SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/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:
<TABLE>
<CAPTION>
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
<S> <C>
Common Stock, $2.00 par value per share American Stock Exchange, Inc.
</TABLE>
Securities registered under Section 12(g) of the Act:
NONE
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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 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.
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Shareholder Number of Shares Price Per Share
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
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:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Shareholder Number of Shares Price Per Share
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
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.
<TABLE>
<CAPTION>
Year Ended June 30
------------------------------------------------------------
1998 1997 1996
---- ---- ----
(since inception)
<S> <C> <C> <C>
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
</TABLE>
18
<PAGE>
- ----------------
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
(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
<PAGE>
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
<PAGE>
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)
<TABLE>
<CAPTION>
=============================================================================================================================
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($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
=============================================================================================================================
</TABLE>
31
<PAGE>
- ----------
(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 $117,500, as set forth in the Company's Form 20-F
filed with the SEC for the Company's fiscal year ended June 30, 1997.
32
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Option/SAR Grants in Last Fiscal Year
- ---------------------------------------------------------------------------------------------------------------------------
Individual Grants
- ---------------------------------------------------------------------------------------------------------------------------
Potential
Potential Realizable Realizable Value at
Value at Assumed Assumed Annual
Number of % of Total Annual Rates of Rates of Stock
Securities Options/SARs Stock Price Price
Underlying Granted to Exercise or Appreciation for Appreciation for
Options/SARs Employees in Base Price Expiration Option Term Option Term
Name Granted (#) Fiscal Year ($/Share) Date 5% 10%
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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) $5.00 08/30/98(4) 23,062.50(5) 47,250(5)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The options vest in equal installments over five years commencing on the
first anniversary of the date of grant. The options are exercisable upon
vesting.
(2) Based upon an aggregate of 231,500 options (186,500) and warrants (45,000)
granted to employees during Fiscal 1998.
(3) The warrants are exercisable upon issuance.
(4) The Company extended the expiration date of the warrants from August 30,
1998 to the date that is 30 days following the effective date of a
registration statement registering the resale of the shares issuable upon
the exercise of the warrants.
(5) Assumes the warrants will expire within two years of grant. However, there
can be assurance that a registration statement registering the resale of
the shares issuable upon the exercise of the warrants will become effective
within said two years.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year End Option/SAR Values
- ------------------------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SARs Options/SARs
at FY-End(#) at FY-End($)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise(#) Realized($) Unexercisable Unexercisable(1)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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)
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(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
<PAGE>
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
<PAGE>
- ----------
(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
<PAGE>
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
<PAGE>
- ----------
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
Exhibit No. Description Method of Filing
- ----------- ----------- ----------------
<S> <C> <C>
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)
</TABLE>
41
<PAGE>
<TABLE>
<S> <C> <C>
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)
</TABLE>
- ----------
(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
<PAGE>
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
<PAGE>
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
<PAGE>
VDC Corporation Ltd. and Subsidiaries
(Formerly Sky King Communications, Inc.)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
==================================================================================================================
June 30, June 30,
1997 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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) -- 399
Convertible Preferred Stock Series B (Note 8) -- 60
Common stock (Note 8) 1,000 22,923,214
Additional paid-in capital 72,881 28,413,467
Accumulated deficit (59,131) (4,319,465)
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
==================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
VDC Corporation Ltd. and Subsidiaries
(Formerly Sky King Communications, Inc)
Consolidated Statements of Operations
================================================================================
<TABLE>
<CAPTION>
January 3, 1996
(inception) to June Year Ended Year Ended
30, 1996 June 30, 1997 June 30, 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
==============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
VDC Corporation Ltd. and Subsidiaries
(Formerly Sky King Communications, Inc.)
Consolidated Statements of Stockholders' Equity
================================================================================
<TABLE>
<CAPTION>
Convertible Convertible
Preferred Stock Preferred Stock
Series A Series B Common Stock
-------------------- -------------------- --------------------
Shares Amount Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 3, 1996 - $ - - $ - - $ -
Issuance of common stock - - - - 1,000 1,000
Capital contribution - - - - - -
Net loss - - - - - -
- -----------------------------------------------------------------------------------------------------------------------------
Balance - June 30, 1996 - - - - 1,000 1,000
Capital contribution - - - - - -
Net loss - - - - - -
- -----------------------------------------------------------------------------------------------------------------------------
Balance - June 30, 1997 - - - - 1,000 1,000
Recapitalization resulting from
merger (Note 9) 5,500,000 550 - - 3,697,373 7,395,724
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
=============================================================================================================================
<CAPTION>
Unrealized
Additional Stock gain on
Paid-in Accumulated Subscriptions Marketable
Capital Deficit Receivable Securities Total
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 3, 1996 $ - $ - $ - $ - $ -
Issuance of common stock - - - - 1,000
Capital contribution 41,951 - - - 41,951
Net loss - (26,702) - - (26,702)
- ------------------------------------------------------------------------------------------------------------
Balance - June 30, 1996 41,951 (26,702) - - 16,249
Capital contribution 30,930 - - - 30,930
Net loss - (32,429) - - (32,429)
- ------------------------------------------------------------------------------------------------------------
Balance - June 30, 1997 72,881 (59,131) - - 14,750
Recapitalization resulting from
merger (Note 9) (72,881) (1,105,524) (630,013) - 5,587,856
Collections on stock
subscriptions receivable - - 287,800 - 287,800
Release of escrow shares
(Note 9) 2,253,940 - - - 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)
- ------------------------------------------------------------------------------------------------------------
$28,413,467 $(4,319,465) $(1,425,951) $75,775 $45,667,499
============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
VDC Corporation Ltd. and Subsidiaries
(Formerly Sky King Communications, Inc.)
