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PROSPECTUS SUPPLEMENT PURSUANT TO RULE 424(B)(3) AND RULE 424(C)
(TO PROSPECTUS DATED FEBRUARY 9, 1998) REGISTRATION STATEMENT NO.: 333-35563
VASCO LOGO VASCO DATA SECURITY
INTERNATIONAL, INC.
OFFER TO EXCHANGE SHARES, OPTIONS AND WARRANTS
FOR VASCO CORP. SHARES, OPTIONS AND WARRANTS
(AND ASSOCIATED CORPORATE MATTER CLAIMS)
This Prospectus Supplement supplements, and has been prepared solely for
use in conjunction with, the Prospectus of VASCO Data Security International
Inc., a Delaware corporation ("New VASCO"), dated February 9, 1998 (the
"Prospectus"), pursuant to which New VASCO offered to exchange Shares, Options
and Warrants for VASCO CORP. ("Current VASCO") Shares, Options and Warrants (and
Associated Corporate Matter Claims).
On page 72 of the Prospectus, New VASCO stated that the Internal Revenue
Service indicated that it would address in the near future the exchange of
warrants which are part of a larger transaction that qualifies as a "B
Reorganization" (as defined on page 71 of the Prospectus). On February 23, 1998,
the Internal Revenue Service released Revenue Ruling 98-10 (the "Ruling"), which
permits the exchange of warrants which are part of a B Reorganization on or
after March 9, 1998 to be exchanged tax-free for federal income tax purposes.
Accordingly, this Prospectus updates and supersedes where indicated certain
information set forth in the Prospectus.
1. The sixth paragraph on the continuation page of the Cover Page of the
Prospectus is hereby replaced in its entirety by the following paragraph:
The Exchange Offer is intended for federal income tax purposes to be a
tax-free transaction with respect to the exchange of the Current VASCO Common
Stock, the Current VASCO Stock Options, the Current VASCO Conversion Options and
those Current VASCO Warrants that were issued for services (referred to herein
as "Current VASCO Compensatory Warrants"). In addition, as a result of the
Ruling, the exchange of Current VASCO Warrants that were not issued for services
(referred to herein as "Current VASCO Noncompensatory Warrants") will be
tax-free for federal income tax purposes. See "REORGANIZATION OF CURRENT VASCO
- -- Federal Income Tax Consequences."
2. The second bullet point under the subsection entitled "Disadvantages" on
page 3 of the Prospectus is hereby deleted.
3. The second Q and A on page 13 of the Prospectus are hereby replaced in
their entirety by the following Q and A:
Q. WHAT ARE THE TAX CONSEQUENCES FOR EXCHANGING MY SHARES, OPTIONS AND WARRANTS
(AND ASSOCIATED CORPORATE MATTER CLAIMS)?
A. The exchange of Current VASCO Shares, Current VASCO Stock Options, Current
VASCO Conversion Options and Current VASCO Compensatory Warrants (and the
release of Associated Corporate Matter Claims) for New VASCO Shares, New
VASCO Stock Options, New VASCO Conversion Options or New VASCO Warrants will
be tax-free for federal income tax purposes. In addition, as a result of the
Ruling, the exchange of Current VASCO Noncompensatory Warrants (and the
release of Associated Corporate Matter Claims) for New VASCO Warrants will
be tax-free for federal income tax purposes.
(continued on next page)
THIS PROSPECTUS SUPPLEMENT IS NOT A SUMMARY OF INFORMATION IN THE
PROSPECTUS, AND IT MAY NOT BE USED EXCEPT IN CONJUNCTION WITH THE PROSPECTUS.
CAPITALIZED TERMS USED IN THIS PROSPECTUS SUPPLEMENT AND NOT OTHERWISE DEFINED
HEREIN HAVE THE MEANINGS SPECIFIED IN THE PROSPECTUS.
