SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO ________
VDC COMMUNICATIONS, INC.
------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 0-14045 061524454
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(Jurisdiction of Incorporation) (Commission File No.) (IRS Employer
Identification No.)
75 HOLLY HILL LANE
GREENWICH, CONNECTICUT 06830
(Address of principal executive office)
- --------------------------------------------------------------------------------
Registrant's telephone number, including area code: (203) 869-5100
(Former name, if changed since last report)
Check whether the Registrant: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
(1) Yes X No
--------- ---------
(2) Yes X No
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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.
Common Stock, $.0001 par value 18,853,257 as of May 10, 1999
<PAGE>
VDC COMMUNICATIONS, INC.
INDEX
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PART I FINANCIAL INFORMATION PAGE
--------------------- ----
Item 1. Consolidated balance sheets as of June 30, 1998
and March 31, 1999 3
Consolidated statements of operations and
comprehensive loss for the three and nine month
periods ended March 31, 1999 and 1998 4
Consolidated statements of cash flows for the
nine months ended March 31, 1999 and 1998 5
Notes to consolidated financial statements 6-11
Item 2. Management's discussion and analysis of financial
condition and results of operations 12-22
Item 3. Quantitative and qualitative disclosures about
market risk 22
PART II OTHER INFORMATION
-----------------
Item 1. Legal Proceedings 23
Item 2. Changes in Securities and Use of Proceeds 23-25
Item 3. Defaults Upon Senior Securities 25
Item 4. Submission of Matters to a Vote of Security Holders 25
Item 5. Other Information 25
Item 6. Exhibits and Reports on Form 8-K 25-26
2
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PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
VDC COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
March 31, 1999 June 30, 1998
(Unaudited)
-------------- -------------
<S> <C> <C>
Assets
Current:
cash and cash equivalents 241,507 2,212,111
restricted cash 411,713 -
marketable securities 103,630 451,875
accounts receivable 396,991 -
notes receivable - current 1,254,979 2,800,000
----------------------------------
Total current assets 2,408,820 5,463,986
property and equipment, less accumulated depreciation 5,747,236 331,316
notes receivable, less current portion - 1,500,000
investment in MCC 4,340,000 37,790,877
intangible assets less accumulated amortization 756,369 -
investment - at equity 96,092 -
Other assets 324,623 737,505
----------------------------------
==================================
Total assets 13,673,140 45,823,684
==================================
Liabilities and Stockholders' Equity
Current:
accounts payable and accrued expenses 3,516,106 156,185
current portion of capitalized lease obligations 554,996
note payable - officer 500,000 -
----------------------------------
Total current liabilities 4,571,102 156,185
long-term portion of capitalized lease obligations 913,503 -
----------------------------------
Total liabilities 5,484,605 156,185
Stockholders' equity:
convertible preferred stock series B - 60
common stock 1,881 1,545
additional paid-in capital 64,290,814 51,234,105
accumulated deficit (55,285,127) (4,218,035)
treasury stock - at cost (164,175) -
stock subscriptions receivable (344,700) (1,425,951)
accumulated comprehensive income (deficit) (310,158) 75,775
----------------------------------
----------------------------------
Total stockholders' equity 8,188,535 45,667,499
----------------------------------
==================================
Total liabilities and stockholders' equity 13,673,140 45,823,684
==================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
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<TABLE>
<CAPTION>
VDC COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)
---------------------------------------------
three-months ended nine-months ended
March 31, March 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
revenue 696,991 22,512 1,425,952 62,741
direct costs of revenues (exclusive of depreciation) 960,660 10,294 2,159,210 26,546
----------------------------------------------------------------
gross margin (263,669) 12,218 (733,258) 36,195
selling, general and administrative 2,049,169 405,334 3,768,885 463,744
depreciation and amortization 360,453 1,651 704,166 4,953
non-cash compensation - 801,000 16,146,000 801,000
----------------------------------------------------------------
total operating expenses 2,409,622 1,207,985 20,619,051 1,269,697
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operating loss (2,673,291) (1,195,767) (21,352,309) (1,233,502)
other income (expense)
writedown of investment in MCC (19,388,641) - (19,388,641) -
loss on note restructuring - - (1,598,425) -
other income (expense) (11,390) 2,525 (84,000) 6,325
----------------------------------------------------------------
total other income (expense) (19,400,031) 2,525 (21,071,066) 6,325
equity in loss of affiliate (301,449) - (664,717) -
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net loss (22,374,771) (1,193,242) (43,088,092) (1,227,177)
================================================================
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on marketable securities 10,242 25,025 (385,933) 25,025
----------------------------------------------------------------
Comprehensive loss (22,364,529) (1,168,217) (43,474,025) (1,202,152)
================================================================
net loss per common share - basic (1.33) (0.32) (2.45) (0.33)
----------------------------------------------------------------
----------------------------------------------------------------
weighted average number of shares outstanding 16,848,751 3,713,342 17,604,937 3,713,342
----------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
4
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<TABLE>
<CAPTION>
VDC COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
-------------------------------------------------
nine-months ended
March 31,
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
net loss (43,088,092) (1,227,177)
Adjustments to reconcile net loss to net cash
used in operating activities
depreciation and amortization 704,166 4,953
writedown of investment in MCC 19,388,641 -
non-cash compensation expense 16,146,000 801,000
loss on note restructuring 1,598,425 -
equity in losses of affiliate 664,717 -
impairment loss-fixed assets 479,199 -
non-cash severance 391,875 -
Changes in operating assets and liabilities
cash restricted in use (411,713) -
accounts receivable (396,991) -
prepaid expenses and other assets 531,300 (35,230)
accounts payable and accrued expenses 1,427,889 27,201
--------------------------------
Net cash used in operating activities (2,564,584) (429,253)
Cash flows from investing activities:
proceeds from return of escrow in connection
with the investment in MCC 1,012,155 -
payment for purchase of subsidiary (589,169) -
investment in affiliate (760,809) -
proceeds from payment of notes receivable 1,446,596 885,700
purchase of investment securities - (288,600)
advances under loan receivable - (122,000)
capital expenditures (2,628,191) (12,527)
--------------------------------
Net cash flows (used in) provided by investing activities (1,519,418) 462,573
Cash flows from financing activities:
proceeds from issuance of common stock 888,701 3,749,286
collections on stock subscriptions receivable 917,076 -
repayment of note payable (192,379) -
proceeds from issuance of short-term debt 500,000
--------------------------------
--------------------------------
Net cash flows provided by financing activities 2,113,398 3,749,286
--------------------------------
Net increase (decrease) in cash and cash equivalents (1,970,604) 3,782,606
Cash and cash equivalents, beginning of period 2,212,111 1,430
--------------------------------
================================
Cash and cash equivalents, end of period 241,507 3,784,036
================================
</TABLE>
See accompanying notes to consolidated financial statements.
5
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VDC Communications, Inc. and Subsidiaries
Notes to consolidated financial statements
1. Basis of Presentation
The financial statements presented are those of VDC Communications, Inc. (the
"Company") which is the successor to VDC Corporation Ltd. ("VDC") by way of a
domestication merger (the "Domestication Merger") that occurred on November 6,
1998. The Domestication Merger was accounted for as a capital reorganization in
which 11,810,862 issued and outstanding shares of common stock of VDC, $2.00 par
value per share, were exchanged, and 8,487,500 issued and outstanding shares of
preferred stock of the Company, $.0001 par value per share, were converted, on a
one for one basis, into a total of 20,298,362 shares of common stock of the
Company, $.0001 par value per share ("Common Stock").
The Domestication Merger reflects the completion of a series of transactions
that commenced on March 6, 1998 when the Company (then a wholly-owned subsidiary
of VDC) acquired Sky King Communications, Inc. ("Sky King") by merger. This
merger transaction was accounted for as a reverse acquisition whereby Sky King
was the acquirer for accounting purposes. Accordingly, the historical financial
statements presented are those of Sky King before the merger on March 6, 1998
and reflect the consolidated results of Sky King, VDC, and VDC's wholly-owned
subsidiaries after the merger. On November 6, 1998, the Domestication Merger,
whereby VDC merged with and into the Company, was consummated.
The accompanying unaudited consolidated financial statements of the Company have
been prepared in accordance with generally accepted accounting principles for
interim financial information and in accordance with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the
disclosures required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. The results for the three and nine-month periods ended March 31,
1999 are not necessarily indicative of the results that may be expected for the
year ended June 30, 1999. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended June 30, 1998, as filed with the
Securities and Exchange Commission.
2. Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements represent all companies of which the
Company directly or indirectly has majority ownership. Significant intercompany
accounts and transactions have been eliminated. The Company's consolidated
financial statements include the accounts of wholly owned subsidiaries VDC
Telecommunications, Inc. ("VDC Telecommunications"), Masatepe Communications
U.S.A., L.L.C. ("Masatepe"), Voice & Data Communications (Hong Kong) Limited
("VDC Hong Kong") Sky King Communications, Inc. and WorldConnectTelecom.com,
Inc. ("WorldConnectTelecom.com").
6
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(b) Revenue Recognition
The Company records revenues for telecommunications sales at the time of
customer usage. Additionally, the Company records revenues from renting its
network facilities on a monthly basis and from the management of tower sites
that provide transmission and receiver site locations for wireless
communications companies.
(c) Direct costs of revenues (exclusive of depreciation and amortization)
Direct costs of revenue for wholesale long distance services represent direct
charges from vendors that the Company incurs to deliver service to its
customers. These include leasing costs for dedicated phone lines and
rate-per-minute charges from other carriers that terminate traffic on behalf of
the Company. These costs also include salaries and overhead attributable to
operations.
(d) 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.
(e) Loss Per Share of Common Stock
Loss per common share is computed on the weighted average number of shares
outstanding. If dilutive, common equivalent shares (common shares assuming
exercise of options and warrants) utilizing the treasury stock method, as well
as the conversion of convertible preferred stock are considered in presenting
diluted earnings per share. Warrants to purchase 938,546 shares of Company
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.
(f) Goodwill and Amortization
Goodwill is amortized using the straight-line method over its estimated useful
life.
(g) Recent Accounting Pronouncements
In June 1998, the AICPA issued statement of Financial Accounting Standards No.
33 "Accounting for Derivative Instruments and Hedging Activities". The Company
has not yet analyzed the impact of this new standard. The Company will adopt
this standard in July of 1999.
3. Domestication Merger
On November 6, 1998, the Company completed the Domestication Merger with VDC.
The effect of the Domestication Merger was that members of VDC became
stockholders of the Company. The primary reason for the Domestication Merger was
to reorganize VDC, which had been a Bermuda company, as a publicly traded U.S.
7
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corporation domesticated in the State of Delaware. In connection with the
Domestication Merger, 11,810,862 issued and outstanding shares of common stock
of VDC, $2.00 par value per share, were exchanged, and 8,487,500 issued and
outstanding shares of preferred stock of the Company, $.0001 par value per
share, were converted, on a one-for-one basis, into an aggregate 20,298,362
shares of Common Stock of the Company. The Domestication Merger has been
accounted for as a reorganization which has been given retroactive effect in the
financial statements for all periods presented.
4. Metromedia China Corporation Investment
On June 22, 1998 the Company acquired from PortaCom Wireless, Inc. ("PortaCom"),
2 million shares of the common stock of Metromedia China Corporation ("MCC") and
warrants to purchase 4 million shares of common stock of MCC at an exercise
price of $4.00 per share. The consideration given for the investment in MCC
consisted of 5,110,810 common shares at $6.98125, $1,669,839 in cash, the
elimination of a loan receivable of $390,522 and 50,000 investment advisory
shares valued at $6.00 per share.
MCC operates joint ventures in China under the direction of its majority owner,
Metromedia International Group. Currently, legal restrictions in China prohibit
foreign ownership and operations in the telecommunications sector. MCC's
investments in joint ventures have been made through a structure known as
Sino-Sino-Foreign ("SSF") joint venture, a widely used method for foreign
investment in the Chinese telecommunications industry, in which the SSF venturer
is a provider of telephony equipment, financing and technical services to
telecommunications operators and not a direct provider of telephone service. The
joint ventures invest in telephony system construction and development networks
being undertaken by the local partner, China Unicom. The completed systems are
operated by China Unicom. MCC receives payments from China Unicom based on
revenues and profits generated by the systems in return for their providing
financing, technical advice and consulting and other services.
