SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From _________ To ____________
VDC CORPORATION LTD.
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(Exact name of registrant as specified in its charter)
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Bermuda 0-14045 061510832
(Jurisdiction of Incorporation) (Commission File No.) (IRS Employer
Identification No.)
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27 Doubling Road
Greenwich, Connecticut 06830
(Address of principal executive office)
Registrant's telephone number, including area code: (203) 661-9600
Not Applicable
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(Former name, if changed since last report)
Check whether the Registrant: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
(1) Yes X No _______
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(2) Yes X No ______
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS
Common Stock, $2.00 par value 3,799,838 as of May 21, 1998
<PAGE>
VDC CORPORATION LTD.
INDEX
PART I FINANCIAL INFORMATION PAGE
Item 1. Consolidated Balance Sheets at June 30, 1997
and March 31, 1998 (Unaudited) 3
Consolidated Statements of Operations for the
Three and Nine Months ended March 31,
1997 and 1998 (Unaudited) 4
Consolidated Statements of Cash Flows for the
Nine Months ended March 31, 1997 and 1998
(Unaudited) 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and
Analysis of Financial Condition and Results
of Operations 11
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 15
PART II OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote
of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
2
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Item 1. VDC Corporation Ltd. and Subsidiary
Consolidated Balance Sheets
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<CAPTION>
March 31,
June 30, 1998
1997 (Unaudited)
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Assets
Current:
Cash and cash equivalents $ 1,430 $ 3,784,036
Marketable securities -- 361,750
Notes receivable - current -- 1,800,000
Other current assets -- 93,130
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Total current assets 1,430 6,038,916
Property, plant and equipment, less accumulated depreciation 13,570 21,144
Notes receivable, less current portion -- 2,500,000
Loan receivable -- 366,725
Other assets -- 12,100
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Total assets $ 15,000 $ 8,938,885
===============================================================================================
Liabilities and Stockholders' equity:
Current:
Accounts payable $ 250 $ 151,730
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Total current liabilities 250 151,730
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Stockholders' Equity:
Convertible Preferred Stock Series A -- 550
Convertible Preferred Stock Series B -- 30
Common stock 1,000 8,799,676
Additional paid in capital 72,881 2,964,680
Stockholder's deficit (59,131) (2,391,831)
Stock subscription receivable -- (610,975)
Unrealized gain on marketable securities -- 25,025
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Total stockholders' equity 14,750 8,787,155
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Liabilities and stockholders' equity $ 15,000 $ 8,938,885
===============================================================================================
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See accompanying notes to financial statements.
3
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VDC Corporation Ltd. and Subsidiary
Consolidated Statements of Operations
(Unaudited)
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Three Months Ended Nine Months Ended
March 31, March 31,
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1997 1998 1997 1998
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Revenues $ 14,206 $ 22,512 $ 30,491 $ 62,741
- ---------------------------------------------------------------------------------------------
Site leasing expense 6,385 10,294 11,172 26,546
Selling, general and
administrative expenses 10,004 406,985 43,675 468,697
Noncash compensation expense -- 801,000 -- 801,000
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Loss from operations (2,183) (1,195,767) (24,356) (1,233,502)
Interest income -- 2,525 -- 6,325
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Net loss $ (2,183) $(1,193,242) $ (24,356) $(1,227,177)
=============================================================================================
Loss per share of common stock
- basic $ -- $ (.32) $ (.01) $ (.33)
=============================================================================================
Weighted average number of
common shares outstanding 3,699,838 3,713,342 3,699,838 3,713,342
=============================================================================================
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See accompanying notes to financial statements.
4
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VDC Corporation Ltd.
(Formerly Sky King Communications, Inc.)
Consolidated Statements of Cash Flows
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<CAPTION>
Nine Months Ended Nine Months Ended
March 31, 1997 March 31, 1998
(Unaudited) (Unaudited)
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Cash flows from operating activities:
Net loss $ (24,356) $(1,227,177)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation 2,542 4,953
Noncash compensation expense -- 801,000
Changes in operating assets and liabilities:
Prepaid expenses and other assets 466 (35,230)
Accounts payable and accrued expenses -- 27,201
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Net cash used by operating activities (21,348) (429,253)
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Cash flows from investing activities:
Purchase of investment securities -- (288,600)
Proceeds from repayment of notes receivable -- 885,700
Advances under loan receivable -- (122,000)
Fixed asset acquisitions -- (12,527)
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Net cash flows from investing activities -- 462,573
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Cash flows from financing activities:
Proceeds from issuance of common stock -- 3,749,286
Capital contribution 26,170 --
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Net cash flows from financing activities 26,170 3,749,286
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Net increase in cash and cash equivalents 4,822 3,782,606
Cash and cash equivalents, beginning of period 2,173 1,430
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Cash and cash equivalents, end of period $ 6,995 $ 3,784,036
================================================================================================================================
Supplemental schedule of noncash investing and
financing activities:
Net assets acquired in exchange for stock $ -- $ 5,871,071
Fixed assets contributed by shareholders 3,100 --
Stock subscription for common stock -- 164,175
================================================================================================================================
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See accompanying notes to financial statements.
5
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VDC Corporation Ltd.
(Formerly Sky King Communications, Inc.)
Notes to Consolidated Financial Statements
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1. Significant Accounting (a) Basis of Presentation
Policies
On March 6, 1998, Sky King Communication, 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 were issued at the closing, and Sub
Preferred Stock Series B convertible into the remaining 4.5 million shares
of Sub common stock were 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 is being 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
subsequent to the merger.
The accompanying unaudited consolidated financial statements of VDC and its
subsidiaries (the "Company") have been prepared in accordance with the
instructions to Form 10-Q and do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management all adjustments (which
consist only of normal recurring adjustments) necessary for a fair
presentation have been included. All significant intercompany transactions
and balances have been eliminated. Operating results for the nine and three
months ended March 31, 1998 are not necessarily indicative of the results
that will be obtained for the fiscal year ending June 30, 1998. These
financial statements and notes should be read in conjunction with the
financial statements and notes thereto included in the Company's report on
Form 8K filed on May 29, 1998.
The Company is engaged in the international telephony and wireless
communications business.
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6
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VDC Corporation Ltd.
(Formerly Sky King Communications, Inc.)
Notes to Consolidated Financial Statements
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1. Significant Accounting (b) Property, Plant and Equipment and Depreciation
Policies (continued)
Property, plant and equipment are stated at cost. Depreciation is computed
over the estimated lives of the assets using the straight-line method.
(c) 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.
(d) 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.
(e) Income Taxes Deferred income taxes are provided, when applicable, on
differences between the financial reporting and income tax bases of assets
and liabilities based upon statutory tax rates enacted for future periods.
(f) 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. Actual results could differ from those estimates.
(g) Financial Instruments The carrying amounts of financial instruments
including cash and cash equivalents, loan receivable and accounts payable
approximated fair value as of March 31, 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 March 31, 1998, based upon quoted market prices for similar debt
issues. The carrying value of amounts due from and due to related parties
cannot be determined because of the nature of the terms.
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7
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VDC Corporation Ltd.
(Formerly Sky King Communications, Inc.)
Notes to Consolidated Financial Statements
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1. Significant Accounting (h) Loss Per Share of Common Stock
Policies (continued)
Loss per common share is computed on the weighted average number of shares
outstanding. If dilutive, common equivalent shares (common shares assuming
exercise of options and warrants) utilizing the treasury stock method, as
well as the conversion of convertible preferred stock are considered in
presenting diluted earnings per share. 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,
and $(0.14) for the three and nine months ended March 31, 1997 and 1998,
respectively.
(i) 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.
(j) 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.
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8
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VDC Corporation Ltd.
(Formerly Sky King Communications, Inc.)
Notes to Consolidated Financial Statements
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1. Significant Accounting Statement of Financial Accounting Standards No. 131 "Disclosures about
Policies (continued) 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 defined 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.
2. Merger On March 6, 1998, Sky King Communications, Inc. entered into a merger agreement
with VDC Corporation Ltd. and VDC (Delaware), Inc. (See Note 1). 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 unaudited pro forma results of operations which follow assume the acquisition
occurred at July 1, 1996.
Nine Months
Ended
Year Ended March 31,
June 30, 1997 1998
----------------------------------------------------------------------------------------
Revenues $ 43,248 $ 62,741
Loss from continuing operations $(1,205,416) $(2,529,956)
Loss on disposal of discontinued
operations $ (432,275) $ --
Net loss $(1,637,691) $(2,584,326)
Loss per share of common stock -
Basic $ (.44) $ (.70)
========================================================================================
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9
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VDC Corporation Ltd.
(Formerly Sky King Communications, Inc.)
Notes to Consolidated Financial Statements
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The pro forma information presented is for informational purposes only and
does not purport to be indicative of the results which would actually have
been obtained if the combination had been in effect for the period
indicated.
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10
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
CAUTIONARY STATEMENT FOR PURPOSES OF
THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
When used in this Report on Form 10-Q, the words "may," "will,"
"expect," "anticipate," "continue," "estimate," "intend," and similar
expressions are intended to identify forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 regarding events, conditions and financial
trends which may affect the Company's future plans of operations, business
strategy, operating results and financial position. Such statements are not
guarantees of future performance and are subject to risks and uncertainties and
actual results may differ materially from those included within the
forward-looking statements as a result of various factors. Such risks may relate
to, among others: (i) the Company's ability to secure the various international
licenses, approvals and other authorizations needed to commence operations in
Eastern Europe, Asia, Egypt, China or other foreign countries; (ii) the
Company's ability to otherwise develop and implement certain segments of its
intended business that are subject to normal start-up risks and uncertainties;
(iii) the Company's ability to secure sufficient financing in order to fund its
proposed operations; (iv) inherent regulatory, licensing and political risks
associated with operations in foreign countries; (v) the Company's dependence on
certain key personnel; and (vi) competitive and other market conditions that may
adversely affect the scope of the Company's operations. Additional factors are
described in the Company's other public reports and filings with the Securities
and Exchange Commission. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date made. The
Company undertakes no obligation to publicly release the result of any revision
of these forward-looking statements to reflect events or circumstances after the
date they are made or to reflect the occurrence of unanticipated events.
Background and Basis of Presentation
From its inception in 1980 through the first quarter of 1998, VDC
Corporation Ltd. (the "Company") engaged in several lines of business ranging
from the acquisition and exploration of mineral resource properties (1980-1992),
the development of commercial real estate properties (1992-1995) and the
management of venture capital investments in early stage companies in the
internet and transcription services businesses (1996-1997). In recognition of
the historical losses sustained by the Company, management elected in 1997 to
change the focus of its business so as to seek opportunities that may offer the
Company enhanced likelihood for long-term growth in an emerging industry.
Towards that end, during the fourth quarter of 1997, management recognized the
perceived opportunities for growth and development in the international
telecommunications field, and on December 10, 1997, entered into an agreement to
acquire Sky King Communications, Inc. ("Sky King"). Sky King was an early stage
venture engaged in managing and leasing communication tower sites. The active
management of Sky King had recently been assumed by Frederick A. Moran and Dr.
James C. Roberts, individuals with substantial collective experience in the
development, build-out and operation of international telecommunications
systems. It was the intention of Messrs. Moran and Roberts to capitalize on
their collective experiences and relationships within the industry to expand the
focus of the historical Sky King business to include the operation of an
international wired and wireless communications business.
11
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The acquisition of Sky King was completed on March 6, 1998 through a
merger into a wholly-owned subsidiary of the Company (the "Merger"). Since the
Merger resulted in the acquisition by the former shareholders of Sky King of a
controlling interest in the Company, the transaction has been accounted for as a
"reverse acquisition." Accordingly, for financial statement presentation
purposes, Sky King is viewed as the continuing entity and the related business
combination is viewed as a recapitalization of Sky King, rather than an
acquisition by the Company. As a result, the historical financial information
presented for the Company is that of Sky King prior to the Merger and reflects
the effect of the combined results of operations subsequent to the Merger.
Results of Operations
General
The following table provides selected financial information from the
Company's Consolidated Statements of Operations stated as a percentage of
revenues for the three months and nine months ended March 31, 1998 (the "Current
Quarter" and "Current Nine Month Period," respectively) and the three and nine
months ended March 31, 1997 (the "Comparable Prior Year Quarter" and "Comparable
Prior Year Nine Month Period," respectively).
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Three Months ended Nine Months ended
March 31, March 31, March 31, March 31,
1997 1998 1997 1998
$ $ $ $
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<S> <C> <C> <C> <C>
Revenues 14,206 22,512 30,491 62,741
- ------------------------------------------------------------------------------------------------------------------------
Site leasing expense 6,385 10,294 11,172 26,546
Selling, general and administrative
expenses 10,004 406,985 43,675 468,697
Non-cash compensation expense -- 801,000 -- 801,000
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
Loss from operations (2,183) (1,195,767) (24,356) (1,233,502)
Interest income -- 2,525 -- 6,325
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Net loss (2,183) (1,193,242) (24,356) (1,227,177)
========================================================================================================================
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Three Months Ended March 31, 1998 and 1997
Revenues for the Current Quarter increased 58% to $22,512 as compared
to $14,206 in the Comparable Prior Year Quarter, reflecting increased sites
under management.
Site leasing expense increased approximately 61% in the Current Quarter
as compared with the Comparable Prior Year Quarter, corresponding with the
increase in revenue. The Company's net loss, however, increased approximately
$1,190,000, reflecting a $396,000 increase in selling, general and
administrative expenses primarily attributable to professional fees, including
consulting, accounting and legal expenses associated with the redeployment of
the Company's assets and salaries of new personnel necessary to launch
international telephony gateway service, as well as non-cash charges of $801,000
relating to the release of 300,000 Escrow Shares. See "Release of Escrow
Shares".
12
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Nine Months Ended March 31, 1998 and 1997
Revenues for the Current Nine Month Period increased 106% to $62,741 as
compared to $30,491 in the Comparable Nine Month Period. The $32,250 total
increase in revenues in the Current Nine Month Period over the Comparable Prior
Year Nine Month Period is principally attributable to the increase in the number
of communications sites under management. Site leasing expenses also increased
at a corresponding rate for the Current Nine Month Period as compared to the
Comparable Prior Year Nine Month Period.
Site leasing expense increased approximately 138% to $26,546 in the
Current Nine Month Period as compared to the Comparable Prior Year Nine Month
Period. The Company's net loss, however, increased approximately $1,203,000,
reflecting a $425,000 increase in selling, general and administrative expenses,
primarily attributable to professional fees, including consulting, accounting
and legal expenses, and salaries of new personnel necessary to launch
international telephony gateway service, as well as non-cash charges of $801,000
relating to the release of 300,000 Escrow Shares. See "Release of Escrow
Shares". The net loss for the Current Nine Month Period was almost entirely made
up of loss during the Current Quarter.
---------
Operations for the Current Quarter and the Current Nine Month Period,
however, are not a meaningful reflection of the Company's anticipated results of
operations as the Company's core business begins to shift from its historic
focus on the operation and management of communications tower sites to the
pursuit of opportunities to establish international telephony gateways, long
distance telephony, Internet service provision, and wireless, local loop and
cellular telephony systems in certain areas of Eastern Europe, Asia, Egypt and
the United States.
Following its Merger with Sky King, the Company retained additional
personnel with expertise in the telecommunications industry. These individuals,
together with management, are engaged in planning and attempting to implement
the Company's proposed entry into previously mentioned segments of the
international telephony business.