THIS PROSPECTUS SUPPLEMENT IS QUALIFIED BY REFERENCE TO THE PROSPECTUS, EXCEPT
TO THE EXTENT ANY INFORMATION SET FORTH IN THIS PROSPECTUS SUPPLEMENT IS
INCONSISTENT WITH OR CONTRARY TO THE INFORMATION SET FORTH IN THE PROSPECTUS,
THE INFORMATION SET FORTH HEREIN SHALL SUPERSEDE THE INFORMATION CONTAINED IN
THE PROSPECTUS. THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN A COMPLETE
DESCRIPTION OF THE TERMS OF THE EXCHANGE OFFER. YOU SHOULD READ THE PROSPECTUS
AND THIS PROSPECTUS SUPPLEMENT IN THEIR ENTIRETY.
This Prospectus Supplement is dated February 26, 1998.
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To review the tax consequences in greater detail, see "REORGANIZATION OF
CURRENT VASCO -- Federal Income Tax Consequences."
4. The subsection entitled "Taxation of Exchange of Current VASCO
Noncompensatory Warrants" on pages 71 and 72 of the Prospectus is hereby
replaced in its entirety by the following subsection:
Taxation of Exchange of Current VASCO Noncompensatory Warrants. The
Internal Revenue Service (the "Service") recently issued final rules effective
March 9, 1998 that, in general, will permit warrants to be exchanged tax-free
pursuant to certain types of reorganizations. In addition, the Service on
February 23, 1998 released a ruling that will treat an exchange of warrants as a
tax-free exchange if the exchange is made on or after March 9, 1998 as part of a
B Reorganization. Consequently, in the opinion of Jenner & Block, the following
will be the U.S. federal income tax consequences to holders of Current VASCO
Warrants that were not issued for services ("Current VASCO Noncompensatory
Warrants") who exchange those warrants on or after March 9, 1998 for New VASCO
Warrants as part of a B Reorganization:
1. The warrant holders taking part in the Exchange Offer will
recognize no gain or loss on the exchange of the New VASCO Warrants for
Current VASCO Noncompensatory Warrants.
2. The holding period of the New VASCO Warrants received by a warrant
holder taking part in the Exchange Offer include the holding period of the
Current VASCO Noncompensatory Warrants exchanged therefor.
3. The tax basis of the New VASCO Warrants received by a warrant
holder taking part in the Exchange Offer will be the same as the tax basis
of the Current VASCO Noncompensatory Warrants exchanged therefor.
In contrast, unless the exchange occurs on or after March 9, 1998 as part
of a B Reorganization, in the opinion of Jenner & Block, the Exchange Offer will
be a taxable sale or exchange for holders of the Current VASCO Noncompensatory
Warrants. Assuming such a taxable sale or exchange occurs, the following would
be the U.S. federal income tax consequences to holders of Current VASCO
Noncompensatory Warrants:
1. The holders of Current VASCO Noncompensatory Warrants taking part
in the Exchange Offer will recognize a gain or loss equal to the difference
between (a) the fair market value of the New VASCO Warrants over (b) the
holder's tax basis in the Current VASCO Noncompensatory Warrants. For these
purposes, the tax basis of any holder of a Current VASCO Noncompensatory
Warrant will be equal to the fair market value of the consideration paid by
the holder for the Current VASCO Noncompensatory Warrant. In those
circumstances in which the holder acquired both a Current VASCO
Noncompensatory Warrant and a share of Current VASCO Common Stock as an
integrated investment unit, the holder's tax basis is equal to (a) the fair
market value of the consideration paid for the entire unit, multiplied by
(b) a fraction the numerator of which is the fair market value of the
warrant on the date of the acquisition and the denominator of which is the
fair market value of the entire investment unit on the date of acquisition.
2. The holding period of the New VASCO Warrants received by holders of
Current VASCO Noncompensatory Warrants taking part in the Exchange Offer
will begin on the date on which the Exchange Offer is consummated.
3. The tax basis of the New VASCO Warrants received by holders of
Current VASCO Noncompensatory Warrants taking part in the Exchange Offer
will be equal to the fair market value of the New VASCO Warrants on the
date on which the Exchange Offer is consummated.
The Treasury Regulations state that the fair market value of property is a
question of fact, but only in rare and extraordinary cases will property be
considered to have no fair market value. Holders of Current VASCO
Noncompensatory Warrants should consult with their own tax advisors with respect
to the methods used in determining the fair market value.
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