In November 1998, the Company and PortaCom settled a dispute regarding the June
22, 1998 transaction. Pursuant to this settlement, PortaCom agreed to place 2
million VDC shares in escrow for up to eighteen months. These shares will be
released from escrow contingent upon certain performance criteria. The 2 million
escrow shares have been recorded as a reduction in common shares outstanding at
their original issue price of $6.98125 (fair market value as determined at the
date of acquisition) and a corresponding reduction in the investment in MCC.
In March 1999, the Company recorded a $19,388,641 writedown of the investment in
MCC. VDC had previously assessed the investment in MCC for impairment by
applying a valuation technique commonly used in the telecommunications industry
to assess market potential. Although the Company believes this method is an
appropriate method for assessing the potential of the investment, it is not
definitive enough to assess the investment's current market value given the
recent developments in China. There has been uncertainty regarding possible
significant changes in the regulation of and policy concerning foreign
participation in and financing of the telecommunications industry in China,
including the continued viability of the SSF structure and associated service
and consulting arrangements with China Unicom. Additionally, the Company has
8
<PAGE>
been unable to obtain the MCC financial information necessary to assess the
investment for impairment. Financial information such as historical stand-alone
financial statements and financial projections have not been available for the
Company's review. VDC has therefore adjusted the carrying value of the
investment to an amount relative to Metromedia International Group's (majority
owner) carrying amount.
5. Non-cash Compensation
The merger between VDC, the Company and Sky King on March 6, 1998 was accounted
for as a reverse acquisition whereby Sky King was the acquirer for accounting
purposes. Since the assets and liabilities of VDC Corporation Ltd. acquired were
monetary in nature, the merger was recorded at the value of the net monetary
assets.
The consideration paid to the former Sky King shareholders in the merger
consisted of the issuance of 10 million newly-issued shares of preferred stock
of the Company which were convertible, and have been converted, in the
aggregate, into 10 million shares of Common Stock of the Company. Of this
consideration, preferred stock convertible in the aggregate into 4.5 million
shares of Common Stock of the Company (the "Escrow Shares") was placed in escrow
to be held and released from time to time as the Company achieved certain
performance criteria. As of March 31, 1999, all of the performance criteria had
been met. Accordingly, 4.5 million shares have been released from escrow.
During the nine-months ended March 31, 1999, 3.9 million shares were released
from escrow. Of the shares released, approximately 2.7 million shares were
considered compensatory to the extent of the trading value of the shares on the
date of the release. This resulted in a non-cash compensation charge of
$16,146,000 for the nine-months ended March 31, 1999. Compensatory shares are
related to former Sky King shareholders who are members of the Company's
management, their family trusts and minor children and an employee.
Non-compensatory shares released related to non-employee shareholders and
non-minor children of employee shareholders where beneficial ownership does not
exist. The non-compensatory shares have been accounted for as a stock dividend
in which the issued stock is recorded at fair value on the date of release
through a charge to accumulated deficit.
6. Shares Surrendered
In November 1998, an executive officer and member of the Company's Board of
Directors ("Officer") resigned. In connection with the resignation, the Officer
surrendered 1,875,000 common shares in exchange for the elimination of a
subscription receivable for $164,175. The transaction has been accounted for as
the purchase of 1,875,000 shares of treasury stock using the cost method. The
subscription receivable represented the Officer's basis in his 27.5% ownership
in Sky King.
7. Investment in Masatepe Communications, S.A.
Masatepe owns a 49% interest in Masatepe Comunicaciones, S.A. ("Masacom"), a
Nicaraguan company. Masacom supports the development of Masatepe's operations in
Central America. Masatepe accounts for the investment using the equity method
9
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considering 100% of Masacom's losses, since the recovery of 51% of the losses is
not reasonably assured. The following is Masacom's summary of financial position
at March 31, 1999 and results of operations from inception through March 31,
1999:
Assets $ 163,303
Liabilities $ 28,510
Results of operations $ (664,717)
8. Private Placement
In December 1998, the Company sold 245,159 shares at $3.625, the public market
price at that time. The Chairman and CEO and certain family members and entities
associated with the Chairman and CEO participated as investors in the private
placement.
9. Restructured Note Receivable
During the nine-months ended March 31, 1999, the Company restructured notes
receivable from debtors by reducing the principal due by $1,598,425 which has
been charged to operations. The Company believes this step will maximize the
recovery of its investment and expedite payment on the notes. The debt will be
repaid in installments through May 1999.
10. Line of Credit
In August 1998, the Company entered into a $1,000,000 revolving conditional line
of credit to be used for the purposes of issuing certain letters of credit
("LC") to secure payment of certain activities of the Company. Principal
payments are due on demand and the interest rate is two percent above the prime
rate. The aggregate face amount of all LCs must be collateralized in the form of
cash equivalents held by the issuing bank. Collateral at March 31, 1999
consisted of approximately $412,000 in the form of three-month U.S. Government
bonds. Each LC expires no later than one year from the date of issuance. As of
March 31, 1999, there were no advances issued under the revolving line of
credit.
11. Issuance of Investment Banking Shares
During the nine-months ended March 31, 1999, the Company issued 290,000 shares
of Company Common Stock to investment bankers in connection with the March 6,
1998 merger of Sky King, VDC and the Company. The shares were issued at the fair
market value as of the date of the merger ($2.50 per share) and a corresponding
charge to accumulated deficit.
12. Note Payable-Officer
In February 1999, the Chairman and CEO loaned the Company $500,000. The note
bears interest at 10% per annum and is due in July 1999.
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13. Capital Leases
The Company entered into several equipment leases during the nine-months ended
March 31, 1999 with lease terms ranging from one to five years. Leased capital
assets included in property and equipment at March 31, 1999 were $1,525,339.
Future minimum lease payments under capital leases are as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ending March 31,
2000 $686,742
2001 364,502
2002 364,502
2003 249,843
2004 112,300
-------
Total minimum lease payment 1,777,889
less: amount representing interest 309,390
-------
present value of minimum lease payments 1,468,499
less: current portion 554,996
-------
long-term capital lease obligations $913,503
========
</TABLE>
14. Supplemental Disclosure of Cash Flow Information
Schedule of non-cash investing and financing activities:
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
1999 1998
---- ----
<S> <C> <C>
Net assets acquired in exchange for stock $ -- $5,871,071
Equipment financed through trade accounts payable 1,932,031 --
Equipment acquired through capital lease obligation 1,468,498 --
Equipment exchanged for note 192,379 --
Release of investment banking shares 290,000 --
Common stock placed in escrow in connection
with investment in MCC 13,962,500 --
Stock subscription for common stock -- 164,175
Treasury stock acquired in exchange for subscription
receivable 164,175 --
Acquisition of subsidiary:
fair value of assets acquired 1,290,044 --
common stock issued 700,875 --
------- --
cash paid 589,169 --
------- --
</TABLE>
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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 Asia, Latin America, China or other foreign
countries; (ii) the Company's ability to otherwise develop and implement certain
segments of its intended business that are subject to normal start-up risks and
uncertainties; (iii) the Company's ability to secure sufficient financing in
order to fund its proposed operations; (iv) inherent regulatory, licensing and
political risks associated with operations in foreign countries; (v) the
Company's dependence on certain key personnel; and (vi) competitive and other
market conditions that may adversely affect the scope of the Company's
operations. Additional factors are described in the Company's other public
reports and filings with the Securities and Exchange Commission. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date made. The Company undertakes no obligation to publicly
release the result of any revision of these forward-looking statements to
reflect events or circumstances after the date they are made or to reflect the
occurrence of unanticipated events.
GENERAL
VDC Communications, Inc. (referred to herein as the "Company", or "We") owns
telecommunications equipment and leases telecommunications lines to provide
domestic and international long distance telecommunications service. In
addition, we connect to other telephone companies and resell their services to
destinations where we do not own equipment or lease lines. Our customers are
other long distance telephone companies that resell our service to their retail
customers or other telecommunications companies. In the future, we expect to
offer our services directly to retail customers in addition to our current
wholesale customers. The Company currently employs state-of-the-art digital
switching and transmission technology. This equipment, located in New York, Los
Angeles, Denver and Central America, comprises our facilities. Our facilities
and industry agreements allow us to provide voice and facsimile telephone calls
almost anywhere in the world.
We believe the telecommunications industry is attractive given its current size
and future growth potential. Furthermore, we believe the international
telecommunications market provides greater opportunity than the domestic market
due to the relatively limited capacity in certain markets and the greater gross
margin per minute of traffic. Our objective is to become an international
telecommunications company with strategic assets and transmission capability in
attractive markets worldwide. Management believes that in order to achieve this,
we must provide our customers with long distance and international voice and
facsimile transmission at competitive prices. We strive to provide competitive
rates while maintaining carrier grade toll quality to destinations worldwide. We
believe that our current facilities are sufficient to handle significantly more
traffic than we are currently experiencing. In order to make better use of this
capacity, we need to build a reputation for high quality transmission within our
industry and provide competitive pricing.
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Current results reflect the fact that we have been a company in transition. We
began the development of our telecommunications business on March 6, 1998 and
have since developed our infrastructure and industry relations. We began
marketing our services in December 1998 and have had modest success generating
traffic over our infrastructure during early 1999. We do not believe that our
most recent results are indicative of future performance.
Revenue is earned from three sources. The main source is revenue from our
domestic and international telecommunications long distance services which is
earned based on the number of minutes billable to the customers, other telephone
companies. These minutes are billed on a weekly, semi-monthly, or monthly basis.
Bills are generally paid within thirty days. Our second source of revenues is
derived from the rental of telecommunications equipment at our
telecommunications facilities to other telephone companies. This revenue is
generated and billed on a month to month basis. Additionally, we derive minimal
revenues from the management of tower sites that provide transmission and
receiver locations for wireless communications companies. This revenue is also
generated and billed on a month-to-month basis.
Revenue derived through the per-minute transmission of voice and facsimile is
normally in accordance with contracts with other telecommunications companies.
These contracts are often for a year or more but can be terminated or changed
with a few days notice.
Direct costs of revenue include domestic long distance charges for transmission
services, terminating overseas-originated traffic in the United States and
terminating domestic originated, international traffic outside the United
States. We use other telecommunications companies services in the same manner
that they use ours. Therefore, our costs include significant payments to other
telecommunications companies, including variable per minute costs for them to
provide voice and facsimile services to us, which we resell at a profit to our
customers. In addition, we pay fixed monthly expenses for capacity on a fiber
optic backbone across the United States and a satellite connection to Central
America. These fixed costs, including some additional circuit costs are
approximately $130,000 per month. Our direct costs of revenue also includes the
personnel and overhead that is dedicated to the generation of revenues.
Our costs also include selling, general, and administrative costs ("SG&A"). SG&A
consists primarily of personnel costs, professional fees, travel and other
business development related costs. Total personnel costs are currently about
$200,000 per month. We incur costs on a regular basis associated with
international market research and due diligence regarding potential projects
outside of the U.S. We believe that our recurring SG&A costs will begin to level
off as we reach a mature operating level. It is, however, possible that as new
opportunities, or as mergers and acquisitions are completed, SG&A could increase
significantly. We believe that over time, we may build our volume of minutes
billed so that our revenues surpass our costs. We believe that the
infrastructure and personnel necessary to achieve this are currently in place.
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We also incur non-cash expenses associated with the depreciation of long
distance telecommunications equipment and other fixed assets and the
amortization of goodwill from the acquisition of Masatepe Communications,
U.S.A., L.L.C., a Delaware limited liability company ("Masatepe"). We depreciate
long distance telecommunications and other fixed assets over a period of
three-to-five years and are amortizing goodwill over two years.
During the quarter ended March 31, 1999, we created a new subsidiary,
WorldConnectTelecom.com. WorldConnectTelecom.com is a Delaware corporation
providing retail long distance telecommunications services via the Internet and
other sources. WorldConnectTelecom.com has a FCC 214 license to provide expanded
retail services. Prior to the creation of WorldConnectTelecom.com, we did not
offer voice and facsimile services to retail customers. WorldConnectTelecom.com
generated minimal revenues during the quarter ended March 31, 1999.