The Company has recently ordered and expects to soon complete ordering
the appropriate communications switching equipment necessary to provide
international telephony gateway and domestic long distance telephony services in
the United States. 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 telephony traffic. However, to date, the Company has not
executed any contracts or received any firm commitments for the employment of
its planned telephony capacity.
For the near term, the Company does not expect to generate material
revenues within the telecommunications segment of its business. Accordingly, the
Company expects to incur operating losses for the near term at existing or
greater levels as its expenses are anticipated to exceed its revenues until
further development of its planned international telephony operations. The
Company also expects that its expenses will increase as it continues to develop
the infrastructure necessary to commence operations on a commercial basis.
13
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The Company anticipates that it will begin to generate revenues from
its proposed international gateway service in the second half of fiscal year
1999. If it is successful in commencing operations of its international gateway
service, the Company anticipates that revenues and expenses could increase as
significant telephony traffic commences. However, the Company's ability to
successfully commence operations is subject to a number of risks and
uncertainties, including those associated with the development of a new
business, and the Company's ability to finance its anticipated operations.
Release of Escrow Shares
The Company's financial statements may continue to reflect non-cash
charges against operations as a result of the release from escrow, if at all, of
the shares of convertible preferred stock of the Company's subsidiary issued in
the Merger transaction. In the Merger, the former Sky King shareholders received
shares of convertible preferred stock of the Company's subsidiary which may
convert into 4.5 million shares of the Company common stock. The release of
these shares is subject to the Company meeting certain performance criteria. The
release of the shares from escrow, if at all, may result in a compensation
expense to the extent of the fair market value of these shares upon release.
Such an expense, although a non-cash item, would have a material adverse effect
on the Company's income for financial accounting purposes in the period or
periods incurred. During the Current Quarter, the Company's financial statements
reflected a compensation expense in the amount of $801,000 in recognition of the
release of 300,000 Escrow Shares from escrow.
Liquidity and Capital Resources
The Company's principal source of capital, to date, has been proceeds
from the private placement of equity securities and the proceeds from the sale
of its former real property and investment assets. During fiscal year 1998, the
Company experienced a significant increase in its assets and stockholders'
equity. Cash and marketable securities have increased from approximately $1,400
at June 30, 1997 to approximately $4.1 million at March 31, 1998, principally
reflecting $3.75 million in proceeds from private placement transactions
completed during the Current Quarter.
The Company's notes receivable also increased by $4.3 million, due to
the inclusion of notes receivable received by the Company as a result of the
sale of its former interest in real property and investment securities. Of this
amount, assuming all collections under these notes are timely received, the
Company expects to realize $1.8 million during the period ending March 31, 1999.
These amounts would be allocated to the purchase of equipment, gateway switches
and for the Company's working capital.
The Company's current operating deficit is approximately $60,000 per
month, but is likely to increase as it seeks to commence gateway operations. The
Company anticipates that it will be required to allocate additional resources
toward the purchase of the initial gateway switching equipment, which management
estimates will cost approximately $2,600,000.
14
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The Company will be required to allocate substantial capital toward the
acquisition of certain investment securities presently held by PortaCom
Wireless, Inc. ("PortaCom"). On November 25, 1997, the Company and PortaCom
entered into an asset purchase agreement (the "Original Purchase Agreement")
pursuant to which the Company agreed to purchase from PortaCom 2,000,000 shares
of common stock of Metromedia China Corporation ("MCC"), par value $.01 per
share (the "MCC Shares"), and warrants to purchase 4,000,000 MCC Shares at an
exercise price of $4.00 per share (the "MCC Warrants"). Under the Original
Purchase Agreement, the purchase price (the "Purchase Price") of the MCC Shares
and Warrants consisted of 5.3 million newly issued shares of the Company's
common stock (the "VDC Shares") and cash in an amount not to exceed $700,000.
The Company agreed to advance the cash component of the Purchase Price
periodically prior to closing to the extent required by PortaCom to settle
certain outstanding indebtedness.
PortaCom subsequently filed a voluntary petition for bankruptcy relief
under Chapter 11 of the United States Bankruptcy Code in the United States
Bankruptcy Court, District of Delaware (the "Court") on March 23, 1998. The
Court has entered an order approving the sale of the MCC Shares and Warrants by
PortaCom to the Company pursuant to Section 363 of the Bankruptcy Code. During
the course of PortaCom's bankruptcy proceeding, the Original Agreement was
amended and restated (the "Amended Purchase Agreement") to provide that the
Company will fund an escrow account in the amount of $2,682,000 for the benefit
of holders of priority unsecured claims and general unsecured claims against
PortaCom's bankruptcy estate (the "Escrow Fund"). The Escrow Fund and the VDC
Shares shall be held in escrow pending the confirmation of a plan of
reorganization of PortaCom and the resolution of the disputed claims against
PortaCom's bankruptcy estate, as set forth in the Escrow Agreement attached as
an exhibit to this Report. Under the Amended Purchase Agreement, part of the
Purchase Price may be used to satisfy claims against PortaCom's bankruptcy
estate. The Company anticipates that the asset purchase transaction with
PortaCom will close during the fourth quarter of Fiscal 1998.
Management intends to acquire the MCC Shares and the MCC Warrants in
order to further develop opportunities for its proposed telephony business in
China and for long-term investment purposes. Since the Company's planned
investment in the MCC securities would constitute a minority interest of less
than ten percent (10%) of a privately-held company, it is not expected to
provide a source of short-term liquidity for the Company. Further, the Company's
results of operations would not be affected, positively or negatively, by the
financial performance of MCC.
While the Company's existing cash resources are sufficient to meet the
obligations under the Amended Purchase Agreement, the Company will require
additional sources of capital to complete its planned acquisition of gateway
switches and to meet its proposed plan of operations. The Company believes that
it will be able to secure additional capital through private placements of debt
or equity securities. However, the Company has no agreements with respect to
such financing, and there can be no assurances that the Company will obtain such
financing on terms acceptable to the Company, if at all. If it is unsuccessful
in obtaining additional working capital within the near term, the Company will
be unable to implement its proposed business plan in the manner intended. If
this were to occur, the Company's planned commencement of full-scale operations
would likely be delayed.
Item 3. Quantitative and Qualitative Disclosures About Market Risks
Not applicable.
15
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
Recent Sale of Unregistered Securities
On March 6, 1998, the Company's subsidiary, Sky King Communications,
Inc., a Delaware corporation ("Sub") issued 10 million shares of Sub preferred
stock (the "Sub Preferred Stock") to the former shareholders of Sky King in
consideration of the merger of Sky King with and into Sub. Of the 10 million
shares of Sub Preferred Stock, 4.5 million shares were issued in escrow. See
"Release of Escrow Shares." The Sub Preferred Stock is automatically convertible
into 10 million shares of the Sub's common stock (the "Sub Common Stock") upon
the domestication of the Company (the "Domestication Merger"). In the event that
the Domestication Merger does not occur by March 6, 1999, the former Sky King
shareholders may elect to convert all or part of their shares of Sub Preferred
Stock into shares of the Company's common stock on a one-for-one basis. Based
upon the number of shares that were outstanding as of the date of the Merger,
the occurrence of the Domestication Merger (or the election of the former Sky
King shareholders to convert their shares of Sub Preferred Stock into shares of
the Company's common stock) will result in a change in control of the Company
since the former Sky King shareholders would receive up to 73% of the Company's
common stock. The issuance of such securities was exempt from registration
pursuant to Regulation D and Section 4(2) of the Securities Act of 1933, as an
issuer transaction not involving a public offering.
On March 23, 1998, the Company sold 390,000 shares of common stock to
Lancer Offshore, Inc. at a purchase price of $1,852,500 ($4.75 per share);
58,500 shares of common stock to Lancer Voyager for a purchase price of $277,875
($4.75 per share); 132,000 shares of common stock to Lancer Partners, LP at a
purchase price of $627,000 ($4.75 per share); and 19,500 shares of common stock
to Michael Lauer at a purchase price of $92,625 ($4.75 per share), all in
private placement transactions (collectively, the "Lancer Shares"). The
Company's issuance of the Lancer Shares is subject to the prior approval of the
Bermuda Monetary Authority. Since such approval is pending, the Company has not
issued the Lancer Shares despite its receipt of the total purchase price for
these shares. The issuance of such securities will be exempt from registration
pursuant to Regulation D and Section 4(2) of the Securities Act of 1933, as an
issuer transaction not involving a public offering.
On April 21, 1998, the Company issued 100,000 shares of common stock to
Alan Snyder at a purchase price of $550,000 ($5.50 per share) in a private
placement transaction. The issuance of such securities was exempt from
registration pursuant to Regulation D and Section 4(2) of the Securities Act of
1933, as an issuer transaction not involving a public offering.
16
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Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
On February 4, 1998, the Company held its 1997 Annual General Meeting
of Shareholders (the "Meeting"). At the Meeting, Graham Ferguson Lacey and
Robert C. Alexander were re-elected as directors of the Company to serve until
the consummation of the Company's merger with Sky King, which occurred on March
6, 1998 (the "Merger"). The shareholders voting at the Meeting cast 271,918
votes in favor of, and 34,657 votes withheld from , re-electing Mr. Lacey. The
shareholders cast 306,220 votes in favor of, and 355 votes withheld from,
re-electing Mr. Alexander. Upon the closing of the Merger, Messrs. Lacey and
Alexander resigned as directors of the Company and nominated Frederick A. Moran
and Dr. James C. Roberts to fill the vacancies on the board of directors.
At the Meeting, the shareholders also voted in favor of:
(1) fixing the number of directors as not more than five and no less
than two (295,605 for; 10,970 against);
(2) ratifying and confirming the actions of the directors and officers
of the Company since the Combined 1995/1996 Annual General Meeting of
Shareholders held on November 12, 1997 (303,987 for; 2,588 against);
(3) the re-appointment of Neville Russell as auditors of the Company
until the conclusion of the next Annual General Meeting of Shareholders at a fee
to be determined by the Company's board of directors (304,702 for; 1,873
against);
(4) approving and adopting the Amended and Restated Agreement and Plan
of Merger, dated as of December 10, 1997, by and among the Company, Sub and Sky
King and the shareholders of Sky King (303,642 for; 2,933 against); and
(5) amending the Company's Memorandum of Association to increase the
authorized share capital to 50,000,000 shares of common stock by way of the
creation of an additional 44,994,000 shares of common stock ranking pari-passu
with the existing shares of common stock (302,115 for; 4,460 against).
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
<S> <C>
(a) Exhibits
Exhibit No. Description
10.6 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.
10.7 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.
27 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K
(i) A Report on Form 8-K was filed with the Securities and Exchange
Commission on May 27, 1998 relating to a change in the Company's certifying
accountants as of May 21, 1998.
(ii) A Report on Form 8-K was filed with the Securities and Exchange
Commission on May 29, 1998 relating to the Company's acquisition of Sky King
Communications, Inc. in a merger transaction which resulted in a change in
control of the Company as of March 6, 1998.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Form 10-Q to be signed on its behalf by the
undersigned, thereunto duly authorized.
VDC CORPORATION LTD.
By: /s/ Frederick A. Moran Dated: May 28, 1998
----------------------
Frederick A. Moran
Chairman and Chief Executive Officer
(Principal Executive, Financial
and Accounting Officer)
By: /s/ James C. Roberts Dated: May 28, 1998
--------------------
James C. Roberts
Deputy Chairman, President and Chief
Operating Officer
18
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EXHIBIT INDEX
Exhibit Page Number in
Number Rule 0-3(b)
(Referenced to Sequential
Item 601 of Numbering System
Reg. S-K) Where Exhibit Can
Be Found
10.6 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.
10.7 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, Barnzburg & Ellers LLP,
dated as of April __, 1998.
27 Financial Data Schedule.
ASSET PURCHASE AGREEMENT
by and between
VDC CORPORATION LTD.,
as Buyer,
and
PORTACOM WIRELESS, INC.
as Seller
March 23, 1998
<PAGE>
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (the "Agreement") is made as of
the 23rd day of March, 1998, by and between VDC CORPORATION LTD., a Bermuda
corporation ("Buyer"), and PORTACOM WIRELESS, INC., a Delaware corporation
("Seller").
WITNESSETH:
WHEREAS, Seller desires to sell, and Buyer desires to
purchase, on the terms and conditions hereafter set forth, certain of the assets
of Seller as described herein; and
WHEREAS, Seller and Buyer are parties to that certain Asset
Purchase Agreement, dated as of November 25, 1997, as amended as of February 16,
1998, concerning the subject matter hereof (the "Original Agreement"); and
WHEREAS, Seller and Buyer intend that this Agreement supersede
in its entirety the Original Agreement; and
WHEREAS, on March 23, 1998, Seller filed a voluntary petition
for relief under Chapter 11 of Title 11 of the United States Code (the
"Bankruptcy Code") before the United States Bankruptcy Court for the District of
Delaware (or any other tribunal exercising jurisdiction over the Debtor and
property of its estate, the "Court"); and
WHEREAS, Seller remains in possession of its property and in
control of its business pursuant to ss.ss.1107 and 1108 of the Bankruptcy Code;
and
WHEREAS, Seller and Buyer are parties to a Loan Agreement,
Security Agreement and Pledge Agreement, entered into on November 10, 1997,
whereby Buyer extended to Seller prior to the commencement of the case the
principal sum of approximately $360,000 (together with all accrued interests,
costs and fees, the "Pre-Petition Indebtedness"); and
WHEREAS, Seller and Buyer are parties to a Debtor In
Possession Loan, Security and Pledge Agreement, entered into after the
commencement of the case, and subject to Court approval, whereby Buyer agreed to
advance to Seller the principal amount up to an additional $333,000, subject to
the terms and conditions set forth therein (together with all accrued interests,
costs and fees, the "Post-Petition Indebtedness" and together with the
Pre-Petition Indebtedness, the "Indebtedness"); and
WHEREAS, Seller and Buyer agree that the transactions
contemplated hereby are other than in the ordinary course of Seller's business,
and accordingly Court approval is required; and
WHEREAS, Seller and Buyer desire to consummate the
transactions contemplated hereby as quickly as possible in order to maximize the
benefit to the estate and intend to seek expedited consideration by the Court of
the approval of this Agreement; and
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NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants, agreements and representations and warranties herein
contained, and for other good and legal consideration, the receipt and
sufficiency of which is hereby acknowledged, Seller and Buyer, intending to be
legally bound hereby, agree as follows:
ARTICLE 1
DEFINITIONS
1.1. When used in this Agreement, the following terms, in their
singular and plural forms, shall have the meanings assigned to them below:
"Act" means the Securities Act of 1933, as amended.
"Agreement" is defined in the initial paragraph hereof.
"Assets" means all of Seller's right, title and interest in
and to all of the following described holdings:
(i) Two million shares of common stock, par value $.01 per
share ("MAC Common Stock"), of Metromedia Asia Corporation ("MAC"), as evidenced
by Stock Certificate Number 59, dated February 28, 1997; and
(ii) Warrants ("MAC Warrants") to purchase four million
shares of common stock, par value $.01 per share, at $4.00 per share, of MAC, as
evidenced by Warrant Number 19.
"Buyer" is defined in the initial paragraph hereof.
"Cash Funds" is defined in Section 3.2(a).
