other Loan Document, other than principal of the Bridge Loan and interest accrued thereon and not overdue, shall be payable on demand. (c) The Lender shall maintain, in accordance with its usual practice, one or more accounts in which it will record the unpaid and outstanding amounts of principal of and interest on the Bridge Loan, as well as other unpaid and outstanding amounts owing from the Borrower to the Lender hereunder or under any other Loan Documents and, in addition, the Lender may at any time and from time to time record on the front or back of the Note, or on a continuation thereof, the unpaid and outstanding principal of and interest on the Bridge Loan and any payments made with respect thereto; provided, that neither the failure of the Lender to maintain any such account or make any such recordation nor any error therein shall discharge or affect in any manner the Borrower's obligations to pay such amounts to Lender in accordance with the terms hereof or of any Loan Document. Absent manifest error, any such account record or recordation or notation made on the Note, shall constitute conclusive evidence of such debts and amounts. 3. CONDITIONS OF LENDING Notwithstanding any other provision of this Agreement or any other Loan Document and without affecting in any manner the rights of the Lender under this Agreement, it is understood and agreed that the Lender shall have no obligation at any time under Article 2 of this Agreement unless and until the following conditions have been and continue to be satisfied, all in form and substance satisfactory to the Lender and its counsel: 7 3.1. The Bridge Loan. (A) The Lender shall have received, on or prior to the Closing Date, the following documents: (i) this Agreement, duly executed and delivered; (ii) the Bridge Note in the form of Exhibit "A", duly executed and delivered; (iii) the Guaranty Agreement in the form of Exhibit "B", duly executed and delivered; and (iv) such other documents and certificates as to the transactions contemplated by this Agreement and the other Loan Documents as the Lender may reasonably request. (B) The representations and warranties of the Borrower contained in Article 5 hereof shall be true on and as of the Closing Date; the Borrower shall have complied with all covenants and conditions hereof; there shall exist on the Closing Date no Event of Default or Potential Default; and the Borrower shall have delivered to the Lender a certificate of its Chief Executive Officer, President and Chief Financial Officer dated the Closing Date, to each such effect. (C) All legal details and proceedings taken or to be taken in connection with the transactions contemplated hereby and all documents incident thereto shall be satisfactory in substance and form to the Lender and its counsel, and the Lender and its counsel shall have received all such counterpart originals or certified or other copies of such documents as the Lender or its counsel may reasonably request. 4. GUARANTY 4.1. Guaranty Agreement. To secure the timely payment and performance of Borrower of its obligations under this Agreement, the Guarantor shall guarantee the timely payment and performance of the Company's obligations hereunder pursuant to the Guaranty. 4.2. Further Assurances. At the Lender's request, the Borrower and/or the Guarantor shall execute and deliver to the Lender, at any time hereafter, all agreements, instruments or other documents that the Lender may reasonably request to carry out the intent of this Agreement and the other Loan Documents, in form and substance acceptable to the Lender, and pay the costs of any recording or filing of the same. 8 5. REPRESENTATIONS AND WARRANTIES 5.1. The Borrower represents and warrants that: (A) Organization, Qualification and Capitalization; Subsidiaries. The Borrower is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware and has the lawful power to own or lease its properties and to engage in the business it presently conducts and contemplates conducting; and the Borrower is duly licensed or qualified and in good standing as a foreign corporation in each jurisdiction wherein the property owned or leased by it or the nature of the business transacted by it or both makes such licensing or qualification necessary except where the failure to be so qualified or licensed would not result in a Material Adverse Change. (B) Power and Authority. The Borrower has the corporate power and authority to make and carry out this Agreement and the other Loan Documents, to execute and deliver this Agreement and the other Loan Documents, and to make the borrowings contemplated hereby and to perform its obligations under this Agreement and the other Loan Documents, all such actions have been duly authorized by all necessary corporate proceedings on its part. (C) Validity and Binding Effect; Consents. This Agreement and the other Loan Documents have been duly and validly executed and delivered by the Borrower. This Agreement and the other Loan Documents constitute legal, valid and binding obligations of the Borrower and any other parties thereto, enforceable in accordance with their respective terms, except to the extent that enforceability of the foregoing may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforceability of creditors' rights generally or by laws or judicial decisions limiting the right of specific performance. Except as set forth on Schedule 5.1(C), no authorization, approval, exemption or consent by any governmental authority or public body or other authority is required in connection with the authorization, execution, delivery and carrying out of the terms of this Agreement or the other Loan Documents by the Borrower or the Guarantor. (D) No Conflict. Except as set forth on Schedule 5.1(D), neither the execution and delivery of this Agreement or the other Loan Documents nor the consummation of the transactions herein or therein contemplated or compliance with the terms and provisions hereof or thereof (i) will conflict with, result in any breach of, or constitute a default under, the terms and conditions of the articles or certificate of incorporation or bylaws of the Borrower or of any law or any order, writ, injunction or decree of any court or governmental instrumentality or of any agreement or instrument to which the Borrower is a party or by which the Borrower is bound or to which it is subject, or (ii) will result in the creation or 9 enforcement of any Lien whatsoever upon any property (now or hereafter acquired) of the Borrower (other than Liens granted under the Loan Documents). (E) Litigation. Except as set forth on Schedule 5.1(E), there are no actions, suits, proceedings or investigations pending or, to the knowledge of the Borrower, threatened against it at law or equity before any court or before any federal, state, municipal or any governmental department, commission, board, agency or instrumentality, whether or not covered by insurance, which individually or in the aggregate may result in a Material Adverse Change. The Borrower is not in default with respect to any order, writ, injunction or any decree of any court or any federal, state, municipal or other governmental department, commission or bureau, agency or instrumentality applicable to the Borrower which may result in any such Material Adverse Change. (F) Financials. The Financials have been prepared in accordance with U.S. GAAP applied on a consistent basis and fairly present the assets, liabilities and financial condition and results of operations of the Borrower at and as of the dates thereof; there are no material liabilities, direct or indirect, fixed or contingent, of the Borrower which are not reflected in the Financials nor omissions of other facts or circumstances which are or may be material, and there has been no Material Adverse Change in the Borrower since March 31, 1998; there exists no equity or long-term investments in, or outstanding advances to, any person not reflected in the Financials. (G) Absence of Certain Developments. Except as disclosed in Schedule 5.1(G), since the date of the latest Financials, (i) there has been no material adverse change in the financial condition of Borrower, (ii) the Borrower has not incurred any material liabilities or material contingent liabilities, (iii) the Borrower has not declared any dividends or purchased any of its capital stock, (iv) the Borrower has not entered into any material transactions outside the ordinary course of business, (v) the Borrower has not waived a valuable right or canceled any debt or claim held by the Borrower, (vi) the Borrower has not made a loan to any officer, director, employee or shareholder of Borrower, or any agreement or commitment therefor, (vii) the Borrower has not had or committed to any increase, direct or indirect, in the compensation paid or payable to any officer, director, employee or agent of the Borrower except as required by written employment agreements to which the Borrower is a party (and which such increases are described in Schedule 5.1(G), (viii) the Borrower has not had any material loss, destruction or damage to any property, whether or not insured, (ix) the Borrower has not had any change in personnel or the terms and conditions of their employment, (x) the Borrower has not had any acquisition or disposition of any assets (or any contract or arrangement therefore), or any other transaction otherwise than for fair value in the ordinary course of business, and (xi) the Borrower has not committed itself to any of (i) through (x) above. 10 (H) Title to Assets; Condition of Assets. The Borrower has good, indefeasible and marketable title in fee simple to real property purported to be owned by it and good and marketable title to all other property purported to be owned by it, including that reflected in the Financials. With respect to the assets of the Borrower that are leased, the leases are in full force and effect and the Borrower is in compliance with all material provisions of such leases and there are no defaults thereunder. The equipment and other tangible assets of the Borrower are in good operating condition (except for reasonable wear and tear), and have been reasonably maintained. (I) Patents, Licenses, Permits, etc. The Borrower owns or possesses no patents, trademarks, service marks, trade names, copyrights, licenses, franchises, permits and rights. (J) Liens, Encumbrances and Judgments. There are no Liens upon or against real or other property owned or leased by the Borrower or any unsatisfied judgments entered against the Borrower. (K) Tax Returns and Taxes. The Borrower has filed all federal, state and local tax returns and other reports required by law to be filed and has paid, to the extent due and payable, all taxes, levies, assessments, charges, liens, claims or encumbrances relating to employees, payroll, income and gross receipts, ownership or use of any of its assets, and any other aspect of its respective business or financial affairs, as the case may be, except any of the foregoing being contested in good faith and by appropriate proceedings; and the accruals and reserves in the books of the Borrower in respect of federal taxes are adequate and the Borrower has no knowledge of any unpaid assessments for additional federal or state taxes for any fiscal period. (L) Compliance with Laws and Agreements. The Borrower is not in violation of any applicable law, or of any order, writ, injunction or decree of any court or any federal, state, municipal or other governmental authority. The Borrower is not in default, and no event or condition has occurred which with the giving of notice or passage of time or both would constitute such a default, with respect to any indenture, loan agreement, mortgage, lease, deed, any other similar agreement relating to the borrowing of monies or any other material agreement to which it is a party or by which it is bound. The Borrower has all the licenses, permits, consents, approvals and rights necessary to operate its business. (M) Plans. The Borrower does not sponsor, maintain, or contribute to any employee benefit plans, pension plans, profit-sharing plans, or stock ownership plan, stock option plan or other compensatory or benefit plans. (N) Margin Stock. The Borrower's execution and delivery of this Agreement or any of the other Loan Documents does not directly or indirectly 11 violate or result in a violation of Regulations G, T, U and X of the Board of Governors of the Federal Reserve System and the Borrower does not own or intend to purchase or carry any "margin security," as defined in said Regulations. (O) Intentionally Omitted. (P) Solvency. The Borrower has sufficient capital to carry on all businesses and transactions in which it now engages or is about to engage, is Solvent. (Q) Holding Company and Investment Company Status. The Borrower is not an "investment company," or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended. Neither the Company nor any Subsidiary is a "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company," or a "public utility," within the meaning of the Public Utility Holding Company Act of 1935, as amended, or a "public utility" within the meaning of the Federal Power Act, as amended. (R) Offices of the Borrower. The address specified in Section 8.9 include and designate the Borrower's chief executive office and principal place of business. (S) Employment and Labor Matters. The Borrower is in compliance with its labor contracts, if any, and all applicable federal, state and local labor and employment laws, including but not limited, those related to equal employment opportunity and affirmative action, labor relations, minimum wage, overtime, child labor, medical insurance continuation, worker adjustment and relocation notices, immigration controls and worker and unemployment compensation, where the failure to comply could constitute a Material Adverse Change. There are no outstanding grievances, arbitration awards or appeals therefrom arising out of any of the Borrower's labor contracts and there are no current or threatened strikes, picketing, handbilling or other work stoppages or slow downs at any facility of the Borrower which in any case could constitute a "Material Adverse Change." The Borrower does not have in effect, or any obligation to put into effect, any employment agreements, deferred compensation, pension or retirement agreements or arrangements, bonus incentive or profit-sharing plans or arrangements, or labor or collective bargaining agreements. There are no existing or proposed loans, leases, licenses or other such agreements or arrangements between the Borrower, on the one hand, and any officer, director or stockholder of the Borrower, on the other hand. (T) Full Disclosure. Neither this Agreement nor any of the other Loan Documents contains any untrue statement of a material fact or omits to state any material fact or any fact necessary in order to make the statements contained 12 herein or therein not misleading, and there are no facts known to the Borrower which materially or adversely affect, or in the future may so affect, its respective business, operations, properties, assets or financial condition. 6. COVENANTS AND CONTINUING AGREEMENTS 6.1. Affirmative Covenants. From the date hereof and thereafter until the termination of the Bridge Loan and until the Liabilities have been paid in full, the Borrower covenants and agrees as follows: (A) Preservation of Existence, etc. The Borrower shall maintain its corporate existence and its license or qualification and good standing in each jurisdiction in which its ownership or lease of property or the nature of its business makes such license or qualification necessary. (B) Payment of Liabilities, Including Taxes, etc. The Borrower shall duly pay and discharge all liabilities to which it is subject or which are asserted against it, promptly as and when the same shall become due and payable, including all taxes, assessments and governmental charges upon it or any of its properties, assets, income or profits, prior to the date on which penalties attach thereto, except to the extent that such liabilities, including taxes, assessments or charges, are being contested in good faith and by appropriate and lawful proceedings diligently conducted and for which such reserve or other appropriate provisions, if any, as shall be required by U.S. GAAP shall have been made, but only to the extent that failure to discharge any such liabilities would not result in any additional liability which would result in a Material Adverse Change, provided that the Borrower will pay all such liabilities forthwith upon the commencement of proceedings to foreclose any Lien which may have attached as security therefor. (C) Maintenance of Insurance. The Borrower shall insure its properties and assets against loss or damage by fire and such other insurable hazards as such assets are commonly insured (including fire, flood, extended coverage, property damage, workmen's compensation, and public liability insurance) and against other risks (including errors and omissions) in such amounts as similar properties and assets are insured by prudent companies in similar circumstances carrying on similar businesses, and with reputable and financially sound insurers, including self-insurance to the extent customary, all as reasonably acceptable by the Lender. (D) Maintenance of Properties and Leases. The Borrower shall maintain in good repair, working order and condition (ordinary wear and tear excepted), in accordance with the general practice of other businesses of similar character and size, all of those properties useful or necessary to its business, and from time to time, the Borrower will make or cause to be made all appropriate repairs, renewals or replacements thereof. 13 (E) Maintenance of Patents, Trademarks, Permits, Licenses, etc. The Borrower shall maintain in full force and effect all patents, trademarks, trade names, copyrights, licenses, franchises, permits and other authorizations necessary for the ownership and operation of its properties and business if the failure so to maintain the same would constitute a Material Adverse Change. (F) Visitation Rights. The Borrower shall permit any of the officers or authorized employees or representatives of the Lender to visit and inspect any of its properties and to examine and make excerpts from its books and records and discuss its business affairs, finances and accounts with its officers, all in such detail and at such times and as often as the Lender may reasonably request, provided that the Lender shall provide the Borrower with reasonable notice prior to any visit or inspection. (G) Keeping of Records and Books of Account. The Borrower shall maintain and keep proper books of record and account which enable the Borrower to issue financial statements in accordance with U.S. GAAP and as otherwise required by applicable law, and in which full, true and correct entries shall be made in all material respects of all its dealings and business and financial affairs. (H) Compliance with Laws. The Borrower shall comply with all applicable laws, in all respects, provided that it shall not be deemed to be a violation of this Section 6.1(H) if any failure to comply with any law would not result in fines, penalties, other similar liabilities or injunctive relief which in the aggregate would constitute a Material Adverse Change. (I) Use of Proceeds. The Borrower shall use the proceeds of the Bridge Loan only for lawful purposes in accordance with Section 2.1 and such uses shall not contravene any applicable law or any other provision hereof. 6.2. Negative Covenants. From the date hereof and thereafter under the termination of the Bridge Loan and until the Liabilities have been paid in full, and unless the Borrower shall have obtained the express prior written consent of the Lender, the Borrower covenants and agrees as follows: (A) Indebtedness. The Borrower shall not create, incur, assume or suffer to exist any Indebtedness except (i) Indebtedness under the Loan Documents and (ii) trade accounts payable and other Indebtedness (except for money borrowed and capitalized leases) incurred in the ordinary course of business. (B) Contingent Indebtedness. The Borrower shall not endorse, assume, guarantee, become surety for, or otherwise become or remain directly or contingently liable in connection with the Indebtedness of any other person 14 (except the Lender) except for (i) Indebtedness permitted by Section 6.2(A) and (ii) the endorsement of negotiable or other instruments for deposit or collection or similar transactions in the ordinary course of business. (C) Loans and Investments. The Borrower shall not at any time make or suffer to remain outstanding any loan or advance to, or purchase, acquire or own any stock, bonds, notes or securities of, or any partnership interest (whether general or limited) in, or any other investment or interest in, or make any capital contribution to, any other person, or agree, become or remain liable to do any of the foregoing, except: (i) trade credit extended on usual and customary terms in the ordinary course of business; and (ii) advances to employees to meet expenses incurred by such employees in the ordinary course of business. (D) Dividends and Related Distributions. The Borrower shall not make or pay, or agree to become or remain liable to make or pay, any dividend or other distribution of any nature (whether in cash, property, securities or otherwise) on account of or in respect of its shares of capital stock or on account of the purchase, redemption, retirement or acquisition of its shares of capital stock (or warrants, options or rights therefor). (E) Liquidations, Mergers, Consolidations, Acquisitions. The Borrower shall not dissolve, liquidate or wind-up its affairs, or become a party to any merger or consolidation, or acquire by purchase, lease or otherwise all or substantially all of the assets or capital stock of any other person. (F) Dispositions of Assets. The Borrower shall not sell, convey, assign, lease, abandon or otherwise transfer or dispose of, voluntarily or involuntarily, or engage in a sale leaseback transaction with respect to, any of its properties or assets, tangible or intangible (including but not limited to sale, assignment, discount or other disposition of accounts, contract rights, chattel paper, equipment or general intangibles with or without recourse or of capital stock) except: (i) transactions involving the sale of inventory in the ordinary course of business; (ii) any sale, transfer or lease of assets in the ordinary course of business which are no longer necessary or required in the conduct of the Borrower's business; or 15 (iii) any sale, transfer or lease of assets in the ordinary course of business which are replaced by substitute assets acquired or leased within the parameters of this Agreement, including without limitation, Section 6.2(A). (G) Affiliate Transactions. The Borrower shall not enter into or carry out any transaction (including, without limitation, purchasing property or services from or selling property or services with any Affiliate) unless such transaction is not otherwise prohibited by this Agreement, is entered into in the ordinary course of business upon fair and reasonable arm's length terms and conditions which are fully disclosed to the Lender and is in accordance with all applicable laws. (H) Issuance of Interests. The Borrower shall not issue any additional membership interests or any options, warrants, any securities convertible into membership interests or other rights in respect thereof. (I) Changes in Organizational Documents. The Borrower shall not amend in any respect its certificate of formation, operating agreement or other organizational documents without providing at least thirty (30) days' prior written notice to the Lender and, in the event such change would be adverse to the Lender as determined by the Lender in its sole discretion, obtaining the prior written consent of the Lender. 