We are the successor to our former parent, VDC Corporation Ltd., a Bermuda
company ("VDC") by virtue of a domestication merger. On November 6, 1998, VDC
merged with and into the Company (the "Domestication Merger"). The effect of the
Domestication Merger was that members/stockholders of VDC became stockholders of
the Company. The primary reason for the Domestication Merger was to reorganize
VDC as a publicly traded United States corporation domesticated in the State of
Delaware. In connection with the Domestication Merger, 11,810,862 issued and
outstanding shares of common stock of VDC, $2.00 par value per share, were
exchanged, and 8,487,500 issued and outstanding shares of preferred stock of the
Company, $.0001 par value per share, were converted, on a one-for-one basis,
into an aggregate 20,298,362 shares of Common Stock of the Company. The
domestication merger has been accounted for as a reorganization which has been
given retroactive effect in the financial statements for all periods presented.
The Domestication Merger reflects the completion of a series of transactions
that commenced on March 6, 1998, when the Company (then a wholly-owned
subsidiary of VDC) acquired Sky King Communications, Inc. ("Sky King") by
merger. This merger transaction was accounted for as a reverse acquisition
whereby Sky King was the acquirer for accounting purposes. Accordingly, the
historical financial statements presented are those of Sky King before the
merger on March 6, 1998 and reflect the consolidated results of Sky King and
VDC, and VDC's wholly-owned subsidiaries after the merger. On November 6, 1998,
the Domestication Merger, whereby VDC merged with and into the Company, was
consummated.
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE THREE MONTHS ENDED
MARCH 31, 1998
Revenues: Total revenues in the three months ended March 31, 1999 increased to
approximately $697,000 from approximately $22,500 for the corresponding prior
year period. This is the initial result of the implementation of our
telecommunications services. During the period, we expanded the capacity of some
of our international voice and facsimile services to Central America and
experienced a general increase in minutes of usage of telecommunications
services as customers came on line and began utilizing our services. Revenues
14
<PAGE>
were generated during the period by the transmission of minutes domestically and
internationally, the rental of telecommunications switch space, and tower
management. Revenue for the corresponding prior year period was attributable to
tower management. We do not believe that our current revenue rate is reflective
of the potential of our business.
Gross Margin: Negative gross margins in the three months ending March 31, 1999
were the result of a combination of per minute fees and leased line fees
associated with the traffic carried in the period and salaries and other
operating expenses incurred in advance of the realization of more significant
revenues. Positive gross margins could result if volume increases sufficiently
to cover fixed direct costs of revenue, such as circuit and personnel costs and
variable direct costs of revenue. Gross margins for the corresponding prior year
period reflected the excess of site rental revenues over site leasing costs.
Selling, general & administrative: SG&A expenses increased to approximately $2.0
million from approximately $405,000 for the corresponding prior year period.
This increase was primarily attributable to one-time write-offs and non-cash
severance expenses totaling $1,004,145. Had these non-recurring items not
occurred during the period, SG&A expenses would have been $1,045,024 for the
quarter ended March 31, 1999. In addition, included in SG&A were salaries and
corporate development costs necessary for the development and operation of new
telecommunications services, including our telecommunications infrastructure;
and professional fees, including consulting, legal and accounting expenses
associated with the redeployment of the Company's assets. We believe that our
recurring SG&A costs will begin to level off as we reach a mature operating
level. It is, however, possible that as new opportunities, or as mergers and
acquisitions are completed, SG&A could increase significantly.
Depreciation and Amortization: Depreciation and amortization increased to
approximately $360,000 from approximately $1,700 for the corresponding prior
year period. The increase was attributable to the amortization of goodwill
associated with the Masatepe acquisition and depreciation of property and
equipment. Depreciation expense should increase as we add assets to our current
telecommunications infrastructure. By August 2000, we will have fully amortized
the goodwill associated with the acquisition of Masatepe. Therefore, to some
extent, this decrease will offset the increase associated with future equipment
depreciation.
Non-cash Compensation Expense: Non-cash compensation charge was $0 for the three
months ended March 31, 1999 compared to $801,000 for the corresponding prior
year period. During the three-months ended March 31, 1998, 300,000 shares of
Series B Convertible Preferred Stock ("Series B Stock") were released from
escrow based upon the achievement of performance criteria which included the
procurement of $3.4 million in equity financing. Of the 300,000 shares of Series
B Stock released, 207,542 shares were considered compensatory for accounting
purposes. These compensatory shares were owned by management, their family
trusts, minor children, and an employee. The non-cash expense reflected on our
financial statements is an accounting charge which was developed based on the
deemed value of the shares released from escrow, which in turn, was based on the
trading price of the Company's Common Stock on the date of release.
15
<PAGE>
Other income (expense): Other income (expense) was approximately $(19.4) million
for the three months ended March 31, 1999 compared with approximately $2,500 for
the corresponding prior year period. The $(19.4) million was mostly due to a
non-cash charge attributable to the writedown of our ownership interest in MCC.
We show the $19.4 million charge as a separate caption "writedown of investment
in MCC" in the other income (expense) section of the statement of operations.
The charge will not be included in "operating loss" because it represents a
minority interest in a passive investment. In other words, we neither control
nor exert significant influence over MCC. See "LIQUIDITY AND CAPITAL RESOURCES".
Net loss: The Company's net loss for the three months ended March 31, 1999 was
approximately $22.4 million. The net loss was mainly the result of non-cash
balance sheet structuring that had nothing to do with our core operations. The
write down of our investment in MCC accounted for approximately $19.4 million of
the loss. This did not affect the liquidity of our Company and we do not foresee
the need for a further write down. The Company's net loss for the corresponding
prior year period was approximately $1.2 million. The net loss was mostly
attributable to the non-cash compensation charge previously discussed. On an
operating cash basis, we experienced a net loss of approximately $395,000 during
the three months ended March 31, 1998. If greater revenues are achieved, our
operations could become profitable. We expect that future profitability is
likely to depend upon a combination of several factors:
(1) the continued growth of the business through increased volume and
competitiveness;
(2) the management of this growth; and
(3) the continued increase in the worldwide market for minutes of voice and
data transmission.
We believe that these factors should impact our ability to produce positive
operating results in the future. However, there are many other factors that will
also have an impact, some of which cannot be foreseen.
FOR THE NINE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE NINE MONTHS ENDED
MARCH 31, 1998
Revenues: Total revenues in the nine months ended March 31, 1999 increased to
$1.4 million from approximately $63,000 for the corresponding prior year period.
This is the initial result of the implementation of our telecommunications
services during the period. Revenues were generated during the period by a
direct route to Central America and tower management. Domestic and international
voice and facsimile services, exclusive of Central America, generated revenues
for only an abbreviated portion of the period. Revenue for the corresponding
period of the prior year was attributable to site tower rentals.
Gross Margin: Negative gross margins in the nine months ending March 31, 1999
were the result of a combination of per minute fees and leased line fees
associated with the traffic carried in the period and salaries and other
operating expenses incurred in advance of the realization of more significant
revenues. Gross margins for the corresponding prior year period reflected the
excess of site rental revenues over site leasing costs.
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<PAGE>
Selling, general & administrative: SG&A expenses increased to $3.8 million from
approximately $464,000 for the corresponding prior year period. This increase
was primarily attributable to salaries and corporate development costs necessary
for the development and operation of new telecommunications services, including
our telecommunications infrastructure; and professional fees, including
consulting, legal and accounting expenses associated with the restructuring and
establishment of our Company's business.
Non-cash Compensation Expense: Non-cash compensation expense was $16,146,000 for
the nine-months ended March 31, 1999, compared to the previously discussed
$801,000 charge for the corresponding prior year period. During the nine months
ended March 31, 1999, 3.9 million shares of our Series B Stock, were released
from escrow based upon the achievement of performance criteria which included
releasing 500,000 shares upon each procurement of one or more frequency,
operating and/or business licenses to 500,000 people plus increments of 100,000
shares for each 100,000 people in excess of the aggregate minimum population of
500,000. We satisfied the performance criteria by obtaining an FCC 214 license
authorizing us to provide international long distance telephony service
internationally and completed the construction of an international
telecommunications gateway switch in New York City which has a surrounding
population of approximately 15 million people. Of the 3.9 million shares of
Series B Stock released, 2.7 million shares were considered compensatory for
accounting purposes. These compensatory shares were owned by management, their
family trusts, minor children, and an employee. The non-cash expense reflected
on our financial statements is an accounting charge which was developed based on
the deemed value of the shares released from escrow, which in turn, was based on
the trading price of the Company Common Stock on the date of release. At this
time, we do not expect further sizable non-cash charges to operations associated
with Company stock in the future.
Depreciation and Amortization: Depreciation and amortization increased to
approximately $704,000 from approximately $5,000 for the corresponding prior
year period. The increase was attributable to the amortization of goodwill
associated with the Masatepe acquisition and depreciation of property and
equipment.
Other income (expense): Other income (expense) was approximately $(21.1) million
for the nine months ended March 31, 1999, compared with approximately $6,300 for
the corresponding prior year period. During the nine months ended March 31,
1999, in addition to the aforementioned write down of our investment in MCC, we
restructured certain notes receivable to maximize their recovery and expedite
payment and wrote off all previously accrued interest, which resulted in a
$1,598,425 charge to operations.
Net loss: The Company's net loss for the nine months ended March 31, 1999 was
approximately $43.1 million compared to $1.2 million for the corresponding prior
year period. The net loss was mainly the result of non-cash charges and balance
sheet structuring that had nothing to do with our core operations. Non-cash
compensation and the write down of our investment in MCC accounted for
approximately $35.5 million of the loss. Neither of these items affected our
liquidity and we do not foresee any additional expenses relating to these two
items. Additionally excluding non-cash write-downs and non-cash severance
expenses, we experienced a net loss, on an operating cash basis, of
approximately $4.9 million.
17
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
A significant amount of capital has been expended towards building corporate
infrastructure and operating and capital expenditures in connection with certain
acquisitions and the establishment of our programs. These expenditures have been
incurred in advance of the realization of revenue that is likely to occur as a
result of such acquisitions and programs. As a result, our liquidity and capital
resources diminished significantly. Liquidity and capital resources improved due
to a private placement of our Common Stock, resulting in proceeds of
approximately $2.4 million, immediately prior to filing this Form 10-Q. See
"PART II, CHANGES IN SECURITIES AND USE OF PROCEEDS." Liquidity and capital
resources could further improve within the short term by a combination of any
one or more of the following factors: (i) an increase in revenues and gross
profit from operations; (ii) collection on the promissory notes emanating from
the bulk sale of our former investment assets; and (iii) continued financing
activities.
Net cash used in operating activities was approximately $2.6 million for the
nine months ended March 31, 1999. We collected approximately $1.0 million from
customers while paying approximately $3.6 million to vendors and employees. Net
cash used by operating activities of approximately $429,000 for the
corresponding prior year period was due to the net loss from operations offset
by a non-cash compensation charge.
Net cash used by investing activities was approximately $1.5 million for the
nine months ended March 31, 1999. Cash was used for capital expenditures on
facilities and switching equipment, the purchase of Masatepe as well as
investing in Masatepe's Nicaraguan 49% owned subsidiary, Masacom. Cash provided
by investing activities was attributable to the collection of notes receivable
and the return of escrow funds in connection with the investment in MCC. Net
cash provided by investing activities was approximately $463,000 for the
corresponding prior year period. This was primarily the result of proceeds from
notes receivable offset by the purchase of marketable securities and loan
advances.
Cash provided by financing activities was approximately $2.1 million for the
nine months ended March 31, 1999. This reflects proceeds from the issuance of
Common Stock, including the sale on December 23, 1998 of 245,159 shares of
Company Common Stock to Frederick A. Moran, Chairman and Chief Executive Officer
of the Company, and certain entities associated with and family members of Mr.
Moran, the collection of stock subscriptions receivable, and proceeds from
issuance of short-term debt less repayments of notes for the purchase of
telecommunications equipment. The funds were used to fund operations and capital
expenditures. Proceeds provided by financing activities of approximately $3.7
million for the corresponding prior year period were solely from the issuance of
common stock and were used to fund operations and capital expenses.