"Claim" means a claim or demand for any and all Liabilities,
damages, losses, obligations, deficiencies, encumbrances, penalties, costs and
expenses, including reasonable attorneys' fees, resulting from, related to or
arising out of (i) any misrepresentation, breach of warranty or non-fulfillment
of any covenant of Seller set forth in this Agreement or in any Related
Document; (ii) Seller's ownership of the Assets; (iii) any and all actions,
suits, investigations, proceedings, demands, assessments, audits, judgments and
claims arising out of any of the foregoing.
"Closing" and "Closing Date" are defined in Section 6.1.
"Disclosure Schedule" is defined in Section 4.1.
"GAAP" means generally accepted accounting principles in the
United States, consistently applied.
"Governmental Authority" means any foreign, federal, state,
regional or local authority, agency, body, court or instrumentality, regulatory
or otherwise, which, in whole or in
2
<PAGE>
part, was formed by or operates under the auspices of any foreign, federal,
state, regional or local government.
"Indemnified Party" is defined in Section 10.4.
"Indemnifying Party" is defined in Section 10.4.
"Law" means any common law and any federal, state, regional,
local or foreign law, rule, statute, ordinance, rule, order or regulation.
"Liabilities" means liabilities, obligations, claims or debts
of Seller of any type or nature, whether matured, unmatured, contingent or
unknown, including, without limitation, tort, contract or other claims asserted
against Seller which are based on acts or omissions occurring on, before or
after the Closing Date.
"Lien" means any lien, charge, covenant, condition, easement,
adverse claim, demand, encumbrance, security interest, option, pledge, or any
other title defect, easement or restriction of any kind.
"Purchase Price" is defined in Section 3.1.
"Registration Statement" is defined in Section 7.6.
"Related Documents" means this Agreement and each document or
instrument executed in connection with the consummation of the transactions
contemplated herein.
"Seller" is defined in the initial paragraph of this
Agreement.
"Termination Agreement" means that certain Termination
Agreement, dated September 11, 1996, by and among Seller, MAC, as
successor-in-interest to Asian American Telecommunications Corporation and Max
E. Bobbitt, as Agent.
"VDC Shares" is defined in Section 3.2(b).
ARTICLE 2
SALE AND PURCHASE OF ASSETS
2.1. Agreement to Sell and Purchase Assets. Subject to the terms and
conditions hereof and on the basis of and in reliance upon the covenants,
agreements and representations and warranties set forth herein, on the Closing
Date Seller shall sell the Assets to Buyer, and Buyer shall purchase the Assets
from Seller. The Assets shall be sold, transferred and conveyed by Seller to
Buyer free and clear of any and all claims, liens, encumbrances and the rights
of others.
2.2. Responsibility for Liabilities. Buyer shall not assume any
Liabilities of Seller by virtue of this Agreement or otherwise. Notwithstanding
anything herein, in the Original
3
<PAGE>
Agreement or in any Related Document to the contrary, except as otherwise
expressly provided herein, Buyer is neither assuming nor agreeing to pay or
discharge any of the claims against, or liabilities or obligations of, the
Seller, Seller's bankruptcy estate or of any other party and nothing in this
Agreement shall be construed to the contrary. All claims against, and
liabilities and obligations of Seller, and Seller's bankruptcy estate, whether
known or unknown, suspected or unsuspected, direct or contingent, in litigation,
threatened or not yet asserted or existing with respect to any aspect of the
Assets, Seller's bankruptcy case or estate, or this Agreement, arising or
existing prior to or on the Closing Date are and shall remain the responsibility
of Seller and Seller's bankruptcy estate, and such liabilities or obligations
arising after Closing shall be the responsibility of the Buyer. The Order
entered by the Court approving this Agreement shall specifically provide that
the Buyer is not liable for pre-Closing claims, liabilities or obligations and
is not liable as a successor-in-interest to creditors of Seller or Seller's
bankruptcy estate.
ARTICLE 3
PAYMENT OF THE PURCHASE PRICE
3.1. Purchase Price. The purchase price ("Purchase Price") for the
Assets shall consist of (i) the Closing Purchase Price (as such term is defined
in Section 3.2 below) and (ii) the Deferred Purchase Price (as such term is
defined in Section 3.5 below), if any.
3.2. Closing Purchase Price. The Closing Purchase Price (the "Closing
Purchase Price") shall be paid or delivered by Buyer at Closing in the following
manner:
(a) Subject to adjustment pursuant to Section 3.4 hereof, Buyer
shall deliver an amount not to exceed the difference between Seven Hundred
Thousand Dollars ($700,000) and the outstanding Indebtedness (the "Cash Funds")
in immediately available funds in the form of cash, cashier's check or wire
transfer; and
(b) Buyer shall deliver 5,300,000 shares of newly issued shares of
common stock, par value $2.00 per share, of Buyer (the "VDC Shares") in
accordance with the provisions of Section 3.3; and
(c) Buyer shall satisfy of the Indebtedness.
3.3. Allocation of Closing Purchase Price. The Closing Purchase Price
shall be allocated in the following manner:
(a) At the Closing, Seller will deliver a schedule (the "Debt
Schedule") identifying its indebtedness as of the Closing Date. Buyer shall
deliver to and deposit with Seller that portion of the Cash Funds and the VDC
Shares necessary to satisfy Seller's indebtedness to its creditors in the
amounts and manner as set forth in the Debt Schedule. The Cash Funds and/or any
and all VDC Shares delivered to Seller pursuant to this Section 3.3(a) shall be
credited against and considered a part of the Closing Purchase Price and shall
be held and distributed by Seller to the creditors (or provision shall be made
for the ultimate distribution of such amounts and/or Shares to creditors upon
the final resolution of any disputed amounts
4
<PAGE>
payable or claims against Seller) in accordance with the provisions of a further
order of the Court.
(b) Seller shall retain the VDC Shares until such time as a
disposition of such shares occurs to Seller's stockholders pursuant to a
confirmed plan of reorganization providing for the issuance of the VDC Shares
pursuant to the exemption set forth in Bankruptcy Code ss.1145, or an effective
registration statement in accordance with the provisions of Section 7.6 hereof.
3.4. Adjustment to Closing Purchase Price. Forgiveness of the
Indebtedness shall constitute initial payments and deposits against the Closing
Purchase Price, and, as such, shall be applied towards the Closing Purchase
Price under this Agreement upon the Closing Date.
3.5. Deferred Purchase Price.
(a) For the purposes of this Section 3.5, the terms listed below
shall have the following meanings:
(i) "MAC Base Price" means $12.00 per share for each share of
MAC common stock;
(ii) "MAC Market Price" means
(A) If MAC's common stock is traded in the
over-the-counter market and not on any national securities exchange or 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 20 trading days following the one year anniversary of the
Closing Date, or if not so reported, the average of the closing bid and asked
prices for a share of MAC common stock for the consecutive 20 trading days
following the one year anniversary of the Closing Date as furnished to MAC by
any member of the National Association of Securities Dealers, Inc., selected by
MAC for that purpose.
(B) If MAC's common stock is traded on a national
securities exchange or in the NASDAQ Reporting System, the market price shall be
the simple average of the closing prices of a share of MAC's common stock, as
quoted on the NASDAQ Reporting System or its other principal exchange for the
consecutive 20 trading days following the one year anniversary of the Closing
Date.
(C) If the market price cannot be determined for MAC's
common stock on such date on either of the foregoing bases, the market price
shall be the fair market value as reasonably determined by an investment banking
firm selected by Seller and Buyer, with the cost therefor to be borne equally by
Seller and Buyer.
(iii) "VDC Base Price" means $5.00 per share for each share of
VDC common stock; and
5
<PAGE>
(iv) "VDC Market Price" means
(A) If VDC's common stock is 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 20 trading days following the one year anniversary of the
Closing 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 20 trading days
following the one year anniversary of the Closing Date as furnished to VDC by
any member of the National Association of Securities Dealers, Inc., selected by
VDC for that purpose.
(B) If VDC's common stock is 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 share of VDC's common stock
traded, as quoted on the NASDAQ Reporting System or its other principal exchange
for the consecutive 20 trading days following the one year anniversary of the
Closing Date.
(C) If the market price cannot be determined by VDC's
common stock on such date on either of the foregoing bases, the market price
shall be the fair market value as reasonably determined by an investment banking
firm selected by Seller and Buyer, with the cost therefor to be borne equally by
Seller and Buyer.
(b) In the event that on the one year anniversary of the Closing
Date, MAC is a publicly held company whose shares are registered with the
Securities and Exchange Commission ("SEC") under the Securities Exchange Act of
1934, Buyer shall pay and deliver to Seller the Deferred Purchase Price (the
"Deferred Purchase Price") calculated in accordance with Section 3.5(c) below,
if any, within ninety (90) days following the one year anniversary of the
Closing Date. The Deferred Purchase Price shall be paid, at VDC's sole option,
in either (i) immediately available funds in the form of cash, cashier's check
or wire transfer, or (ii) shares of VDC common stock. In the event that VDC
elects to pay the Deferred Purchase Price in the form of shares of VDC common
stock, such stock shall be priced at the higher of $5.00 per share or the VDC
Market Price per share.
6
<PAGE>
(c) The Deferred Purchase Price shall be calculated in accordance
with the following formula:
MAC Market Price - VDC Market Price x $5,000,000
---------------- ----------------
MAC Base Price VDC Base Price
For example, assuming that the MAC Market Price is $13.20, and the VDC
Market Price is $5.00, the Deferred Purchase Price would equal (10% - 0%) x
($5,000,000) = $500,000.
If the number calculated from the above formula is negative, there is
no Deferred Purchase Price.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
4.1. Disclosure Schedule. Seller has delivered or caused to be
delivered to Buyer, prior to the execution of this Agreement, disclosure
schedules, and documents relating thereto, which include the numbered schedules
specifically referred to in this Agreement and which are attached hereto
(collectively, the "Disclosure Schedule"). To the best of Seller's knowledge,
the information contained in the Disclosure Schedule is complete and accurate in
all material respects and all documents that are attached to the Disclosure
Schedule are complete and accurate copies of the genuine original documents they
purport to represent as in effect on the date hereof. Capitalized terms used in
the Disclosure Schedule and not otherwise defined therein have the meanings
ascribed to such terms in this Agreement.
4.2. Organization and Standing of Seller. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Subject only to approval by the Court, Seller has all requisite
corporate power and authority to sell the Assets, free and clear of any and all
Liens. A certified copy of Seller's Articles of Incorporation and Bylaws are
attached to Schedule 4.2 of the Disclosure Schedule.
4.3. Encumbrances Created by this Agreement. The execution and delivery
of this Agreement and each of the Related Documents does not, and the
consummation of the transactions contemplated hereby or thereby will not, create
any Liens on any assets (including the Assets) of Seller in favor of third
parties.
4.4. Title to Assets. Seller and Seller's bankruptcy estate own and
hold of record the entire right, title and interest in and to all of the Assets,
free and clear of any and all Liens, except the liens held by Buyer and
interests held by MAC.
4.5. VDC Shares to Be Issued Pursuant to Plan or Constitute Restricted
Securities. Seller represents and warrants: (I) (a) that it will prepare and
file a plan of reorganization and disclosure statement pertaining thereto, as
soon as is practicable and in no event later than the original period fixed by
ss.1121(b) of the Bankruptcy Code, (b) that this Agreement, the
7
<PAGE>
transactions contemplated hereby and the issuance and distribution of the VDC
Shares are and will be under and in accordance with such plan as contemplated by
ss.1145 of the Bankruptcy Code, or (II) upon Seller's failure to obtain a
declaration from the Court that the issuance of the VDC Shares is exempt from
registration pursuant to Bankruptcy Code ss.1145, (a) that it has reviewed the
annual and periodic reports of Buyer, as filed by Buyer with the SEC pursuant to
the Securities Exchange Act of 1934, and that it has such knowledge and
experience in financial and business matters that it is capable of utilizing the
information set forth therein concerning Buyer to evaluate the risks of
investing in the VDC Shares; (b) that it has been advised that the VDC Shares to
be issued by Buyer constitute "restricted securities" as defined in Rule 144
promulgated under the Securities Act, and accordingly, have not been and will
not be registered under the Securities Act except as otherwise set forth in this
Agreement, and, therefore, it may not be able to sell or otherwise dispose of
such VDC Shares except if the VDC Shares are subject to an effective
registration statement filed with the SEC, in compliance with Rule 144 or
otherwise pursuant to an exemption from registration under the Act; (c) that the
VDC Shares so issued are being acquired by them for their own benefit and on
their own behalf for investment purposes and not with a view to, or for sale or
for resale in connection with, a public offering or re-distribution thereof; (d)
that the VDC Shares so issued will not be resold (i) without registration
thereof under the Securities Act (unless an opinion of counsel acceptable to
VDC, or to Buyer, an exemption from such registration is available), (ii) in
violation of any law; and (e) that the certificate or certificates representing
the VDC Shares to be issued will be imprinted with a legend in form and
substance as follows:
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
AN OPINION LETTER OF COUNSEL FOR THE COMPANY OR A NO-ACTION LETTER
FROM THE SECURITIES AND EXCHANGE COMMISSION.
and Buyer is hereby authorized to notify the transfer agent of the status of the
VDC Shares, and to take such other action including, but not limited to, the
placing of a "stop transfer" order on the books and records of Buyer's transfer
agent to ensure compliance with the foregoing.
4.6. Brokers' Fees. No broker, finder or other person or entity acting
in a similar capacity has participated on behalf of Seller in connection with
the transactions contemplated by this Agreement. Seller has not incurred any
Liability for brokers' fees, finders' fees, agents' commissions or other similar
forms of compensation in connection with this Agreement or the transactions
contemplated hereby.
4.7. Avoidance. The transactions contemplated hereby are not subject to
avoidance as fraudulent transfers or fraudulent conveyances under applicable
non-bankruptcy law or the Bankruptcy Code.
8
<PAGE>
4.8. Fair Value. Seller acknowledges and agrees that the Purchase Price
constitutes fair, adequate and reasonably equivalent consideration in exchange
for the Assets.
4.9. Full Disclosure. No representation or warranty by Seller in this
Agreement and no statement contained in any Disclosure Schedule to this
Agreement contains any untrue statement of a material fact, or omits to state a
material fact necessary to make the statements contained therein, in light of
the circumstances in which they are made, not misleading.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
5.1. Organization and Standing of Buyer. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Bermuda.
5.2. Authorization and Enforceability. Buyer has all requisite
corporate power and authority to enter into this Agreement and the Related
Documents to which it is a party and to carry out the transactions contemplated
hereby and thereby and to perform its obligations hereunder and thereunder. All
necessary and appropriate action has been taken by Buyer with respect to the
execution and delivery of this Agreement and each of the Related Documents and
the performance of its obligations hereunder and thereunder. The execution and
delivery of this Agreement and the Related Documents and the consummation of the
contemplated transactions by Buyer will not (a) result in the breach of any of
the terms or conditions of, or constitute a default under, the Certificate of
Incorporation or the By-Laws of Buyer or (b) violate any Law or any order, writ,
injunction or decree of any Governmental Authority. This Agreement and any
Related Documents to which Buyer is a party constitute valid and binding
obligations of Buyer enforceable against Buyer in accordance with their
respective terms.
5.3. VDC Shares. The VDC Shares delivered by Buyer at Closing will be
validly and legally issued, free and clear of any and all Liens, and will be
fully paid and non-assessable, except that in the event the Court does not
declare that the issuance of the VDC Shares are under a plan in Seller's
bankruptcy case pursuant to Bankruptcy Code ss.1145, the VDC Shares shall be
"restricted securities" pursuant to Rule 144 promulgated under the Act and
except for the restrictions on resale set forth in Section 7.6 hereof.