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
===================================================================================================================================
Period Ended
June 30, 1996 Year Ended Year Ended
(since inception) June 30, 1997 June 30, 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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 --
===================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
VDC Corporation Ltd. and Subsidiaries
(Formerly Sky King Communications, Inc.)
Notes to Consolidated Financial Statements
<TABLE>
====================================================================================================================
<S> <C>
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, 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. 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. 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.
</TABLE>
F-7
<PAGE>
VDC Corporation Ltd. and Subsidiaries
(Formerly Sky King Communications, Inc.)
Notes to Consolidated Financial Statements
<TABLE>
====================================================================================================================
<S> <C>
(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.
</TABLE>
F-8
<PAGE>
VDC Corporation Ltd. and Subsidiaries
(Formerly Sky King Communications, Inc.)
Notes to Consolidated Financial Statements
<TABLE>
====================================================================================================================
<S> <C>
(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
were considered to be common shares, loss per share would have been $(0.00),
$(0.00) and $(0.54) for the periods ended June 30, 1996, June 30, 1997 and
June 30, 1998.
</TABLE>
F-9
<PAGE>
VDC Corporation Ltd. and Subsidiaries
(Formerly Sky King Communications, Inc.)
Notes to Consolidated Financial Statements
<TABLE>
====================================================================================================================
<S> <C>
(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.
</TABLE>
F-10
<PAGE>
VDC Corporation Ltd. and Subsidiaries
(Formerly Sky King Communications, Inc.)
Notes to Consolidated Financial Statements
<TABLE>
====================================================================================================================
<S> <C>
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. Principal payments of $1,000,000 have
been received on these notes.
</TABLE>
F-11
<PAGE>
VDC Corporation Ltd. and Subsidiaries
(Formerly Sky King Communications, Inc.)
Notes to Consolidated Financial Statements
<TABLE>
====================================================================================================================
<S> <C>
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. 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 $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 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.
</TABLE>
F-12
<PAGE>
VDC Corporation Ltd. and Subsidiaries
(Formerly Sky King Communications, Inc.)
Notes to Consolidated Financial Statements
<TABLE>
====================================================================================================================
<S> <C>
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, 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 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
</TABLE>
<TABLE>
<CAPTION>
June 30, June 30,
1997 1998
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
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
===================================================================================
</TABLE>
F-13
<PAGE>
VDC Corporation Ltd. and Subsidiaries
(Formerly Sky King Communications, Inc.)
Notes to Consolidated Financial Statements
<TABLE>
====================================================================================================================
<S> <C>
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
</TABLE>
<TABLE>
<CAPTION>
June 30, June 30,
1997 1998
----------------------------------------------------------------------------------
<S> <C> <C> <C>
Common stock of Sky King
Communications, Inc., $1 par value,
shares authorized 2,000, issued and
outstanding 1,000 at June 30, 1997 $1,000 $ --
Convertible Preferred Stock Series A of VDC
(Delaware), Inc., non-voting, $.0001 par
value, shares authorized, 5,500,000
issued and outstanding 3,987,500 at June 30,
1998(a) -- 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)
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).
</TABLE>
F-14
<PAGE>
VDC Corporation Ltd. and Subsidiaries
(Formerly Sky King Communications, Inc.)
Notes to Consolidated Financial Statements
<TABLE>
====================================================================================================================
<S> <C>
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.
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 which have not yet
been satisfied. Upon issuance, the shares will be accounted for as an adjustment
to the recapitalization resulting from the merger.
</TABLE>
F-15
<PAGE>
VDC Corporation Ltd. and Subsidiaries
(Formerly Sky King Communications, Inc.)
Notes to Consolidated Financial Statements
<TABLE>
====================================================================================================================
<S> <C>
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 acquired were monetary
in nature, the merger has been recorded at the value of the net monetary assets.
The consideration paid to the former Sky King Shareholders in the Merger
consisted of the issuance of 10 million newly-issued shares of preferred stock of
the 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) (1.09)
==================================================================================
</TABLE>
F-16
<PAGE>
VDC Corporation Ltd. and Subsidiaries
(Formerly Sky King Communications, Inc.)
Notes to Consolidated Financial Statements
<TABLE>
====================================================================================================================
<S> <C>
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. 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 non management
shareholders and non minor children of management shareholders where beneficial
ownership does not exist. The future release of escrow shares which are
considered compensatory could have a significant impact on the Company's future
operating results.