At March 31, 1999, we had outstanding capital commitments of approximately $1.9
million for the purchase of facilities and switching equipment. These
commitments are reflected in our consolidated balance sheet at March 31, 1999.
We also have an obligation to repay, on or before July 26, 1999, a $500,000
principal loan advanced to the Company by our Chief Executive Officer.
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<PAGE>
For the near term, we anticipate that our monthly fixed costs of operations,
exclusive of rate per minute charges from other carriers, will consist of the
following:
Personnel costs $200,000
Circuit Costs $130,000
Other SG&A costs $63,000
Capital Leases payments $57,000
-------
Total $450,000
This includes the operating personnel and other non-variable costs considered
direct costs of revenue. Notwithstanding our best estimate, we cannot be certain
that our actual costs over the next couple of months will not differ
significantly from these figures. We believe that there is certainly the
possibility that the actual costs will be higher than estimated. We will not
make a profit until our revenues exceed all our costs. Until we achieve this
goal, we will continue to experience a cash flow deficit and we will have to
find ways to fund that deficit.
We are currently funding operations through existing cash, notes and accounts
receivable collections and proceeds from additional financing activities. We do
not know how long it will take before we will be able to operate profitably and,
therefore, sustain our business without outside funding. We have recently
entered into investment banking agreements to explore financing alternatives.
Immediately preceding the filing of this Form 10-Q, we raised approximately $2.4
million through the sale of our Common Stock in a private placement. See "PART
II, CHANGES IN SECURITIES AND USE OF PROCEEDS." It is possible that we will
raise additional funds in the short term through the additional private
placement of a limited number of shares of Common Stock. Proceeds raised from
these private placements will be used to fund operations in the near term and
pay off certain indebtedness.
RECENT ACQUISITIONS
We entered into a Purchase Agreement on July 31, 1998 to acquire Masatepe for
$589,169 in cash and shares of our Common Stock valued at $700,875, less any
adjustments made to the purchase price by virtue of indemnification claims made
by the Company against an escrow fund established under the Purchase Agreement.
The entire purchase price for the Masatepe acquisition was placed in escrow
pending the satisfaction of certain regulatory filings to be made by Masatepe
with the United States Federal Communications Commission (the "FCC"). In
November 1998, the entire purchase price for the Masatepe acquisition was
released from escrow, less 14,160 shares of the Company's Common Stock. The
14,160 shares were originally retained in escrow pending the resolution of a
claim made by the Company against the escrow fund for outstanding expenses
incurred by Masatepe prior to its acquisition by the Company, and were
subsequently retired for cancellation.
The Company is also obligated under the Purchase Agreement to issue an aggregate
of approximately 54,319 shares of our Common Stock to Activated and a former
executive officer of Masatepe because the market price of the Company's Common
Stock was less than $7.00 for a period of time following February 7, 1999, as
determined by a formula set forth in the Purchase Agreement.
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We expect to continue to explore acquisition opportunities. Such acquisitions
may have a significant impact on our need for capital. In the event of a need
for capital in connection with an acquisition, we would explore a range of
financing options, which could include public or private debt, or equity
financing. There can be no assurances that such financing will be available, or
if available, will be available on favorable terms. We also consider
acquisitions using our Common Stock.
INVESTMENT IN MCC
We own 2.0 million shares and warrants to purchase 4.0 million shares of MCC, a
private company. We have held this asset for approximately one year. We
originally valued the asset based on our purchase price paid. However,
significant time has passed since that transaction. During that time, the
legality of the structure of MCC's joint ventures have come into question by
Chinese authorities.
MCC operates joint ventures in China under the direction of its majority owner,
Metromedia International Group ("MMG"). Currently, legal restrictions in China
prohibits foreign ownership and operations in the telecommunications sector.
MCC's investments in joint ventures have been made through a structure known as
Sino-Sino-Foreign ("SSF") joint venture. This is a widely used method for
foreign investment in the Chinese telecommunications industry. The SSF venturer,
in this case MCC, is a provider of telecommunications equipment, financing and
technical services to telecommunications operators and not a direct provider of
telephony service. The joint ventures invest in telecommunications system
construction and development networks being undertaken by the local partner,
China Unicom. The completed systems are operated by China Unicom. MCC receives
payments from China Unicom based on revenues and profits generated by the
systems in return for their providing financing, technical advice, consulting
and other services.
MMG has represented to us that it owns 33 million MCC shares, or 56% (33
million/59 million shares). As such, our 2 million shares represent a 3.4%
interest (2 million/59 million shares).
We also hold warrants to purchase 4.0 million shares of MCC at an exercise price
of $4 per share, which currently expire in September 1999. Our current financial
position does not allow us to exercise the warrants without the liquidity of a
public market for MCC stock. Therefore, in performing a review for current
recoverability of our investment, we have disregarded the warrants.
Historically, we have assessed the investment in MCC for asset impairment by
applying a valuation technique commonly used by financial and equity analysts.
This method involves applying a dollar value to each unit of population in the
market ("per-pop"). Market capitalization of publicly traded companies in the
industry divided by the population in the area served equals the per-pop
valuation. Although we still believe this is an appropriate manner to assess the
potential of the investment, it is not definitive enough for us to assess the
current market value of 2.0 million shares of MCC.
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There has been uncertainty regarding possible significant changes in the
regulation of and policy concerning foreign participation in and financing of
the telecommunications industry in China, including the continued viability of
the SSF structure and associated service and consulting arrangements with China
Unicom. The Chinese government has stated that it does not intend to issue
future telecom licenses to foreign companies or joint ventures. No definitive
word has come forth regarding how, if at all, this effects MCC's existing
Chinese operations. More recently, China has been indicating a renewed openness
towards foreign companies, including telecommunications, in order to gain
admission to the World Trade Organization ("WTO"). Yet, no definitive action has
been taken by the Chinese government, the WTO or the US-China trade negotiators.
We have limited understanding of MCC's stand-alone financial information because
MCC is private. Our best source of information has been MMG's filings with the
SEC. MMG recently released their audited financials for the year ended December
31, 1998. MMG is currently carrying its approximate 56% interest in MCC at $71.6
million. This implies a valuation of $127.9 million for a 100% interest.
Based on the situation in China as it relates to the telecommunications industry
and the limited financial information available, we have adjusted the carrying
value of our investment in MCC to an amount relative to MMG's most recently
audited carrying amount. This results in a carrying amount of $4.34 million
($127.9 million*3.4%). A charge of $19.4 million was, therefore, taken during
the nine months ended March 31, 1999.
Although we hope the Chinese telecommunications market proves profitable, that
our warrants will be exercisable and that our investment shows significant
returns in the future, we believe the conservative approach, given the great
uncertainty surrounding the China telecommunications market and our inability to
value MCC based on hard data and/or facts, is to decrease our carrying value of
MCC. Our best source of information currently reflects a value of $127.9 million
for 100% of MCC. This is based on the capital invested less the operating
losses. Since it is unclear whether we will have the ability to exercise our
warrants, we have decreased their current value to $0. Currently, we hold 2.0
million shares of MCC. Given that the total value of MCC is $127.9 million and
we own approximately 3.4%, we derived our value to be $4.34 million.
THE YEAR 2000 READINESS DISCLOSURE
The Year 2000 issue is a matter of worldwide concern for carriers and affects
many aspects of telecommunications technology, including the computer systems
and software applications that are essential for network administration and
operations. A significant portion of the voice and data networking and network
management devices have date-sensitive processing in them which affect network
administration and operations functions such as service activation, service
assurance and billing processes.
The Company is currently evaluating the year 2000 readiness of its computer
systems, software applications and telecommunications equipment. It is sending
year 2000 compliance inquiries to certain third parties (i.e. vendors,
customers, outside contractors) with whom it has a relationship. These inquiries
include, among other things, requests to provide documentation regarding the
third party's year 2000 programs, and questions regarding how the third party
specifically examined the year 2000 effect on their computers and what remedial
actions will be taken with regard to these problems.
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The Company's key processing systems have recently been implemented. Most of the
vendors of such systems have represented to the Company that their systems are
compliant with the year 2000 issues without any modification. The Company will,
however, continue to require confirmation of year 2000 compliance in its future
requests for proposals from equipment and software vendors. The failure of the
Company's computer systems and software applications to accommodate year 2000
issues, could have a material adverse effect on the Company's business,
financial condition and result of operations.
Further, if the networks and systems of those on whose services the Company
depends and with whom the Company's networks and systems must interface are not
year 2000 functional, it could have a material adverse effect on the operation
of the Company's networks and, as a result, have a material adverse effect on
the Company. Most major domestic carriers have announced that they expect all of
their network and support systems to be year 2000 functional by mid 1999.
However, other domestic and international carriers may not be year 2000
functional. The Company intends to continue to monitor the performance of its
accounting, information and processing systems and software applications and
those of its third-party constituents to identify and resolve any year 2000
issues. Currently, through its discovery process, the Company has identified an
estimated $84,000 of expenditures associated with updating its systems to be
compliant with the year 2000. However, the Company expects to find additional
expenses pending the finalization of its year 2000 investigation.
The Company believes that the most reasonably likely worst case scenario
resulting from the century change could be the inability to route
telecommunications traffic at current rates to desired locations for an
indeterminable period of time, which could have a material adverse effect on the
Company's results of operations and liquidity.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is currently not exposed to material future earnings or cash flow
exposures from changes in interest rates on long-term debt obligations since our
long-term debt obligations are at fixed rates. We may be exposed to interest
rate risk, as additional financing may be required due to the operating losses
and capital expenditures associated with establishing and expanding our
facilities. The interest rate that we will be able to obtain on additional
financing will depend on market conditions at that time, and may differ from the
rates we have secured on our current debt. We do not currently anticipate
entering into interest rate swap and/or similar instruments.
The Company's carrying value of cash and cash equivalents, accounts and notes
receivable, accounts payable, marketable securities-available for sale, and
notes payable is a reasonable approximation of their fair value.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Worldstar Suit
On or about June 10, 1998, Worldstar Communications Corporation ("Worldstar")
commenced an action in the United States District Court for the Southern
District of New York entitled Worldstar Communications Corporation v. Lindemann
Capital L.P., Activated Communications, L.P. and Marc Graubart (Civil Action No.
98 4093) (the "Action"). Worldstar asserted in the Action that, under the terms
of a purported joint venture arrangement with Lindemann Capital L.P.
("Lindemann") and Activated Communications, L.P. ("Activated"), Worldstar
acquired certain rights to share in the profits and ownership of a
telecommunications project in Nicaragua owned by Masatepe Comunicaciones S.A., a
Nicaraguan company ("Masatepe S.A."). Masatepe Communications U.S.A., L.L.C.
("Masatepe U.S.A."), which owns a 49% equity interest in Masatepe S.A., was
acquired by the Company and is now a wholly-owned subsidiary of the Company.
In the event that the plaintiff had prevailed in the Action, the value of the
Company's interest in Masatepe U.S.A., Masatepe S.A and/or the Nicaraguan
Project could have been adversely affected. However, pursuant to the Purchase
Agreement through which the Company acquired Masatepe U.S.A. (the "Purchase
Agreement"), Activated agreed to indemnify and hold the Company and Masatepe
U.S.A. harmless from any loss, liability, claim, damage and expense arising out
or resulting from the Action. On April 15, 1999, the Court granted, for lack of
subject matter jurisdiction, defendants' motion to dismiss the Action. In view
of the foregoing, the Company does not believe that the claims asserted in the
Action will have a material adverse effect on the Company's assets or
operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities
In May 1999, the Company sold 853,355 shares of Company Common Stock and granted
warrants to purchase 52,518 shares of Company Common Stock in a non-public
offering exempt from registration pursuant to Section 4(2) and Rule 506 of
Regulation D of the Securities Act of 1933 (the "Act") as follows:
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<TABLE>
<CAPTION>
Shareholder Number of Shares Price Per Share Warrants
- ----------- ---------------- --------------- --------
<S> <C> <C> <C>
Frederick A. Moran & Joan B. Moran 280,000 $3.00 -
Luke F. Moran Trust 24,010 $3.00 -
Kent F. Moran Trust 24,160 $3.00 -
PGP I Investors, LLC 185,185 $2.70 18,518
Adase Partners, L.P. 60,000 $2.70 6,000
Arthur Cooper & Joanie Cooper 40,000 $2.70 4,000
Mark Eshman & Jill Eshman trustees for 20,000 $2.70 2,000
the Eshman Living Trust dated 9/24/90
Capital Opportunity Partners One, LP 20,000 $2.70 2,000
Scott Schenker & Randi Schenker 20,000 $2.70 2,000
Jeffrey Feingold & Barbara Feingold 20,000 $2.70 2,000
Dean Brizel & Jeanne Brizel 20,000 $2.70 2,000
Fred Fraenkel 20,000 $2.70 2,000
Robert Vicas 20,000 $2.70 2,000
Michael Weissman 10,000 $2.70 1,000
Ernst Von Olnhausen 10,000 $2.70 1,000
Torunn Garin 60,000 $2.70 6,000
Stephen Buell 20,000 $2.70 2,000
====== =====
Total 853,355 52,518
</TABLE>
In the transaction documented above, for every full block of ten (10) shares of
Company Common Stock purchased by a purchaser, other than Frederick A. Moran and
Joan B. Moran, the Luke F. Moran Trust and the Kent F. Moran Trust, the
purchaser was granted a warrant to purchase one (1) share of Company Common
Stock. The warrants provide for an exercise price of $6.00 per share and expire
three years from the date of grant.