5.4. Approval. The Board of Directors of the Buyer has approved the
execution of this Agreement and the transactions contemplated thereby.
5.5. Brokers' Fees. Buyer has not incurred any liability for brokers'
fees, finders' fees, agents' commissions or other similar forms of compensation
in connection with this Agreement or the transactions contemplated hereby.
5.6. Full Disclosure. No representation or warranty by Buyer in this
Agreement contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained therein, in light of
the circumstances in which they are made, not misleading.
9
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ARTICLE 6
CLOSING
6.1. Closing. Subject to satisfaction or waiver of all conditions
precedent set forth in Sections 8 and 9 of this Agreement, the closing of the
transactions contemplated by this Agreement (the "Closing") shall take place at
the offices of Buchanan Ingersoll Professional Corporation, at 10:00 a.m., local
time the day on which the last of the conditions precedent set forth in either
Section 8 or 9 of this Agreement is fulfilled (the "Closing Date") or at such
other time, date and place as the parties may agree, but in no event shall such
date be later than April 30, 1998.
6.2. Obligations of Seller. At or prior to the Closing, Seller shall
deliver to Buyer, in each case, in form and substance satisfactory to Buyer:
(a) a written release by all of the parties to the Termination
Agreement agreeing to the release of the MAC Common Stock to the Buyer;
(b) written evidence from MAC confirming that, as of the Closing
Date, no part of the Assets pledged as collateral under the Termination
Agreement has been sold, assigned, transferred or otherwise disposed of or
subject to any action for any of the foregoing (other than the transaction
contemplated in this Agreement), and that, as of the Closing Date, neither MAC
nor its parent corporation, Metromedia International Group, Inc., contemplates
taking any of the foregoing actions;
(c) such other instruments of transfer as shall be necessary or
appropriate to vest in the Buyer good and marketable title to the Assets;
(d) such other documents as may be described in Article 8 of this
Agreement; and
(e) a certified copy of the Order approving this Agreement and
authorizing Seller to consummate the transactions contemplated hereby.
6.3. Obligations of Buyer. At the Closing, Buyer shall deliver:
(a) the Purchase Price in accordance with Article 3 of this
Agreement;
(b) a Deferred Purchase Price Note, in form and substance mutually
satisfactory to the parties hereto;
(c) evidence of the satisfaction of the Indebtedness; and
(d) such other documents as may be described in Article 9 of this
Agreement.
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6.4. Further Documents or Necessary Action. Buyer and Seller each agree
to take all such further actions on or after the Closing Date as may be
necessary, desirable or appropriate in order to confirm or effectuate the
transactions contemplated by this Agreement.
ARTICLE 7
COVENANTS AND AGREEMENTS
Seller covenants to and agrees with Buyer, and Buyer covenants to and
agrees with Seller, as follows:
7.1. Conduct of Business Pending the Closing. During the period from
the date of this Agreement to the Closing Date, Seller shall conduct its
business operations in the ordinary and usual course and to maintain its records
and books of account in a manner consistent with prior periods. Seller shall,
without purporting to make any commitment on behalf of Buyer, exercise
reasonable efforts to preserve intact the present business organization and
personnel of Seller and the present goodwill of Seller with persons having
business dealings with them. Except as otherwise required or contemplated
hereby, Seller further covenants and agrees that, from the date of this
Agreement to the Closing Date, it shall not, without the written consent of
Buyer:
(a) enter into any negotiations, discussions or agreements
contemplating, affecting or respecting the Assets or Seller's ability to
transfer the Assets;
(b) enter into any negotiations, discussions or agreements
contemplating or respecting the acquisition of Seller or any material asset
thereof (other than in the ordinary course of business), whether through a sale
of stock, a merger or consolidation, the sale of all or substantially all of the
assets of Seller, any type of recapitalization or otherwise, with the exception
of the Seller's interest in and to its Cambodian venture, the disposition of
which has been discussed with the Buyer;
(c) incur any Liabilities or take any action that would diminish
the value of the Assets;
(d) take any action which would interfere with or prevent
performance of this Agreement; or
(e) engage in any activity or enter into any transaction which
would be inconsistent in any respect with any of the representations, warranties
or covenants set forth in this Agreement, as if such representations, warranties
and covenants were made at a time subsequent to such activity or transaction and
all references to the date of this Agreement were deemed to be such later date.
7.2. Access By Buyer; Confidentiality. During the period from the date
of this Agreement to the Closing Date, Seller shall cause Buyer, its agents and
representatives to be given full access during normal business hours to the
premises, buildings, offices, books, records, assets (including the Assets),
Liabilities, operations, contracts, files, personnel, financial
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and tax information and other data and information of Seller, and shall
cooperate with Buyer in conducting its due diligence investigation of Seller;
provided that such access shall not unreasonably interfere with the normal
operations and employee relationships of Seller. All information provided to or
learned by Buyer as a result of such access or otherwise in connection with the
transactions contemplated by this Agreement shall be held in confidence.
7.3. Access By Seller; Confidentiality. During the period from the date
of this Agreement to the Closing Date, Buyer shall cause Seller, its agents and
representatives to be given full access during normal business hours to the
premises, buildings, offices, books, records, assets, liabilities, operations,
contracts, files, personnel, financial and tax information and other data and
information of Buyer, and shall cooperate with Seller in conducting its due
diligence investigation of Buyer; provided that such access shall not
unreasonably interfere with the normal operations and employee relationships of
Buyer. Buyer shall provide Seller with copies of all reports and/or findings
made with the Securities and Exchange Commission from the date hereof through
the Closing. All information provided to or learned by Seller as a result of
such access or otherwise in connection with the transactions contemplated by
this Agreement shall be held in confidence.
7.4. Notice of Breach or Failure of Condition. Seller and Buyer agree
to give prompt notice to the others of the occurrence of any event or the
failure of any event to occur that might preclude or interfere with the timely
satisfaction of any condition precedent to the obligations of Seller or Buyer
under this Agreement.
7.5. Best Efforts. Seller and Buyer shall use their respective best
efforts to obtain all consents or approvals necessary to bring about the
satisfaction of the conditions required to be performed, fulfilled or complied
with by them pursuant to this Agreement and to take or cause to be taken all
action, and to do or cause to be done all things, necessary, proper or advisable
under applicable Laws to consummate and make effective the transactions
contemplated by this Agreement as expeditiously as practicable.
7.6. Registration Rights Agreement.
(a) Buyer agrees that, to the extent that the VDC shares may not
be transferred by Seller pursuant to the provisions of Section 1145 of the
Bankruptcy Code, within forty-five (45) days after the Closing Date, it shall,
at its sole expense, use its best efforts to file with the SEC a registration
statement (the "Registration Statement") which shall register (i) the
distribution of the VDC Shares to the stockholders of Seller and (ii) the
distribution of the VDC Shares delivered to third parties by the Seller in
satisfaction of claims against Seller and its bankruptcy estate. Resale of the
VDC Shares shall be subject to the following limitations:
(i) 25% of the VDC Shares may be sold upon the date of
declaration of the effectiveness of the Registration Statement;
(ii) 25% of the VDC Shares may be sold upon the six month
anniversary of the date of declaration of effectiveness of the Registration
Statement; and
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(iii) the remaining 50% of the VDC Shares may be sold upon the
one year anniversary of the date of declaration of effectiveness of the
Registration Statement.
(b) Notwithstanding the rights granted hereunder, Buyer shall have
no obligation whatsoever to:
(i) assist or cooperate in the offering or disposition of the
VDC Shares;
(ii) indemnify or hold harmless the holders of the VDC Shares
or any underwriter designated by such security holders;
(iii) obtain a commitment from an underwriter relative to the
sale of the VDC Shares; or
(iv) include the VDC Shares within an underwritten offering of
Buyer.
7.7. Loans. Buyer agrees to make advances, in its sole discretion, to
the Seller under and in accordance Loan, Security and Pledge Agreement, with
such advances being applied against the Purchase Price pursuant to Section 3.4
hereof.
7.8. Exclusive Dealing. In consideration of Buyer expending
considerable time and expenses in connection with the transactions contemplated
in this Agreement, including those incurred for due diligence inquiries and
legal fees, Seller hereby covenants and agrees that until the later of (i) sixty
(60) days after the date on which this Agreement automatically expires pursuant
to Section 11.5 and (ii) the date on which this Agreement is terminated pursuant
to Sections 11.1, 11.2 or 11.3, Seller will not, directly or indirectly, through
any representative or otherwise, solicit or entertain offers from, negotiate
with or in any manner encourage, discuss, accept or consider any proposal of any
other person relating to the acquisition of the Assets, in whole or in part,
whether directly or indirectly, through purchase, merger, consolidation or
otherwise, except as otherwise may be required by law or order of the Court.
7.9. Good Faith. Seller and Buyer have each acted and negotiated this
Agreement in good faith. This Agreement represents an arms-length agreement
among the parties, absent collusion, coercion or duress. The Purchase Price to
be paid by the Buyer for the Assets in accordance herewith, represents the fair
and reasonably equivalent value of and for the Assets. Further, the Order
approving this Agreement shall provide that the reversal or modification or
appeal thereof will not affect the validity of the Closing of the sale of the
Assets to Buyer under and in accordance with such Order by virtue of specific
findings that the Buyer purchased the Assets in good faith, unless such Order is
stayed prior to the Closing.
7.10. Bidding Procedures. Seller covenants and agrees that it will seek
expedited consideration by the Court of the approval of this Agreement, together
with approval of bidding procedures acceptable to Buyer and approval of the
Break-Up Fee provided for in section 11.4 below. In the event that the Court
makes the sale of the Assets to Buyer subject to the submission
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of higher and better offers, the following procedure, among others agreed to by
Buyer, will govern the submission of any Competing Bid as follows:
(a) The Competing Bid shall provide for consideration that exceeds
the Purchase Price offered by Buyer by at least $1,100,000 (taking into effect
that portion of the Purchase Price resulting from the forgiveness of the
Indebtedness), and if the successful highest bidder is not Buyer, deliver to
Seller at the hearing scheduled for the approval of this Agreement a
nonrefundable deposit payable in cash or by certified or cashier's check in an
amount equal to 10% of successful highest Competing Bid;
(b) The amount of the Competing Bid for purposes of paragraph (a)
above shall not be on terms which are more burdensome or conditional in any
material respect than the terms hereof;
(c) The form of the Competing Bid must be in the form of a final
written contract signed by the competing bidder which, when and if approved by
the Court, can be immediately countersigned by the Seller and shall form a
binding agreement between the parties thereto;
(d) The Competing Bid shall not be contingent upon receipt of
financing necessary to its consummation; and
(e) The Competing Bid shall not be conditioned on the outcome of
unperformed due diligence by the competing bidder with respect to the business
or the Seller's Assets; and the competing bidder shall be obligated to close
prior to July 1, 1998.
(f) If any Competing Bid does not conform to paragraphs (a)
through (e) above, such bid will not be considered by the Court or be admissible
at such hearing.
7.11. Cooperation. Seller and Buyer agree that they will cooperate in
good faith with respect to all proceedings before the Court in the case in
connection with the approval and consummation of this Agreement and the
transactions contemplated hereby.
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ARTICLE 8
CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
All obligations of Buyer under this Agreement are subject to
the satisfaction by Seller at or before the Closing of all of the following
conditions, except to the extent expressly waived in writing by Buyer:
8.1. Representations and Warranties True at Closing. The
representations and warranties of Seller contained in this Agreement shall have
been true and correct in all material respects when made and shall be true and
correct in all material respects on the Closing Date as though such
representations and warranties were made again on the Closing Date.
8.2. Performance. Seller shall have performed and complied in all
material respects with all agreements and conditions required by this Agreement
to be performed or complied with by Seller prior to or at the Closing,
including, without limitation, the delivery to Buyer of the documents listed in
Section 6.2.
8.3. No Adverse Changes. Except as contemplated by this Agreement,
there shall have been no material adverse change in the condition, prospects,
business or operations, financial or otherwise, of Seller from the date of this
Agreement to the Closing Date.
8.4. Litigation. On the Closing Date, there shall not be any pending or
threatened litigation in any court or any proceedings by or before any
Governmental Authority with a view to seek, or in which it is sought, to
restrain or prohibit the consummation of the transactions contemplated by this
Agreement or in which it is sought to obtain divestiture, rescission or damages
in connection with the transactions contemplated by this Agreement and no
investigation by any Governmental Authority shall be pending which might result
in any such litigation or other proceeding.
8.5. Necessary Consents. All statutory requirements for the valid
consummation by Buyer of the transactions contemplated by this Agreement shall
have been fulfilled and all authorizations, consents, waivers, approvals or
other actions by any Governmental Authority or third party which are required
for the consummation of the transactions contemplated by this Agreement shall
have been received and shall be in full force and effect.
8.6. Stockholder Approval. To the extent required by the laws of
Bermuda, the stockholders of Buyer shall have approved the transactions
contemplated by this Agreement.
8.7. Certificate. Seller shall have delivered to Buyer a certificate,
dated as of the Closing Date, of the Seller to the effect that the conditions
set forth in Sections 8.1, 8.2, 8.3, 8.4 and 8.8 have been satisfied.
8.8. Consents. Seller shall have provided written consents to the
acquisition of the Assets by Buyer from all appropriate Governmental Authorities
(to the extent so required by law) in form and substance reasonably acceptable
to Buyer.
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8.9. Due Diligence. Buyer shall have completed, to its satisfaction, a
due diligence review of the financial condition, results of operations,
properties, assets, liabilities, business and prospects of Seller.
8.10. Evidence of Satisfaction of Indebtedness. Seller shall have
provided validly executed releases, waivers and/or settlement agreements,
satisfactory in form and substance to Buyer, evidencing agreements for the
satisfaction of substantially all indebtedness of, and claims against, Seller.
8.11. Court Approval. The Court shall have entered an Order in form and
substance satisfactory to Buyer, approving this Agreement, authorizing the
transactions contemplated hereby, replacing the Liens on the Assets by granting
to the holders thereof Liens in and on the Purchase Price and authorizing the
sale of the Assets free and clear of all Liens, which Order shall not be subject
to a pending appeal, or motion for reconsideration, modification, vacation or
stay, and as to which the time to file such appeal or motion has expired, or any
such appeal or motion that may have been filed has been dismissed with prejudice
or otherwise disposed of without impacting negatively the Order contemplated
hereby. Further, such Order shall recognize Buyer's rights with respect to the
Indebtedness under Bankruptcy Code ss.363(k), shall declare the parties' good
faith in all respects under and in accordance with Bankruptcy Code ss.363(m),
and shall give full effect to the Break-Up Fee, bidding and exclusive dealing
provisions hereof.
ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
All obligations of Seller under this Agreement are subject to
the satisfaction by Buyer at or before the Closing of all of the following
conditions, except to the extent expressly waived in writing by Seller:
9.1. Representations and Warranties True at Closing. The
representations and warranties of Buyer contained in this Agreement shall have
been true and correct in all material respects when made and shall be true and
correct in all material respects on the Closing Date as though such
representations and warranties were made again on the Closing Date; provided,
however, that if Buyer changes its jurisdiction of incorporation from the
Commonwealth of Bermuda to the State of Delaware on or before the Closing Date,
Buyer shall be deemed to represent in Section 5.1 that it is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware.