6.3. Reporting Requirements. From the date hereof and thereafter until the termination of the Bridge Loan and until the Liabilities have been paid in full, the Borrower covenants and agrees that it shall deliver the following: (A) Annual Financial Statements. As soon as available and in any event within ninety (90) days after the end of each fiscal year of the Borrower (except to the extent that the Borrower files all necessary extensions pursuant to the Securities Exchange Act of 1934, as amended), financial statements of the Borrower consisting of a balance sheet as of the end of such fiscal year, and related statements, stockholders' equity and cash flows for the fiscal year then ended, all in reasonable detail and setting forth in comparative form the financial statements as of the end of and for the preceding fiscal year, and certified by the Borrower's Auditors, which shall issue an audit level opinion. The report of the Borrower's Auditors shall be free of qualifications (other than any consistency qualification that may result from a change in the method used to prepare the financial statements as to which said auditors concur) and shall not indicate the occurrence or existence of any event, condition or contingency which would materially impair the prospect of payment or performance of any covenant, agreement or duty of the Borrower under any of the Loan Documents. (B) Quarterly Financial Statements. As soon as available and in any event within forty-five (45) days after the end of each fiscal quarter, the 16 Borrower's financial statements, consisting of a balance sheet as of the end of such quarter and related statements of income, stockholders' equity and cash flows for the quarter then ended and the fiscal year through that date, all in reasonable detail and certified (subject to normal year-end adjustments) by the Chief Executive Officer, President or Chief Financial Officer of the Borrower as having been prepared in accordance with U.S. GAAP, consistently applied, and setting forth in comparative form the respective financial statements for the corresponding date and period in the previous fiscal year. (C) Compliance Certificates. Concurrently with the delivery of the financial statements and information described in subsections (A) and (B) above, a certificate, in a form acceptable to Lender, of the Borrower's Auditors with respect to subsection (A) and of the Chief Executive Officer, President or Chief Financial Officer of the Borrower with respect to subsections (B) and (C), certifying to the Lender that such statements are true, complete and correct and that no Event of Default or Potential Default has occurred which was continuing at the end of the period covered by such financial statements or on the date of such certificate, or if an Event of Default or Potential Default has occurred and was continuing at the end of such period or on the date of such certificate, indicating the nature of such Event of Default or Potential Default and the action which the Borrower proposes to take with respect thereto. (D) Notice of Default. Promptly after any officer of the Borrower has learned of the occurrence of an Event of Default or Potential Default, a certificate signed by the Chief Executive Officer, President or the Chief Financial Officer of the Borrower setting forth the details of such Event of Default or Potential Default and the action which the Borrower proposes to take with respect thereto. (E) Notice of Litigation. Promptly after the commencement thereof, notice of all actions, suits, proceedings or investigations before or by any court or governmental or administrative body or agency or any other person against the Borrower which involve a claim or series of claims in excess of Twenty-Five Thousand Dollars ($25,000) or which if adversely determined would constitute a Material Adverse Change. (F) Budgets, Forecasts, Other Reports and Information. Promptly upon their becoming available to the Borrower: (i) the annual business plan and any other forecasts or projections of the Borrower, to be supplied not later than thirty (30) days after the commencement of the fiscal year to which any of the foregoing may be applicable; and (ii) such other reports and information as the Lender may from time to time reasonably request. 17 (G) Income Tax Returns of the Borrower. As soon as available and in no event later than the date when due, a copy of all federal, state and local income tax returns of the Borrower. 7. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT 7.1. Events of Default. The occurrence or existence of any of the following events, conditions, acts or omissions shall constitute an "Event of Default" hereunder unless waived by the Lender pursuant to Section 8.3: (A) The Borrower fails to pay any principal of or interest on the Bridge Loan or any other Liability when due and payable; (B) Any representation, warranty, statement, report, financial statement or certificate made or delivered by the Borrower, or the Guarantor, to the Lender shall prove to have been false or misleading in any material respect as of the time it was made or furnished; (C) The Borrower, or the Pledgor, fails to perform, keep or observe any term, provision, condition or covenant contained in this Agreement or in any other Loan Document, which is required to be performed, kept or observed by the Borrower, or Pledgor, as applicable; (D) The Borrower defaults in the payment when due (whether by acceleration or otherwise) of principal of or interest or premium on any other Indebtedness for the payment of borrowed money (whether evidenced by a bond, note, debenture, deferred purchased price obligation, capitalized lease, book entry or otherwise) in excess of Twenty-Five Thousand Dollars ($25,000) or the Borrower defaults in the performance of any agreement under which any such Indebtedness is created, if the effect of such default is to cause the holders of such Indebtedness (or any person on behalf of such holders) to declare such Indebtedness due prior to its stated maturity; (E) Any of the Loan Documents shall cease to be legal, valid and binding agreements enforceable against the party executing the same or such party's successors and assigns (as permitted under the Loan Documents) in accordance with the respective terms thereof or shall in any way be terminated (except in accordance with its terms) or become or be declared ineffective or inoperative or shall in any way be challenged or contested or cease to give or provide the respective Liens, interests, rights, remedies, powers or privileges intended to be created thereby; (F) Any judgment, decree or order for the payment of money in excess of Twenty-Five Thousand Dollars ($25,000) shall be entered against the Borrower 18 and such judgment, decree or order shall continue unsatisfied and in effect for a period of thirty (30) consecutive days without being vacated, discharged, satisfied, stayed or bonded pending appeal; (G) A notice of lien or assessment is filed of record with respect to all or any of the Borrower's assets by the United States, or any department, agency or instrumentality thereof, or by any state, county, municipal or other governmental agency, including, without limitation, the Pension Benefit Guaranty Corporation, or if any taxes or debts owing at any time or times hereafter to any one of the foregoing becomes payable and the same is not paid within thirty (30) days after the same becomes payable; (H) The Borrower ceases to be Solvent or admits in writing its inability to pay its debts as they mature; (I) Any of the Borrower's assets are attached, seized, levied upon or subjected to a writ or distress warrant; or such come within the possession of any receiver, trustee, custodian or assignee for the benefit of creditors and the same is not cured within thirty (30) days thereafter; or an application is made by any person other than the Borrower for the appointment of a receiver, trustee or custodian for any of the Borrower's assets and the same is not dismissed within thirty (30) days after the application therefor; (J) A change of control of the Borrower shall occur; (K) An application is made by the Borrower for the appointment of a receiver, trustee or custodian for any of the Borrower's assets; or a petition under any section or chapter of the federal Bankruptcy Code or any similar law shall be filed by the Borrower; or the Borrower makes an assignment for the benefit of its creditors or any case or proceeding is filed by the Borrower for its dissolution, liquidation or termination; or (L) The Borrower ceases to conduct its business as now conducted; or the Borrower is enjoined, restrained or in any way prevented by court order from conducting all or any material part of its business affairs and such injunction, restraint or other preventive order is not dismissed within thirty (30) days after the entry thereof; or a petition under any section or chapter of the federal Bankruptcy Code or any similar law is filed against the Borrower or any case or proceeding is filed against the Borrower for its dissolution or liquidation, and such petition, case or proceeding is not dismissed within thirty (30) days after the filing thereof. 7.2. Acceleration of Liabilities. Upon the occurrence and continuation of an Event of Default mentioned in any of Sections 7.1(A) through 7.1(J), all of the Liabilities may, at the option of the Lender and without demand, notice or legal process of any kind, be declared, and immediately shall become, due and payable. Upon the occurrence of an Event of Default 19 mentioned in any of Sections 7.1(K) and 7.1(L), all of the Liabilities shall immediately and automatically become due and payable, without demand, notice or legal process of any kind. 7.3. Remedies. Upon and after an Event of Default, the Lender shall have in addition to all of the rights and remedies contained in this Agreement or in any other Loan Document, all of the rights and remedies of a secured party under the Uniform Commercial Code or other applicable law, all of which rights and remedies shall be cumulative and non-exclusive, to the extent permitted by law. 8. MISCELLANEOUS 8.1. Modification of Agreement; Sale of Interest. This Agreement and the other Loan Documents may not be modified, altered or amended, except by an agreement in writing signed by the Borrower and the Lender. The Borrower may not sell, assign or transfer this Agreement or any other Loan Document or any portion hereof or thereof, including, without limitation, the Borrower's rights, title, interests, remedies, powers and/or duties hereunder or thereunder. The Borrower hereby consents to the Lender's participation, sale, assignment, transfer or other disposition, at any time or times hereafter, of this Agreement or the other Loan Documents or of any portion hereof or thereof, including, without limitation, the Lender's rights, title, interests, remedies, powers and/or duties hereunder or thereunder. 8.2. Reimbursement and Indemnification of the Lender by the Borrower. The Borrower agrees unconditionally upon demand to pay or reimburse the Lender and to hold the Lender harmless against (A) liability for the payment of all reasonable out-of-pocket costs, expenses and disbursements, including but not limited to fees and expenses of counsel, incurred by the Lender (i) relating to any requested amendments, waivers or consents pursuant to the provisions hereof, (ii) in connection with the enforcement of this Agreement or any other Loan Document or collection of amounts due hereunder or thereunder or the proof and allowability of any claim arising under this Agreement or any other Loan Document, whether in bankruptcy or receivership proceedings or otherwise, and (iii) in any workout, restructuring or in connection with the protection, preservation, exercise or enforcement of the terms hereof or of any rights hereunder or under any other Loan Document or in connection with any foreclosure, collection or bankruptcy proceedings; and (B) all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed upon, incurred by or asserted against the Lender in any way relating to or arising out of this Agreement or any other Loan Document or any action taken or omitted by the Lender hereunder or thereunder, provided that the Borrower shall not be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements to the extent the same results from the Lender's gross negligence or willful misconduct. All of the foregoing expenses shall be due and payable upon demand by the Lender; any such expense not paid when due shall bear interest from the date due until paid at the interest rate specified in subsection 2.4(a), as such interest rate may be modified by subsection 2.4(b). 20 8.3. No Implied Waivers; Cumulative Remedies; Writing Required. No course of dealing and no delay or failure of the Lender in exercising any right, power, remedy or privilege under this Agreement or any other Loan Document shall affect any other or future exercise thereof or operate as a waiver thereof; nor shall any single or partial exercise thereof or any abandonment or discontinuance of steps to enforce such a right, power, remedy or privilege preclude any further exercise thereof or any other right, power, remedy or privilege. The rights and remedies of the Lender under this Agreement and the other Loan Documents are cumulative and not exclusive of any rights or remedies which they would otherwise have. Any waiver, permit, consent or approval of any kind or character on the part of the Lender of any provision of, or any breach or default under, this Agreement or any other Loan Document must be in writing and shall be effective only to the extent specifically set forth in such writing. 8.4. Severability. The provisions of this Agreement are intended to be severable. If any provision of this Agreement shall be held invalid or unenforceable in whole or in part in any jurisdiction, such provision shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without in any manner affecting the validity or enforceability thereof in any other jurisdiction or the remaining provisions hereof in any jurisdiction. 8.5. Successors and Assigns. This Agreement and the other Loan Documents shall be binding upon and inure to the benefit of the successors and assigns of the Borrower and the Lender. This provision, however, shall not be deemed to modify Section 8.1. 8.6. Conflict of Terms. All of the other Loan Documents and all Schedules and Exhibits referred to in this Agreement shall be and be deemed to be incorporated herein by reference for all purposes, notwithstanding that any one or more of such other Loan Documents, Exhibits and/or Schedules may not be physically attached to or otherwise accompany any counterpart or copy of this Agreement. Except as otherwise provided in this Agreement and except as otherwise provided in the other Loan Documents by specific reference to the applicable provision of this Agreement, if any provision contained in this Agreement is in conflict with, or inconsistent with, any provision in the other Loan Documents, the provision contained in this Agreement shall govern and control. 8.7. Waivers by the Borrower. Except as otherwise expressly provided for in this Agreement, the Borrower waives (i) presentment, demand and protest and notice of presentment, protest, default, non-payment, maturity, release, compromise, settlement, extension or renewal of any or all commercial paper, accounts, contract rights, documents, instruments, chattel paper and guarantees at any time held by the Lender on which the Borrower may in any way be liable and hereby ratifies and confirms whatever the Lender may do in this regard; (ii) all rights to notice of a hearing prior to the Lender's taking possession or control of, or to the Lender's replevin, attachment or levy upon, the bond or security which might be required by any court prior to allowing the Lender to exercise any of the Lender's remedies; and (iii) the benefit of all valuation, appraisement and exemption laws. The Borrower acknowledges that it has been advised by counsel with respect to this Agreement and the transactions evidenced by this Agreement. 21 8.8. Governing Law; Submission to Jurisdiction; Waiver of Jury Trial. THIS AGREEMENT SHALL BE INTERPRETED, AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO SHALL FOR ALL PURPOSES BE GOVERNED BY AND CONSTRUED AND ENFORCED, IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF DELAWARE APPLICABLE TO AGREEMENTS EXECUTED, DELIVERED AND PERFORMED WITHIN SUCH STATE WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS OF SUCH STATE. AS PART OF THE CONSIDERATION FOR NEW VALUE THIS DAY RECEIVED, BORROWER HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE STATE OF DELAWARE, AND WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON BORROWER, AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY REGISTERED MAIL DIRECTED TO BORROWER AT THE ADDRESS STATED ON THE FIRST PAGE HEREOF (OR SUCH OTHER ADDRESS AS MAY BE DULY DESIGNATED BY BORROWER PURSUANT TO SECTION 8.9 HEREOF) AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF. BORROWER AGREES THAT IF IT AT ANY TIME COMMENCES ANY ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OF THE LIABILITIES, IT WILL COMMENCE SUCH ACTION OR PROCEEDING ONLY IN A STATE OR FEDERAL COURT LOCATED WITHIN THE STATE OF DELAWARE. BORROWER WAIVES ALL RIGHTS TO TRIAL BY JURY. BORROWER WAIVES ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE COURT. 8.9. Notice. Except as otherwise provided herein, any notice or other written communication required hereunder shall be in writing, and shall be deemed to have been validly served, given or delivered (i) upon deposit in the United States mail, with proper postage prepaid, (ii) by hand delivery, (iii) by overnight express mail courier, or (iv) by telecopier, and addressed to the party to be notified at the address set forth below or to such other address as each party may designate for itself in writing by like notice, provided notices to the Lender shall not be effective until received. To the Lender: VDC Corporation 75 Holly Hill Lane Greenwich, CT 06831 Attention: Frederick A. Moran, Chief Executive Officer with a copy to: Buchanan Ingersoll Professional Corporation Eleven Penn Center 1835 Market Street, 14th Floor Philadelphia, PA 19103 Attention: Stephen M. Cohen, Esquire Telecopier: (215) 665-8760 22 To the Borrower: Masatepe Communications U.S.A., L.L.C. 75 Holly Hill Lane Greenwich, CT 06831 Attention: Marc Graubart, Chief Executive Officer 8.10. Section Titles. The article and section titles contained in this Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto. 8.11. Prior Understanding. This Agreement supersedes all prior understandings and agreements, whether written or oral, between the parties hereto and thereto relating to the transactions provided for herein or therein, including any prior proposal or commitment letters. 8.12. Duration; Survival. All representations and warranties of the Borrower contained herein or made in connection herewith shall survive the making of the Bridge Loan and shall not be waived by the execution and delivery of this Agreement, any investigation by the Lender or payment in full of the Bridge Loan. All covenants and agreements of the Borrower contained herein shall continue in full force and effect from and after the date hereof so long as the Borrower may borrow hereunder and until termination of this Agreement and payment in full of the Loans. All covenants and agreements of the Borrower contained herein relating to the payment of principal, interest, additional compensation or expenses, fees or expenses and indemnification, including those set forth in Article 2 and Sections 7.2 and 8.2 hereof, shall survive payment in full of the Bridge Loan and termination of this Agreement. 8.13. Exceptions to Covenants. The representations, warranties and covenants contained herein shall be independent of each other and no exception to any representation, warranty or covenant shall be deemed to be an exception to any other representation, warranty or covenant contained herein unless expressly provided, nor shall any such exceptions be deemed to permit any action or omission that would be in contravention of applicable law. 8.14. Holiday Payments. If any payment to be made to the Lender hereunder shall become due on a date not a Business Day, such payment shall be made on the next succeeding Business Day and interest shall accrue on any principal amount of such payment until the date on which such principal amount is paid to the Lender. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, and intending to be legally bound hereby, this Loan Agreement has been duly signed, sealed and delivered by the undersigned as of the day and year specified at the beginning hereof. 23 ATTEST: BORROWER MASATEPE COMMUNICATIONS U.S.A., L.L.C. By: VDC CORPORATION LTD., its Managing Member __________________________ By: /s/ Frederick A. Moran ---------------------------------- Title: Frederick A. Moran, Chief Executive Officer [Corporate Seal] LENDER VDC CORPORATION, LTD. By: /s/ Frederick A. Moran ---------------------------------- Frederick A. Moran, Chief Executive Officer 24 TABLE OF CONTENTS
Page ---- 1. GENERAL DEFINITIONS.............................................................1 1.1. Definitions.........................................................1 1.2. Construction........................................................5 1.3. Accounting Principles...............................................5 2. BRIDGE LOAN.....................................................................5 2.1. Bridge Loan.........................................................5 2.2. Repayment of Bridge Loan, Evidence of Debt..........................5 2.3. Optional Prepayments................................................6 2.4. Interest Rates......................................................6 2.5. Computation of Interest.............................................6 2.6. Fee.................................................................7 2.7. Payments, Etc.......................................................7 3. CONDITIONS OF LENDING...........................................................7 3.1. The Bridge Loan.....................................................8 4. GUARANTY........................................................................8 4.1. Guaranty; Security Interest.........................................8 4.2. Further Assurances..................................................8 5. REPRESENTATIONS AND WARRANTIES..................................................9 5.1. General Representations and Warranties..............................9 6. COVENANTS AND CONTINUING AGREEMENTS............................................13 6.1. Affirmative Covenants..............................................13 6.2. Negative Covenants.................................................14 6.3. Reporting Requirements.............................................16 7.1 EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT.............................18 7.1. Events of Default..................................................18 7.2. Acceleration of Liabilities........................................20 7.3. Remedies...........................................................20
8. MISCELLANEOUS..................................................................20 8.1. Modification of Agreement; Sale of Interest........................20 8.2. Reimbursement and Indemnification of the Lender by the Borrower....20 8.3. No Implied Waivers; Cumulative Remedies; Writing Required..........21 8.4. Severability.......................................................21 8.5. Successors and Assigns.............................................21 8.6. Conflict of Terms..................................................21 8.7. Waivers by the Borrower............................................22 8.8. Governing Law; Submission to Jurisdiction; Waiver of Jury Trial....22 8.9. Notice.............................................................22 8.10. Section Titles.....................................................23 8.11. Prior Understanding................................................23 8.12. Duration; Survival.................................................23 8.13. Exceptions to Covenants............................................24 8.14. Holiday Payments...................................................24 8.15. Counterparts.......................................................24