In April 1999, the Company issued, in a non-public offering exempt from
registration pursuant to Section 4(2) and Rule 506 of Regulation D of the Act,
76,750 shares of Company Common Stock to Marc Graubart and 18,250 shares of
Company Common Stock to Tab K. Rosenfeld, in consideration for Mr. Graubart's
resignation from positions held with Masatepe, the release of various claims,
and other consideration set forth more particularly in a Settlement, Release and
Discharge Agreement by and among the Company, Masatepe Communications, U.S.A.,
L.L.C. ("Masatepe"), and Marc Graubart, dated March 9, 1999 (the "Release
Agreement"). Of the shares issued to Marc Graubart, 7,500 will be held in escrow
for a period of one (1) year (the "Escrow Shares"). The Escrow Shares will be
released from escrow, if at all, in the event that Marc Graubart has complied
with certain terms of the Release Agreement during the one (1) year following
the date of the Release Agreement.
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In connection with the Company's acquisition of Sky King Communications, Inc.,
the Company agreed to issue to SPH Equities Inc. ("SPH Equities"), KAB
Investments Inc. ("KAB"), FAC Enterprises, Inc. ("FAC"), and SPH Investments
Inc. ("SPH Investments") an aggregate of 444,852 shares of Company Common Stock
as an investment banking fee, subject to certain conditions (the "Investment
Banking Shares"). In partial satisfaction of this obligation, on December 22,
1998, the Company issued 129,852 shares of Company Common Stock to FAC, 70,000
shares of Company Common Stock to SPH Investments, and 40,148 shares of Company
Common Stock to SPH Equities in a non-public offering exempt from registration
pursuant to Section 4(2) and Rule 506 of Regulation D of the Act. On February
16, 1999, in further satisfaction of this commitment, the Company issued 19,852
shares of Company Common Stock to SPH Equities and 30,148 shares of Company
Common Stock to KAB in a non-public offering exempt from registration pursuant
to Section 4(2) and Rule 506 of Regulation D of the Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Item not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
Item not applicable.
ITEM 5. OTHER INFORMATION
Item not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description Method of Filing
----------- ----------- ----------------
<S> <C> <C>
10.1 Settlement, Release and Discharge (1)
Agreement, by and among VDC Communications,
Inc., Masatepe Communications, U.S.A., L.L.C.,
and Marc Graubart, dated March 9, 1999
10.2 Form of Securities Purchase Agreement, (1)
dated December 23, 1998
10.3 Form of Securities Purchase Agreement, (1)
dated May 5, 1999
10.4 Form of Securities Purchase Agreement, (1)
dated May 7, 1999
10.5 Securities Purchase Agreement, between PGP (1)
I Investors, LLC and VDC Communications,
Inc., dated May 12, 1999
27.1 Financial Data Schedule (1)
</TABLE>
(1) Filed herewith.
25
<PAGE>
(b) Reports on Form 8-K
Item not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Form 10-Q to be signed on its behalf by the
undersigned, thereunto duly authorized.
VDC COMMUNICATIONS, INC.
By:/s/ Frederick A. Moran Dated: June 7, 1999
---------------------------------------
Frederick A. Moran
Chairman, Chief Executive Officer,
Chief Financial Officer and Director
26
<PAGE>
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
<TABLE>
<CAPTION>
<S> <C>
10.1 Settlement, Release and Discharge Agreement,
by and among VDC Communications, Inc., Masatepe
Communications, U.S.A., L.L.C., and Marc Graubart,
dated March 9, 1999
10.2 Form of Securities Purchase Agreement,
dated December 23, 1998
10.3 Form of Securities Purchase Agreement,
dated May 5, 1999
10.4 Form of Securities Purchase Agreement,
dated May 7, 1999
10.5 Securities Purchase Agreement, between PGP I
Investors, LLC and VDC Communications, Inc.,
dated May 12, 1999
27.1 Financial Data Schedule
27
</TABLE>
SETTLEMENT, RELEASE AND DISCHARGE AGREEMENT
THIS SETTLEMENT, RELEASE AND DISCHARGE AGREEMENT (the "Settlement
Agreement"), made this 9th day of March, 1999 (the "Date of this Agreement"), by
and among VDC COMMUNICATIONS, INC. (formerly known as VDC Corporation Ltd.) (the
"Company"), a Delaware corporation, MASATEPE COMMUNICATIONS, U.S.A., L.L.C., a
Delaware limited liability company ("Masatepe"), and MARC GRAUBART ("Graubart"),
an individual presently residing within the State of New York (the Company,
Masatepe, and Graubart are collectively referred to as the "Parties").
RECITALS:
WHEREAS, the Company, Masatepe, Graubart and Activated Communications
Limited Partnership, a Texas limited partnership, are parties to a Purchase
Agreement, dated as of July 31, 1998, pursuant to which the Company acquired all
of the membership interests of Masatepe (the "Purchase Agreement");
WHEREAS, in connection with the execution of the Purchase Agreement, the
Company, Masatepe and Graubart entered into an Employment Agreement, dated as of
August, 1998 (the "Employment Agreement"), pursuant to which Graubart agreed to
serve as President and Chief Executive Officer of Masatepe;
WHEREAS, Paragraph 2 of the Employment Agreement provides for certain
bonuses of Company common stock (the "Stock Bonuses");
WHEREAS, in connection with the execution of the Purchase Agreement, the
Company executed a Promissory Note, dated July 31, 1998 (the "Promissory Note"),
for the benefit of Graubart as payee, pursuant to which the Company agreed to
pay Graubart a Phantom Membership Interest (as referenced in the Employment
Agreement) on terms set forth in the Promissory Note;
28
<PAGE>
WHEREAS, in connection with the execution of the Purchase Agreement, the
Company and Graubart executed an Option to Purchase Common Shares Agreement,
dated as of August 1998 (the "Option Agreement"), which referenced Graubart's
right to purchase 10,000 shares of Company common stock;
WHEREAS, in connection with the execution of the Purchase Agreement, the
Company delivered a Letter Agreement, dated as of August 1998 (the "Letter
Agreement"), pursuant to which the Company agreed to issue certain shares of
Company common stock to Graubart as a finder's fee (the "Finder's Fee");
WHEREAS, in connection with the execution of the Option Agreement and
Letter Agreement, the Company and Graubart executed a Registration Rights
Agreement, dated as of August 1998 (the "Registration Rights Agreement");
WHEREAS, in December 1998, the Company's Board of Directors granted
Graubart an option to purchase 10,000 shares of Company common stock (the
"Option Grant");
WHEREAS, on February 7, 1999, the Company sent a letter to Graubart (the
"Letter") indicating that it would terminate Graubart's employment with the
Company and Masatepe effective February 26, 1999 unless certain deficiencies
were cured;
WHEREAS, on February 26, 1999, Graubart filed for and obtained a temporary
restraining order (the "Order") in the United States District Court for the
Eastern District of Pennsylvania (Civil Action No. 99-CV-1040) (the "Action")
restraining the Company, Masatepe and certain other parties from terminating
Graubart's employment;
WHEREAS, Graubart has filed a demand for arbitration with regard to the
present dispute (the "Demand for Arbitration");
29
<PAGE>
WHEREAS, the Company, Masatepe and Graubart wish to resolve their present
dispute upon the terms and conditions set forth in this Settlement Agreement
with none of the Parties admitting liability;
NOW, THEREFORE, for and in consideration of the mutual premises,
covenants, and agreements contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Parties hereto, intending to be legally bound hereunder, agree as follows:
1. Listing, Delivery and Registration of Shares of Company Common Stock.
1.1. Promptly following the execution of the Settlement Agreement by
the Parties, the Company shall list with the American Stock Exchange, Inc.
("Amex") 95,000 shares of Company common stock, par value $.0001 per share (the
"Settlement Shares"). The Settlement Shares shall be listed in an Additional
Listing Application (the "Additional Listing Application") that the Company is
currently preparing in connection with the preparation of a Registration
Statement on Form S-1 (the "Registration Statement"). The Company shall use its
reasonable best efforts to get the Additional Listing Application approved by
Amex within thirty (30) days of the Date of this Agreement.
1.2. Promptly after Amex's approval of the Additional Listing
Application, the Company shall issue the unregistered Settlement Shares, which
shall contain the restrictive legend set forth more particularly in the investor
representation letter to be executed by Graubart and Tab K. Rosenfeld in
accordance with Paragraph 1.3 of this Settlement Agreement, in a private
placement transaction (the "Private Placement") as follows:
(a) 76,750 Settlement Shares to Graubart (7,500 of which (the
"Escrow Shares") shall be held in escrow by Paul, Hastings, Janofsky & Walker,
LLP, as escrow agent (the "Escrow Agent") pursuant to the letter attached hereto
as Schedule 1.2 and incorporated herein by reference); and
30
<PAGE>
(b) 18,250 Settlement Shares to Tab K. Rosenfeld
("Rosenfeld").
1.3. Graubart and Rosenfeld shall each execute an investor
representation letter and shall deliver said letters to the Company
contemporaneously with the execution of this Settlement Agreement. Graubart and
Rosenfeld shall promptly provide whatever information and documentation is
reasonably requested by the Company or its legal counsel in connection with the
Private Placement and Registration Statement. 1.1.
1.4. The Company shall register the potential resale of the
Settlement Shares in the Registration Statement. The Company shall use its
reasonable best efforts to file the Registration Statement with the Securities
and Exchange Commission within ninety (90) days of the Date of this Agreement.
Notwithstanding anything to the contrary contained herein, the Company's
obligation in this Paragraph shall extend only to the inclusion of the
Settlement Shares in the Registration Statement in accordance with the terms of
this Paragraph. The Company shall have no obligation to assure the terms and
conditions of distribution, to obtain a commitment from an underwriter relative
to the sale of the Settlement Shares or to otherwise assume any responsibility
for the manner, price or terms of the distribution of the Settlement Shares.
Furthermore, the Company shall not be restricted in any manner from including
within the Registration Statement any of its or any other securities.
2. Computer Equipment. The Company shall give to Graubart the desk top
computer (the "Computer"), facsimile machine and printer (collectively the
"Equipment") that were supplied to Graubart by the Company for use by Graubart
in the Company's Greenwich office (the "Office"). Prior to the Computer being
made accessible to Graubart, an employee or agent of the Company's choosing
shall review the files on the Computer and shall remove all files related to the
business of the Company, Masatepe, or Masatepe Communications, S.A., the
Nicaraguan company in which Masatepe owns an equity interest ("Masatepe S.A."),
except files containing the names, address, and telephone numbers of all
vendors, business contacts, and other individuals and entities in which the
Company, Masatepe or Masatepe S.A. are interested, which files shall be copied
but not removed. Graubart shall remove, or arrange for the removal of, the
Equipment from the Office at a time that is mutually acceptable to Frederick A.
Moran, the Company's CEO, and Graubart.
31
<PAGE>
3. Reimbursement of Business Expenses. The Company shall reimburse all
reasonable business expenses incurred by Graubart prior to February 7, 1999 in
accordance with Paragraph 2 of the Employment Agreement. In addition, the
Company shall reimburse Graubart for appropriate telephone charges of Company or
Masatepe employees that have been charged to one of Graubart's credit cards.