9.2. Performance. Buyer shall have performed and complied, in all
material respects, with all agreements and conditions required by this Agreement
to be performed or complied with by Buyer prior to or at the Closing.
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9.3. No Adverse Changes. Except as contemplated by this Agreement,
there shall have been no material adverse change in the condition, business or
operations, financial or otherwise, of Buyer from the date of this Agreement to
the Closing Date.
9.4. Necessary Consents. All statutory requirements for the valid
consummation by Seller of the transactions contemplated by this Agreement shall
have been fulfilled and all authorizations, consents, waivers, approvals or
other actions by any Governmental Authority or third party which are required
for the consummation of the transactions contemplated by this Agreement shall
have been received and shall be in full force and effect.
9.5. Certificate. Buyer shall have delivered to Seller a certificate,
dated as of the Closing Date, to the effect that the conditions set forth in
Sections 9.1, 9.2 and 9.3 have been satisfied.
9.6. Court Approval. The Court shall have entered an Order in form and
substance satisfactory to Seller, approving this Agreement, authorizing the
transactions contemplated hereby, replacing the Liens on the Assets by granting
to the holders thereof Liens in and on the Purchase Price and authorizing the
sale of the Assets free and clear of all Liens
9.7. Indebtedness. Seller shall be obligated to perform hereunder and
Close the transactions contemplated hereby notwithstanding the occurrence of an
Event of Default under the documents evidencing the Indebtedness or Buyer's
exercise of any rights or remedies thereunder, including, without limitation,
Seller shall continue to seek approval of this Agreement with respect to the MAC
Shares following Buyer's exercise of its right to retain possession of the MAC
Warrants in satisfaction of the Indebtedness and the Purchase Price shall be
adjusted by reducing the Purchase Price by the Indebtedness and Cash Funds,
resulting in the VDC Shares and Deferred Purchase Price being exchanged for the
Assets.
ARTICLE 10
INDEMNIFICATION AND RELATED MATTERS
10.1. Survival of Representations and Warranties. The representations
and warranties contained in this Agreement, the schedules and exhibits hereto,
and any agreement, document, instrument or certificate delivered hereunder,
including the Related Documents, shall survive the Closing Date. This Article 10
constitutes the sole and exclusive remedy of Buyer and Seller with respect to
any subject matter addressed herein, and Buyer and Seller hereby waive and
release the other from any and all claims and other causes of action, including
without limitation claims for contribution, relating to any such subject matter.
10.2. Indemnification by Seller.
(a) Seller agrees to indemnify Buyer against and hold it harmless
from:
(i) all liability, loss, damage or deficiency resulting from
or arising out of any inaccuracy in or breach of any representation or warranty
by Seller in
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this Agreement, in any Related Document to which Seller was a signatory or in
any other agreement or document delivered by or on behalf of Seller in
connection with the transactions contemplated by this Agreement;
(ii) all liability of Seller not expressly assumed by Buyer;
(iii) all liability, loss, damage or deficiency resulting from
or arising out of any breach or nonperformance of any covenant or obligation
made or incurred by Seller in this Agreement, in any Related Document to which
Seller was a signatory or in any other agreement or document delivered by or on
behalf of Seller in connection with the transactions contemplated by this
Agreement; and
(iv) any and all reasonable costs and expenses (including
reasonable legal and accounting fees) related to any of the foregoing. In the
event that Buyer makes a Claim which is determined by a court of competent
jurisdiction to be without reasonable basis in law or fact, Buyer shall bear all
reasonable costs and expenses (including court costs and reasonable legal and
accounting fees), incurred by Seller in investigating and defending against such
Claim,
which indemnification obligation of Seller shall be secured by the Deferred
Purchase Price and the VDC Shares that remain unissued and Buyer shall have the
right of offset with respect thereto.
10.3. Indemnification by Buyer. Buyer shall indemnify Seller against
and hold it harmless from:
(a) all liability, loss, damage or deficiency resulting from or
arising out of any inaccuracy in or breach of any representation or warranty by
Buyer in this Agreement in any Related Document or in any other agreement or
document delivered by or on behalf of Buyer in connection with the transactions
contemplated by this Agreement;
(b) all liability, loss, damage or deficiency resulting from or
arising out of any breach or nonperformance of any covenant or obligation made
or incurred by Buyer in this Agreement, in any Related Document, or in any other
agreement or document delivered by or on behalf of Buyer in connection with the
transactions contemplated by this Agreement; and
(c) any and all reasonable costs and expenses (including
reasonable legal and accounting fees) related to any of the foregoing. In the
event that Seller makes a Claim which is determined by a court of competent
jurisdiction to be without reasonable basis in law or fact, Seller shall bear
all reasonable costs and expenses (including court costs and reasonable legal
and accounting fees), incurred by Buyer in investigating and defending against
such Claim.
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10.4. Third Party Claims. If any action, suit, investigation or
proceeding (including without limitation negotiations with federal, state, local
or foreign tax authorities) shall be threatened or commenced by a third party in
respect of which a party (an "Indemnified Party") may make a Claim hereunder,
the Indemnified Party shall notify the party obligated to indemnify such party
hereunder (the "Indemnifying Party") to that effect with reasonable promptness
(so as to not prejudice such party's rights) after the commencement or
threatened commencement of such action, suit, investigation or proceeding, and
the Indemnifying Party shall have the opportunity to defend against such action,
suit, investigation or proceeding (or, if the action, suit, investigation or
proceeding involves to a significant extent matters beyond the scope of the
indemnity agreement contained herein, those claims that are covered hereby)
subject to the limitations set forth below. If the Indemnifying Party elects to
defend against any action, suit, investigation or proceeding (or, as described
in the preceding parenthetical, one or more claims relating thereto), the
Indemnifying Party shall notify the Indemnified Party to that effect with
reasonable promptness. In such case, the Indemnified Party shall have the right
to employ its own counsel and participate in the defense of such matter, but the
fees and expenses of counsel shall be at the expense of the Indemnified Party
unless the employment of such counsel at the expense of the Indemnifying Party
shall have been authorized in writing by the Indemnifying Party. Any party
granted the right to direct the defense of a threatened or actual suit,
investigation or proceeding hereunder shall: (i) keep the other fully informed
of material developments in the action, suit, investigation or proceeding at all
stages thereof; (ii) promptly submit to the other copies of all pleadings,
responsive pleadings, motions and other similar legal documents and papers
received in connection with the action, suit, investigation or proceeding; (iii)
permit the other and its counsel, to the extent practicable, to confer on the
conduct of the defense of the action, suit, investigation or proceeding; and
(iv) to the extent practicable, permit the other and its counsel an opportunity
to review all legal papers to be submitted prior to their submission. The
parties shall make available to each other and each other's counsel and
accountants all of its or their books and records relating to the action, suit,
investigation or proceeding, and each party shall render to the other such
assistance as may be reasonably required in order to insure the proper and
adequate defense of the action, suit, investigation or proceeding. The parties
shall use their respective good faith efforts to avoid the waiver of any
privilege of either party. The assumption of the defense of any matter by an
Indemnifying Party shall not constitute an admission of responsibility to
indemnify or in any manner impair or restrict such party's rights to later seek
to be reimbursed its costs and expenses if indemnification under this Agreement
with respect to such matter was not required. An Indemnifying Party may elect to
assume the defense of a matter at any time during the pendency of such matter,
even if initially such party did not elect to assume such defense, so long as
such assumption at such later time would not prejudice the rights of the
Indemnified Party. No settlement of a matter by the Indemnified Party shall be
binding on an Indemnifying Party for purposes of such party's indemnification
obligations hereunder.
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ARTICLE 11
TERMINATION
11.1. Termination by Mutual Consent. At any time on or prior to
the Closing Date, this Agreement may be terminated by the mutual written consent
of Seller and Buyer without liability on the part of Seller or Buyer.
11.2. Termination Upon Breach or Default. If Seller or Buyer shall
materially default in the observance or in the due and timely performance of any
of the covenants contained in this Agreement, or if there shall have been a
material breach by either of the parties of any of the representations or
warranties set forth in this Agreement, the other party may, upon written notice
and a reasonably opportunity to cure, terminate this Agreement, without
prejudice to its rights and remedies available at law, including the right to
recover expenses, costs and other damages.
11.3. Termination Based Upon Failure of Conditions. If any of the
conditions of this Agreement to be complied with or performed by a party on or
before the Closing Date, shall not have been complied with or performed in all
material respects by such date and such noncompliance or nonperformance shall
not have been waived in writing by the other party, the party to whom the
benefit of such condition runs may, upon written notice, terminate this
Agreement, without prejudice to its or their rights and remedies available under
law, including the right to recover expenses, costs and other damages.
11.4. Break-Up Fees. Notwithstanding anything to the contrary
contained within this Agreement, in the event Seller is unable to, or elects not
to complete the transactions contemplated by this Agreement for any reason,
except: (i) a breach by Buyer of any of its representations, warranties and
covenants contained herein or (ii) a material adverse development in the
business or operations of Buyer between the date of this Agreement and the
Closing Date, then; and in that event, Seller shall pay Buyer a break-up fee
equal to One Million Dollars ($1,000,000) ("Break-Up Fee") in order to reimburse
Buyer for its time and expenses incurred in connection with the transactions
contemplated in this Agreement, as well as for any lost opportunity costs and
direct and indirect consequential damages. Payment of the Break-Up Fee shall be
made by wire transfer of immediately available funds to an account designated by
Buyer not later than five (5) days after receipt by Seller of a written demand
for the Break-Up Fee by Buyer, but in no case later than Seller's receipt of
proceeds from the sale or other disposition of the Assets, directly or
indirectly. Seller acknowledges that any payment of the Break-Up Fee will be
treated as one for liquidated damages and not a penalty, such being agreed
between Buyer and Seller to be a necessary condition to this Agreement to
compensate Buyer for expenses and expenditures incurred and made in connection
herewith and otherwise for Seller's non-compliance with this Agreement.
11.5. Final Expiration. This Agreement shall automatically expire
if the Closing does not occur on or before April 30, 1998, or, upon such later
date as VDC in its sole discretion may determine; provided, however, that such
later date shall not be later than July 1, 1998.
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ARTICLE 12
GENERAL
12.1. Entire Agreement. This Agreement, and the exhibits and
schedules hereto (including the Disclosure Schedule), and the agreements
specifically referred to herein, including the documents evidencing the
Indebtedness, set forth the entire agreement and understanding of Seller and
Buyer in respect of the transactions contemplated hereby and, except with
respect to the provisions of Section 13 of the Letter of Intent and the no shop
provisions set forth in Section 8 of the Letter of Intent, supersede all prior
agreements, arrangements and understandings relating to the subject matter
hereof. No representation, promise, inducement or statement of intention has
been made by Seller or Buyer that is not embodied in this Agreement or in the
documents specifically referred to herein and neither Seller nor Buyer shall not
be bound by or liable for any alleged representation, promise, inducement or
statement of intention not so set forth.
12.2. Binding Effect; Benefits; Assignment. Upon the entry of an
Order by the Court approving this Agreement, all of the terms of this Agreement
shall be binding upon, inure to the benefit of and be enforceable by and against
Seller and its successors and authorized assigns, and Buyer and its successors
and authorized assigns. Nothing in this Agreement, express or implied, is
intended to confer upon any other person any rights or remedies under or by
reason of this Agreement except as expressly indicated herein. Neither Seller
nor Buyer shall assign any of their respective rights or obligations under this
Agreement to any other person, firm or corporation without the prior written
consent of the other party, except that Buyer may assign its rights and
obligations under this Agreement to a direct or indirect wholly-owned subsidiary
of Buyer, although Buyer shall remain fully responsible for all of its
obligations under this Agreement.
12.3. Construction. The headings of the sections and paragraphs of
this Agreement have been inserted for convenience of reference only and shall in
no way restrict or otherwise modify any of the terms or provisions hereof. The
language used in this Agreement shall be deemed to be the language chosen by the
parties to this Agreement to express their mutual intent, and no rule of strict
construction shall be applied against any party.
12.4. Amendment and Waiver. This Agreement may be amended,
modified, superseded or canceled and any of the terms, covenants,
representations, warranties or conditions hereof may be waived only by a written
instrument executed by Seller and Buyer or, in the case of a waiver, by or on
behalf of the party waiving compliance.
12.5. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware as applicable to
contracts made and to be performed in Delaware, without regard to conflict of
laws principles.
12.6. Public Disclosure. Except as required by Law, or in
connection with the solicitation of new investment advisory agreements with
Seller's clients, neither Buyer nor Seller shall make any public disclosure of
the existence or terms of this Agreement or the transactions
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<PAGE>
contemplated hereby without the prior written consent of the other party, which
consent shall not be unreasonably withheld. In the event that Seller or Buyer
determines that the disclosure of the existence or terms of this Agreement is
required by Law, such party shall so notify the other parties and shall provide
to the other party a copy of any such public disclosure prior to releasing the
same.
12.7. Notices. All notices, requests, demands and other
communications to be given pursuant to the terms of this Agreement shall be in
writing and shall be deemed to have been duly given if hand delivered, sent by
overnight mail by a nationally recognized overnight delivery service or mailed
first class, postage prepaid:
(a) If to Seller:
Michael Richard, President
PortaCom Wireless, Inc.
10061 Talbert Avenue, Suite 200
Fountain Valley, CA 92708
Telephone: (714) 593-3234
Telecopier: (714) 593-3264
with a copy to:
Francis A. Monaco, Jr., Esquire
Walsh and Monzack, P.A.
1201 Orange Street, Suite 400
Wilmington, DE 19899
Telephone: (302) 656-8162
Telecopier: (302) 656-2769
and
Jeffrey Kurtzman, Esquire
Klehr, Harrison, Harvey, Branzburg & Ellers
1401 Walnut Street
Philadelphia, PA 19102
Telephone: (215) 568-4493
Telecopier: (215) 568-6603
22
<PAGE>
(b) If to Buyer:
Frederick A. Moran, Chief Executive Officer
VDC Corporation Ltd.
27 Doubling Road
Greenwich, CT 06830
Telephone: (203) 661-9600
Telecopier: (203) 869-1430
with a copy to:
Stephen M. Cohen, Esq.
Stuart M. Brown, Esq.
Buchanan Ingersoll Professional Corporation
Eleven Penn Center, 14th Floor
1835 Market Street
Philadelphia, Pennsylvania 19103
Telephone: (215) 665-3873
Telecopier: (215) 665-8760
Either party may change its address by prior written notice to the other party.
12.8. Counterparts. This Agreement may be executed in counterparts,
each of which when so executed shall be deemed to be an original and such
counterparts shall together constitute one and the same instrument.
12.9. Expenses. Each party shall pay their own respective expenses,
costs and fees incurred in connection with the negotiation, preparation,
execution and delivery of this Agreement and each of the Related Documents and
the consummation of the transactions contemplated hereby, including, without
limitation, the fees and expenses of their respective legal counsel, accountants
and financial advisors.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed as of the day and year first above written.
VDC CORPORATION LTD.
By: ________________________________
Frederick A. Moran, Chief Executive Officer
PORTACOM WIRELESS, INC.