EX-10.3 7 BRIDGE NOTE THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES REPRESENTED HEREBY HAVE BEEN TAKEN BY THE REGISTERED OWNER FOR INVESTMENT, AND WITHOUT A VIEW TO RESALE OR DISTRIBUTION THEREOF, AND MAY NOT BE TRANSFERRED OR DISPOSED WITHOUT AN OPINION OF COUNSEL SATISFACTORY TO THE BORROWER THAT SUCH TRANSFER OR DISPOSITION DOES NOT VIOLATE THE SECURITIES ACT OF 1933, AS AMENDED, OR THE RULES AND REGULATIONS THEREUNDER. BRIDGE NOTE August 1, 1998 FOR VALUE RECEIVED, Masatepe Communications U.S.A., L.L.C. a Delaware limited liability company (the "Borrower"), hereby promises to pay to the order of VDC Corporation, Ltd. a Bermuda corporation, (the "Lender"), the full outstanding principal amount of the Bridge Loan, payable in accordance with the provisions of that certain Bridge Loan Agreement dated August 1, 1998 between the Borrower and the Lender (as it may hereafter be amended, restated, modified or supplemented from time to time, the "Bridge Loan Agreement"). All capitalized terms used herein shall, unless otherwise defined herein, have the same meanings given to such terms in the Bridge Loan Agreement. The entire principal amount due hereunder shall be paid on the Maturity Date or earlier acceleration or repayment hereof. Pursuant to the provisions of the Bridge Loan Agreement, Borrower shall have the right to prepay the entire principal amount due hereunder at any time. Upon the occurrence and during the continuation of an Event of Default, Lender shall have the right to accelerate payment of the entire unpaid principal due hereunder. Subject to the provisions of the Bridge Loan Agreement, accrued interest on this Note will be payable on the Maturity Date or earlier acceleration or repayment hereof. Subject to the provisions of the Bridge Loan Agreement, all additional payments of principal shall be made without setoff, counterclaim or other deduction of any nature to the Lender located at VDC Corporation Ltd., 75 Holly Hill Lane, Greenwich, CT 06831, in lawful money of the United States of America in immediately available funds. The timely payment and performance of all of the Borrower's obligations hereunder and under the Bridge Loan Agreement have been guaranteed by Activated Communications Limited Partnership pursuant to the terms of that certain Guaranty of even date herewith. If any payment or action to be made or taken hereunder shall be stated to be or become due on a day which is not a Business Day, such payment or action shall be made or taken on the next following Business Day and such extension of time shall be included in computing interest or fees, if any, in connection with such payment or action This Note is the Bridge Note referred to in, and is entitled to the benefits of, the Bridge Loan Agreement and other Loan Documents, including the representations, warranties, covenants, conditions, security interests or Liens contained or granted therein. The Bridge Loan Agreement, among other things, contains provisions for prepayment in full but not in part and for acceleration of the maturity hereof upon the happening of certain stated events prior to maturity upon the terms and conditions therein specified. Except as otherwise provided in the Bridge Loan Agreement, the Borrower waives presentment, demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note and the Loan Agreement. This Note shall bind the Borrower and its successors and assigns, and the benefits hereof shall inure to the benefit of the Lender and its successors and assigns. All references herein to the "Borrower" and the "Lender" shall be deemed to apply to the Borrower and the Lender, respectively, and their respective successors and assigns. This Note and any other documents delivered in connection herewith and the rights and obligations of the parties hereto and thereto shall for all purposes be governed by and construed and enforced in accordance with the internal laws of the State of Delaware without giving effect to its conflicts of law principles. IN WITNESS WHEREOF, the undersigned, intending to be legally bound hereby, has executed this Bridge Note as of the date first written above with the intention that this Bridge Note shall constitute a sealed instrument. Masatepe Communications U.S.A., L.L.C. By: VDC Corporation Ltd., ATTEST: its Managing Member _____________________________ By: /s/ Frederick A. Moran -------------------------- Frederick A. Moran, Chief Executive Officer 2 EX-10.4 8 GUARANTY GUARANTY THIS GUARANTY ("Guaranty") is made as of the 1st day of August, 1998, by ACTIVATED COMMUNICATIONS LIMITED PARTNERSHIP, a Texas limited partnership ("Guarantor"), to VDC CORPORATION LTD., a Bermuda corporation ("VDC"). WHEREAS, the Guarantor is the record and beneficial owner of 80% of the membership interests of Masatepe Communications U.S.A., L.L.C., a Delaware limited liability company ("Masatepe"); WHEREAS, Marc Graubart, an individual residing at 200 East 64th Street, Apartment 4C, New York, NY 10021 ("Graubart"), is the record and beneficial owner of 20% of the membership interests of Masatepe; WHEREAS, Guarantor, Graubart and VDC have entered into a certain Purchase Agreement of even date herewith (the "Purchase Agreement") pursuant to which VDC shall acquire 100% of the membership interests of Masatepe from the Guarantor and Graubart; WHEREAS, under the terms of the Purchase Agreement and a certain Escrow Agreement of even date herewith among Guarantor, Graubart, VDC and Buchanan Ingersoll Professional Corporation, as Escrow Agent (the "Escrow Agent"), the Cash Escrow Fund and the Accounts Receivable Escrow Fund are not to be released from escrow until the FCC Approval Date; WHEREAS, to secure any amounts advanced in the Ordinary Course of Business by VDC to Masatepe after the Closing Date and prior to the FCC Approval Date, the VDC and Masatepe have entered into a Bridge Loan Agreement of even date herewith, pursuant to which Masatepe will deliver to VDC a Bridge Note evidencing the indebtedness of Masatepe to VDC thereunder (the "Bridge Note"); WHEREAS, the execution and delivery of this Guaranty is a condition precedent to VDC's entering into, and closing on the transactions contemplated by, the Purchase Agreement. TO INDUCE VDC TO ENTER INTO THE PURCHASE AGREEMENT AND THE LOAN AGREEMENT and for other good and valuable consideration, receipt of which is hereby acknowledged, and intending to be legally bound, Guarantor hereby covenants and agrees as follows: 1. Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Purchase Agreement. 2. Guarantor hereby unconditionally guarantees and becomes surety as for the full and timely payment by Masatepe to VDC of the obligation of Masatepe to pay the entire principal amount of the Bridge Note, together with interest accrued thereon, as such sum may be adjusted and determined pursuant to the Bridge Loan Agreement (hereinafter collectively referred to as the "Guaranteed Obligations"): 3. If the Purchase Agreement is terminated in accordance with its terms, Guarantor agrees to make such full payment to VDC after the occurrence of all of the following events: (i) VDC has made a written demand (the "First Demand") on Masatepe for payment of amounts due and owing VDC under the Bridge Note; (ii) VDC has not received payment of such amount within thirty days after the delivery of the First Demand; (iii) after the occurrence of the events described in clause (i) and (ii) of this paragraph, VDC has delivered a written demand to the Guarantor for payment of amounts due and owing VDC. 4. Guarantor warrants to VDC that: (i) no other agreement, representation or special condition exists between Guarantor and Masatepe regarding the liability of Guarantor hereunder nor does any understanding exist between Guarantor and Masatepe that the obligations of Guarantor hereunder are or will be other than as set forth herein and (ii) as of the date hereof, the Guarantor has no defense whatsoever to any action or proceeding that may be brought to enforce this Guaranty. 5. The parties hereto agree that no waiver or modification of any rights of VDC under this Guaranty shall be effective unless in writing and signed by VDC. Guarantor further agrees that each written waiver shall extend only to the specific instance actually recited in such written waiver and shall not impair the rights of VDC in any other respect. 6. Guarantor unconditionally agrees to pay all costs and expenses, including reasonable attorney's fees, incurred by VDC in enforcing this Guaranty against Guarantor in the event that Guarantor refuses or fails to make payment when required under Section 2 of this Guaranty. 7. Guarantor's obligation to make payment under this Guaranty shall be discharged in full upon the occurrence of either (i) the FCC Approval Date, or (ii) the date upon which Guarantor makes full payment of the Guaranteed Obligations to VDC. 8. Guarantor hereby makes the following representations and warranties to VDC: (a) this Guaranty constitutes the legal, valid and binding obligation of the Guarantor, enforceable against its successors and assigns in accordance with its terms; (b) the Guarantor has full power and authority to enter into, execute, deliver and carry out this Guaranty and to perform its obligations hereunder; and (c) the person executing this Guaranty on behalf of the Guarantor is authorized to do so. 9. Guarantor and VDC agree that this Guaranty and the rights and obligations of the parties hereto shall for all purposes be governed by and construed and enforced in accordance with the substantive law of the State of Delaware without giving effect to its principles of conflict of laws. - 2 - 10. Guarantor agrees that this Guaranty shall be binding upon Guarantor, its successors and assigns. Guarantor further agrees that this Guaranty shall inure to the benefit of VDC and its successors and assigns. 11. Guarantor agrees that if Guarantor fails to perform any covenant or agreement hereunder and if Masatepe fails to pay amounts due VDC under the Bridge Loan Agreement and Bridge Note, all or any part of the Guaranteed Obligations may be declared to be forthwith due and payable and, in any case without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived. 12. Guarantor agrees that all notices, statements, requests, demands and other communications under this Guaranty shall be given to Guarantor at the address and in the manner provided in the Purchase Agreement. 13. Guarantor hereby irrevocably consents and submits to the exclusive personal jurisdiction of the courts of the State of Delaware and the United States District Court for the District of Delaware over any suit, action or other proceeding arising out of or relating to this Guaranty and irrevocably agrees that all or other proceeding arising out of or relating to this Guaranty and irrevocably agrees that all claims with respect to such suit, action or other proceeding may be made in the manner hereinabove set forth for the giving of notices, and the same shall constitute valid personal service for all purposes, each party hereby waiving personal service by any other means. - 3- IN WITNESS WHEREOF, Guarantor and VDC, intending to be legally bound, have executed this Guaranty as of the date first above written with the intention that this Guaranty shall constitute a sealed instrument. WITNESS: ACTIVATED COMMUNICATIONS LIMITED PARTNERSHIP By: Cellular Dynamics, Inc., its General Partner By: /s/ Adam Lindemann - --------------------------- -------------------------------------------- Adam Lindemann, Vice President ATTEST: VDC CORPORATION LTD. By: /s/ Frederick A. Moran - --------------------------- -------------------------------------------- Frederick A. Moran, Chief Executive Officer - 4 - EX-10.21 9 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT AGREEMENT effective as of the 1st day of February, 1998, by and between Charles W. Mulloy, an adult individual residing at 37 Byram Shore Road, Greenwich, Connecticut 06830 (hereinafter referred to as "Executive") and VDC Corporation Ltd., a Bermuda corporation having a registered office at 44 Church Street, Hamilton HM FX Bermuda (hereinafter referred to as the "Company"). WITNESSETH WHEREAS, the Company considers it essential and in the best interests of its stockholders to foster the continuous employment of key management personnel and desires to retain the services of the Executive for itself on the terms and conditions hereinafter set forth; and WHEREAS, Executive desires to render services to the Company on the terms and conditions provided in this 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. Employment Term, Duties and Acceptance a. The Company hereby retains the Executive as Vice President-Corporate Development, to render his services to the Company upon the terms and conditions herein contained, in such executive capacity, subject to the direction of the Company through its principal executive officers (including its Chief Executive, Chief Operating and Chief Financial Officers) or its Board of Directors. b. The Executive hereby accepts the foregoing employment and agrees to devote his full time, best efforts, energy and skill to such employment. c. The Executive shall not engage in any other business endeavor or activity during the Employment Period. d. The Executive hereby agrees that any and all business opportunities which are similar to or in competition with the Business of the Company (as such term is used and defined in Section 6(a) below) and are available as of the date hereof or become available to the Executive during the Employment Period shall automatically become the sole property of the Company without any obligation of the Company to compensate or otherwise pay the Executive for such opportunities. e. The term of the Executive's employment hereunder (the "Employment Period") shall commence on the date hereof and shall end on the second anniversary hereof, unless sooner terminated as provided herein, provided, however, that the Employment Period shall be extended and this Agreement shall be automatically renewed for successive one-year periods unless: (i) this Agreement is terminated as otherwise provided herein; or (ii) Executive provides written notice to the Company of his desire not to extend the Employment Period at least sixty (60) days prior to the expiration of the then lapsing term. 2. Compensation and Expense Reimbursement a. As base compensation for the Executive duly rendering his services pursuant to the terms of this Agreement, Company agrees to pay and Executive agrees to accept a base salary ("Base Salary") of One Hundred Thousand Dollars ($100,000) per annum to be paid in accordance with the general payroll practices of the Company as from time to time in effect. The Base Salary will be subject to merit increases annually as determined by the Board of Directors. b. Any bonus or other compensation provided for herein shall at all times be exclusive of Executive's interest in and to the options granted by the Company to him as set forth in the Option to Purchase Common Shares entered into by the Executive and the Company and having an effective date of February 1, 1998 (the "Option Agreement"), as well as any stock option plan(s) that may in the future be adopted by the Company for its management personnel. c. The Company will pay or reimburse Executive for all reasonable and necessary out-of-pocket expenses incurred by him in the performance of his duties under this Agreement, including all of the Executive's travel, hotel, meal and other incidental expenses during the Executive's travel on behalf of the Company. Executive shall keep detailed and accurate records of expenses incurred in connection with the performance of his duties hereunder and reimbursement therefor shall be in accordance with policies and procedures to be established from time to time by the Board. 3. Fringe Benefits a. Executive shall be entitled, subject to the terms and conditions of particular plans and programs, to all fringe benefits afforded to other senior executives of the Company, including, but not by way of limitation, the right to participate in any pension, stock option, retirement, major medical, group health, disability, accident and life insurance, and other employee benefit programs made generally available, from time to time, by the Company. b. During the term of this Agreement, the Company shall include Executive and his family in family health insurance coverage provided for executive level employees of the Company. 2 4. Vacations Executive shall be entitled to compensated vacation in each fiscal year, to be taken at times which do not unreasonably interfere with the performance of Executive's duties hereunder and otherwise in accordance with the Company's vacation policies in effect from time to time as applied to other executives of the Company. 5. Termination a. Termination by Company for "Cause". In addition to any other remedies which the Company may have at law or in equity, the Board of Directors may upon the affirmative vote of no less than a majority of its members, terminate Executive's employment under this Agreement by giving Executive written notice of such termination upon or at any time following the occurrence of any of the following events, and each such termination shall constitute a termination for "cause," provided, however, that Executive has first been given written notice of the facts or circumstances constituting the determination of "cause" and a reasonable opportunity (in no event less than fifteen (15) days) to cure, rectify or reverse such facts or circumstances and Executive shall have failed to do so: (a) any act or failure to act (or series or combination thereof) by Executive done with the intent to harm in any material respect the interests of the Company or any affiliate thereof; (b) the commission by Executive of a felony for which he is convicted by a court of competent jurisdiction; (c) the finding by a court of competent jurisdiction that Executive perpetrated a dishonest act or common law fraud against the Company or any affiliate thereof; or (d) a grossly negligent act or failure to act (or series or combination thereof) by Executive detrimental to a material extent to the interests of the Company or any affiliate thereof; or (e) the continued refusal to follow the directives of the Board or the Company's Chief Executive Officer which are consistent with Executive's duties, responsibilities and covenants hereunder unless the failure to follow such directives were either: (i) based upon the advice of counsel; or (ii) based upon the Executive's judgment in good faith that such directives would not be in the best interests of the Company or its members. Upon the early termination of Executive's employment under this Agreement by the Company for "cause," the Company shall pay to Executive: (i) an amount equal to Executive's Base Salary accrued through the effective date of termination at the rate in effect at the time of termination, payable at the time such payment is due; and (ii) any expense reimbursement amounts accrued to the effective date of termination, payable on the effective date of termination. Upon payment of such amounts, the Company shall have no further obligation to Executive under this Agreement, and Executive shall have no further rights hereunder. b. Termination by Company without "Cause". At any time after the six month anniversary of the date of this Agreement, the Company may terminate this Agreement for any reason or no reason other than for cause upon thirty (30) days written notice to the Executive. Upon the early termination of the Executive's employment under this Agreement by the Company "without cause," the Company shall pay to the Executive: (i) an amount equal to the Executive's Base 3 Salary accrued through the effective date of termination at the rate in effect at the time of termination, payable at the time such payment is due; (ii) a lump sum payment at the time of termination equal to three month's Base Salary, payable on the effective date of termination; and (iii) any expense reimbursement amounts accrued to the effective date of termination, payable on the effective date of termination. Upon payment of such amounts, the Company shall have no further obligation to Executive under this Agreement, and Executive shall have no further rights hereunder. c. Incapacity of Executive. Subject to applicable law, if Executive shall become ill or be injured or otherwise become incapacitated such that, in the opinion of the Board of Directors, he cannot fully carry out and perform his duties hereunder, and such incapacity shall continue for a period of 180 consecutive days, the Board of Directors may, at any time thereafter, by giving Executive twenty (20) days' prior written notice, fully and finally terminate his employment under this Agreement. Termination under this Section 5(c) shall be effective as of the date provided in such notice, which date shall not be fewer than thirty (30) days after such notice is delivered to Executive or his representative, and on the effective date of termination, the Company shall pay the Executive (i) his Base Salary accrued to the effective date of termination at the rate in effect at the time of such notice, payable at the time such payment is due; and (ii) any expense reimbursement amounts accrued to the effective date of termination, payable on the effective date of termination. Upon payment of such amounts, the Company shall have no further obligation to Executive under this Agreement, and Executive shall have no further rights hereunder. d. Death of Executive. This Agreement shall automatically terminate upon the death of Executive. Upon the early termination of this Agreement as a result of death, the Company shall pay the Executive's estate: (i) an amount equal to the Executive's Base Salary accrued through the effective date of termination at the rate in effect at the effective date of termination, payable at the time such payment is due; and (ii) any expense reimbursement amounts accrued to the effective date of termination, payable on the effective date of termination. Upon payment of such amounts, the Company shall have no further obligation to Executive under this Agreement, and Executive shall have no further rights hereunder. e. Termination by Employee. At any time after the six month anniversary of the date of this Agreement, the Executive may terminate this Agreement by giving at least thirty (30) days' prior written notice to the Company. f. Mitigation. The Executive shall not be required to mitigate the amount of any payment or other benefits provided for under this Agreement by seeking other employment and none of these payments or other benefits may be reduced by any salary or other benefits that Executive may earn. 4 6. Covenant Not to Compete a. The Executive recognizes and acknowledges that the Company is placing its confidence and trust in the Executive. The Executive, therefore, covenants and agrees that during the Applicable Non-Compete Period (as defined below), the Executive shall not, either directly or indirectly, without the prior written consent of the Board of Directors: (i) engage in or carry on any business or in any way become associated with any business which is similar to or is in competition with the Business of the Company (as such term is used and defined below); (ii) solicit the business of any person or entity, on behalf of himself or any other person or entity, which is or has been at any time during the term of this Agreement a material customer or material supplier of the Company including, but not limited to, former or present customers or suppliers with whom the Executive has had personal contact during, or by reason of, his relationship with the Company; (iii) be or become an employee, agent, consultant, representative, director or officer of, or be otherwise in any manner associated with, any person, firm, corporation, association or other entity which is engaged in or is carrying on any business which is similar to or in competition with the Business of the Company; (iv) solicit for employment or employ any person employed by the Company at any time during the 12-month period immediately preceding such solicitation or employment; or (v) be or become a shareholder, joint venturer, owner (in whole or in part), partner, or be or become associated with or have any proprietary or financial interest in or of any firm, corporation, association or other entity which is engaged in or is carrying on any business which is similar to or in competition with the Business of the Company. Notwithstanding the preceding sentence above, the following shall not be deemed to violate this Section 6: i. passive equity investments by Executive of $25,000 or less in any entity or affiliated group of any entity which is engaged in or is carrying on any business which is similar to or in competition with the Business of the Company; or ii. passive equity investments by Executive in excess of $25,000 in any entity or affiliated group of any entity which is engaged in or is carrying on any business which is similar to or in competition with the Business of the Company, so long as and only to the extent that Executive has obtained the prior written consent of VDC to make such investments; or iii. an equity investment by Executive of up to 5% in any publicly traded company which is engaged in or is carrying on any business which is similar to or in competition with the Business of the Company. b. As used in this Agreement, the term "Business of the Company" shall include all material business activities in which the Company is engaged now or during the Applicable Non-Compete Period, which are: (i) telephony gateways in the United States, Ukraine, Kazakhstan, Russia, China and Egypt; (ii) the acquisition of Alaska Telecom; (iii) cellular, PCS or other wireless telephony licenses and businesses for the United States, Egypt, Kazakhstan, Ukraine, China and various republics and 5 regions of Russia; (iv) Internet service provision and local loop opportunities in the United States, Egypt, Kazakhstan, Ukraine, China and Russia; (v) funding and/or vendor financing from NTS, Qualcomm, Ericcson and Motorola; (vi) paging and cable TV licenses for the entire country of Ukraine; (vii) a billing system for the United States, Egypt, Kazakhstan, Ukraine, China and Russia; (viii) a long distance in country project for the national railway system of Ukraine; (ix) communications tower site management business in the United States, Ukraine, Kazakhstan, Egypt, China and Russia; and (x) Internet service provision in the United States, Egypt, Kazakhstan, Ukraine, China and Russia. c. Executive hereby recognizes and acknowledges that the existing Business of the Company extends throughout a number of countries, including Ukraine, Russia, China, Egypt and Kazakhstan and most states of the United States, and therefore agrees that the covenants not to compete contained in this Section 6 shall be applicable in and throughout such countries and states, as well as throughout such additional areas, states or countries in which the Company may be (or has prepared written plans to be) doing business as of the date of termination of the Executive's employment. The Executive further warrants and represents that, because of his varied skill and abilities, he does not need to compete with the Business of the Company and that this Agreement will not prevent him from earning a livelihood and acknowledges that the restrictions contained in this Section 6 constitute reasonable protections for the Company. d. As used in this Section 6, "Applicable Non-Compete Period" shall mean that period of one year following the termination of Executive's employment hereunder. 