4. Resignation and Termination of Services.
4.1. Graubart's employment with the Company and Masatepe shall end
as of the Date of this Agreement.
4.2. Except as provided in Paragraph 13, Graubart hereby resigns
from and surrenders any and all positions he currently holds, or has held, with
the Company, Masatepe, Masatepe S.A. or any of their subsidiaries, affiliates,
or predecessors in interest including, but not limited to, his positions as
President and Chief Executive Officer of Masatepe (the "Resignation"). The
Company and Masatepe hereby accept the Resignation.
4.3. Other than the Letter Agreement and this Settlement Agreement,
any and all other arrangements, agreements and understandings between or
involving Graubart and the Company, Masatepe, Masatepe S.A. or their affiliates
or subsidiaries shall terminate as of the Date of this Agreement. By way of
illustration, but not limitation, the Employment Agreement, the Promissory Note,
the Option Agreement and the Registration Rights Agreement shall terminate as of
the Date of this Agreement.
32
<PAGE>
5. Surrender of Rights to Securities. Other than as provided for in the
Letter Agreement and this Settlement Agreement, Graubart for himself and his
heirs, assigns, executors and administrators hereby surrenders and forfeits any
and all rights to or interests in the stock, options, warrants, notes,
debentures, any other security of any form or type of and any type of payment
from the Company, Masatepe, Masatepe S.A. or any of their subsidiaries or
affiliates. By way of illustration, but not limitation, Graubart surrenders and
forfeits for himself and his heirs, assigns, executors and administrators, any
and all interest in and to the Promissory Note, the Option Agreement, the Option
Grant, the Stock Bonuses and any and all stock grants or stock options or other
securities referenced in or contemplated by the Employment Agreement.
6. Non-Competition and Confidentiality.
6.1. As used in this Settlement Agreement, the term "Restricted
Business" means any one or more of the following: (1) the business of carrying,
transporting, or dealing in or with telecommunications and/or internet traffic
between the United States and Nicaragua; (2) the business of carrying,
transporting, or dealing in or with telecommunications and/or internet traffic
between the United States and Panama; (3) the business of carrying,
transporting, or dealing in or with telecommunications and/or internet traffic
between Nicaragua and Panama; (4) the business of carrying, transporting, or
dealing in or with telecommunications and/or internet traffic between Nicaragua
and the rest of the world; (5) the business of carrying, transporting, or
dealing in or with telecommunications and/or internet traffic between Panama and
the rest of the world; and (6) all telecommunications, internet and paging
activities in Nicaragua or Panama. For a period of two (2) years after the Date
of this Agreement, Graubart shall not directly or indirectly: (i) engage in the
Restricted Business or help or otherwise assist any entity, business or
individual to engage in or carry on the Restricted Business; (ii) solicit or
seek to develop business relationships with any individual or entity with
respect to the Restricted Business or with any individual or entity that derives
more than 2-1/2% of its revenues from the Restricted Business; (iii) be or
become an employee, agent, consultant, representative, director or officer of,
or be otherwise in any manner associated with, any person, firm, corporation,
association or other entity which is engaged in or is carrying on the Restricted
Business and derives more than 2-1/2% of its revenues from the Restricted
Business; (iv) solicit for employment or employ any person employed by the
Company, Masatepe, Masatepe S.A. or any of their subsidiaries or affiliates; (v)
hold an ownership interest, beneficially or otherwise, in any entity that
derives more than 2 1/2% of its revenue from Restricted Business, except that he
may hold up to a 5% ownership interest in a public company that derives more
than 2 1/2% of its revenue from Restricted Business; or (vi) communicate with
any foreign government official, newspaper, or other periodical regarding the
Restricted Business or the Company, Masatepe, Masatepe S.A. or any of their
affiliates or subsidiaries unless required by law.
33
<PAGE>
6.2. Graubart acknowledges that the restrictions contained herein in
view of the nature of the business in which the Company and Masatepe are and
have been engaged, and in consideration of the financial value of the settlement
provisions of Paragraphs 1, 2 and 3 hereof, are reasonable and necessary to
protect the legitimate interests of the Company and Masatepe, and that any
violation of any of these restrictions would result in irreparable injury to the
Company and/or Masatepe. Graubart acknowledges that, in the event of a violation
of any of these restrictions, in addition to the forfeiture of the Escrow Shares
(if the violation occurs within one (1) year from the Date of this Agreement),
the Company and/or Masatepe shall be entitled to recover such other legal and/or
equitable relief as may be appropriate. In the event that Graubart violates any
provision in or section of Paragraph 6.1 of this Settlement Agreement, the
period of non-competition referred to above shall be extended by a period of
time equal to that period beginning when such violation commenced, and ending
when the activities constituting such a violation shall have finally been
terminated in good faith.
6.3. In addition, Graubart shall not disclose Confidential
Information of or about the Company, Masatepe, VDC Telecommunications, Inc.,
Voice & Data Communications (Hong Kong) Limited, Masatepe S.A., World Connect
Communications, and their subsidiaries and affiliates (collectively the "VDC
Entities") to any other person, entity, corporation, trust, association or
partnership. For the purposes of this Settlement Agreement, the term
"Confidential Information" shall include, without limitation, information
obtained while Graubart was employed by the Company or Masatepe or any of their
subsidiaries or affiliates as an officer or in any other capacity, relating to
the Company's, Masatepe's and/or Masatepe S.A.'s financial condition, their
systems, know-how, designs, formulas, processes, devices, patents (pending or
otherwise), inventions, research and development, projects, technologies,
communications with third parties such as governmental agencies, customers,
suppliers, or vendors, methods of doing business, agreements with customers,
suppliers, or vendors or other aspects of the VDC Entities' business which
information is generally not available outside of the VDC Entities to persons
who are not authorized to have such information or which information is
otherwise treated as confidential or which is sufficiently secret to derive
economic value from not being disclosed.
34
<PAGE>
6.4. Notwithstanding anything to the contrary contained herein, in
the event that any court of equity or arbitrator determines that the time period
and/or scope of this restrictive covenant is held to be unenforceably long or
broad, as the case may be, then, and in either such event, neither the
enforceability nor the validity of this paragraph as a whole shall be affected.
Rather, the time period and/or scope of the restriction as affected shall be
reduced to the maximum permitted by law.
7. Return of Property. Within five (5) business day of the Date of this
Agreement, Graubart shall return to the Company all contracts, notes regarding
the Company, Masatepe, Masatepe S.A. or their subsidiaries or affiliates, files,
memoranda, documents, records, copies of the foregoing, credit cards, keys,
equipment, telephones, and any other property of the Company or Masatepe or
their subsidiaries or affiliates in his possession or that he removed or had
removed from the offices of the Company, Masatepe, Masatepe S.A. or their
subsidiaries or affiliates (the "Company Property").
8. Taxes. Graubart shall be responsible for paying, and shall indemnify the
Company, Masatepe and their subsidiaries and affiliates against, income taxes,
capital gains taxes, and other taxes on amounts he or his assigns or designates
receive pursuant to this Settlement Agreement.
9. Vendor Letter. The Parties shall execute the letter (the "Letter")
attached hereto as Exhibit "A," and incorporated by reference herein. The Letter
shall be distributed to the entities and individuals designated by the Parties.
10. House in Nicaragua. With respect to the house in Nicaragua that
Graubart and Masatepe personnel have jointly used (the "House"), Graubart shall
pay 1/3 of the rent, security, utilities and cleaning expenses (collectively the
"Obligation") for the remaining term of the lease for the House. The Company
shall pay 2/3 of the Obligation. Graubart will have his own telephone and each
Party will be responsible to pay for its own telephone usage. Except for the one
room that Graubart has used as a bedroom (the "Bedroom"), the Company, Masatepe,
and Masatepe S.A. and their subsidiaries and affiliates may use the House
without restriction. The Company's CEO may direct the use of the Bedroom in his
reasonable discretion; however, unless otherwise instructed by the Company's
CEO, the Bedroom shall remain locked. Graubart may, in his discretion, use the
House subject to the Company's, Masatepe's, and Masatepe S.A.'s right of first
refusal. The Company shall have the exclusive right to renew the lease on the
House. The Company recognizes that Graubart owns all the furniture, electronics
and artwork in the House. The Company owns the appliances in the House.
35
<PAGE>
11. Release by Graubart.
11.1. Except for the Company's obligations set forth in the Settlement
Agreement and the limitation in Paragraphs 11.3 and 11.4, Graubart, his assigns,
heirs, executors and administrators (collectively the "Releasors") for and in
consideration of the undertakings set forth in this Settlement Agreement and
intending to be legally bound, do hereby REMISE, RELEASE AND FOREVER DISCHARGE
the Company, Masatepe, Masatepe S.A. and their subsidiaries, affiliates,
component entities, individually and collectively, its and their respective
members, officers, directors, employees, agents, attorneys, insurers, and its
and their predecessors, successors and assigns, heirs, executors and
administrators (collectively the "Releasees"), of and from any and all manner of
actions and causes of actions, suits, debts, claims and demands whatsoever in
law or in equity, which Releasors ever had, now have or hereafter may have by
reason of any matter, cause or thing whatsoever from the beginning of the world
to the Date of this Agreement. This release includes, but is not limited to, any
claims concerning or relating in any way to: (1) Graubart's status as an
employee or officer of the Company, Masatepe, or Masatepe S.A. or any of their
subsidiaries or affiliates; (2) Graubart's employment relationship and/or the
termination of his employment relationship with the Company, Masatepe, or
Masatepe S.A. or any of their subsidiaries or affiliates; and (3) any claims
arising under any and all federal, state or local statutory or common laws
including, but not limited to, any claims arising under Title VII of the Civil
Rights Act of 1964, 42 U.S.C. Section 2000e, Age Discrimination in Employment
Act, 29 U.S.C. Section 621 et seq., the Americans with Disabilities Act, 42
U.S.C. Section 12101, et seq., the Employee Retirement Income Security Act, 29
U.S.C. Section 1001, et seq. It is expressly understood and agreed that the
foregoing shall operate as a clear and unequivocal waiver by Graubart of any
claim for accrued or future wages, benefits or any other type of payment
including, but not limited to the Promissory Note, the Option Agreement, the
Option Grant, the Stock Bonuses and any and all stock grants or stock options or
other securities referenced in or contemplated by the Employment Agreement.
Except as set forth in Paragraphs 11.3 and 11.4 and except for the Company's
obligations set forth in this Settlement Agreement, the Parties intend this to
be a general release and nothing contained herein shall be deemed to limit the
scope of the release in any manner.
36
<PAGE>
11.2. Except as provided in Paragraphs 11.3 and 11.4, Graubart
further agrees and covenants that neither he, nor any person, organization or
other entity on his behalf, will file, charge, claim, sue or cause or permit to
be filed, charged or claimed any action for legal or equitable relief (including
damages, injunctive, declaratory, monetary or other relief) involving any matter
within the scope of the release set forth in Paragraph 11.1. Graubart agrees
that he will not provide any assistance or advisory services efforts (unless
required by law or compelled by legal process) to any third parties in
connection with any disputes, claims or legal proceedings between such third
parties and the Company, Masatepe, Masatepe S.A. and/or their subsidiaries or
affiliates.
11.3. This Agreement does not prevent Graubart from filing a charge
of discrimination with the Equal Employment Opportunity Commission, although by
signing this Agreement Graubart waives his right to recover any damages or other
relief in any claim or suit brought by or through the Equal Employment
Opportunity Commission or any other state or local agency on his behalf under
any federal or state discrimination law, except where prohibited by law.
Graubart agrees to release and discharge the Releasees not only from any and all
claims which he could make on his own behalf but also specifically waives any
right to become, and promises not to become, a member of any class in any
proceeding or case in which a claim or claims against the Releasees may arise,
in whole or in part, from any event which occurred as of the Date of this
Agreement.
11.4. By executing this Settlement Agreement, Graubart is not
waiving his right to indemnification on the terms set forth in the Company's
Certificate of Incorporation, as amended. Graubart reserves the right to assert
claims for contribution or indemnification against the Company or Masatepe in
the event of an action asserted by a third party against Graubart.