By: _________________________________
Michael Richard, President
23
<PAGE>
EXHIBIT A
Indebtedness of Seller to be satisfied from proceeds of the Purchase Price
<TABLE>
<CAPTION>
Source of Proceeds
----------------------------------
Cash Funds VDC Shares
Creditor/Claimant Amount (amount) (Number)
----------------- ------ ---------- ----------
<S> <C> <C> <C>
</TABLE>
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re: :
: Case No. 98-661(PJW)
PORTACOM WIRELESS, INC., :
: Chapter 11
Debtor. :
STIPULATION AND ORDER IN LIEU OF OBJECTION
This Amended Stipulation and Order In Lieu of Objection ("Stipulation")
is made as of the 3rd day of April, 1998, by and among PortaCom Wireless, Inc.
("Debtor"), VDC Corporation Ltd. ("Buyer") and the Official Committee of
Unsecured Creditors of PortaCom Wireless, Inc. ("Committee"), by and through
their respective undersigned counsel.
W I T N E S S E T H:
WHEREAS, on March 23, 1998, Debtor filed a voluntary petition for
relief under Chapter 11 of Title 11 of the United States Code ("Code"),
commencing a case in the United States Bankruptcy Court for the District of
Delaware (the "Court"), which is pending at number 98-661 (the "Case"); and
WHEREAS, on March 29, 1998, the Office of the United States Trustee
convened a meeting of the twenty largest unsecured creditors of the Debtor for
the purpose of appointing a committee of creditors; and
WHEREAS, the Office of the United States Trustee appointed three
creditors to the committee, which Committee engaged counsel; and
WHEREAS, prior to the commencement of the Case, the Debtor and Buyer
were parties to an asset purchase agreement and amendments thereto, pertaining
to the Debtor's agreement to
<PAGE>
sell to Buyer its interest in and to 2,000,000 shares of common stock ("MAC
Shares") of Metromedia Asia Corporation ("MAC") and warrants to purchase an
additional 4,000,000 of MAC common stock with a strike price of $4.00 per share
("MAC Warrants"); and
WHEREAS, the Debtor and Buyer negotiated the terms of an asset purchase
agreement to be entered into in the Case and approved by the Court ("Purchase
Agreement") and agreed upon the procedures pursuant to which the Purchase
Agreement would be submitted to the Court for approval; and
WHEREAS, together with the petition commencing the Case, the Debtor
filed the Motion Of Debtor (A) To Establish Bidding Procedures And To Approve A
Break-Up Fee In Connection With The Sale Of The Debtor's Interest In Certain
Property Of The Estate And (B) To Approve The Form And Manner Of Notice
("Motion") with respect to the Purchase Agreement, which is attached to the
Motion as Exhibit A; and
WHEREAS, the Court scheduled a hearing on the Motion on April 3, 1998
at 2:00 p.m. and provided the Committee the opportunity to object to the Motion
at any time at or prior to the scheduled hearing; and
WHEREAS, the Committee expressed its intention to object to various
provisions of the Motion and Notice; and
WHEREAS, the Debtor, Buyer and Committee, have agreed to resolve the
Committee's concerns and objections by modifying the terms of the Purchase
Agreement, as more fully set forth below, in consideration of the Committee's
waiver of its objections to the Motion and approval of the Purchase Agreement at
the hearing to be scheduled to approve the same and confirm the Buyer as the
"Successful Bidder;" and
<PAGE>
NOW, THEREFORE, intending to be legally bound hereby, for and in
consideration of the mutual covenants set forth below, the parties agree as
follows:
1. The recitals set forth above are incorporated herein as though set
forth below at length.
2. The Purchase Agreement is incorporated herein and shall be amended
pursuant to the terms set forth below. Capitalized terms used herein and not
defined herein shall have the meaning ascribed to such term in the Purchase
Agreement.
3. Section 1.1 shall be amended by adding a new definition, as follows:
"Allowed Claims" means the pre-petition unsecured claims, as defined
in Code ss.101(5), or portion thereof, that: (a) are allowed
pursuant to a final, non-appealable Order of the Court, or (b) are
deemed allowed pursuant to Code ss.1111(a), or (c) are the subject
of pre-petition settlement agreement, or post-petition settlements
agreement approved by the Court, that provide for the payment of
cash, in whole or in part, in settlement and satisfaction thereof,
and in such case, the cash portion thereof (collectively, the
"Settlements"). Debtor's counsel believes the Settlements are
enforceable and will vigorously attempt to enforce them in the
Chapter 11, to the extent necessary.
"Cash Purchase Escrow" means that segregated, interest bearing
escrow account established and maintained by the Debtor, funded by
Buyer, in an amount equal to $2.6 million. The Cash Purchase Escrow
may be funded by any combination of cash and stand-by letter of
credit; provided, however, that the cash portion shall be in the
minimum amount of $1,250,000. The holders of priority unsecured
claims and general unsecured claims shall be the beneficiaries of
this fund.
"Disputed Claims" means any pre-petition, unsecured claim that is
not an Allowed Claim, by virtue of its being scheduled by the Debtor
as disputed, contingent or unliquidated, and proof of which has not
been timely filed, or as to which an objection has been interposed
and which is pending as of Closing.
4. Section 3.2 of the Purchase Agreement is hereby amended by deleting
the section in its entirety and replacing it with the following:
3.2 Closing Purchase Price. The Closing Purchase Price (the "Closing
Purchase Price") shall be paid or delivered by Buyer at Closing in
the following manner:
<PAGE>
(a) Subject to adjustment pursuant to Section 3.4 hereof, Buyer
shall deliver the Cash Purchase Escrow (the "Cash Funds") to the
Cash Purchase Escrow escrow agent ("Escrow Agent") for the
benefit of Seller; and
(b) Buyer shall deliver newly issued shares of common stock, par
value $2.00 per share, of Buyer in accordance with the
provisions of Section 3.3 hereof (the "VDC Shares"). The number
of VDC Shares to be delivered shall equal the difference between
(i) 5,300,000 and (ii) the difference between the principal
amount of the Cash Purchase Escrow delivered to Seller at
Closing and the Indebtedness, divided by the value of the VDC
stock valued consistently with paragraph 14 of the Motion. For
example, if the funds of the Cash Purchase Escrow delivered to
Seller at Closing are in the amount of $2,000,000, the
Indebtedness is $366,125 and the value of the VDC Shares is
$6.00, the number of VDC Shares to be delivered is equal to
5,027,688 shares (5,300,000 - ((2,000,000 - 366,125)/6)); and
(c) The Indebtedness shall be satisfied by Seller's delivery, in
its capacity as escrow agent, to Buyer of that portion of the
Cash Purchase Escrow, together with all accrued interest and
other earnings thereon, not delivered to Seller pursuant to
sub-section (a) above.
5. Section 3.4 of the Purchase Agreement is hereby amended by adding to
the end of the paragraph, the following:
Following the Closing, from time to time, Disputed Claims, or a
portion thereof, may become Allowed Claims. To the extent that
any Disputed Claim becomes an Allowed Claim, the Escrow Agent
shall deliver to the Seller for distribution to the holder
thereof the amount of such Allowed Claim; to Buyer 60% of the
disallowed amount of the Disputed Claim; and the Escrow Agent
shall retain the balance.
6. The Cash Purchase Escrow shall be funded the later of April 8, 1998
or forty-eight (48) hours after entry by the Court of an Order approving this
Stipulation and upon the satisfaction of the condition identified in paragraph 7
below.
7. Debtor, or its counsel, shall be appointed escrow agent with respect
to the Cash Purchase Escrow. The Cash Purchase Escrow shall be established and
invested in a money market or federally backed instrument. Interest and all
other earnings on the Cash Purchase
<PAGE>
Escrow shall inure to the benefit of Buyer. The excess Cash Purchase Escrow, or
any portion thereof, shall be returned to Buyer from time to time at such time
as any Disputed Claim becomes an Allowed Claim. The amount returned to Buyer
shall be 60% of the amount which is disallowed. All other terms and conditions
of the escrow shall be set forth in an agreement mutually acceptable to the
Debtor, Buyer and the Committee, which shall be executed as a condition
precedent to the funding of such escrow.
8. Upon approval of the Purchase Agreement by the Court and
confirmation of Buyer as the Successful Bidder and approved purchaser
thereunder, 10% of the Cash Purchase Escrow shall become non-refundable as to
Buyer, except in the event of a default by Seller under the Purchase Agreement.
9. The Debtor In Possession Loan, Security and Pledge Agreement between
the Debtor and Buyer, approved by interim order entered on March 25, 1998 ("DIP
Financing Agreement"), shall be deemed modified by reducing the amount of
advances available thereunder post-petition to $100,000.00.
10. Except as expressly modified hereby, the Purchase Agreement,
Motion, Notice and DIP Financing Agreement shall remain in full force and
effect.
11. The Committee hereby waives any and all objections to the Motion,
Notice and approval of the Purchase Agreement by the Court and confirmation of
Buyer as the Successful Bidder and approved purchaser thereunder.
12. The Debtor shall use its best efforts to review the claims asserted
against the estate and interpose and pursue objects thereto. Any and all
objections to claims shall be filed on or before May 15, 1998.
<PAGE>
13. This Stipulation sets forth the entire agreement of the parties
hereto with respect to the subject matter hereof and may be amended only by a
writing signed by each party hereto and approved by the Court.
14. This Stipulation shall inure to and be binding upon the parties
hereto and their respective successor and assigns upon approval hereof by an
Order of the Court.
15. Counsel signing this Stipulation on behalf of the parties hereto
each represent that they have all the requisite authority to bind their client
hereto.
16. This Stipulation may be executed in counterparts.
<PAGE>
IN WITNESSETH WHEREOF, the parties hereto through their duly authorized
counsel, have signed this Stipulation the day and year first above written.
PORTACOM WIRELESS, INC.
Dated: April 3, 1998 /s/ Jeffrey Kurtzman
By: Jeffrey Kurtzman, Esquire
Special Counsel to PortaCom Wireless, Inc.
VDC CORPORATION, LTD.
Dated: April 3, 1998 /s/ Stuart M. Brown
-------------------
By: Kenneth E. Aaron, Esquire
Stuart M. Brown, Esquire
Counsel to VDC Corporation, Ltd.
OFFICIAL COMMITTEE OF UNSECURED CREDITORS
Dated: April 3, 1998 /s/ Francis Lawall
------------------
By: Francis Lawall, Esquire
J. Gregg Miller, Esquire
Counsel to Official Committee of Unsecured
Creditors
APPROVED and so ORDERED, ADJUDGED and DECREED, this 9th day of April,
1998.
/s/ Peter J. Walsh
------------------
Peter J. Walsh,
United States Bankruptcy Judge
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re: :
: Case No. 98-661(PJW)
PORTACOM WIRELESS, INC., :
: Chapter 11
Debtor. :
STIPULATION AND ORDER IN LIEU OF OBJECTION
This Stipulation and Order In Lieu of Objection ("Stipulation") is made
as of the 23rd day of April, 1998, by and among PortaCom Wireless, Inc.
("Debtor"), VDC Corporation Ltd. ("Buyer") and the Official Committee of
Unsecured Creditors of PortaCom Wireless, Inc. ("Committee"), by and through
their respective undersigned counsel.
W I T N E S S E T H:
WHEREAS, on March 23, 1998, Debtor filed a voluntary petition for
relief under Chapter 11 of Title 11 of the United States Code ("Code"),
commencing a case in the United States Bankruptcy Court for the District of
Delaware (the "Court"), which is pending at number 98-661 (the "Case"); and
WHEREAS, on March 29, 1998, the Office of the United States Trustee
convened a meeting of the twenty largest unsecured creditors of the Debtor for
the purpose of appointing a committee of creditors; and
WHEREAS, the Office of the United States Trustee appointed three
creditors to the committee, which Committee engaged counsel; and
WHEREAS, prior to the commencement of the Case, the Debtor and Buyer
were parties to an asset purchase agreement and amendments thereto, pertaining
to the Debtor's agreement
<PAGE>
to sell to Buyer its interest in and to 2,000,000 shares of common stock ("MAC
Shares") of Metromedia Asia Corporation ("MAC") and warrants to purchase an
additional 4,000,000 of MAC common stock with a strike price of $4.00 per share
("MAC Warrants"); and
WHEREAS, the Debtor and Buyer negotiated the terms of an Asset Purchase
Agreement to be entered into in the Case and approved by the Court ("Purchase
Agreement") and agreed upon the procedures pursuant to which the Purchase
Agreement would be submitted to the Court for approval; and
WHEREAS, together with the petition commencing the Case, the Debtor
filed the Motion Of Debtor (A) To Establish Bidding Procedures And To Approve A
Break-Up Fee In Connection With The Sale Of The Debtor's Interest In Certain
Property Of The Estate And (B) To Approve The Form And Manner Of Notice
("Procedures Motion") with respect to the Purchase Agreement, which is attached
hereto as Exhibit A and incorporated herein; and
WHEREAS, the Committee expressed its intention to object to various
provisions of the Procedures Motion and Notice, however, in lieu thereof, the
Debtor, Buyer and Committee entered into that certain Stipulation and Order in
Lieu of Objection ("Procedures Stipulation"), which is attached hereto as
Exhibit B and incorporated herein; and
WHEREAS, pursuant to the terms of the Procedures Stipulation that
parties entered into an Escrow Agreement, among other things, to provide
assurance to unsecured creditors that their allowed claims would be paid in full
as a result of the consummation of the sale of the MAC Shares and MAC Warrants
to Buyer ("Escrow Agreement"). A copy of the Escrow Agreement is attached hereto
as Exhibit C and incorporated herein; and
2
<PAGE>
WHEREAS, on the petition date the Debtor fled the Motion of PortaCom
Wireless, Inc. to Obtain Post-Petition Financing Pursuant to 11 U.S.C. ss.364(c)
("DIP Motion") and after conducting a preliminary hearing in accordance with
Fed.R.Bankr.P. 4001(c)(2), the Court entered a Preliminary Order thereon and
scheduled a final hearing thereon for April 23, 1998; and
WHEREAS, the Committee filed objections to the entry of the final order
on the DIP Motion; and
WHEREAS, the Debtor, Buyer and Committee, have agreed to resolve the
Committee's concerns and objections by further modifying the terms of the
Purchase Agreement, as amended by the Procedures Stipulation and Escrow
Agreement, as more fully set forth below, in consideration of the Committee's
waiver of its objections to the Procedures Motion and DIP Motion and the
approval of the Amended Purchase Agreement, as defined below, at the hearing
scheduled for April 23, 1998 to approve the same and confirm the Buyer as the
"Successful Bidder;" and
NOW, THEREFORE, intending to be legally bound hereby, for and in
consideration of the mutual covenants set forth below, the parties agree as
follows:
1. The recitals set forth above are incorporated herein as though set
forth below at length.
2. The Purchase Agreement, as amended by the Procedures Stipulation and
Escrow Agreement (as amended, the "Amended Purchase Agreement"), is incorporated
herein and shall be amended pursuant to the terms set forth below. Capitalized
terms used herein and not defined herein shall have the meaning ascribed to such
term in the Amended Purchase Agreement.
3
<PAGE>
3. Section 1.1 shall be amended by deleting the definition for "Cash
Purchase Escrow" and replacing it with the following:
"Cash Purchase Escrow" means that segregated, interest bearing
escrow account established and maintained by the Debtor, funded by
Buyer, in an amount equal to $2,682,000. The Cash Purchase Escrow
may be funded by any combination of cash and stand-by letter of
credit; provided, however, that the cash portion shall be in the
minimum amount of $1,250,000. The holders of administrative claims
to the extent of $82,000, and the holders of priority unsecured
claims and general unsecured claims shall be the beneficiaries of
this fund.