7. Trade Secrets and Confidential Information Executive 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 the Executive by reason of his employment with the Company. Accordingly, the Executive 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 of Directors. The Executive shall, upon termination of employment, return to the Company all documents which reflect Confidential Information (including copies thereof). Notwithstanding anything heretofore stated in this Section 7, the Executive's obligations under this Section 7 shall not, after termination of the Executive's employment with the Company, apply to information which has become generally available to the public without any action or omission of the Executive (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 6 disclosure shall be deemed to remain confidential and protectable by the Executive under this Section 7). 8. 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. 9. Breach The Executive hereby recognizes and acknowledges that irreparable injury or damage shall result to the Company in the event of a breach or threatened breach by the Executive of any of the terms of provisions Section 6 or 7 hereunder, and the Executive therefore agrees that the Company shall be entitled to an injunction restraining Executive from engaging in any activity constituting such breach or threatened breach. Nothing contained herein shall be construed as prohibiting the 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 the Executive and, if the Executive is an employee of the Company, the termination of his employment with the Company in accordance with the terms and provisions of this Agreement. 10. 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 14 hereof. Any arbitration pursuant to this Agreement shall be conducted in Philadelphia, Pennsylvania 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 10 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 Philadelphia, Pennsylvania 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. 7 11. 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. 12. 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. 13. 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. 14. Governing Law This Agreement shall be governed by the laws of the State of Delaware without regard to principles of conflict of laws. 15. 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. 16. Warranties The Executive 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. 8 17. Notice Any notice required to be given pursuant to the provisions of this Agreement shall be in writing and sent by registered mail or nationally recognized overnight carrier, to the parties at the following addresses: To the Company at: Frederick A. Moran, Chief Executive Officer VDC Corporation Ltd. 27 Doubling Road Greenwich, CT 06830 with a copy to: Stephen M. Cohen, Esquire Buchanan Ingersoll Professional Corporation Eleven Penn Center, 14th Floor 1835 Market Street Philadelphia, PA 19103 To the Executive at: Charles W. Mulloy 37 Byram Shore Road Greenwich, CT 06830 18. Key Man Insurance The Company shall have the right to obtain what is commonly known as "Key Man Insurance" on the life of the Executive in such amount as the Company deems appropriate. The Executive 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. 19. Due Authorization The Company represents to the Executive that this Agreement has been duly authorized and approved by the Board of Directors of the Company. 20. Assignment This Agreement shall inure to the benefit of and be binding upon the Company, its successors and assigns. This Agreement may not be assigned to any third party without the written consent of all parties to the assignment. 9 IN WITNESS WHEREOF, the parties have executed this Agreement as of this 10th day of April, 1998. VDC CORPORATION LTD. By: /s/ Frederick A. Moran --------------------------- Frederick A. Moran, Chief Executive Officer WITNESS: EXECUTIVE: /s/ Charles W. Mulloy - ------------------------------- ------------------------------- Charles W. Mulloy EX-10.22 10 OPTION TO PURCHASE 10,000 SHARES OF COMMON SHARES 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 February 1, 2008 This certifies that, for value received, Charles W. Mulloy ("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 corporation, Common Shares of the Company (as defined below), commencing on February 1, 1998 (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 February 1, 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 10,000 shares, as adjusted pursuant to Section 11 hereof. 2.2. Exercise Price. The Exercise Price at which this Option may be exercised shall be $5.00 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) 2,000 provided Holder remains continuously employed by the Company from February 1, 1998 through January 31, 1999; (ii) 4,000 provided Holder remains continuously employed by the Company from February 1, 1998 through January 31, 2000; (iii) 6,000 provided Holder remains continuously employed by the Company from February 1, 1998 through January 31, 2001; (iv) 8,000 provided Holder remains continuously employed by the Company from February 1, 1998 through January 31, 2002; and (v) 10,000 provided Holder remains continuously employed by the Company from February 1, 1998 through January 31, 2003. 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 employment with the Company shall lapse and terminate. 2.4. Death of Holder and Termination. (a) If the Holder shall die or his employment is terminated due to incapacity pursuant to Section 5(c) of the Employment Agreement, effective as of February 1, 1998, by and between the Company and the Holder (the "Employment Agreement"), 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 of employment had occurred. (b) In the event Holder's employment by the Company is terminated without "cause" or for "cause", as such terms are defined in the Employment Agreement, or Holder voluntarily terminates his employment with the Company, 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 2 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 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. 27 Doubling Road Greenwich, CT 06830 Attn: Frederick A. Moran, Chief Executive Officer 6 With a Copy to: Stephen M. Cohen, Esquire Buchanan Ingersoll Professional Corporation Eleven Penn Center 1835 Market Street, 14th Floor Philadelphia, PA 19103 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, 7 merger, consolidation or sale or transfer by a holder of the number of Common Shares that might 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 Philadelphia, Pennsylvania. 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 Philadelphia, Pennsylvania. 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 9 shall pay the 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. Effective Date: February 1, 1998 VDC CORPORATION LTD. Dated: April 15, 1998 /s/ Frederick A. Moran ---------------------- Frederick A. Moran, Chief Executive Officer HOLDER: Dated: April 14, 1998 /s/ Charles W. Mulloy --------------------- Charles W. Mulloy 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-10.23 11 OPTION TO PURCHASE 50,000 SHARES OF COMMON SHARES 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 September 2, 2008 This certifies that, for value received, Charles W. Mulloy ("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 corporation, 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 September 2, 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 50,000 shares, as adjusted pursuant to Section 11 hereof. 2.2. Exercise Price. The Exercise Price at which this Option may be exercised shall be $5.75 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) 10,000 provided Holder remains continuously employed by the Company from September 2, 1998 through September 1, 1999; (ii) 20,000 provided Holder remains continuously employed by the Company from September 2, 1998 through September 1, 2000; (iii) 30,000 provided Holder remains continuously employed by the Company from September 2, 1998 through September 1, 2001; (iv) 40,000 provided Holder remains continuously employed by the Company from September 2, 1998 through September 1, 2002; and (v) 50,000 provided Holder remains continuously employed by the Company from September 2, 1998 through September 1, 2003. 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 employment with the Company shall lapse and terminate. 2.4. Death of Holder and Termination. (a) If the Holder shall die or his employment is terminated due to incapacity pursuant to Section 5(c) of the Employment Agreement, dated as of February 1, 1998, by and between the Company and the Holder (the "Employment Agreement"), 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 of employment had occurred. (b) In the event Holder's employment by the Company is terminated without "cause" or for "cause", as such terms are defined in the Employment Agreement, or Holder voluntarily terminates his employment with the Company, 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 2 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 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 Greenwich, CT 06830 Attn: Frederick A. Moran, Chief Executive Officer 6 With a Copy to: Stephen M. Cohen, Esquire Buchanan Ingersoll Professional Corporation Eleven Penn Center 1835 Market Street, 14th Floor Philadelphia, PA 19103 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, 7 merger, consolidation or sale or transfer by a holder of the number of Common Shares that might 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 Philadelphia, Pennsylvania. 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 Philadelphia, Pennsylvania. 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 9 shall pay the 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: September 2, 1998 VDC CORPORATION LTD. /s/ Frederick A. Moran ----------------------------------- Frederick A. Moran, Chief Executive Officer HOLDER: /s/ Charles W. Mulloy ------------------------------- Charles W. Mulloy 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-10.24 12 REGISTRATION RIGHTS AGREEMENTS REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT effective as of February, 1, 1998, by and between VDC Corporation Ltd., a Bermuda corporation (the "Company"), and Charles W. Mulloy, an individual residing at 37 Byram Shore Road, Greenwich, Connecticut 06830 ("Holder"). BACKGROUND WHEREAS, pursuant to an Option to Purchase Common Shares of VDC Corporation Ltd. dated as of February 1, 1998, granted in connection with the Employment Agreement (the "Employment Agreement") by and between the Company and the Holder, 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 corporation, 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 -2- 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 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 -3- 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 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 -4- 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 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. 27 Doubling Road Greenwich, CT 06830 Attention: Frederick A. Moran, Chief Executive Officer -8- with a copy to: Stephen M. Cohen, Esquire Buchanan Ingersoll Professional Corporation 11 Penn Center, 14th Floor 1835 Market Street Philadelphia, PA 19103 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 effective as of February 1, 1998. VDC CORPORATION LTD. Dated: April 10, 1998 By: /s/ Frederick A. Moran ----------------------- Frederick A. Moran Chief Executive Officer HOLDER: Dated: April 10, 1998 By: /s/ Charles W. Mulloy --------------------- Charles W. Mulloy REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT made and entered into as of this 2nd day of September, 1998, by and between VDC Corporation Ltd., a Bermuda corporation (the "Company"), and Charles W. Mulloy, an individual residing at 37 Byram Shore Road, Greenwich CT 06830 ("Holder"). BACKGROUND WHEREAS, pursuant to an Option to Purchase Common Shares of VDC Corporation Ltd. dated September 2, 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 corporation, 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 2 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 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 3 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 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 4 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 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 Greenwich, CT 06830 Attention: Frederick A. Moran, Chief Executive Officer 8 with a copy to: Stephen M. Cohen, Esquire Buchanan Ingersoll Professional Corporation 11 Penn Center, 14th Floor 1835 Market Street Philadelphia, PA 19103 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/ Charles W. Mulloy --------------------------------------- Charles W. Mulloy EX-10.25 13 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT AGREEMENT effective as of the 1st day of June, 1998, by and among Clay Moran, an adult individual residing at 25 Doubling Road, Greenwich, CT 06830 (hereinafter referred to as "Executive") and VDC Corporation Ltd., a Bermuda corporation having a registered office at 44 Church Street, Hamilton HM FX Bermuda (hereinafter referred to as the" Company"). WITNESSETH WHEREAS, the Company agreed to employ Executive and Executive agreed to become employed by the Company, each upon the terms and conditions contained within this Employment 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. Employment Term, Duties and Acceptance a. The Company hereby retains the Executive as Vice President, Finance to render his services to the Company upon the terms and conditions herein contained, in such executive capacity, subject to the direction of the Company through its principal executive officers (including its Chief Executive, Chief Operating or Chief Financial Officers), or its Board of Directors. b. The Executive hereby accepts the foregoing employment and agrees to devote his full time, best efforts, energy and skill to such employment. c. The Executive shall not engage in any other business endeavor or activity during the Employment Period. d. The Executive hereby agrees that any and all business opportunities which are similar to or in competition with the Business of the Company (as such term is used and defined in Section 6(a) below) and are available as of the date hereof or become available to the Executive during the Employment Period shall automatically become the sole property of the Company without any obligation of the Company to compensate or otherwise pay the Executive for such opportunities. e. The term of the Executive's employment hereunder (the "Employment Period") shall commence on the date hereof and shall end on the third anniversary hereof, unless sooner terminated as provided herein, provided, however, that the Employment Period shall be extended and this Agreement shall be automatically renewed for successive one-year periods unless: (i) this Agreement is terminated as otherwise provided herein; or (ii) Executive provides written notice to the Company of his desire not to extend the Employment Period at least sixty (60) days prior to the expiration of the then lapsing term. 2. Compensation and Expense Reimbursement a. As base compensation for the Executive duly rendering his services to the Company and the Sub pursuant to the terms of this Agreement, the Company agrees to pay and Executive agrees to accept a base salary ("Base Salary") of Seventy Five Thousand Dollars ($75,000) per annum to be paid in accordance with the general payroll practices of the Company as from time to time in effect. The Base Salary will be subject to merit increases annually as determined by the Board of Directors. b. Any bonus or other compensation provided for herein shall at all times be exclusive of Executive's interest in and to the options granted by the Company to him as set forth in the Option to Purchase Common Shares entered into by the Executive and the Company and dated of even date herewith (the "Option Agreement"), as well as any stock option plan(s) that may in the future be adopted by the Company for its management personnel. c. The Company will pay or reimburse Executive for all reasonable and necessary out-of-pocket expenses incurred by him in the performance of his duties under this Agreement, including all of the Executive's travel, hotel, meal and other incidental expenses during the Executive's travel on behalf of the Company. Executive shall keep detailed and accurate records of expenses incurred in connection with the performance of his duties hereunder and reimbursement therefor shall be in accordance with policies and procedures to be established from time to time by the Board. 3. Fringe Benefits a. Executive shall be entitled, subject to the terms and conditions of particular plans and programs, to all fringe benefits generally afforded to other employees of the Company at the level of Executive, including, but not by way of limitation, the right to participate in any pension, stock option, retirement, major medical, group health, disability, accident and life insurance, and other employee benefit programs made generally available, from time to time, by the Company. b. During the term of this Agreement, the Company shall include Executive and his family in family health insurance coverage provided for executive level employees of the Company. 4. Vacations Executive shall be entitled to compensated vacation in each fiscal year, to be taken at times which do not unreasonably interfere with the performance of Executive's duties hereunder and otherwise in accordance with the Company's vacation policies in effect from time to time as applied to other executives of the Company. 2 5. Termination a. Termination by Company for "Cause". In addition to any other remedies which the Company may have at law or in equity, the Board of Directors may upon the affirmative vote of no less than a majority of its members, terminate Executive's employment under this Agreement by giving Executive written notice of such termination upon or at any time following the occurrence of any of the following events, and each such termination shall constitute a termination for "cause," provided, however, that Executive has first been given written notice of the facts or circumstances constituting the determination of "cause" and a reasonable opportunity (in no event less than fifteen (15) days) to cure, rectify or reverse such facts or circumstances and Executive shall have failed to do so: (a) any act or failure to act (or series or combination thereof) by Executive done with the intent to harm in any material respect the interests of the Company or any affiliate thereof; (b) the commission by Executive of a felony for which he is convicted by a court of competent jurisdiction; (c) the finding by a court of competent jurisdiction that Executive perpetrated a dishonest act or common law fraud against the Company or any affiliate thereof; or (d) a grossly negligent act or failure to act (or series or combination thereof) by Executive detrimental to a material extent to the interests of the Company or any affiliate thereof; or (e) the continued refusal to follow the directives of the Board or the Company's Chief Executive Officer which are consistent with Executive's duties, responsibilities and covenants hereunder unless the failure to follow such directives were either: (i) based upon the advice of counsel; or (ii) based upon the Executive's judgment in good faith that such directives would not be in the best interests of the Company or its members. Upon the early termination of Executive's employment under this Agreement by the Company for "cause," the Company shall pay to Executive: (i) an amount equal to Executive's Base Salary accrued through the effective date of termination at the rate in effect at the time of termination, payable at the time such payment is due; and (ii) any expense reimbursement amounts accrued to the effective date of termination, payable on the effective date of termination. Upon payment of such amounts, the Company shall have no further obligation to Executive under this Agreement, and Executive shall have no further rights under this Agreement. b. Termination by Company without "Cause". At any time after the six month anniversary of the date of this Agreement, the Company may terminate this Agreement for any reason or no reason other than for cause upon thirty (30) days written notice to the Executive. Upon the early termination of the Executive's employment under this Agreement by the Company "without cause," the Company shall pay to the Executive: (i) an amount equal to the Executive's Base Salary accrued through the effective date of termination at the rate in effect at the time of termination, payable at the time such payment is due; (ii) a lump sum 3 payment at the time of termination equal to three month's Base Salary, payable on the effective date of termination; and (iii) any expense reimbursement amounts accrued to the effective date of termination, payable on the effective date of termination. Upon payment of such amounts, the Company shall have no further obligation to Executive under this Agreement, and Executive shall have no further rights under this Agreement. c. Incapacity of Executive. Subject to applicable law, if Executive shall become ill or be injured or otherwise become incapacitated such that, in the opinion of the Board of Directors, he cannot fully carry out and perform his duties hereunder, and such incapacity shall continue for a period of 180 consecutive days, the Board of Directors may, at any time thereafter, by giving Executive twenty (20) days' prior written notice, fully and finally terminate his employment under this Agreement. Termination under this Section 5(c) shall be effective as of the date provided in such notice, which