37
<PAGE>
12. Release by the Company and Masatepe.
12.1. Except for Graubart's obligations set forth in this Settlement
Agreement and the limitation in Paragraph 12.3, the Company and Masatepe and
their subsidiaries and affiliates (the "VDC Releasors"), for and in
consideration of the undertakings set forth in this Settlement Agreement, and
intending to be legally bound, do hereby REMISE, RELEASE AND FOREVER DISCHARGE
Graubart and his heirs, executors and administrators attorneys and insurers, of
and from any and all manner of actions and causes of actions, suits, debts,
claims and demands whatsoever in law or in equity, which they ever had, now
have, or hereafter may have, or which their successors or assigns hereafter may
have by reason of any matter, cause or thing whatsoever from the beginning of
the world to the Date of this Agreement. This release includes, but is not
limited to, any claims concerning or relating in any way to: (1) Graubart's
status as an employee or officer of the Company, Masatepe, or Masatepe S.A. or
any of their subsidiaries or affiliates; (2) Graubart's employment relationship
and/or the termination of his employment relationship with the Company,
Masatepe, or Masatepe S.A. or any of their subsidiaries or affiliates; and (3)
any claims arising under any and all federal, state or local statutory or common
laws. Except as set forth in Paragraph 12.3 hereof and except for Graubart's
obligations set forth in this Settlement Agreement, the Parties intend this to
be a general release and nothing contained herein shall be deemed to limit the
scope of the release in any manner.
12.2. Except as set forth in Paragraph 12.3 and subject to Graubart
fulfilling his obligations as set forth in this Settlement Agreement, the VDC
Releasors also agree that they will not file any claim for legal or equitable
relief against Graubart for any matter within the scope of the release set forth
in Paragraph 12.1. The Company agrees that it will provide no assistance or
advisory services (unless required by law or compelled by legal process), to any
third parties in connection with any disputes between such third parties and
Graubart. Nothing contained herein shall restrict the Company's or Masatepe's
ability to cooperate in any manner they deem appropriate with any law
enforcement agency inquiry, investigation or prosecution.
38
<PAGE>
12.3. The VDC Releasors, and each one of them, reserve their right
to assert claims for contribution or indemnification in the event of an action
asserted by a third party against the VDC Releasors, or any one of them.
13. Consulting Services.
13.1. Graubart shall provide consulting services (the "Consulting
Services") as an independent contractor and the Company shall utilize such
services for a minimum of ten (10) days during the one (1) year following the
Date of this Agreement. Said Consulting Services shall be provided for at least
eight (8) hours per diem.
13.2. Graubart shall be paid at the rate of $1,250 per diem.
13.3. The Company shall reimburse Graubart for any out-of-pocket
expenses, preapproved by the Company in writing, incurred by Graubart in
rendering Consulting Services.
13.4. Graubart shall make himself available to render, without
charge, Consulting Services to the Company on March 9, 1999 after 6:00 p.m. and
for one (1) other business day within one (1) month from the Date of this
Agreement.
13.5. All Consulting Services must be initiated by the Company in
writing setting forth the scope of the services to be rendered. The Consulting
Services so initiated shall be performed on days and times mutually agreeable to
the Company and Graubart.
39
<PAGE>
14. Certain Additional Covenants.
14.1. Graubart agrees that he shall not make or publish, or assist
anyone else to make or publish, any negative, critical, disparaging, slanderous,
or libelous statements about the Company, Masatepe, Masatepe S.A. or their
subsidiaries or affiliates or any of their respective officers, directors,
agents, employees, or representatives, and (unless and then only to the extent)
required by law, shall not disclose the terms and provisions of the Settlement
Agreement to any third party without the Company's consent.
14.2. The Company agrees that neither it nor its officers,
directors, agents, employees, or representatives shall make or publish any
negative, critical, disparaging, slanderous, or libelous statements about
Graubart and (unless and then only to the extent required by law), shall not
disclose the terms and provisions of the Settlement Agreement to any third party
without the Graubart's consent. Nothing contained herein shall prevent the
Company from disclosing the terms and conditions of the Settlement Agreement to
comply with the rules and regulations of the Securities and Exchange Commission.
14.3. At any time and from time to time, each Party agrees, without
further consideration, to take such actions and to execute and deliver such
documents as are necessary or reasonable to effectuate the terms, conditions,
and purposes of this Settlement Agreement.
14.4. Except to the extent authorized by the Company's Chief
Executive Officer in a writing dated after the Date of this Agreement, Graubart
covenants and agrees that he shall not represent to any individual or entity
that he is an officer or authorized representative of the Company, Masatepe,
Masatepe S.A. or any of their subsidiaries or affiliates. Furthermore, except to
the extent authorized by the Company's Chief Executive Officer in a writing
dated after the Date of this Agreement, Graubart covenants and agrees that he
shall not represent to any third party that he has the authority or ability to
execute contracts or other documents or make decisions or take actions on behalf
of the Company, Masatepe, Masatepe S.A. or any of their subsidiaries or
affiliates or any of their respective members, officers, directors, employees or
agents.
40
<PAGE>
14.5. Graubart shall file a stipulation of voluntary dismissal
of the Action with prejudice pursuant to Fed. R. Civ. P. 41(a) immediately upon
execution of this Settlement Agreement.
14.6. Within five (5) days of the Date of this Agreement, Graubart
shall withdraw the Demand for Arbitration.
14.7. The Parties shall execute and deliver to the Company,
contemporaneously with the execution of the Settlement Agreement, the letter
attached hereto as Schedule 14.7 and incorporated herein by reference. The
Parties shall use their reasonable best efforts to have Activated Communications
Limited Partnership execute said letter promptly after the execution of this
Settlement Agreement.
15. Representations and Warranties of Graubart.
15.1. Graubart knows of no action or failure to act on the part of
the Company, Masatepe or their subsidiaries or affiliates (including their
directors, officers, employees and other agents and representatives) condition,
event, occurrence or the like, which could form the basis for a claim or
complaint against the Company, its subsidiaries or other entities or individuals
described above, by any third party.
15.2. Graubart has not during the term of his employment disclosed
to third parties, without the knowledge or permission of the Company,
Confidential Information about the Company, Masatepe, Masatepe S.A. or their
affiliates or subsidiaries, their technologies, formulations, customers, or
suppliers, nor has he undertaken any act or omission to act in a manner which
breaches Paragraph 7 of the Employment Agreement.
15.3. Graubart has not entered into any contracts on behalf of the
Company or Masatepe or their subsidiaries or affiliates or otherwise
contractually or legally bound said entities except as set forth on Schedule
15.3 attached hereto and incorporated herein by reference.
41
<PAGE>
15.4. Graubart has not negotiated or otherwise transferred or
assigned the Promissory Note.
15.5. Graubart represents and warrants that he has not sold,
assigned, transferred, conveyed, or otherwise disposed of any of the claims
settled by this Settlement Agreement.
15.6. In deciding to enter into this Settlement Agreement, Graubart
has not relied on any statements, representations, promises or undertaking or
inducements made by the Company and/or Masatepe or any of their officers,
directors, employees and or agents except as set forth in the Settlement
Agreement.
15.7. Graubart has entered into this Settlement Agreement
voluntarily and of his own volition without any pressure or influence whatsoever
by any individual including, but not limited to, its attorney and/or any
officer, director or employee of the Company.
15.8. Graubart has read this Settlement Agreement, understands this
Settlement Agreement, and has knowingly with a complete understanding of the
terms and provision herein, affixed his signature to this Settlement Agreement.
15.9. Graubart has consulted with Rosenfeld of Rosenfeld, Jacobs &
King L.L.P., his legal counsel concerning any and all rights he may have or
claim to have against the Company and Masatepe and has individually and through
his attorneys conducted such investigation as he and his counsel considered
necessary and appropriate to satisfy themselves that this Settlement Agreement
is a fair settlement.
16. Representation and Warranties of the Company
16.1. The Company and Masatepe know of no action or failure to act
on their part or on their part of subsidiaries or affiliates (including their
directors, employees, and other agents and representatives) condition, event,
occurrence or like, which could form the basis for a claim or complaint against
Graubart, his agents or assigns, by any third party.
42
<PAGE>
16.2. The Company is unaware of any circumstances that would prevent
the Settlement Shares from being included in the Additional Listing Application
in connection with the Registration Statement currently being prepared by the
Company and having their potential resale registered as part of the Registration
Statement.
16.3. The Company and Masatepe have taken all corporate and
shareholder action necessary to authorize and effectuate the terms and
conditions of this Settlement Agreement.
16.4. In deciding to enter into this Settlement Agreement, the
Company and Masatepe have not relied on any statements, representations,
promises or undertaking or inducements made by the Graubart except as set forth
in the Settlement Agreement.
16.5. The Company and Masatepe has entered into this Settlement
Agreement voluntarily and of its own volition without any pressure or influence
whatsoever by any individual including, but not limited to, its attorney and/or
any officer, director or employee of the Company.
16.6. The authorized officers are executing this Settlement
Agreement on behalf of the Company and Masatepe with the authorization of the
Board of Directors of both companies, have read this Settlement Agreement,
understand this Settlement Agreement, and have knowingly with a complete
understanding of the terms and provision herein, affixed their signatures to
this Settlement Agreement.
16.7. The Company, Masatepe and their officers have consulted with
Paul Hastings Janofsky & Walker LLP, their legal counsel concerning any and all
rights they may have or claim to have against Graubart and have individually and
through their attorneys conducted such investigation as counsel, the Company and
Masatepe considered necessary and appropriate to satisfy themselves that this
Settlement Agreement is a fair settlement.
43
<PAGE>
17. Arbitration. Any dispute between the Parties hereunder shall be
determined by binding arbitration applying the laws of the State of New York.
Any arbitration pursuant to this Agreement shall be conducted in New York, New
York before the American Arbitration Association in accordance with its
arbitration rules. The arbitration shall be final and binding upon all the
Parties (so long as the award was not procured by corruption, fraud or undue
means) and the arbitrator's award shall not be required to include factual
findings or legal reasoning. Nothing in this Paragraph 17 will prevent the
Parties from resorting to judicial proceedings if interim injunctive relief
under the laws of the State of New York from a court is necessary to prevent
serious and irreparable injuries to one of the Parties, and the Parties agree
that the federal and state courts located in New York, New York shall have
exclusive subject matter and in personam jurisdiction over the Parties and any
such claims or disputes arising from the subject matter contained herein.
18. Good Faith Effort to Resolve Disputes. Each Party agrees that prior to
initiating arbitration or seeking injunctive relief as permitted by this
Settlement Agreement, the complaining Party will make a good faith effort to
resolve the dispute with the Party that would be the defendant or respondent, as
the case may be.
19. COBRA. Graubart retains the right to COBRA continuation as to any
Company health plan he had immediately prior to the date of this Settlement
Agreement under the normal COBRA health care continuation rules.
20. Awards, Judgments, Orders. With regard to any arbitration award or
judgement or order for injunctive relief resulting from any dispute associated
with or arising out of this Settlement Agreement, the Parties consent to the
jurisdiction of the state and federal courts of New York and Connecticut for
purposes of enforcing said award, judgement, or order. Additionally, with regard
to any arbitration award or judgment or order for injunctive relief resulting
from any dispute associated with or arising out of this Settlement Agreement,
Graubart consents to enforcement of said award, judgement or order in every
state in the United States and in every country in North America, Central
America or South America.
44
<PAGE>
21. Notice. Any notice, demand, or communication given in connection with
this Agreement shall be in writing and shall be deemed received (a) when
delivered if given in person or by courier or courier service, or (b) on the
date and at the time of transmission if sent by facsimile (receipt confirmed) or
(c) five (5) business days after being deposited in the mail postage prepaid.
22. Applicable Law. This Settlement Agreement shall be construed in
accordance with the laws of the State of New York without regard to principles
of conflict of laws.
23. Entire Agreement. This Settlement Agreement contains the entire
agreement of the Parties with respect to the subject matter hereof and
supersedes all existing agreements among them concerning such subject matter.
The Settlement Agreement may not be changed orally but only by an agreement in
writing signed by the Party against whom enforcement of any waiver, change,
modification, extension or discharge is sought.
24. Rule of Construction. No rule of construction requiring interpretation
against the drafting party shall apply to the interpretation of this Settlement
Agreement.