4. Section 3.2(b) of the Amended Purchase Agreement is hereby amended
by deleting the sub-section in its entirety and replacing it with the following:
(b) At Closing, subject to adjustment provided for in Section 3.4
hereof, Buyer shall deliver to the Escrow Agent 5,300,000 newly
issued shares of common stock, par value $2.00 per share, of Buyer
in accordance with the provisions of Section 3.3 hereof (the "VDC
Shares"). The number of VDC Shares to be issued to Debtor in
consideration hereof shall equal the difference between (i)
5,300,000 and (ii) the difference between the principal amount of
the Cash Purchase Escrow delivered to Seller (subject to and in
accordance with the terms of Section 3.4 hereof) and the
Indebtedness (the sum of the Pre-Petition Indebtedness and
Post-Petition Loan), divided by the value of the VDC stock valued
consistently with paragraph 14 of the Procedures Motion. For
example, if the funds of the Cash Purchase Escrow delivered to
Seller are in the amount of $1,400,000, the Indebtedness is $400,000
and the value of the VDC Shares is $6.00, the number of VDC Shares
to be issued to Debtor is equal to 5,133,334 shares (5,300,000 -
((1,400,000 - 400,000)/6)); and
5. Section 3.4 of the Amended Purchase Agreement is hereby amended by
deleting the sub-section in its entirety and replacing it with the following:
3.4 Closing and Post-Closing Adjustments of Cash Purchase Escrow and
VDC Shares.
(a) Forgiveness of the Indebtedness shall constitute initial
payments and deposits against the Closing Purchase Price, and, as
such, shall be applied towards the Closing Purchase Price under this
Agreement upon the Closing Date.
(b) At or before Closing, the Debtor shall deliver to the Escrow
Agent a schedule containing the amounts and names of the holders of
all priority unsecured and general unsecured claims which, as of the
Closing Date (as defined in the
4
<PAGE>
Amended Purchase Agreement), are scheduled by the Debtor as fixed
and liquidated, unsecured claims against the Debtor's estate and for
which no proof(s) of claim has been filed or for which proof(s) of
claim have been filed in the scheduled or a lesser amount ("Closing
Date Claims"). At Closing, the Escrow Agent shall deliver to Debtor
from the Escrowed Funds cash in an amount equal to the Closing Date
Claims for distribution to the holders of Closing Date Claims.
(c) Upon the later of (i) Closing or (ii) the entry of a final,
non-appealable Order by the Court approving or ratifying the
settlement agreements entered into by the Debtor prior to the
commencement of the Case ("Pre-Petition Settlements"), or otherwise
authorizing a settlement and compromise upon the terms of, the
Pre-Petition Settlements, including an Order confirming a plan of
reorganization providing for such approval, ratification, or
authorization, the Escrow Agent shall deliver to Debtor or the
disbursing agent under such plan, as the case may be, cash and a
portion of the VDC Shares in an amount equal to that to be
distributed pursuant to the Pre-Petition Settlements. The
consideration payable to the non-Debtor party to any Pre-Petition
Settlement shall be deemed to constitute an Allowed Claim having a
value in the amount of such consideration. In the event Debtor fails
to obtain a final, non-appealable Order approving or ratifying any
of the Pre-Petition Settlements, or otherwise authorizing a
settlement and compromise upon the terms of such Pre-Petition
Settlement, then any resulting claim asserted against the Debtor's
estate shall constitute a Disputed Claim and be treated in
accordance with paragraph 3.4(e) below.
(d) Within seven (7) days after May 15, 1998 (the "Bar Date"),
Debtor shall deliver to the Escrow Agent, Buyer and the Committee a
schedule containing the amounts and names of holders of all claims,
other than the Closing Date Claims, as to which, as of the Bar Date,
proof(s) of claim have been filed in the scheduled or a lesser
amount than that which was scheduled by the Debtor (collectively,
the "Bar Date Claims"). The Bar Date Claims shall be deemed to
constitute Allowed Claims. Within five (5) days after delivery by
the Debtor of such schedule, the Escrow Agent shall deliver to
Debtor from the Escrowed Funds cash in an amount equal to the Bar
Date Claims for distribution to the holders of Bar Date Claims.
(e) All claims against the Debtor's estate other than the Closing
Date Claims, the Pre-Petition Settlements and the Bar Date Claims
constitute "Disputed Claims." From time to time, and to the extent
that any Disputed Claim becomes an Allowed Claim pursuant to a
final, non-appealable Order of the Court ("Other Allowed Claim(s)"),
the Escrow Agent shall deliver to Debtor or the disbursing agent
under a plan of reorganization confirmed in the Debtor's case, as
the case may be, for distribution to the holder(s) thereof, cash
and/or a portion of the VDC Shares having an aggregate value equal
to the aggregate amount of such Other Allowed Claim; and shall
disburse to Buyer the 60% Credit (as defined below) on account of
each such Other Allowed Claim.
5
<PAGE>
(f) 60% Credit. The "60% Credit" shall equal 60% of the disallowed
portion of any Disputed Claim and constitute a reduction, from time
to time and prior to the final disbursement provided for in section
3.4(g) below, in Buyer's liability under the Letter of Credit and/or
a payment in cash to Buyer, whichever Buyer may from time to time
elect in writing. In the event Buyer has elected to receive a
reduction in its liability under the Letter of Credit, the Escrow
Agent shall as is necessary to implement paragraph 3.4(g) hereof,
send written notice of the 60% Credit(s) to the financial
institution issuing the Letter of Credit.
(g) Following the entry of an order confirming a plan of
reorganization in the Case that provides for the consummation of the
Amended Purchase Agreement and sale to Buyer, then the Escrow Agent
may disburse not more than one million VDC Shares of the first
allocation of VDC Shares that may be alienated by Debtor pursuant to
Section 7.6 of the Amended Purchase Agreement to Debtor, which VDC
Shares may be liquidated by Debtor, and the proceeds thereof
available to pay administrative expenses or otherwise distributed to
creditors (such VDC Shares shall be referred to as the
"Administrative Shares").
(h) After payment of all Closing Date Claims, Pre-Petition
Settlements, Bar Date Claims, and Other Allowed Claims, the Escrow
Agent shall make a final distribution of the Cash Purchase Escrow
and VDC Shares:
(i) To the Buyer: (A) of cash in an amount equal to the sum of
the disallowed amount of Disputed Claims not previously disbursed as
part of the 60% Credit, plus the Cash Portion funded in the Escrow
Account in excess of the cash required to pay the Closing Date
Claims, Bar Date Claims, cash paid under Pre-Petition Settlements,
and cash paid to holders of Other Allowed Claims, plus all interest
and other earnings on the Escrowed Funds, and (B) of the "Returned
Shares," defined as a portion of the VDC Shares in an amount equal
to the difference between (x) the total amount of the Escrowed Funds
distributed on account of the Closing Date Claims, Bar Date Claims,
Pre-Petition Settlements, Other Allowed Claims and Administrative
Advance, as defined below, and (y) the Indebtedness, plus the fee
incurred by Buyer to obtain the Letter of Credit, divided by the
value of the VDC stock valued consistently with paragraph 14 of the
Procedures Motion; and
(ii) To the Debtor: of all of the VDC Shares remaining after
distribution of the Returned Shares to Buyer and the Administrative
Shares, or portion thereof, to Debtor.
(i) The Escrowed Funds shall comprise in part the amount of
$82,000.00, which amount may be disbursed by the Escrow Agent to the
Debtor from time to time for the payment of administrative claims
("Administrative Advance"). The Administrative Advance may not be
disbursed unless and until an Order is entered by the Bankruptcy
Court approving the Sale Motion and confirming VDC as the Purchaser
6
<PAGE>
thereunder, but may be disbursed prior to Closing under the Amended
Purchase Agreement. Thereafter, the Debtor shall submit advance
requests to the Escrow Agent and Committee (to its counsel) and
funds from the Administrative Advance will be disbursed by the
Escrow Agent to the Debtor in amounts approved by the Committee,
which approval shall not be unreasonably withheld. The Committee
shall be deemed to approve any advance requests as to which it has
not notified the Debtor's counsel and Escrow Agent of an objection
thereto within three (3) business days of its receipt of any such
request.
6. A final order shall be entered approving the Debtor In Possession
Loan, Security and Pledge Agreement between the Debtor and Buyer ("DIP Financing
Agreement"), authorizing Debtor to obtain post-petition financing in the amount
advanced of $18,000.00, and prohibiting VDC from making further advances of
funds or credit thereunder without further order of the Court.
7. The Committee's objections to the DIP Motion and entry of the final
order thereon are hereby withdrawn.
8. Except as expressly modified hereby, the Amended Purchase Agreement,
as amended by the Stipulation and Order in Lieu of Objection dated April 6, 1998
and the Escrow Agreement, Motion, Notice, DIP Financing Agreement and Final
Order on the DIP Financing Agreement shall remain in full force and effect.
9. The Committee hereby waives any and all objections to the Motion,
Notice and approval of the Amended Purchase Agreement by the Court and
confirmation of Buyer as the Successful Bidder and approved purchaser
thereunder.
10. The Debtor shall use its best efforts to review the claims asserted
against the estate and interpose and pursue objects thereto. Any and all
objections to claims shall be filed on or before May 22, 1998.
7
<PAGE>
11. This Stipulation and the approved form of Final Order on the DIP
Motion set forth the entire agreement of the parties hereto with respect to the
subject matter hereof and may be amended only by a writing signed by each party
hereto and approved by the Court.
12. This Stipulation shall inure to and be binding upon the parties
hereto and their respective successor and assigns upon approval hereof by an
Order of the Court.
13. Counsel signing this Stipulation on behalf of the parties hereto
each represent that they have all the requisite authority to bind their client
hereto.
14. This Stipulation may be executed in counterparts.
IN WITNESSETH WHEREOF, the parties hereto through their duly authorized
counsel, have signed this Stipulation the day and year first above written.
PORTACOM WIRELESS, INC.
Dated: April 23, 1998 /s/ Jeffrey Kurtzman
--------------------
By: Jeffrey Kurtzman, Esquire
Special Counsel to PortaCom
Wireless, Inc.
VDC CORPORATION, LTD.
Dated: April 23, 1998 /s/ Stuart M. Brown
-------------------
By: Kenneth E. Aaron, Esquire
Stuart M. Brown, Esquire
Counsel to VDC Corporation, Ltd.
8
<PAGE>
OFFICIAL COMMITTEE OF UNSECURED
CREDITORS
Dated: April 23, 1998 /s/ Francis Lawall
------------------
By: Francis Lawall, Esquire
J. Gregg Miller, Esquire
Counsel to Official Committee of
Unsecured Creditors
ESCROW AGENT - KLEHR, HARRISON,
HARVEY, BRANZBURG & ELLERS, LLP
Dated: April 23, 1998 /s/ Jeffrey Kurtzman
--------------------
By: Jeffrey Kurtzman, Partner
APPROVED and so ORDERED, ADJUDGED and DECREED, this 23rd day of April,
1998.
/s/ Peter J. Walsh
------------------
Peter J. Walsh,
United States Bankruptcy Judge
9
Exhibit 10.7
<PAGE>
ESCROW AGREEMENT
This ESCROW AGREEMENT ("Agreement") is made as of the ___ day of April,
1998, by and among VDC Corporation Ltd. ("Buyer"), PortaCom Wireless, Inc.
("Debtor"), the Official Committee of Unsecured Creditors of PortaCom Wireless,
Inc. ("Committee"), and Klehr, Harrison, Harvey, Branzburg & Ellers LLP ("Escrow
Agent").
BACKGROUND
A. On March 23, 1998, Debtor filed a Voluntary Petition for relief under
Chapter 11 of Title 11 of the United States Code ("Code"), commencing a case in
the United States Bankruptcy Court for the District of Delaware (the "Court"),
which is pending at number 98-661 (the "Case").
B. The Office of the United States Trustee thereafter appointed the
Committee.
C. Prior to the commencement of the Case, Debtor and Buyer were parties to
an asset purchase agreement and amendments thereto, pertaining to Debtor's
agreement to sell to Buyer its interest in and to 2,000,000 shares of common
stock ("MAC Shares") of Metromedia Asia Corporation ("MAC") and warrants to
purchase an additional 4,000,000 shares of MAC common stock with a strike price
of $4.00 per share ("MAC Warrants").
D. Debtor and Buyer negotiated the terms of an asset purchase agreement to
be entered into in the Case and approved by the Court ("Purchase Agreement") and
agreed upon the procedures pursuant to which the Purchase Agreement would be
submitted to the Court for approval.
E. Together with the petition commencing the Case, the Debtor filed the
Motion Of Debtor (A) To Establish Bidding Procedures And To Approve A Break-Up
Fee In Connection With The Sale Of The Debtor's Interest In Certain Property Of
The Estate And (B) To Approve The Form And Manner Of Notice ("Procedures
Motion") with respect to the Purchase Agreement, and the Debtor's Motion for
Approval of the Sale of the Debtor's Interest in Property of the Estate Free and
Clear of Liens, Claims and Encumbrances Pursuant to 11 U.S.C. ss.363(b) and (f)
and Federal Rule of Bankruptcy Procedure 6004 ("Sale Motion")
F. The Committee expressed its intention to object to various provisions of
the Procedures Motion and Notice and the Sale Motion, which objections were
resolved through the modification of the terms of the Purchase Agreement as set
forth in the Stipulation and Order in Lieu of Objection, entered by the Court on
or about April 6, 1998 ("Stipulation").
G. The Stipulation provides for the creation and funding of an escrow
account in connection with the Purchase Agreement. This Agreement is delivered
in furtherance of the Stipulation.
<PAGE>
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, intending to be legally bound, the parties hereto do
hereby agree as follows:
1. The foregoing recitals are hereby incorporated in this Agreement as
though set forth at length herein.
2. Appointment of Escrow Agent. Debtor, Buyer and the Committee hereby
appoint Escrow Agent, and Escrow Agent hereby accepts such appointment, as the
escrow agent hereunder. Escrow Agent agrees to comply with the terms and
conditions hereof. The Escrow Agent's appointment hereunder shall terminate as
provided in paragraph 3.
3. Term of Agreement; Termination and Appointment of Successor Agent. This
Agreement shall automatically terminate upon the latest to occur of:
a. The latest to occur of any of the following conditions ("Failure
Conditions"): (i) Buyer is not the Successful Bidder (as defined in the
Procedures Motion and the Sale Motion) at the auction to be held on or
about April 23, 1998, or any time thereafter as the Court may direct; (ii)
the sale of the MAC Shares and MAC Warrants to Buyer is not confirmed by
the Court after the auction takes place; (iii) the sale of the MAC Shares
and MAC Warrants to Buyer does not close within the time contemplated and
required by the Purchase Agreement; or (iv) after approval of the Purchase
Agreement by a final, non-appealable Order of the Court, the occurrence of
any terminating event specified in Article 11 of the Purchase Agreement.