</TABLE>
F-17
<PAGE>
VDC Corporation Ltd. and Subsidiaries
(Formerly Sky King Communications, Inc.)
Notes to Consolidated Financial Statements
<TABLE>
====================================================================================================================
<S> <C>
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
==================================================================================
</TABLE>
F-18
<PAGE>
VDC Corporation Ltd. and Subsidiaries
(Formerly Sky King Communications, Inc.)
Notes to Consolidated Financial Statements
<TABLE>
====================================================================================================================
<S> <C>
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.
</TABLE>
F-19
<PAGE>
VDC Corporation Ltd. and Subsidiaries
(Formerly Sky King Communications, Inc.)
Notes to Consolidated Financial Statements
<TABLE>
====================================================================================================================
<S> <C>
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)
==================================================================================
</TABLE>
F-20
<PAGE>
VDC Corporation Ltd. and Subsidiaries
(Formerly Sky King Communications, Inc.)
Notes to Consolidated Financial Statements
<TABLE>
====================================================================================================================
<S> <C>
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.
</TABLE>
F-21
<PAGE>
VDC Corporation Ltd. and Subsidiaries
(Formerly Sky King Communications, Inc.)
Notes to Consolidated Financial Statements
<TABLE>
====================================================================================================================
<S> <C>
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.
</TABLE>
F-22
<PAGE>
VDC Corporation Ltd. and Subsidiaries
(Formerly Sky King Communications, Inc.)
Notes to Consolidated Financial Statements
<TABLE>
====================================================================================================================
<S> <C>
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).
</TABLE>
F-23
<PAGE>
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
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit No. Description Method of Filing
- ----------- ----------- ----------------
<S> <C> <C>
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)
</TABLE>
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
------------------
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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,
<TABLE>
<CAPTION>
NAME ADDRESS BERMUDIAN NATIONALITY NUMBER OF
STATUS SHARES
(Yes/No) SUBSCRIBED
<S> <C> <C> <C> <C>
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.
</TABLE>
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.
<PAGE>
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.
<PAGE>
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
<PAGE>
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
BYE-LAWS
OF
VDC CORPORATION LTD.
<PAGE>
Index
<TABLE>
<CAPTION>
Bye-Law Subject Page
- ------- ------- ----
<S> <C> <C>
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
</TABLE>
2
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
(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
<PAGE>
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
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
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
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
<PAGE>
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 -
<PAGE>
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 -
<PAGE>
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 -
<PAGE>
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 -
<PAGE>
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
<PAGE>
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 -
<PAGE>
"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 -
<PAGE>
(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 -
<PAGE>
"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 -
<PAGE>
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 -
<PAGE>
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 -
<PAGE>
"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 -
<PAGE>
(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 -
<PAGE>
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 -
<PAGE>
(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 -
<PAGE>
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 -
<PAGE>
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 -
<PAGE>
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 -
<PAGE>
(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 -
<PAGE>
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 -
<PAGE>
(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 -
<PAGE>
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 -
<PAGE>
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 -
<PAGE>
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 -
<PAGE>
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 -
<PAGE>
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 -
<PAGE>
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 -
<PAGE>
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 -
<PAGE>
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 -
<PAGE>
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 -
<PAGE>
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 -
<PAGE>
(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 -
<PAGE>
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 -
<PAGE>
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 -
<PAGE>
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 -
<PAGE>
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 -
<PAGE>
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 -
<PAGE>
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 -
<PAGE>
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 -
<PAGE>
(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 -
<PAGE>
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 -
<PAGE>
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 -
<PAGE>
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 -
<PAGE>
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 -
<PAGE>
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 -
<PAGE>
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 -
<PAGE>
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 -
<PAGE>
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 -
<PAGE>
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 -
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".
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
(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
<PAGE>
(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
<PAGE>
(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
<PAGE>
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
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
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
</TABLE>
<PAGE>
<TABLE>
<S> <C>
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
</TABLE>
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.
<PAGE>
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
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"):
<PAGE>
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 -
<PAGE>
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-
<PAGE>
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 -
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
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;
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
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;
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
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.
<PAGE>
"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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
(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-
<PAGE>
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
<PAGE>
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.
<PAGE>
"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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
(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
<PAGE>
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
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
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;
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
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.
<PAGE>
"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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
(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-
<PAGE>
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-
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
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;
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
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.
<PAGE>
"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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
(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-
<PAGE>
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-
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
(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
<PAGE>
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
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
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.
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
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.
<PAGE>
"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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 2212
<SECURITIES> 452
<RECEIVABLES> 4300
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5464
<PP&E> 341
<DEPRECIATION> 10
<TOTAL-ASSETS> 45824
<CURRENT-LIABILITIES> 156
<BONDS> 0
0
1
<COMMON> 22923
<OTHER-SE> 22743
<TOTAL-LIABILITY-AND-EQUITY> 45824
<SALES> 0
<TOTAL-REVENUES> 100
<CGS> 0
<TOTAL-COSTS> 3450
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3350)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3350)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3155)
<EPS-PRIMARY> (.72)
<EPS-DILUTED> (.72)
</TABLE>