date shall not be fewer than thirty (30) days after such notice is delivered to Executive or his representative, and on the effective date of termination, the Company shall pay the Executive (i) his Base Salary accrued to the effective date of termination at the rate in effect at the time of such notice, payable at the time such payment is due; and (ii) any expense reimbursement amounts accrued to the effective date of termination, payable on the effective date of termination. Upon payment of such amounts, the Company shall have no further obligation to Executive under this Agreement, and Executive shall have no further rights under this Agreement. d. Death of Executive. This Agreement shall automatically terminate upon the death of Executive. Upon the early termination of this Agreement as a result of death, the Company shall pay the Executive's estate: (i) an amount equal to the Executive's Base Salary accrued through the effective date of termination at the rate in effect at the effective date of termination, payable at the time such payment is due; and (ii) any expense reimbursement amounts accrued to the effective date of termination, payable on the effective date of termination. Upon payment of such amounts, the Company shall have no further obligation to Executive under this Agreement, and Executive shall have no further rights under this Agreement. e. Termination by Employee. At any time after the six month anniversary of the date of this Agreement, the Executive may terminate this Agreement by giving at least thirty (30) days' prior written notice to the Company. f. Mitigation. The Executive shall not be required to mitigate the amount of any payment or other benefits provided for under this Agreement by seeking other employment and none of these payments or other benefits may be reduced by any salary or other benefits that Executive may earn. 6. Covenant Not to Compete 4 a. The Executive recognizes and acknowledges that the Company is placing its confidence and trust in the Executive. The Executive, therefore, covenants and agrees that during the Applicable Non-Compete Period (as defined below), the Executive shall not, either directly or indirectly, without the prior written consent of the Board of Directors: (i) engage in or carry on any business or in any way become associated with any business which is similar to or is in competition with the Business of the Company (as such term is used and defined below); (ii) solicit the business of any person or entity, on behalf of himself or any other person or entity, which is or has been at any time during the term of this Agreement, a material customer or material supplier of the Company including, but not limited to, former or present customers or suppliers with whom the Executive has had personal contact during, or by reason of, his relationship with the Company; (iii) be or become an employee, agent, consultant, representative, director or officer of, or be otherwise in any manner associated with, any person, firm, corporation, association or other entity which is engaged in or is carrying on any business which is similar to or in competition with the Business of the Company; (iv) solicit for employment or employ any person employed by the Company at any time during the 12-month period immediately preceding such solicitation or employment; or (v) be or become a shareholder, joint venturer, owner (in whole or in part), partner, or be or become associated with or have any proprietary or financial interest in or of any firm, corporation, association or other entity which is engaged in or is carrying on any business which is similar to or in competition with the Business of the Company. Notwithstanding the preceding sentence above, the following shall not be deemed to violate this Section 6: i. passive equity investments by Executive of $25,000 or less in any entity or affiliated group of any entity which is engaged in or is carrying on any business which is similar to or in competition with the Business of the Company; or ii. passive equity investments by Executive in excess of $25,000 in any entity or affiliated group of any entity which is engaged in or is carrying on any business which is similar to or in competition with the Business of the Company, so long as and only to the extent that Executive has obtained the prior written consent of the Company to make such investments; or iii. an equity investment by Executive of up to 5% in any publicly traded company which is engaged in or is carrying on any business which is similar to or in competition with the Business of the Company. b. As used in this Agreement, the term "Business of the Company" shall include all material business activities in which the Company is engaged now or during the Applicable Non-Compete Period, which are: (i) telephony gateways in the United States, Ukraine, Kazakhstan, Russia, China and Egypt; (ii) the acquisition of Alaska Telecom; (iii) cellular, PCS or other wireless telephony licenses and businesses for the United States, Egypt, Kazakhstan, Ukraine, China 5 and various republics and regions of Russia; (iv) Internet service provision and local loop opportunities in the United States, Egypt, Kazakhstan, Ukraine, China and Russia; (v) funding and/or vendor financing from NTS, Qualcomm, Ericcson and Motorola; (vi) paging and cable TV licenses for the entire country of Ukraine; (vii) a billing system for the United States, Egypt, Kazakhstan, Ukraine, China and Russia; (viii) a long distance in country project for the national railway system of Ukraine; (ix) communications tower site management business in the United States, Ukraine, Kazakhstan, Egypt, China and Russia; and (x) Internet service provision in the United States, Egypt, Kazakhstan, Ukraine, China and Russia. c. Executive hereby recognizes and acknowledges that the existing Business of the Company extends throughout a number of countries, including Ukraine, Russia, China, Egypt and Kazakhstan and most states of the United States, and therefore agrees that the covenants not to compete contained in this Section 6 shall be applicable in and throughout such countries and states, as well as throughout such additional areas, states or countries in which the Company may be (or has prepared written plans to be) doing business as of the date of termination of the Executive's employment. The Executive further warrants and represents that, because of his varied skill and abilities, he does not need to compete with the Business of the Company and that this Agreement will not prevent him from earning a livelihood and acknowledges that the restrictions contained in this Section 6 constitute reasonable protections for the Company. d. As used in this Section 6, "Applicable Non-Compete Period" shall mean all periods of employment hereunder and that period of one year following the termination of Executive's employment hereunder. 7. Trade Secrets and Confidential Information Executive 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 the Executive by reason of his employment with the Company. Accordingly, the Executive 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 of Directors. The Executive shall, upon termination of employment, return to the Company all documents which reflect Confidential Information (including copies thereof). Notwithstanding anything heretofore stated in this Section 7, the Executive's obligations under this Section 7 shall not, after termination of the Executive's employment with the Company, apply to information which has become generally available to the public without any action or omission of the Executive (except that any Confidential Information which is disclosed to any third party by an employee or representative 6 of the Company who is not authorized to make such disclosure shall be deemed to remain confidential and protectable by the Executive under this Section 7). 8. 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. 9. Breach The Executive hereby recognizes and acknowledges that irreparable injury or damage shall result to the Company in the event of a breach or threatened breach by the Executive of any of the terms of provisions Section 6 or 7 hereunder, and the Executive therefore agrees that the Company shall be entitled to an injunction restraining Executive from engaging in any activity constituting such breach or threatened breach. Nothing contained herein shall be construed as prohibiting the 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 the Executive and, if the Executive is an employee of the Company, the termination of his employment with the Company in accordance with the terms and provisions of this Agreement. 10. 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 14 hereof. Any arbitration pursuant to this Agreement shall be conducted in Philadelphia, Pennsylvania 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 10 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 Philadelphia, Pennsylvania 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. 11. 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. 7 12. 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. 13. 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. 8 14. Governing Law This Agreement shall be governed by the laws of the State of Delaware without regard to principles of conflict of laws. 15. 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. 16. Warranties The Executive 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. 17. Notice Any notice required to be given pursuant to the provisions of this Agreement shall be in writing and sent by registered mail or nationally recognized overnight carrier, to the parties at the following addresses: To the Company at: Frederick A. Moran, Chief Executive Officer VDC Corporation Ltd. 75 Holly Hill Lane Greenwich, CT 06830 with a copy to: Stephen M. Cohen, Esquire Buchanan Ingersoll Professional Corporation Eleven Penn Center, 14th Floor 1835 Market Street Philadelphia, PA 19103 To the Executive at: Clay Moran 25 Doubling Road Greenwich CT 06830 9 18. Key Man Insurance The Company shall have the right to obtain what is commonly known as "Key Man Insurance" on the life of the Executive in such amount as the Company deems appropriate. The Executive 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. 19. Due Authorization The Company represents to the Executive that this Agreement has been duly authorized and approved by the Board of Directors of the Company. 20. Assignment This Agreement shall inure to the benefit of and be binding upon the Company, its successors and assigns. This Agreement may not be assigned to any third party without the written consent of all parties to the assignment. IN WITNESS WHEREOF, the parties have executed this Agreement as of the __ day of _____, 1998. ATTEST: VDC CORPORATION LTD. /s/ Frederick A.Moran By: /s/ Frederick A. Moran - ------------------------ ------------------------------------------- , Secretary Frederick A. Moran, Chief Executive Officer WITNESS: EXECUTIVE: /s/ Lynn K. Roberts /s/ Clay Moran - ------------------------ ------------------------------------------- Name: Clay Moran 10 EX-10.26 14 OPTION TO PURCHASE COMMON SHARES 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 June 1, 2008 This certifies that, for value received, Clay Moran ("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 corporation, 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 June 1, 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 10,000 shares, as adjusted pursuant to Section 11 hereof. 2.2 Exercise Price. The Exercise Price at which this Option may be exercised shall be $6.00 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) 2,000 provided Holder remains continuously employed by the Company from June 1, 1998 through May 31, 1999; (ii) 4,000 provided Holder remains continuously employed by the Company from June 1, 1998 through May 31, 2000; (iii) 6,000 provided Holder remains continuously employed by the Company from June 1, 1998 through May 31, 2001; (iv) 8,000 provided Holder remains continuously employed by the Company from June 1, 1998 through May 31, 2002; and (v) 10,000 provided Holder remains continuously employed by the Company from June 1, 1998 through May 31, 2003. 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 employment with the Company shall lapse and terminate. 2.4. Death of Holder and Termination. (a) If the Holder shall die or his employment is terminated due to incapacity pursuant to Section 5(c) of the Employment Agreement, dated June 1, 1998, by and between the Company and the Holder (the "Employment Agreement"), 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 of employment had occurred. (b) In the event Holder's employment by the Company is terminated without "cause" or for "cause", as such terms are defined in the Employment Agreement, or Holder voluntarily terminates his employment with the Company, 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 2 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 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 Greenwich, CT 06830 Attn: Frederick A. Moran, Chief Executive Officer 6 With a Copy to: Stephen M. Cohen, Esquire Buchanan Ingersoll Professional Corporation Eleven Penn Center 1835 Market Street, 14th Floor Philadelphia, PA 19103 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, 7 merger, consolidation or sale or transfer by a holder of the number of Common Shares that might 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 Philadelphia, Pennsylvania. 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 Philadelphia, Pennsylvania. 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 9 shall pay the 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: June 1, 1998 VDC CORPORATION LTD. /s/Frederick A. Moran -------------------------------- Frederick A. Moran, Chief Executive Officer HOLDER: /s/ Clay Moran ---------------------------------------------- Clay Moran 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-10.27 15 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT made and entered into as of this 1st day of June, 1998, by and between VDC Corporation Ltd., a Bermuda corporation (the "Company"), and Clay Moran, an individual residing at 25 Doubling Road, Greenwich CT 06830 ("Holder"). BACKGROUND WHEREAS, pursuant to an Option to Purchase Common Shares of VDC Corporation Ltd. dated June 1, 1998, granted in connection with the Employment Agreement (the "Employment Agreement") by and between the Company and the Holder, 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 corporation, 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 -2- 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 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 -3- 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 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 -4- 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 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 Greenwich, CT 06830 Attention: Frederick A. Moran, Chief Executive Officer -8- with a copy to: Stephen M. Cohen, Esquire Buchanan Ingersoll Professional Corporation 11 Penn Center, 14th Floor 1835 Market Street Philadelphia, PA 19103 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: By:/s/ Clay Moran ------------------------------------ Clay Moran -9- EX-10.28 16 DIRECTOR AGREEMENT DIRECTOR AGREEMENT DIRECTOR AGREEMENT effective as of the 8th day of July, 1998 by and among Dr. Hussein Elkholy, an adult individual having an address at 2 Horizon Road, Apt. 604, Ft. Lee, New Jersey 07024 (hereinafter referred to as "Dr. Elkholy") and VDC Corporation Ltd., a Bermuda corporation having a registered office at 44 Church Street, Hamilton HM FX Bermuda (hereinafter referred to as the "Company"). WITNESSETH WHEREAS, Dr. Elkholy has been elected to serve as a member of the Company's Board of Directors (a "Director") and Dr. Elkholy 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. Elkholy as a Director to render his services to the Company in such capacity. b. Dr. Elkholy hereby agrees to serve as a Director and agrees to devote his best efforts, energy and skill to such position. c. Dr. Elkholy 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. Elkholy 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. Elkholy and the Company dated July 8, 1998. b. Other than the Compensation, Dr. Elkholy 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. Elkholy 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. Elkholy may resign from his position as a Director upon thirty (30) days written notice to the Board. b. Dr. Elkholy 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. Elkholy 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. Elkholy by reason of his service to the Company. Accordingly, Dr. Elkholy 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. Elkholy 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. Elkholy's obligations under this Section 4 shall not, after termination of Dr. Elkholy's service to the Company, apply to information which has become generally available to the public without any action or omission of Dr. Elkholy (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. Elkholy 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. Elkholy 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. Elkholy of any of the terms of Section 4 hereunder, and Dr. Elkholy therefore agrees that the Company shall be entitled 2 to an injunction restraining Dr. Elkholy from engaging in any activity constituting such breach or threatened breach. Nothing contained herein shall be construed as prohibiting the 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. Elkholy 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 Philadelphia, Pennsylvania 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 Philadelphia, Pennsylvania 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. 3 11. Governing Law This Agreement shall be governed by the laws of the State of Delaware without regard to principles of conflict of laws. 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. Elkholy 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 required to be given pursuant to the provisions of this Agreement shall be in writing and sent by registered mail or nationally recognized overnight carrier, to the parties at the following addresses: To the Company at: Frederick A. Moran, Chief Executive Officer VDC Corporation Ltd. 75 Holly Hill Lane Greenwich, CT 06830 with a copy to: Louis D. Frost, VDC Corporate Counsel VDC Corporation Ltd. 75 Holly Hill Lane Greenwich, CT 06830 To Dr. Elkholy at: Dr. Hussein Elkholy 2 Horizon Road Apartment 604 Ft. Lee, New Jersey 07024 4 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. Elkholy in such amount as the Company deems appropriate. Dr. Elkholy 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. Due Authorization The Company represents to Dr. Elkholy that this Agreement has been duly authorized and approved by the Board of Directors of the Company. 17. Assignment This Agreement shall inure to the benefit of and be binding upon the Company, its successors and assigns. This Agreement may not be assigned to any third party without the written consent of all parties to the assignment. IN WITNESS WHEREOF, the parties have executed this Agreement as of the 8th day of July 1998. ATTEST: VDC CORPORATION LTD. /s/ Frederick A. Moran By: /s/ Frederick A. Moran - ----------------------------- ------------------------------- _______________, Secretary Frederick A. Moran, Chief Executive Officer WITNESS: /s/ Lynn K. Roberts /s/ Dr. Hussein Elkholy - ----------------------------- ------------------------------- Dr. Hussein Elkholy 5 EX-10.29 17 OPTION TO PURCHASE COMMON SHARES 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 July 8, 2008 This certifies that, for value received, Dr. Hussein Elkholy ("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 corporation, 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 July 8, 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 $7.625 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) 5,000 provided Holder serves as a member of the Company's Board of Directors (a "Director") continuously from July 8, 1998 through July 7, 1999; (ii) 10,000 provided Holder serves as a Director continuously from July 8, 1998 through July 7, 2000; (iii) 15,000 provided Holder serves as a Director continuously from July 8, 1998 through July 7, 2001; (iv) 20,000 provided Holder serves as a Director continuously from July 8, 1998 through July 7, 2002; and (v) 25,000 provided Holder serves as a Director continuously from July 8, 1998 through July 7, 2003. 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 July 8, 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 2 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 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 Philadelphia, Pennsylvania. 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 Philadelphia, Pennsylvania. 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 9 shall pay the 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: July 8, 1998 VDC CORPORATION LTD. /s/ Frederick A. Moran ----------------------------------- By: Frederick A. Moran, Chief Executive Officer HOLDER: /s/ Dr. Hussein Elkholy ----------------------------------- Dr. Hussein Elkholy 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-10.30 18 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT made and entered into as of this 8th day of July, 1998, by and between VDC Corporation Ltd., a Bermuda corporation (the "Company"), and Dr. Hussein Elkholy, an individual with an address at 2 Horizon Road, Apartment 604, Ft. Lee, New Jersey 07024 ("Holder"). BACKGROUND WHEREAS, pursuant to an Option to Purchase Common Shares of VDC Corporation Ltd. dated July 8, 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 corporation, 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 -2- 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 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 -3- 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 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 -4- 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 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/ Dr. Hussein Elkholy ---------------------------------- Dr. Hussein Elkholy -9- EX-10.31 19 WARRANT TO PURCHASE Certificate No. 1998-W12 THIS WARRANT WAS REISSUED BY THE COMPANY FOLLOWING THE EXTENSION OF THE EXPIRATION DATE HEREOF EFFECTIVE AS OF AUGUST 25, 1998. THIS WARRANT REPRESENTS THE ENTIRE AGREEMENT BETWEEN THE PARTIES AND SUPERSEDES AND RENDERS NULL AND VOID ALL PRIOR AGREEMENTS, INSTRUMENTS OR DOCUMENTS RELATING TO ANY AND ALL WARRANTS PREVIOUSLY GRANTED TO THE HOLDER. WARRANT TO PURCHASE COMMON STOCK OF VDC CORPORATION LTD. Void after 5:00 p.m. Eastern Standard Time on the Termination Date (as such term is defined herein). This is to verify that, FOR VALUE RECEIVED, Graham Ferguson Lacey, or registered assigns (hereinafter referred to as the "Holder") is entitled to purchase, subject to the terms and conditions hereof, from VDC CORPORATION LTD., a Bermuda corporation ("Company"), 45,000 shares of Common Stock, par value $2.00 per share of the Company (the "Common Stock") at any time during the period commencing at 9:00 a.m., Eastern Standard Time on March 7, 1998 (the "Commencement Date") and ending at 5:00 p.m. Eastern Standard Time on the date that is thirty days following the effective date of a registration statement registering the resale of the shares of Common Stock issuable upon the exercise of this Warrant (the "Termination Date") at an exercise price of $5.00 per share of Common Stock. The number of shares of Common Stock purchasable upon exercise of this Warrant (the "Warrant(s)") and the exercise price per share shall be subject to adjustment from time to time upon the occurrence of certain events as set forth below. The shares of Common Stock or any other shares or other units of stock or other securities or property, or any combination thereof then receivable upon exercise of this Warrant, as adjusted from time to time, are sometimes referred to hereinafter as "Exercise Shares". The exercise price per share as from time to time in effect is referred to hereinafter as the "Exercise Price". 