Upon termination of this Agreement as a result of the occurrence of one of
the Failure Conditions, the Escrow Agent shall immediately (x) distribute
all of the Escrowed Funds and any and all accrued interest and earnings
thereon to Buyer and (y) surrender the Letter of Credit (as defined below)
to Buyer and neither Buyer nor the issuer of the Letter of Credit shall
have any further liability under the Letter of Credit, at which time the
Escrow Agent's appointment shall automatically terminate.
b. In the event none of the Failure Conditions shall occur, the Escrow
Agent's appointment shall automatically terminate upon the distribution of
all of the Escrowed Funds and VDC Shares in accordance herewith. Prior to
the automatic termination as provided for in this paragraph 3(b), the
appointment of the Escrow Agent may be terminated upon the written consent
of (i) Buyer and (ii) either (x) Debtor or (y) the Committee, and a
successor escrow agent shall be appointed satisfactory to Buyer, Debtor and
the Committee.
4. Escrowed Funds. The "Escrowed Funds" shall comprise a fund to be created
by Buyer equal to $2.6 million. The Escrowed Funds shall be established with a
minimum amount of cash in the amount of $1.25 million ("Cash Portion"), and the
balance may be funded in cash or through an unconditional and irrevocable
standby letter of credit for the benefit of Debtor ("Letter of Credit"), or such
other structure reasonably acceptable to the Committee. The Escrow Agent
2
<PAGE>
shall hold the Escrowed Funds for the payment of Closing Date Claims, Bar
Date Claims, Pre-Petition Settlements and Other Allowed Claims (each as defined
below).
5. Delivery of Escrowed Funds and VDC Shares to Escrow Agent. The Escrowed
Funds shall be delivered to the Escrow Agent within two (2) business days after
the date upon which this Agreement is fully executed. At Closing (as defined in
the Purchase Agreement), the Buyer shall deliver to the Escrow Agent in
furtherance of Section 4(b) of the Stipulation and subject to adjustment
provided for in paragraph 8 below, 5.3 million newly issued shares of common
stock, par value $2.00 per share, of Buyer (the "VDC Shares").
6. Investment of Escrowed Funds. Escrow Agent shall deposit the Cash
Portion in a money market account(s) in Escrow Agent's name for the benefit of
Seller and Buyer (such account(s) shall be referred to hereinafter as "Escrow
Account"). Escrow Agent shall invest the Cash Portion in a money market or
federally-backed investment in Buyer's discretion. Escrow Agent agrees at all
times to maintain and keep the Cash Portion and any and all interest and
earnings thereon in the Escrow Account and to otherwise invest and disburse the
Escrowed Funds and any and all interest and earnings thereon in accordance
herewith. Escrow Agent shall keep the Escrowed Funds received by it hereunder
and any and all interest and earnings thereon separate and distinct from funds
owned by itself or others. Interest and all other earnings on the Cash Portion
shall accrue and inure solely for the benefit of Buyer and shall not be added to
or become part of the Escrowed Funds.
7. Order of Escrowed Funds Distributed. The Escrow Agent shall first
utilize the entire Cash Portion of the Escrowed Funds to make distributions as
set forth herein prior to drawing upon the Letter of Credit to make such
distributions. The Escrow Agent shall not be responsible for the validity of the
Letter of Credit or the failure of the issuer to honor a draw request.
8. Distribution of the Escrowed Funds and VDC Shares.
a. At or before Closing, the Debtor shall deliver to the Escrow Agent
a schedule containing the amounts and names of the holders of all priority
unsecured and general unsecured claims which, as of the Closing Date (as
defined in the Purchase Agreement), are scheduled by the Debtor as fixed
and liquidated, unsecured claims against the Debtor's estate and for which
no proof(s) of claim has been filed or for which proof(s) of claim have
been filed in the scheduled or a lesser amount ("Closing Date Claims"). At
Closing, the Escrow Agent shall deliver to Debtor from the Escrowed Funds
cash in an amount equal to the Closing Date Claims for distribution to the
holders of Closing Date Claims.
b. Upon the later of (i) Closing or (ii) the entry of a final,
non-appealable Order by the Court approving or ratifying the settlement
agreements entered into by the Debtor prior to the commencement of the Case
("Pre-Petition Settlements"), or otherwise authorizing a settlement and
compromise upon the terms of, the Pre-Petition Settlements, including an
Order confirming a plan of reorganization providing for such approval,
ratification, or authorization, the Escrow Agent shall deliver to Debtor or
the disbursing
3
<PAGE>
agent under such plan, as the case may be, cash and a portion of the VDC
Shares in an amount equal to that to be distributed pursuant to the
Pre-Petition Settlements. In the event Debtor fails to obtain a final,
non-appealable Order approving or ratifying any of the Pre-Petition
Settlements, or otherwise authorizing a settlement and compromise upon the
terms of such Pre-Petition Settlement, then any resulting claim asserted
against the Debtor's estate shall constitute a Disputed Claim and treated
in accordance with paragraph 8(d) below.
c. Within seven (7) days after May 15, 1998 (the "Bar Date"), Debtor
shall deliver to the Escrow Agent, Buyer and the Committee a schedule
containing the amounts and names of holders of all claims, other than the
Closing Date Claims, as to which, as of the Bar Date, proof(s) of claim
have been filed in the scheduled or a lesser amount than that which was
scheduled by the Debtor (collectively, the "Bar Date Claims"). Within five
(5) days after delivery by the Debtor of such schedule, the Escrow Agent
shall deliver to Debtor from the Escrowed Funds cash in an amount equal to
the Bar Date Claims for distribution to the holders of Bar Date Claims.
d. All claims against the Debtor's estate other than the Closing Date
Claims, the Pre-Petition Settlements and the Bar Date Claims constitute
"Disputed Claims." From time to time, and to the extent that any Disputed
Claim becomes an allowed claim pursuant to a final, non-appealable Order of
the Court ("Other Allowed Claims"), the Escrow Agent shall deliver to
Debtor or the disbursing agent under a plan of reorganization confirmed in
the Debtor's case, as the case may be, for distribution to the holder(s)
thereof, cash and/or a portion of the VDC Shares having an aggregate value
equal to the aggregate amount of the Other Allowed Claim; and shall
disburse to Buyer the 60% Credit (as defined below) for each Other Allowed
Claim.
e. After payment of all Closing Date Claims, Pre-Petition Settlements,
Bar Date Claims, and Other Allowed Claims, the Escrow Agent shall make a
final distribution: (a) To the Buyer: (i) of cash in an amount equal to the
sum of the disallowed amount of Disputed Claims not previously disbursed as
part of the 60% Credit, plus the Cash Portion funded in excess of the cash
required to pay the Closing Date Claims, Bar Date Claims, cash paid under
Pre-Petition Settlements, and cash paid to holders of Other Allowed Claims,
plus all interest and other earnings on the Escrowed Funds, and (ii) of the
"Returned Shares," defined as a portion of the VDC Shares in an amount
equal to the difference between (x) the total amount of the Escrowed Funds
distributed on account of the Closing Date Claims, Bar Date Claims,
Pre-Petition Settlements and Other Allowed Claims and (y) the Indebtedness
(as defined in the Purchase Agreement) plus the fee incurred by Buyer to
obtain the Letter of Credit, divided by the value of the VDC stock valued
consistently with paragraph 14 of the Motion; and (b) To the Debtor: of all
of the VDC Shares remaining after distribution of the Returned Shares to
Buyer (equal to 5,300,000 shares less the Returned Shares).
4
<PAGE>
9. 60% Credit. The "60% Credit" shall constitute a reduction in Buyer's
liability under the Letter of Credit and/or a payment in cash to Buyer,
whichever Buyer may from time to time elect in writing, in an amount equal to
60% of the disallowed portion of any Disputed Claim. In the event Buyer has
elected to receive a reduction in its liability under the Letter of Credit, the
Escrow Agent shall as is necessary to implement paragraph 8(e) hereof, send
written notice of the 60% Credit(s) to the financial institution issuing the
Letter of Credit.
10. Consent to Distributions. Notwithstanding any other provision of the
Agreement to the contrary, no distribution of the Escrowed Funds or VDC Shares
shall be made under this Agreement or otherwise, unless the Escrow Agent has the
written consent of Buyer, Debtor and the Committee to any such proposed
distribution, which consent shall not be unreasonably withheld.
11. Fees of Escrow Agent. The Escrow Agent shall not be entitled to any
compensation or reimbursement of expenses on account of its services as Escrow
Agent directly from the Escrowed Funds; however, the Escrow Agent shall be
entitled to be compensated for its services from funds otherwise available for
distribution to the holders of administrative expense claims, subject to Court
approval under Code ss.ss. 330, 331, and/or 503.
12. Duties Ministerial. The duties of Escrow Agent are entirely ministerial
and not discretionary. Escrow Agent may rely upon any order of court, not only
as to its due execution, validity and effectiveness, but also as to the truth
and accuracy of any information contained therein, which the Escrow Agent shall
in good faith believe to be genuine, to have been entered of record.
13. Release of, and Covenant not to Sue, Escrow Agent. In consideration for
the Escrow Agent's agreement to perform its duties under this Agreement, Buyer,
Debtor and Committee, and their respective shareholders, partners, officers,
employees, agents, successors and assigns, jointly and severally, hereby waive
any suit, claim, demand or cause of action of any kind which any of them may
have or may assert against Escrow Agent arising out of or relating to the
execution or performance by Escrow Agent of its duties under this Agreement,
unless such suit, claim or demand or cause of action arises from the gross
negligence or willfulness of Escrow Agent. Buyer, Debtor and Committee, jointly
and severally, hereby irrevocably covenant not to sue or commence or join in any
proceedings, whether legal, equitable or otherwise, against Escrow Agent on
account of any act or omission to act on the part of Escrow Agent, unless such
action or omission was willful or grossly negligent. Further, to induce Escrow
Agent to act hereunder, the parties hereto agree to indemnify, defend and hold
Escrow Agent harmless from any liability incurred by any action taken or
omission by Escrow Agent, except for gross negligence or willful acts,
including, but not limited to its reasonable attorneys' fees and costs in
connection therewith.
14. Conflict Waiver. After consultation with their respective counsel, the
parties hereto waive any actual and/or potential conflict of interest between
the parties hereto and the Escrow Agent, or any future conflicts which may arise
during the course of performance of this Agreement or the administration of the
Case resulting from the Escrow Agent's execution and performance of this
Agreement.
5
<PAGE>
15. Disputes. In the event of any disputes regarding the Escrowed Funds,
including without limitation their distribution, use, or ownership, the Escrow
Agent shall implead the Escrowed Funds to the Court.
16. Notices. All notices, demands, requests and other communications
required or permitted hereunder shall be in writing and shall be deemed to be
delivered (a) when actually transmitted via facsimile, or (b) one day following
deposit with a nationally recognized overnight carrier, addressed to the
addressee as follows:
(a) If to Buyer: Frederick A. Moran, Chief Executive Officer
VDC Corporation, Ltd.
27 Doubling Road
Greenwich, CT 06830
(203) 869-1430 (Fax)
with copies to: Stuart M. Brown, Esquire
Buchanan Ingersoll Professional Corporation
11 Penn Center, 14th Floor
1835 Market Street
Philadelphia, PA 19103
(215) 665-8760 (Fax)
(b) If to Debtor: Michael Richard, President
PortaCom Wireless, Inc.
10061 Talbert Avenue, Suite 200
Fountain Valley, CA 92708
(714) 593-3264 (Fax)
with copies to: Francis A. Monaco, Jr., Esquire
Walsh and Monzack, P.A.
1201 Orange Street, Suite 400
Wilmington, DE 19899
(302) 656-2769 (Fax)
and
Michael C. Forman, Esquire
Klehr, Harrison, Harvey, Branzburg & Ellers LLP
1401 Walnut Street
Philadelphia, PA 19102
(215) 568-6603 (Fax)
6
<PAGE>
(c) If to Committee: Francis J. Lawall, Esquire
Pepper Hamilton LLP
3000 Two Logan Square
Eighteenth and Arch Streets
Philadelphia, PA 19103-2799
215) 981-4750 (Fax)
(d) If to Escrow Agent: Jeffrey Kurtzman, Esquire
Klehr, Harrison, Harvey, Branzburg & Ellers LLP
1401 Walnut Street
Philadelphia, PA 19102
(215) 568-6603 (Fax)
17. Substitution of Letter of Credit. In the event Buyer initially funds
the entire Escrowed Funds in cash, Buyer may thereafter elect to substitute up
to $1.35 million of the Escrowed Funds with an unconditional and irrevocable
standby letter of credit for the benefit of Debtor, which shall be presented
upon terms reasonably acceptable to Debtor and the Committee, and shall deliver
such letter of credit to the Escrow Agent, who shall treat such letter of credit
as if it was the Letter of Credit and had been delivered to the Escrow Agent
initially under the terms of this Agreement. Upon receipt of such letter of
credit, the Escrow Agent shall release to Buyer cash from the Escrowed Funds in
an amount equal to the face value of such letter of credit.
18. Savings Clause. In the event that any provision of this Agreement or
its application to any person or circumstance shall be finally determined by the
court to be invalid or unenforceable to any extent, the remainder of this
Agreement, and the application of such provision to persons or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected thereby, and each provision of this Agreement shall be valid and
enforced to the fullest extent permitted by law.
19. Interpretation. This Agreement shall be interpreted in accordance with
the laws of the Commonwealth of Pennsylvania for contracts made and performed
within the Commonwealth.
20. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto, and their respective successors and assigns,
including any trustee appointed or elected pursuant to Code ss.ss.701 and 702.
The terms and conditions of this Agreement, the rights and the obligations of
the parties and their respective successors and assigns shall survive any and
all breaches and/or defaults under this Agreement and any such other events as
may occur as herein provided.
21. Jurisdiction. The United States Bankruptcy Court for the District of
Delaware, or any other court exercising jurisdiction over the Debtor's estate,
shall have exclusive jurisdiction to enforce the terms and conditions of this
Agreement and enter any and all appropriate injunctions, contempt orders, orders
for specific performance and other relief as may be just and equitable.
7
<PAGE>
22. Captions. The titles and captions used herein are for reference only
and shall not constitute a part of this Agreement or construed as having any
legal effect.
23. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which when
taken together shall constitute one and the same document.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above-written.
VDC CORPORATION, LTD.
By: /s/ Frederick A. Moran
----------------------------------
Frederick A. Moran,
Chairman and Chief Executive
Officer
PORTACOM WIRELESS, INC.
By: /s/ Michael A. Richard
----------------------------------
Michael A. Richard, President
OFFICIAL COMMITTEE OF UNSECURED
CREDITORS
By: /s/ J. Michael Christiansen
----------------------------------
J. Michael Christiansen,
Chairman
ESCROW AGENT -
KLEHR, HARRISON, HARVEY, BRANZBURG
& ELLERS LLP
By: /s/ Jeffrey Kurtzman
----------------------------------
Jeffrey Kurtzman, A Member of
the Firm
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains Summary Financial information extracted from the
Financial Statements for the Nine Months Ended March 31, 1998 and is qualified
in its entirety by reference to such statements.
</LEGEND>
<CURRENCY> Dollar
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 3,784
<SECURITIES> 362
<RECEIVABLES> 4,300
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,039
<PP&E> 21
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,939
<CURRENT-LIABILITIES> 152
<BONDS> 0
0
1
<COMMON> 8,800
<OTHER-SE> (13)
<TOTAL-LIABILITY-AND-EQUITY> 8,939
<SALES> 63
<TOTAL-REVENUES> 69
<CGS> 1,296
<TOTAL-COSTS> 1,296
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,227)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,227)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,227)
<EPS-PRIMARY> (.33)
<EPS-DILUTED> (.33)
</TABLE>