1. Exercise of Warrant: Issuance of Exercise Shares. (a) Exercise of Warrant. This Warrant may be exercised in whole or in part at any time or from time to time on or after the Commencement Date and until and including the Termination Date, upon surrender on any business day to the Company at its principal office, presently located at the address of the Company set forth in Paragraph 9 hereof, (or such other office of the Company, if any, as shall theretofore have been designated by the Company by written notice to the Holder), together with: (i) a completed and executed Notice of Warrant Exercise in the form set forth in Appendix A hereto and made a part hereof and (ii) payment of the full Exercise Price for the amount of Exercise Shares set forth in the Notice of Warrant Exercise, in lawful money of the United States of America by certified check or cashier's check, made payable to the order of the Company. In the event that this Warrant shall be duly exercised in part prior to the Termination Date, the Company shall issue a new Warrant or Warrants of like tenor evidencing the rights of the Holder thereof to purchase the balance of the Exercise Shares purchasable under the Warrant so surrendered that shall not have been purchased. No adjustments shall be made for any cash dividends on Exercise Shares issuable upon exercise of the Warrant. The Company shall cancel Warrant Certificates surrendered upon exercise of Warrants. (b) Issuance of Exercise Shares: Delivery of Warrant Certificate. The Company shall, within ten (10) business days or as soon thereafter as is practicable of the exercise of this Warrant, issue in the name of and cause to be delivered to the Holder (or such other person or persons, if any, as the Holder shall have designated in the Notice of Warrant Exercise) one or more certificates representing the Exercise Shares to which the Holder (or such other person or persons) shall be entitled upon such exercise under the terms hereof. Such certificate or certificates shall be deemed to have been issued and the Holder (or such other person or persons so designated) shall be deemed to have become the record holder of the Exercise Shares as of the date of the due exercise of this Warrant. (c) Exercise Shares Fully Paid and Non-assessable. The Company agrees and covenants that all Exercise Shares issuable upon the due exercise of the Warrant represented by this Warrant Certificate will, upon issuance in accordance with the terms hereof, be duly authorized, validly issued, fully paid and non-assessable and free and clear of all taxes (other than taxes which, pursuant to Paragraph 2 hereof, the Company shall not be obligated to pay) or liens, charges, and security interests created by the Company with respect to the issuance thereof. (d) Reservation of Exercise Shares. At the time of or before taking any action which would cause an adjustment pursuant to Paragraph 6 hereof increasing the number of shares of capital stock constituting the Exercise Shares, the Company will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company have remaining, after such adjustment, a number of shares of such capital stock unissued and unreserved for other purposes sufficient to permit the exercise of all the then outstanding Warrants of like tenor immediately after such adjustment; the Company will also from time to time take action to increase the authorized amount of its capital stock constituting the Exercise Shares if at any time the number of shares of capital stock authorized but remaining unissued and unreserved for other purposes shall be insufficient to permit the exercise of the Warrants then outstanding. The Company may but shall not be limited to reserve and keep available, out of the aggregate of its authorized but unissued shares of capital stock, for the purpose of enabling it to satisfy any obligation to issue Exercise Shares upon exercise of Warrants, through the Termination Date, the number of Exercise Shares deliverable upon the full exercise of this Warrant and all other Warrants of like tenor then outstanding. 2 At the time of or before taking any action which would cause an adjustment pursuant to Paragraph 6 hereof, reducing the Exercise Price below the then par value (if any) of the Exercise Shares issuable upon exercise of the Warrants, the Company will take any corporate action which may, in the opinion of its counsel, be necessary in order to assure that the par value per share of the Exercise Shares is at all times equal to or less than the Exercise Price per share and so that the Company may validly and legally issue fully paid and non-assessable Exercise Shares at the Exercise Price, as so adjusted; the Company will also from time to time take such action if at any time the Exercise Price is below the then par value of the Exercise Shares. (e) Fractional Shares. The Company shall not be required to issue fractional shares of capital stock upon the exercise of this Warrant or to deliver Warrant Certificates which evidence fractional shares of capital stock. In the event that any fraction of an Exercise Share would, except for the provisions of this subparagraph (e), be issuable upon the exercise of this Warrant, the Company shall pay to the Holder exercising the Warrant an amount in cash equal to such fraction multiplied by the current market value of the Exercise Share. For purposes of this subparagraph (e), the current market value shall be determined as follows: (i) if the Exercise Shares are traded in the over-the-counter market and not on any national securities exchange and not in the NASDAQ Reporting System, the average of the mean between the last bid and asked prices per share, as reported by the National Quotation Bureau, Inc., or an equivalent generally accepted reporting service, for the last business day prior to the date on which this Warrant is exercised, or if not so reported, the average of the closing bid and asked prices for an Exercise Share as furnished to the Company by any member of the National Association of Securities Dealers, Inc., selected by the Company for that purpose; or (ii) if the Exercise Shares are listed or traded on a national securities exchange or in the NASDAQ National Market System, the closing price on the principal national securities exchange on which they are so listed or traded or in the NASDAQ National Market System, as the case may be, on the last business day prior to the date of the exercise of this Warrant. The closing price referred to in this clause (ii) shall be the last reported sales price or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices, in either case on the national securities exchange on which the Exercise Shares are then listed or in the NASDAQ Reporting System; or (iii) if no such closing price or closing bid and asked prices are available, as determined in any reasonable manner as may be prescribed by the Board of Directors of the Company. 2. Payment of Taxes. (a) The Company will pay all documentary stamp taxes, if any, attributable to the initial issuance of Exercise Shares upon the exercise of this Warrant; provided, however, that the Company shall not be required to pay any tax or taxes which may be payable in respect of any transfer involved in the issue of any Warrant Certificates or any certificates for Exercise Shares in a name other than that of the Holder of a Warrant Certificate surrendered upon the exercise of a Warrant, and the Company shall not be required to issue or deliver such certificates unless or 3 until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. (b) Upon exercise of a Warrant, 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 Exercise Shares issuable pursuant to the exercise of such Warrant. (c) 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 shares of common stock of the Company having an aggregate current 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 shares of common stock of the Company otherwise issuable to the Holder in connection with the exercise of a Warrant; 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 2(c). 3. Mutilated or Missing Warrant Certificates. In case any Warrant Certificate shall be mutilated, lost, stolen or destroyed, the Company may in its discretion issue, in exchange and substitution for and upon cancellation of the mutilated Warrant Certificate, or in lieu of and in substitution for the Warrant Certificate lost, stolen or destroyed, a new Warrant Certificate or Warrant Certificates of like tenor and in the same aggregate denomination, but only (i) in the case of loss, theft or destruction, upon receipt of evidence satisfactory to the Company of such loss, theft or destruction of such Warrant Certificate and indemnity or bond, if requested, also satisfactory to them and (ii) in the case of mutilation, upon surrender of the mutilated Warrant. Applicants for such substitute Warrant Certificates shall also comply with such other reasonable regulations and pay such other reasonable charges as the Company or its counsel may prescribe. 4. Rights of Holder. The Holder shall not, by virtue of anything contained in this Warrant Certificate or otherwise, be entitled to any right whatsoever, either in law or equity, of a stockholder of the Company, including without limitation, the right to receive dividends or to vote or to consent or to receive notice as a shareholder in respect of the meetings of shareholders or the election of directors of the Company or any other matter. 5. Registration of Transfers and Exchanges. The Warrant shall be transferable, subject to the provisions of Paragraph 7 hereof, only upon the books of the Company, if any, to be maintained by it for that purpose, upon surrender of the Warrant Certificate to the Company at its principal office accompanied (if so required by it) by a written instrument or instruments of transfer in form satisfactory to the Company and duly executed by the Holder thereof or by the duly appointed legal representative thereof or by a duly authorized attorney and upon payment of any necessary transfer tax or other governmental charge imposed upon such transfer. In all cases of transfer by an attorney, the original letter of attorney, duly approved, or an official copy thereof, duly certified, shall be deposited and remain with the Company. In case of transfer by executors, 4 administrators, guardians or other legal representatives, duly authenticated evidence of their authority shall be produced, and may be required to be deposited and remain with the Company in its discretion. Upon any such registration of transfer, a new Warrant Certificate shall be issued to the transferee named in such instrument of transfer, and the surrendered Warrant Certificate shall be canceled by the Company. Any Warrant Certificate may be exchanged, at the option of the Holders thereof and without change, when surrendered to the Company at its principal office, or at the office of its transfer agent, if any, for another Warrant Certificate or other Warrant Certificates of like tenor and representing in the aggregate the right to purchase from the Company a like number and kind of Exercise Shares as the Warrant Certificate surrendered for exchange or transfer, and the Warrant Certificate so surrendered shall be canceled by the Company or transfer agent, as the case may be. 6. Adjustment of Exercise Shares and Exercise Price. The Exercise Price and the number and kind of Exercise Shares purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the happening of certain events as hereinafter provided. The Exercise Price in effect at any time and the number and kind of securities purchasable upon exercise of each Warrant shall be subject to adjustment as follows: (a) In case the Company shall (i) pay a dividend or make a distribution on its shares of Common Stock in shares of Common Stock, (ii) subdivide or classify its outstanding Common Stock into a greater number of shares, or (iii) combine or reclassify its outstanding Common Stock into a smaller number of shares, the Exercise Price in effect at the time of the record date for such dividend or distribution or of the effective date of such subdivision, combination or reclassification shall be proportionally adjusted so that the Holder of this Warrant exercised after such date shall be entitled to receive the aggregate number and kind of shares which, if this Warrant had been exercised by such Holder immediately prior to such date, he would have owned upon such exercise and been entitled to receive upon such dividend, subdivision, combination or reclassification. For example, if the Company declares a 2 for 1 stock dividend or stock split and the Exercise Price immediately prior to such event was $5.00 per share, the adjusted Exercise Price immediately after such event would be $2.50 per share. Such adjustment shall be made successively whenever any event listed above shall occur. (b) In case the Company shall hereafter issue rights or warrants to all holders of its Common Stock entitling them to subscribe for or purchase shares of Common Stock (or securities convertible into Common Stock) at a price (or having a conversion price per share) less than the current market price of the Common Stock (as defined in subsection (d) below) on the record date mentioned below, the Exercise Price shall be adjusted so that the same shall equal the price determined by multiplying the Exercise Price in effect immediately prior to the date of such issuance by a fraction, the numerator of which shall be the sum of the number of shares of Common Stock outstanding on the record date mentioned below and the number of additional shares of Common Stock which the aggregate offering price of the total number of shares of Common Stock so offered (or the aggregate conversion price of the convertible securities so offered) would purchase at such current market price per share of the Common Stock, and the denominator of which shall be the sum of the number of shares of Common Stock outstanding on 5 such record date and the number of additional shares of Common Stock offered for subscription or purchase (or into which the convertible securities so offered are convertible). Such adjustment shall be made successively whenever such rights or warrants are issued and shall become effective immediately after the record date for the determination of shareholders entitled to receive such rights or warrants; and to the extent that shares of Common Stock are not delivered (or securities convertible into Common Stock are not delivered) after the expiration of such rights or warrants the Exercise Price shall be readjusted to the Exercise Price which would then be in effect had the adjustments made upon the issuance of such rights or warrants been made upon the basis of delivery of only the number of shares of Common Stock (or securities convertible into Common Stock) actually delivered. (c) Whenever the Exercise Price payable upon exercise of each Warrant is adjusted pursuant to subsection (a) and (b) above, the number of Exercise Shares purchasable upon exercise of this Warrant shall simultaneously be adjusted by multiplying the number of Exercise Shares initially issuable upon exercise of this Warrant by the Exercise Price in effect on the date hereof and dividing the product so obtained by the Exercise Price, as adjusted. (d) For the purpose of any computation under subsection (b) above, the current market price per share of Common Stock at any date shall be deemed to be the average of the daily closing prices for thirty (30) consecutive business days before such date. The closing price for each day shall be the last sale price regular way or, in case no such reported sale takes place on such day, the average of the last reported bid and lowest reported asked prices as reported by NASDAQ, or other similar organization if NASDAQ is no longer reporting such information, or if not so available, the fair market price as determined by the Board of Directors. (e) No adjustment in the Exercise Price shall be required unless such adjustment would require an increase or decrease of at least ten cents ($0.10) in such price; provided, however, that any adjustments which by reason of this subsection (e) are not required to be made shall be carried forward and taken into account in any subsequent adjustment required to be made hereunder. All calculations under this Paragraph 6 shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. Anything in this Paragraph 6 to the contrary notwithstanding, the Company shall be entitled, but shall not be required, to make such changes in the Exercise Price, in addition to those required by this Paragraph 6, as it, in its sole discretion, shall determine to be advisable in order that any dividend or distribution in shares of Common Stock, subdivision, reclassification or combination of Common Stock, issuance of Warrants to Purchase Common Stock or distribution of evidences of indebtedness or other assets (excluding cash dividends) referred to hereinabove in this Paragraph 6 hereafter made by the Company to the holders of its Common Stock shall not result in any tax to the holders of its Common Stock or securities convertible into Common Stock. 6 (f) Whenever the Exercise Price is adjusted, as herein provided, the Company shall promptly cause a notice setting forth the adjusted Exercise Price and adjusted number of Exercise Shares issuable upon exercise of each Warrant to be mailed to the Holders, at their last addresses appearing in the Warrant Register, and shall cause a certified copy thereof to be mailed to its transfer agent, if any. The Company may retain a firm of independent certified public accountants selected by the Board of Directors (who may be the regular accountants employed by the Company) to make any computation required by this Paragraph 6, and a certificate signed by such firm shall be conclusive evidence of the correctness of such adjustment. (g) In the event that at any time, as a result of an adjustment made pursuant to subsection (a) above, the Holder of this Warrant thereafter shall become entitled to receive any Exercise Shares of the Company, other than Common Stock, thereafter the number of such other shares so receivable upon exercise of this Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in subsections (a) to (e), inclusive, above. (h) Irrespective of any adjustments in the Exercise Price or the number or kind of Exercise Shares purchasable upon exercise of this Warrant, Warrants theretofore or thereafter issued may continue to express the same price and number and kind of shares as are stated in the similar Warrants initially issuable pursuant to this Warrant. (i) Whenever the Exercise Price shall be adjusted as required by the provisions of the foregoing Paragraph 6, the Company shall forthwith file in the custody of its Secretary or an Assistant Secretary at its principal office and with its stock transfer agent, if any, an officer's certificate showing the adjusted Exercise Price determined as herein provided, setting forth in reasonable detail the facts requiring such adjustment, including a statement of the number of additional shares of Common Stock, if any, and such other facts as shall be necessary to show the reason for and the manner of computing such adjustment. Each such officer's certificate shall be made available at all reasonable times for inspection by the holder and the Company shall, forthwith after each such adjustment, mail a copy by certified mail of such certificate to the Holder. 7. Restrictions on Transferability: Restrictive Legend. Neither this Warrant nor the Exercise Shares shall be transferable except in accordance with the provisions of this Paragraph. (a) Restrictions on Transfer; Indemnification. Neither this Warrant nor any Exercise Share 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 and 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 7 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. The Holder agrees to indemnify and hold harmless the Company against any loss, damage, claim or liability arising from the disposition of this Warrant or any Exercise Share held by such holder or any interest therein in violation of the provisions of this Paragraph 7. (b) Restrictive Legends. Unless and until otherwise permitted by this Paragraph 7, this Warrant Certificate, each Warrant Certificate issued to the Holder or to any transferee or assignee of this Warrant Certificate, and each Certificate representing Exercise Shares issued upon exercise of this Warrant or to any transferee of the person to whom the Exercise Shares were issued, shall bear a legend setting forth the requirements of subparagraph (a) of this Paragraph 7, together with such other legend or legends as may otherwise be deemed necessary or appropriate by counsel to the Company. (c) Notice of Proposed Transfers. Prior to any transfer, offer to transfer or attempted transfer of this Warrant or any Exercise Share, the holder of such security shall give written notice to the Company of such holder's intention to effect such transfer. Each such notice shall (x) describe the manner and circumstances of the proposed transfer in sufficient detail, and shall contain an undertaking by the person giving such notice to furnish such other information as may be required, to enable counsel to render the opinions referred to below, and shall (y) designate the counsel for the person giving such notice, such counsel to be satisfactory to the Company. The person giving such notice shall submit a copy thereof to the counsel designated in such notice and the Company shall submit a copy thereof to its counsel, and the following provisions shall apply: (i) If, in the opinion of each such counsel, the proposed transfer of this Warrant or Exercise Share, as appropriate, may be effected without registration of such security under the 1933 Act, the Company shall, as promptly as practicable, so notify the holder of such security and such holder shall thereupon be entitled to transfer such security in accordance with the terms of the notice delivered by such holder to the Company. Each certificate evidencing the securities thus to be transferred (and each certificate evidencing any untransferred balance of the securities evidenced by such certificate) shall bear the restrictive legends referred to in subparagraph (b) above, unless in the opinion of each such counsel such legend is not required in order to insure compliance with the 1933 Act. (ii) If, in the opinion of either of such counsel, the proposed transfer of securities may not be effected without registration under the 1933 Act, the Company shall, as promptly as practicable, so notify the holder thereof. However, the Company shall have no obligation to register such securities under the 1933 Act, except as otherwise provided herein. The holder of the securities giving the notice under this subparagraph (c) shall not be entitled to transfer any of the securities until receipt of notice from the Company under paragraph (i) of this subparagraph (c) or registration of such securities under the 1933 Act has become effective. 8 (d) Removal of Legend. The Company shall, at the request of any registered holder of a Warrant or Exercise Share, exchange the certificate representing such security for a certificate representing the same security not bearing the restrictive legend required by subparagraph (b) if, in the opinion of counsel to the Company, such restrictive legend is no longer necessary. 8. Registration Under the Securities Act of 1933. The Holder(s) of the Warrants may cause the Exercise Shares to be registered by the Company as follows: (a) The Company shall advise the Holder by written notice prior to the filing of a registration statement under the 1933 Act (excluding registration on Forms S-8, S-4, or any successor forms thereto), covering securities of the Company to be offered and sold by the Company to the public generally and shall, upon the request of the Holder given at least three (3) business days prior to the filing of such registration statement, include in any such registration statement such information as may be required to permit a public offering of the Exercise Shares. The Company shall supply prospectuses, qualify the Exercise Shares for sale in such states as the Company qualifies its securities and furnish indemnification in the manner as set forth in subsection (b)(ii) of this Paragraph 8; provided, however, that the Company will not be required to maintain the registration of the Exercise Shares for any longer period than it shall require for its own purposes. The Holder shall furnish such information as may be reasonably requested by the Company in order to include such Exercise Shares in the registration statement. In the event that any registration pursuant to this Paragraph 8 shall be, in whole or in part, an underwritten public offering of Common Stock, the number of Exercise Shares to be included in such underwriting may be reduced (and the registration of such Exercise Shares may be postponed by the Company for up to 180 days following the completion of any such underwritten offering) if and to the extent the managing underwriter shall be of the opinion that such inclusion would adversely affect the marketing of the securities to be sold by the Company therein. Notwithstanding the foregoing, the Company may withdraw any registration statement referred to in this Paragraph 8 without thereby incurring liability to the holders of the Exercise Shares. (b) The following provisions of this Paragraph 8 shall also be applicable: (i) The Company shall bear the entire cost and expense of any registration of securities initiated by it under subsection (a) of this Paragraph 8 notwithstanding that Exercise Shares subject to this Warrant may be included in any such registration. The Holder whose Exercise Shares are included in any such registration statement pursuant to this Paragraph 8 shall, however, bear the fees of its own counsel and any registration fees, transfer taxes or underwriting discounts or commissions applicable to the Exercise Shares sold by it pursuant thereto and bear any other costs imposed by applicable federal or state securities laws, rules or regulations. (ii) The Company shall indemnify and hold harmless the Holder and each underwriter, within the meaning of the Act, who may purchase from or sell for the Holder any Exercise Shares from and against any and all losses, claims, damages and liabilities caused by any untrue statement or alleged untrue statement of a material fact contained in any registration statement under the Act filed by or at the direction of the Company or any prospectus included therein required to be filed or furnished by reason of this Paragraph 8 or 9 caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages or liabilities are caused by any such untrue statement or alleged untrue statement or omission or alleged omission based upon information furnished or required to be furnished in writing to the Company by the Holder or underwriter expressly for use therein, which indemnification shall include each person, if any, who controls any such underwriter within the meaning of such Act; provided, however, that the Company shall not be obliged so to indemnify the Holder or underwriter or controlling person unless the Holder or underwriter shall at the same time indemnify the Company, its directors, each officer signing the related registration statement and each person, if any, who controls the Company within the meaning of such Act, from and against any and all losses, claims, damages and liabilities caused by any untrue statement or alleged untrue statement of a material fact contained in any registration statement or any prospectus required to be filed or furnished by reason of this Paragraph 8 or caused by any omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, insofar as such losses, claims, damages or liabilities are caused by any untrue statement or alleged untrue statement or omission based upon information furnished in writing to the Company by the Holder or underwriter expressly for use therein. (iii) Nothwithstanding the rights granted hereunder, the Company shall have no obligation whatsoever to (a) assist or cooperate in the offering or disposition of the Exercise Shares; (b) obtain a commitment from an underwriter relative to the sale of the Exercise Shares; or (c) include the Exercise Shares within an underwritten offering of the Company. 9. Notices. All notices or other communications under this Warrant Certificate shall be in writing and shall be deemed to have been given if delivered by hand or mailed by certified mail, postage prepaid, return receipt requested, addressed as follows: If to the Company: VDC Corporation Ltd. 75 Holly Hill Lane Greenwich, CT 06830 Attention: Frederick A. Moran, Chief Executive Officer 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 10. Supplements and Amendments. The Company may from time to time supplement or amend this Warrant Certificate without the approval of any holders of Warrants in order to cure any ambiguity or to correct or supplement any provision contained herein which may be defective or inconsistent with any other provision, or to make any other provisions in regard to matters or questions herein arising hereunder which the Company may deem necessary or desirable and which shall not materially adversely affect the interests of the Holder. 11. Successors and Assigns. This Warrant shall inure to the benefit of and be binding on the respective successors, assigns and legal representatives of the Holder and the Company. 12. Severability. If for any reason any provision, paragraph or terms of this Warrant Certificate is held to be invalid or unenforceable, all other valid provisions herein shall remain in full force and effect and all terms, provisions and paragraphs of this Warrant shall be deemed to be severable. 13. Governing Law. This Warrant shall be deemed to be a contract made under the laws of the jurisdiction of incorporation of the Company and for all purposes shall be governed by and construed in accordance with the laws of said jurisdiction. 14. Headings. Paragraph and subparagraph headings used herein are included herein for convenience of reference only and shall not affect the construction of this Warrant Certificate nor constitute a part of this Warrant Certificate for any other purpose. IN WITNESS WHEREOF, the Company has caused these presents to be duly executed as of the day and year defined herein as the "Commencement Date." VDC Corporation Ltd. By: /s/ Frederick A. Moran ----------------------- Frederick A. Moran Chief Executive Officer Acknowledged and Agreed to by the undersigned this ____ day of _________ 1998. - ------------------------------- Graham Ferguson Lacey Address: ______________________ - ------------------------------- 11 APPENDIX A NOTICE OF WARRANT EXERCISE Pursuant to a Warrant by and between the undersigned and VDC Corporation Ltd., a Bermuda corporation (the "Company"), dated as of March 7, 1998, the undersigned hereby irrevocably elects to exercise its warrant to the extent of purchasing _______________ shares of Common Stock, $2.00 par value (the "Warrant Shares"), of the Company as provided for therein. The undersigned hereby represents and agrees that the Warrant Shares purchased pursuant hereto are being purchased for investment and not with a view to the distribution or resale thereof, and that the undersigned understands that said Warrant Shares have not been registered under the Securities Act of 1933, as amended. Payment of the full Purchase Price of the Warrant Shares is enclosed herewith, in the form of a check made payable to the Company. The undersigned requests that a certificate for the Warrant Shares be issued in the name of: _______________________________________________________ _______________________________________________________ _______________________________________________________ (Please print name, address and social security number) Dated:__________________________________, 199__ Address:___________________________________________________ ___________________________________________________ ___________________________________________________ Signature:__________________________________________________ 12 EX-10.32 20 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT AGREEMENT made as of the ___ day of August, 1998, by and between Marc Graubart, an adult individual residing at 200 East 64th Street, Apartment 4C, New York, New York 10021 (hereinafter referred to as "Executive"), and VDC Corporation Ltd., a Bermuda corporation having a registered office at 44 Church Street, Hamilton HM FX Bermuda (hereinafter referred to as the" Company"), and Masatepe Communications U.S.A., L.L.C., a Delaware limited liability company ("LLC") WITNESSETH WHEREAS, on even date herewith, the Company completed the purchase of all of the membership interests in LLC; WHEREAS, the Company and LLC consider it essential and in the best interests of the Company's stockholders to foster the continuous employment of key management personnel and desires to retain the services of the Executive on the terms and conditions hereinafter set forth; and WHEREAS, Executive desires to render services to the Company on the terms and conditions provided in this 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. Employment Term, Duties and Acceptance a. In recognition that the Company desires to continue the operation of the historic business of LLC, the LLC hereby retains to serve as LLC's President and Chief Executive Officer and Executive accepts such position and agrees to render such services to LLC in such executive capacities as are assigned to him by, and subject to the discretion of, the Board of Directors of the Company. b. The Executive hereby accepts the foregoing employment and agrees to devote his full time, best efforts, energy and skill to such employment. c. The Executive shall not engage in any other business endeavor or activity during the Employment Period. d. The Executive hereby agrees that any and all business opportunities which are similar to or in competition with the Business of the Company (as such term is used and defined in Section 6(a) below) and/or LLC and are available as of the date hereof or become available to the Executive during the Employment Period shall automatically become the sole property of the Company without any obligation of the Company to compensate or otherwise pay the Executive for such opportunities. e. The term of the Executive's employment hereunder (the "Employment Period") shall commence on the date hereof and shall end on the fifth anniversary hereof, unless sooner terminated as provided herein, provided, however, that the Employment Period shall be extended and this Agreement shall be automatically renewed for successive one-year periods unless: (i) this Agreement is terminated as otherwise provided herein; or (ii) Executive provides written notice to the Company of his desire not to extend the Employment Period at least sixty (60) days prior to the expiration of the then lapsing term. 2. Compensation and Expense Reimbursement a. As base compensation for the Executive duly rendering his services to LLC pursuant to the terms of this Agreement, LLC agrees to pay and Executive agrees to accept a base salary ("Base Salary") of One Hundred Fifty Thousand Dollars ($150,000) per annum to be paid in accordance with the general payroll practices of the Company as from time to time in effect. The Base Salary will be subject to merit increases annually as determined by the Board of Directors. b. Any bonus or other compensation provided for herein shall at all times be exclusive of Executive's interest in and to the options granted by the Company to him as set forth in the Option to Purchase Common Shares entered into by the Executive and the Company and dated of even date herewith (the "Option Agreement"), as well as any stock option plan(s) that may in the future be adopted by the Company for its and its subsidiaries' management personnel. LLC will pay or reimburse Executive for all reasonable and necessary out-of-pocket expenses incurred by him in the performance of his duties under this Agreement, including all of the Executive's travel, hotel, meal and other incidental expenses during the Executive's travel on behalf of LLC. Executive shall keep detailed and accurate records of expenses incurred in connection with the performance of his duties hereunder and reimbursement therefor shall be in accordance with policies and procedures to be established from time to time by the Board. LLC will also provide an automobile allowance of $550.00 per month but will not be responsible for any costs incident to the operation of such automobile, including without limitation insurance, maintenance and other operational costs d. Bonus Compensation i. The Company shall issue to the Executive as a bonus common stock of the Corporation in the event LLC achieves the following levels of economic performance: 2 Performance Bonus Grant ----------- ----------- EBITDA of at least $6,000,000 per annum for two consecutive years within three years of Closing 50,000 shares EBITDA of at least $9,000,000 per annum for two consecutive years within four years of Closing an additional 25,000 shares EBITDA of at least $12,000,000 per annum for two an additional consecutive years within four years of Closing 25,000 shares provided, however, that the maximum number of shares of the Company's as to which options may be awarded pursuant to Section 2(d) shall not exceed 100,000 shares. ii. As used in this Section 2 (d), "EBITDA" shall mean LLC's earnings from recurring operations before interest, taxes, depreciation and amortization and shall exclude extra ordinary items, financings, proceeds from the issuance of equity and/or debt securities, proceeds from the sale of assets and capital contributions from the Company. iii. In order to be awarded the options set forth above, the Executive must not have (i) been terminated for "cause" pursuant to Section 5 hereof, or (ii) Voluntarily Resigned from the Company and LLC prior to the time the conditions precedent to the grant of such options are satisfied. For example, and not by way of limitation, if the Executive Voluntarily Resigns at the end of the third year of this Agreement (a year during which the LLC's EBITDA is $10,000,000) and the LLC in the next year achieves EBITDA of $11,000,000, the Executive would not be eligible for the grant of 25,000 bonus options (or any other bonus options for other bonuses payable hereunder but not yet achieved). iv. For the purposes of this Agreement "Involuntarily Resignation" or variants thereof shall mean if a person resigns as an employee of the Company and the LLC, because of a change in any of the following (a) the terms, conditions and or duties of his employment (b) the compensation to be received by the person whether in the form of base salary, bonuses and/or expense reimbursements, (c) the location from which the person is to carry out or perform his employment duties; and (d) any of the benefits to be received by the person under the terms and conditions of his Employment Agreement. For the purposes of this agreement, the term "Voluntary Resignation" or variants thereof shall mean any resignation which occurs other than an Involuntary Resignation. 3 e. Agreement with Michael Mazzone. 1. Executive shall use his best efforts to negotiate with Mr. Michael Mazzone, who will serve as the LLC's Chief Operating Officer following Closing, a mutually agreeable arrangement with Mazzone respecting a phantom ownership interest in the Company of between 2.5% and 5.0% of the total membership interest in the LLC. The arrangement between Mr. Mazzone and Executive shall be solely payable to Mazzone out of the Phantom Membership Interest Payment to the Executive pursuant to subsection 5(g). 2. Executive shall notify the Company and LLC of the terms of the agreement with Mr. Mazzone within ten (10) calendar days after such agreement is reached. Executive agrees that, subject to the provisions in the immediately following subsection, the portion of the Phantom Membership Interest Payment payable to Mazzone pursuant to his agreement with Executive may be retained by the Company and paid to Mazzone at such time as the Graubart Note becomes due and payable. 3. In the event Mr. Mazzone is terminated for "cause" pursuant to his employment agreement with the Company and the LLC or Voluntarily Resigns his employment with the Company and the LLC before the third anniversary of the date of this Agreement, no portion of the Phantom Membership Interest Payment shall be paid to Mazzone and the entire Phantom Membership Interest Payment shall be paid to Executive. 3. Fringe Benefits a. Executive shall be entitled, subject to the terms and conditions of particular plans and programs, to all fringe benefits afforded to other senior executives of the Company and its subsidiaries, including, but not by way of limitation, the right to participate in any pension, stock option, retirement, major medical, group health, disability, accident and life insurance, and other employee benefit programs made generally available, from time to time, by the Company. b. During the term of this Agreement, the Company shall include Executive and his family in family health insurance coverage provided for executive level employees of the Company and its subsidiaries. 4. Vacations Executive shall be entitled to compensated vacation in each fiscal year, to be taken at times which do not unreasonably interfere with the performance of Executive's duties hereunder and otherwise in accordance with the Company's vacation policies in effect from time to time as applied to other executives of the Company and its subsidiaries. 4 5. Termination a. Termination by Company for "Cause". In addition to any other remedies which the Company may have at law or in equity, the Board of Directors may upon the affirmative vote of no less than a majority of its members, terminate Executive's employment under this Agreement by giving Executive written notice of such termination upon or at any time following the occurrence of any of the following events, and each such termination shall constitute a termination for "cause," provided, however, that Executive has first been given written notice of the facts or circumstances constituting the determination of "cause" and a reasonable opportunity (in no event less than fifteen (15) days) to cure, rectify or reverse such facts or circumstances and Executive shall have failed to do so: (a) any act or failure to act (or series or combination thereof) by Executive done with the intent to harm in any material respect the interests of the Company or any affiliate thereof taken as a whole; (b) the commission by Executive of a felony for which he is convicted by a court of competent jurisdiction; (c) the finding by a court of competent jurisdiction that Executive perpetrated a dishonest act or common law fraud against the Company or any affiliate thereof; or (d) a grossly negligent act or failure to act (or series or combination thereof) by Executive detrimental to a material extent to the interests of the LLC and/or the Company and any affiliate or subsidiary taken as a whole; or (e) the continued refusal to follow the directives of the Board or the Company's Chief Executive Officer which are consistent with Executive's duties, responsibilities and covenants hereunder unless the failure to follow such directives were either: (i) based upon the advice of counsel; or (ii) based upon the Executive's judgment in good faith that such directives would not be in the best interests of the Company or its members; or (f) the failure of the LLC to achieve the following levels of economic performance of annualized EBITDA calculated on an annualized basis by multiplying (i) the EBITDA for the three months immediately preceding the date of calculation by (ii) 4, at the dates listed below: Time Period Annualized EBITDA ----------- ----------------- 12/31/98 break-even ($0) 6/30/99 $500,000 12/31/99 $1,000,000 6/30/2000 $1,500,000 12/31/2000 and thereafter $2,000,000 Upon the early termination of Executive's employment under this Agreement by the Company for "cause," the Company shall pay to Executive: (i) an amount equal to Executive's Base Salary accrued through the effective date of termination at the rate in effect at the time of 5 termination, payable at the time such payment is due; and (ii) any expense reimbursement amounts accrued to the effective date of termination, payable on the effective date of termination. Upon payment of such amounts, the Company shall have no further obligation to Executive under this Agreement. b. Incapacity of Executive. Subject to applicable law, if Executive shall become ill or be injured or otherwise become incapacitated such that, in the opinion of the Company's Board of Directors, he cannot fully carry out and perform his duties hereunder, and such incapacity shall continue for a period of 180 consecutive days, the Company's Board of Directors may, at any time thereafter, by giving Executive twenty (20) days' prior written notice, fully and finally terminate his employment under this Agreement. Termination under this Section 5(c) shall be effective as of the date provided in such notice, which date shall not be fewer than thirty (30) days after such notice is delivered to Executive or his representative, and on the effective date of termination, the LLC shall pay the Executive (i) his Base Salary accrued to the effective date of termination at the rate in effect at the time of such notice, payable at the time such payment is due; and (ii) any expense reimbursement amounts accrued to the effective date of termination, payable on the effective date of termination. Upon payment of such amounts, the Company and the LLC shall have no further obligation to Executive under this Agreement. c. Death of Executive. This Agreement shall automatically terminate upon the death of Executive. Upon the early termination of this Agreement as a result of death, the LLC shall pay the Executive's estate: (i) an amount equal to the Executive's Base Salary accrued through the effective date of termination at the rate in effect at the effective date of termination, payable at the time such payment is due; and (ii) any expense reimbursement amounts accrued to the effective date of termination, payable on the effective date of termination. Upon payment of such amounts, the Company and LLC shall have no further obligation to Executive under this Agreement. d. Termination by Employee. Executive may, at his election, terminate this Agreement at any time following the third anniversary of this Agreement upon sixty (60) days notice to the Company. Upon the early termination of the Executive's employment under this Agreement by the Executive pursuant to a voluntary Resignation, the Company and LLC shall pay to the Executive: (i) an amount equal to the Executive's Base Salary accrued through the effective date of termination at the rate in effect at the time of termination, payable at the time such payment is due; and (ii) any expense reimbursement amounts accrued to the effective date of termination, payable on the effective date of termination. e. Mitigation. The Executive shall not be required to mitigate the amount of any payment or other benefits provided for under this Agreement by seeking other employment and none of these payments or other benefits may be reduced by any salary or other benefits that Executive may earn. 6 g. Phantom Membership Interest Payment. i. Upon written notice to the Company given not later than June 30, 2001, the Executive shall have the right to require the Company to repay all amounts due under the "Graubart Note" (as defined in the Purchase Agreement) (the amount payable under the Graubart Note being referred to as the "Phantom Membership Interest Payment") on the third anniversary of the date of this Agreement. Upon written notice to the Company given not later than June 30, 2001, the Executive may extend the term of the Graubart Note for an additional two-year period. ii. The Company shall have the right to prepay in full the Graubart Note at any time following July 31, 2001 in the event the Executive is no longer employed by the Company or the LLC. In no event shall the term of the Graubart Note be extended beyond July 31, 2003. iii. The Company shall issue shares of its common stock ("VDC Shares") equal in value to the amount of the Phantom Membership Interest Payment. The value of the shares issuable on account of the Phantom Interest Payment shall be determined as follows: (A) If the VDC Shares are traded in the over-the-counter market and not on any national securities exchange nor in the NASDAQ Reporting System, the market price 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 45 trading days prior to the date on which the Executive gives notice of his election to require the Company to make the Phantom Membership Interest Payment (the "Calculation Date"), or if not so reported, the average of the closing bid and asked prices for a share of VDC common stock for the consecutive 45 trading days prior to the Calculation Date as furnished to the Company by any member of the National Association of Securities Dealers, Inc., selected by the Company for that purpose. (B) If the VDC Shares are traded on a national securities exchange or in the NASDAQ Reporting System, the market price shall be the simple average of the closing prices at which a VDC Share traded, as quoted on the NASDAQ Reporting System or its other principal exchange for the consecutive 45 trading days prior to the Calculation Date. 7 iv. The amount of the Phantom Membership Interest Payment shall be reduced by an amount equal to (A) 100% of such amount, in the event that the Executive Voluntarily Resigns his Employment before the first anniversary of this Agreement or is terminated by the Company and the LLC for "Cause" on or before the third anniversary of the date of this Agreement pursuant to Section 5(a) hereof; and (B) 50%, of such amount, in the event the Executive Voluntarily Resigns his employment with the Company and LLC during the period commencing on the first anniversary of this Agreement and ending on the third anniversary hereof. 6. Covenant Not to Compete a. The Executive recognizes and acknowledges that the Company and LLC are placing their confidence and trust in the Executive. The Executive, therefore, covenants and agrees that during the Applicable Non-Compete Period (as defined below), the Executive shall not, either directly or indirectly, without the prior written consent of the Board of Directors: (i) engage in or carry on any business or in any way become associated with any business which in any way is in competition with the Business of the Company (as such term is used and defined below); (ii) solicit the business of any person or entity, on behalf of himself or any other person or entity, which is or has been at any time during the term of this Agreement a material customer or material supplier of the Company including, but not limited to, former or present customers or suppliers with whom the Executive has had personal contact during, or by reason of, his relationship with the Company in a manner adverse to the interest of the Company; (iii) be or become an employee, agent, consultant, representative, director or officer of, or be otherwise in any manner associated with, any person, firm, corporation, association or other entity which is engaged in or is carrying on any business which is in any way is in competition with the Business of the Company; (iv) solicit for employment or employ any person employed by the Company at any time during the 12-month period immediately preceding such solicitation or employment; or (v) be or become a shareholder, joint venturer, owner (in whole or in part), partner, or be or become associated with or have any proprietary or financial interest in or of any firm, corporation, association or other entity which is engaged in or is carrying on any business which is in any way in competition with the Business of the Company. Notwithstanding the preceding sentence above, the following shall not be deemed to violate this Section 6: i. passive equity investments by Executive of $25,000 or less in any entity or affiliated group of any entity which is engaged in or is carrying on any business which is similar to or in competition with the Business of the Company; or 8 ii. passive equity investments by Executive in excess of $25,000 in any entity or affiliated group of any entity which is engaged in or is carrying on any business which is similar to or in competition with the Business of the Company, so long as and only to the extent that Executive has obtained the prior written consent of VDC to make such investments; or iii. an equity investment by Executive of up to 5% in any publicly traded company which is engaged in or is carrying on any business which is similar to or in competition with the Business of the Company. b. As used in this Agreement, the term "Business of the Company" shall include all material business activities in which the Company and LLC are engaged now or during the Applicable Non-Compete Period, which are: (i) telephony gateways in the United States, Central America, South America, Ukraine, Kazakhstan, Russia, China and Egypt; (ii) the acquisition of Alaska Telecom; (iii) cellular, PCS or other wireless telephony licenses and businesses for the United States, Central America, South America, Egypt, Kazakhstan, Ukraine, China and various republics and regions of Russia; (iv) Internet service provision and local loop opportunities in the United States, Central America, South America, Egypt, Kazakhstan, Ukraine, China and Russia; (v) funding and/or vendor financing from NTS, Qualcomm, Ericcson and Motorola; (vi) paging and cable TV licenses for the entire country of Ukraine; (vii) a billing system for the United States, Egypt, Kazakhstan, Ukraine, China and Russia; (viii) a long distance in country project for the national railway system of Ukraine; (ix) communications tower site management business in the United States, Ukraine, Kazakhstan, Egypt, China and Russia; and (x) Internet service provision in the United States, Egypt, Kazakhstan, Ukraine, China and Russia. c. Executive hereby recognizes and acknowledges that the existing Business of the Company extends throughout a number of countries, including Central America, South America, Ukraine, Russia, China, Egypt and Kazakhstan and most states of the United States, and therefore agrees that the covenants not to compete contained in this Section 6 shall be applicable in and throughout such countries and states, as well as throughout such additional areas, states or countries in which the Company and LLC may be (or has prepared written plans to be) doing business as of the date of termination of the Executive's employment. The Executive further warrants and represents that, because of his varied skill and abilities, he does not need to compete with the Business of the Company and that this Agreement will not prevent him from earning a livelihood and acknowledges that the restrictions contained in this Section 6 constitute reasonable protections for the Company. d. As used in this Section 6, "Applicable Non-Compete Period" shall mean that period of one year following the termination of Executive's employment hereunder. 9 7. Trade Secrets and Confidential Information Executive 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 the Executive by reason of his employment with the Company. Accordingly, the Executive 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 of Directors. The Executive shall, upon termination of employment, return to the Company all documents which reflect Confidential Information (including copies thereof). Notwithstanding anything heretofore stated in this Section 7, the Executive's obligations under this Section 7 shall not, after termination of the Executive's employment with the Company, apply to information which has become generally available to the public without any action or omission of the Executive (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 the Executive under this Section 7 or disclosure of which is required by law). 8. 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. 9. Breach The Executive hereby recognizes and acknowledges that irreparable injury or damage shall result to the Company in the event of a breach or threatened breach by the Executive of any of the terms of provisions Section 6 or 7 hereunder, and the Executive therefore agrees that the Company shall be entitled to an injunction restraining Executive from engaging in any activity constituting such breach or threatened breach. Nothing contained herein shall be construed as prohibiting the 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 the Executive and, if the Executive is an employee of the Company, the termination of his employment with the Company in accordance with the terms and provisions of this Agreement. 10 10. 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 14 hereof. Any arbitration pursuant to this Agreement shall be conducted in Philadelphia, Pennsylvania 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 10 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 Philadelphia, Pennsylvania 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. 11. 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. 12. 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. 13. 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. 14. Governing Law This Agreement shall be governed by the laws of the State of Delaware without regard to principles of conflict of laws. 11 15. 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. 16. Warranties The Executive 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. 17. Notice Any notice required to be given pursuant to the provisions of this Agreement shall be in writing and sent by registered mail or nationally recognized overnight carrier, to the parties at the following addresses: To the Company at: Frederick A. Moran, Chief Executive Officer VDC Corporation Ltd. 75 Holly Hill Lane Greenwich, CT 06830 With a copy to: Stephen M. Cohen, Esquire Buchanan Ingersoll Professional Corporation Eleven Penn Center, 14th Floor 1835 Market Street Philadelphia, PA 19103 To the Executive at: Marc Graubart 200 East 64th Street, Apartment 4C New York, New York 10021 With a copy to: Tab K. Rosenfeld Rosenfeld, Jacobs & King, L.L.P. 1133 Avenue of the Americas - Suite 3825 New York, New York 10036 12 18. Key Man Insurance The Company shall have the right to obtain what is commonly known as "Key Man Insurance" on the life of the Executive in such amount as the Company deems appropriate. The Executive 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. 19. Due Authorization The Company represents to the Executive that this Agreement has been duly authorized and approved by the Board of Directors of the Company. 20. Assignment This Agreement shall inure to the benefit of and be binding upon the Company, its successors and assigns. This Agreement may not be assigned to any third party without the written consent of all parties to the assignment. [THIS SPACE INTENTIONALLY LEFT BLANK] 13 IN WITNESS WHEREOF, the parties have executed this Employment Agreement as of this ___ day of August, 1998. ATTEST: VDC CORPORATION LTD. _______________________________ By: /s/ Frederick A. Moran ---------------------------- Frederick A. Moran Chief Executive Officer MASATEPE COMMUNICATIONS USA, LLC BY: VDC Corporation Ltd., Its Managing Member By: /s/ Frederick A. Moran ---------------------------- Frederick A. Moran Chief Executive Officer WITNESS: EXECUTIVE: _______________________________ /s/ Marc Graubart ---------------------------- Marc Graubart 14 ANNEX A The attached cash flow projections and expected expenses of Masatepe Communications USA, LLC, have been provided by Mr. Graubart. All performance based compensation will be based on Masatepe's performance as a stand alone subsidiary, with such performance measured as the EBITDA of Masatepe USA, LLC. Any debt added to Masatepe's books will not affect the EBITDA calculation to measure Masatepe's performance. VDC also agrees to fund or find financing for the installation of all necessary multiplexing equipment, and the purchase and installation of any necessary permanent earth station in Managua, Nicaragua. These expenses are estimated to be $775,000, and Marc Graubart will agree to have these items financed to the extent they may be, and to be carried as debt on the books of Masatepe USA, LLC. Additionally, VDC agrees to fund all operating costs of Masatape Communications USA, LLC, including, but not limited to, salaries, satellite links, teleport leases, and all other monthly recurring charges as more fully detailed in the attached cash flow projections. Failure to comply with these funding obligations could cause material adverse affect to Masatepe USA, LLC's ability to grow its business, and meet its targets. March Graubart has also indicated, per the attached cash flow projections that Masatepe USA, LLC will begin producing cash flow and continue to do so beginning in the third month from closing. 15 EX-10.33 21 OPTION TO PURCHASE No. 1998-6 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 August 1, 2008 This certifies that, for value received, Marc Graubart ("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 corporation, 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 August __, 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 10,000 shares, as adjusted pursuant to Section 11 hereof. 2.2 Exercise Price. The Exercise Price at which this Option may be exercised shall be $5.00 per common share, as adjusted pursuant to Section 11 hereof. 2.3 Vesting. (a) Subject to the provisions of Section 2.3(c) hereof, none of the Options shall vest immediately upon the date hereof; (b) The remainder of the Options granted hereunder shall vest in accordance with the following schedule on an aggregate basis. (i) All, as of the date hereof, provided a Voluntary Resignation does not occur or Holder not terminated for Cause (as provided in Section 5 of the Employment Agreement among Holder, the Company and Masatepe Communications USA, L.L.C. of even date herewith (the "Employment Agreement")) from August 1, 1998 through July 31, 1999. (c) Notwithstanding the provisions of Section 2.3(a) hereof, the 10,000 Options vesting as of the date hereof remain subject to forfeiture as follows: (i) If Holder Voluntarily Resigns (as defined below) from his employment with the Company or Masatepe Communications USA, LLC, a wholly owned subsidiary of the Company, on or before July 31, 1999 Holder's right in and to all of such 10,000 Options shall lapse and terminate. (d) 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 employment with the Company shall lapse and terminate. For the purposes of this Agreement "Involuntarily Resignation" shall mean, if the Holder resigns as an employee of the Company, because, of a change in any of the following (a) the terms, conditions and or duties or responsibilities of his employment (b) the compensation to be received by the Employee whether in the form of base salary, bonuses and/or expense reimbursements, (c) the location from which the Employee is to carry out or perform his employment duties; and (d) any of the benefits to be received by the Employee under the terms and conditions of his Employment Agreement. For the purposes of this agreement, the term "Voluntary Resignation" shall mean any resignation which occurs other than an Involuntary Resignation. 2.4. Death of Holder and Termination. (a) If the Holder shall die or his employment is terminated due to incapacity pursuant to Section 5(c) of the Employment Agreement, 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 of employment had occurred. (b) In the event Holder's employment by the Company is terminated for "cause", as such term is defined in the Employment Agreement, or in the event of a Voluntarily Resignation, 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 or resignation) and thereafter, Holder's right in and to the Options which have not vested and been exercised shall lapse and terminate. 2 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 45 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 45 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 and acceptable to Holder 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 45 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 45 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 3 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. 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. 4 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, 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. 5 (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 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: 6 If to the Company: VDC Corporation Ltd. 75 Holly Hill Lane Greenwich, CT 06831 Attn: Frederick A. Moran Chief Executive Officer With a Copy to: Stephen M. Cohen, Esquire Buchanan Ingersoll Professional Corporation Eleven Penn Center 1835 Market Street, 14th Floor Philadelphia, PA 19103 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 7 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 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 not exceeding five (5) cents per share) 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 8 securities or property 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. 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 State of Delaware 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 State of Delaware, 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 Philadelphia, Pennsylvania. 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 9 impartial. The arbitration shall take place in Philadelphia, Pennsylvania. 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 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. 10 IN WITNESS WHEREOF, the Company has caused this Option to be executed by its officers thereunto duly authorized. Dated August ___, 1998 VDC CORPORATION LTD. /s/ Frederick A. Moran ------------------------------- Frederick A. Moran Chief Executive Officer HOLDER /s/ Marc Graubart -------------------------------- Marc Graubart 11 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) 12 EX-10.34 22 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT made and entered into as of this ___ day of August, 1998 by and between VDC Corporation Ltd., a Bermuda corporation (the "Company"), and Marc Graubart, an individual residing at 200 East 64th Street, Apartment 4C, New York, New York 10021 ("Holder"). BACKGROUND WHEREAS, on even date herewith, the Company completed the purchase of all of the outstanding membership interests in Masatepe Communications, U.S.A., LLC, a Delaware limited liability company ("LLC"), pursuant to the terms of a Purchase Agreement dated as of July 31, 1998 by and among the Company, Activated Communications, L.P. and Holder (the "Purchase Agreement"); WHEREAS, pursuant to a Letter Agreement of even date herewith the Company has agreed to issue to Holder 21,428 shares of its Common Shares, par value $2.00 per share ("Common Stock") in accordance with the terms of the Letter Agreement. WHEREAS, pursuant to an Option to Purchase Common Shares of VDC Corporation Ltd. of even date herewith granted in connection with the Employment Agreement of even date herewith (the "Employment Agreement") by and between the Company and the Holder, the Company has agreed to issue to Holder options to purchase 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 corporation, 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 Letter Agreement, the Option Agreement, and any additional shares of Common Stock or other equity securities of the Company held by the Holder, 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 -2- or delivery of Registrable Securities to be disposed of; (iv) all fees (including legal fees) disbursement and expenses incurred in connection with the filing of securities with the Securities and Exchange Commission; (v) 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 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 Common Stock, 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. In any event, the company shall register Holder's Registrable Securities not later than the date of the registration of the shares of VDC Common Stock issued to Activated Communications L.P. pursuant to the Purchase Agreement. (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 -3- 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 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 -4- 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 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 -5- any such seller, underwriter, attorney, accountant or agent in connection with such registration statement. 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 or alleged untrue statement of material fact contained in any 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, 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 with respect to the Holder and the Securities held by such Holder 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 -6- indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. If such defense is assumed, the indemnifying party shall not be subject to any liability for any settlement made by the indemnified party without its consent (but such consent shall not be unreasonably withheld). An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim shall not be obligated to pay the fees and expenses of more than one counsel (other than local counsel retained for the convenience of the parties) 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. (e) If the indemnification provided for in this Section 6 from the indemnifying party is unavailable to an indemnified party hereunder in respect of any losses, claims, liabilities or expenses referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and the indemnified party in connection with the action which resulted in such losses, claims, damages, liabilities or expenses, as well as other relevant equitable considerations. The relative fault of such indemnifying party and the indemnified parties shall be determined by reference to, among other things, whether any action in question, including any untrue statement of a material fact or omission or alleged omission to state a material fact, has been made, or relates to, information supplied by such indemnifying party or indemnified parties, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by such party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include any legal or other fees reasonably incurred by such party in connection with any investigation or proceeding. 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 -7- 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: (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. (c) For the purposes of section 4(b), the period of time during which the Company is required to maintain the effectiveness of registration statement shall be extended by the duration of the sales blackout period. -8- Article 9 MISCELLANEOUS. (a) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware 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. The parties hereby consent to the jurisdiction of the federal and state courts of Delaware for the purpose of enforcing the terms and conditions of this agreement, including but not limited to, any action brought to entice any award entered in connection with an arbitration brought hereunder. (b) Arbitration. If a dispute arises as to interpretation of this Agreement, 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 Philadelphia, Pennsylvania. 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 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. (c) 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. (d) 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. (e) 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 Greenwich, CT 06830 Attention: Frederick A. Moran, Chief Executive Officer -9- with a copy to: Stephen M. Cohen, Esquire Buchanan Ingersoll Professional Corporation 11 Penn Center, 14th Floor 1835 Market Street Philadelphia, PA 19103 or, in the case of the Holder, 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. With a copy to: Tab K. Rosenfeld, Esq. Rosenfeld, Jacobs & King, L.L.P. 1133 Avenue of the Americas - Suite 3825 New York, NY 10036 (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. [THIS SPACE INTENTIONALLY LEFT BLANK] -10- IN WITNESS WHEREOF, intending to be legally bound hereby, the parties have executed this Registration Rights Agreement as of the date first written above. VDC CORPORATION LTD. By: /s/ Frederick A. Moran ------------------------- Frederick A. Moran Chief Executive Officer HOLDER: By: /s/ Marc Graubart ------------------------- Marc Graubart -11- EX-21.1 23 SUBSIDIARIES OF REGISTRANT EXHIBIT 21.1 SUBSIDIARIES OF REGISTRANT 1. VDC Communications, Inc., a Delaware corporation 2. VDC Telecommunications, Inc., a Delaware corporation 3. Voice & Data Communications (Hong Kong) Limited, a Hong Kong corporation EX-27 24 FINANCIAL DATA SCHEDULE
5 This schedule contains Summary Financial information extracted from the Financial Statements for the Year Ended June 30, 1998 and is qualified in its entirety by reference to such statements. 1,000 YEAR JUN-30-1998 JUN-30-1998 2212 452 4300 0 0 5464 341 10 45824 156 0 0 1 22923 22743 45824 0 100 0 3450 0 0 0 (3350) 0 (3350) 0 0 0 (3155) (.72) (.72)
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