25. Agreement Read and Understood. The Parties hereto acknowledge that
they have had an opportunity to consult with an attorney regarding this
Agreement and that they, or their designated agents, have read and understand
this Settlement Agreement.
26. Review and Revocation Period. Graubart acknowledges that he has been
informed that he has the right to consider this Settlement Agreement for a
period of at least twenty-one (21) days prior to entering the Settlement
Agreement. He also understands that he has the right to revoke this Settlement
Agreement for a period of seven (7) days following his execution of the
Settlement Agreement by giving written notice to the Chief Executive Officer of
the Company at its principal offices. Such notice shall be effective upon
receipt by the Company's Chief Executive Officer.
27. Signatures in Counterpart and Facsimile. This Settlement Agreement may
be executed in multiple counterparts and by facsimile signature, each of which
shall constitute an original, but all of which counterparts taken together shall
constitute one and the same instrument.
45
<PAGE>
28. Captions. The captions or headings of the paragraphs or other
subdivisions hereof are inserted only as a matter of convenience or for other
reference and shall have no affect on the meaning of the provisions hereof.
29. Severability. The invalidity or unenforceability of any term of this
Settlement Agreement shall not affect the validity or enforeceability of this
Settlement Agreement or any of its other terms; in the event that any court of
equity or arbitrator determines that the time period and/or scope of any
paragraph or section of this Settlement Agreement is unenforceably long or
broad, as the case may be, then, and in either such event, neither the
enforceability nor the validity of said paragraph or section as a whole shall be
affected. Rather, the scope of the section shall be revised by the court or
arbitrator as little as possible to make the section enforceable. If the court
or arbitrator will not revise said paragraph or section, then this Settlement
Agreement shall be construed as though the invalid or unenforceable term(s) were
not included herein, unless the effect would be to vitiate the Parties'
fundamental purposes of entering into this Settlement Agreement.
30. Recitals. The Recitals to this Settlement Agreement shall be deemed a
part of this Settlement Agreement.
31. Binding Effect. This Settlement Agreement shall be binding upon and
inure to the benefit of the Parties and VDC's and/or Masatepe's successors and
assigns and Graubart's assigns, heirs and personal representatives.
32. Waiver. Any waiver by any Party of a breach of any provision of this
Settlement Agreement shall not operate or be construed to be a waiver of any
other breach of that provision or of any other provision. The failure of any
Party to insist upon strict adherence to any term of this Settlement Agreement
on one or more occasions shall not be considered a waiver or deprive that party
of the right to insist upon strict adherence in the future. Any waiver must be
in writing.
46
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Settlement
Agreement the day and year first above written.
WITNESS: VDC COMMUNICATIONS, INC.
/s/ Edwin B. Read By: /s/ Frederick A. Moran
- --------------------------- ---------------------------------------
Frederick A. Moran
Chairman & CEO
WITNESS: MASATEPE COMMUNICATIONS, U.S.A.,
L.L.C.
/s/ Edwin B. Read By: VDC Communications, Inc., its managing
- --------------------------- member
By: /s/ Frederick A. Moran
----------------------------------
Frederick A. Moran
Chairman & CEO
WITNESS:
/s/ unreadable /s/ Marc Graubart
- --------------------------- ----------------------------------
Marc Graubart
47
<PAGE>
Schedule 1.2
Reference is made to the Settlement Agreement dated March 9, 1999 by and
among VDC Communications, Inc. (the "Company"), Masatepe Communications, U.S.A.,
L.L.C. and Marc Graubart (the "Settlement Agreement") and, in particular,
Paragraph 1.2 (a) thereof.
At the request of all parties to the Settlement Agreement, Paul,
Hastings, Janofsky & Walker LLP ("PHJW") has agreed to act as Escrow Agent to
hold the Escrow Shares on the terms and conditions set forth below.
PHJW agrees to hold the Escrow Shares until receipt from the Company of
written direction to deliver the Escrow Shares to Graubart or receipt from
Graubart of written direction to deliver the Escrow Shares to the Company. If,
after one year from the date of the Settlement Agreement, PHJW does not receive
such direction from the Company or Graubart, PHJW may fulfill its obligations
hereunder by depositing the Escrow Shares into a court in New York or
Connecticut and, in such event, PHJW will be absolved of any liability to any of
the parties to the Settlement Agreement. Any costs PHJW may incur in depositing
the Escrow Shares into a court will be shared equally by the Company and
Graubart.
Graubart expressly agrees that notwithstanding it serving as Escrow
Agent, PHJW may represent the Company in any disputes arising out of the
Settlement Agreement or otherwise and Graubart expressly waives any conflict
that might exist by virtue of PHJW serving as Escrow Agent.
48
<PAGE>
Exhibit "A"
[VDC Letterhead]
To [Name of Vendor]
Dear Vendor:
Upon behalf of VDC Communications, Inc. ("VDC") and Masatepe
Communications, U.S.A. L.L.C. ("Masatepe"), I am pleased to inform you that
there has been a settlement of all disputes with the Marc Graubart, the former
CEO and President of Masatepe. Although Mr. Graubart has resigned as Masatepe's
CEO and President, the Company has reserved the right to retain Mr. Graubart to
provide consulting services on an interim basis. We believe that the present
arrangement will enable VDC to enhance its resources and thus aid its efforts to
expand its telecommunications network.
Very truly yours,
---------------------------------
Frederick A. Moran
Chairman & CEO
49
<PAGE>
Schedule 14.7
March 9, 1999
Stephen M. Cohen, Esq.
BUCHANAN INGERSOLL PROFESSIONAL CORPORATION
Eleven Penn Center
1835 Market Street, 14th Floor
Philadelphia, Pennsylvania 19103
Re: Release of Promissory Note
Dear Mr. Cohen:
Reference is made to the Purchase Agreement, dated as of July 31, 1998, by
and among VDC Corporation Ltd., Masatepe Communications, U.S.A., L.L.C.,
Activated Communications Limited Partnership, and Marc Graubart, and the Escrow
Agreements dated as of July 31, 1998 related thereto. The undersigned hereby
instruct BUCHANAN INGERSOLL PROFESSIONAL CORPORATION, in its capacity as Escrow
Agent under the Escrow Agreements, to immediately release to VDC Communications,
Inc., for cancellation, the Promissory Note, dated July 31, 1998, with VDC
Corporation Ltd. as maker and Marc Graubart as payee.
Very truly yours,
VDC COMMUNICATIONS, INC.
By:
----------------------------------
Frederick A. Moran
Chairman & C.E.O.
MASATEPE COMMUNICATIONS, U.S.A., L.L.C.
By: VDC Communications, Inc., its managing
member
By:
-----------------------------
Frederick A. Moran
Chairman & C.E.O.
ACTIVATED COMMUNICATIONS LIMITED
PARTNERSHIP
By: Cellular Dynamics, Inc., its general
partner
By:
-----------------------------
Adam Lindemann
Vice President
50
<PAGE>
Stephen M. Cohen, Esq.
March 9, 1999
Page 2
--------------------------------
Marc Graubart
cc: Glenn S. Arden, Esq.
Tab K. Rosenfeld, Esq.
51
<PAGE>
Schedule 15.3
1. Carrier Services Agreement with D. Comm.
2. Contract with ValueCom for E-1 Space Segment.
3. Purchase Order with IDB Systems for a 9.3 meter earth station.
4. Letter Agreement with Virgil Gibson for design of multiplexing network.
5. Contract with ENITEL (operating Agreement).
6. Arrangement for Tricom to provide switching and billing for 50,000 free
minutes per month. (This is only an agreement with no set term).
7. Contract with Newbridge Networks for purchase and financing of muxing
equipment.
8. Contract with IDB Systems converting FlyAway Earth Station to capital lease.
9. Graubart will furnish the Company with copies of each of these agreements.
52
The following form was used in connection with a private placement in December,
1998, pursuant to which the following individuals and entities were involved on
the following terms:
<TABLE>
<CAPTION>
Name Price Per Share Number of Shares
- ---- --------------- ----------------
<S> <C> <C>
Moran Equity Fund, Inc. 3.625 938
Anne Moran, IRA 3.625 49,379
Luke Moran 3.625 9,352
Kent Moran 3.625 8,221
Anne Moran 3.625 35,310
Frederick A. Moran, IRA 3.625 331
Joan B. Moran, IRA 3.625 248
Anne Moran & Frederick A. Moran 3.625 41,380
Frederick W. Moran 3.625 100,000
-------
===== =======
TOTAL 245,159
</TABLE>
VDC COMMUNICATIONS, INC.
----------
SECURITIES PURCHASE AGREEMENT
----------
SHARES OF COMMON STOCK
at $3.625 per Share
----------
December 23, 1998
53
<PAGE>
CONFIDENTIAL
- ------------
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement") is entered into as
of the 23rd day of December, 1998, by and between VDC Communications, Inc., a
Delaware corporation ("VDC" or the "Company"), and the investor whose name
appears at the end of this Agreement ("Purchaser" or "Subscriber").
R E C I T A L S:
----------------
The Company wishes to obtain additional working capital and the
Purchaser desires to provide such working capital to the Company through the
purchase of certain shares of the Company's common stock, $.0001 par value per
share (the "Common Stock"), being privately offered by the Company.
NOW, THEREFORE, in consideration of the premises hereof and the
agreements set forth herein below, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Sale and Purchase of Shares.
Subject to the terms and conditions hereof, the Company agrees to
issue and sell, and the Purchaser agrees to purchase, ______ shares of Common
Stock at a purchase price of $3.625 per share. The purchase price is payable
upon subscription in cash, check or wire transfer. If paying by check, the check
should be made payable to "VDC Communications, Inc." and delivered to VDC
Communications, Inc. at 75 Holly Hill Lane, Greenwich, Connecticut, 06830.
No broker, investment banker or any other person will receive
from the Company any compensation as a broker, finder, adviser or in any other
capacity in connection with the purchase of the Shares.
2. Description of the Shares.
(a) Restricted Securities. The shares of Common Stock of the
Company being offered hereby (the "Shares") shall be "restricted securities" as
that term is defined under Rule 144 of the Securities Act of 1933, as amended
(the "Act") and may not be offered for sale or sold or otherwise transferred in
a transaction which would constitute a sale thereof within the meaning of the
Act unless (i) such security has been registered for sale under the Act and
registered or qualified under applicable state securities laws relating to the
offer and sale of securities; or (ii) exemptions from the registration
requirements of the Act and the registration or qualification requirements of
all such state securities laws are available and the Company shall have received
an opinion of counsel that the proposed sale or other disposition of such
securities may be effected without registration under the Act and would not
result in any violation of any applicable state securities laws relating to the
registration or qualification of securities for sale, such counsel and such
opinion to be satisfactory to the Company.
(b) Voting Rights; Dividends. Holders of Common Stock of the
Company have equal rights to receive dividends when, as, and if declared by the
Board of Directors out of funds legally available therefor. Holders of Common
Stock of the Company have one vote for each share held of record and do not have
cumulative voting rights.
54
<PAGE>
(c) Liquidation; Redemption. Holders of Common Stock of the
Company are entitled upon liquidation of the Company to share ratably in the net
assets available for distribution, subject to the rights, if any of holders of
any preferred stock of the Company then outstanding. Shares of Common Stock of
the Company are not redeemable and have no preemptive or similar rights. All
outstanding shares of Common Stock of the Company are fully paid and
nonassessable.
(d) Restriction Upon Resale. The Subscriber hereby agrees
that the Shares shall be subject to restrictions upon the transfer, sale,
encumbrance or other disposition of the Shares. See "UNDERSTANDING OF INVESTMENT
RISKS" AND "REGISTRATION RIGHTS".
3. Shares Offered in a Private Placement Transaction.
The Shares offered by this Securities Purchase Agreement are
being offered as a non-public offering pursuant to Section 4(2) and Regulation D
of the Act ("Regulation D").
4. Binding Effect of Securities Purchase Agreement; The Closing.
This Securities Purchase Agreement shall not be binding on the
Company unless and until an authorized executive officer of the Company has
evidenced acceptance thereof by executing the signature page at the end hereof.
The Company may accept or reject this Securities Purchase Agreement in its sole
discretion if the Purchaser does not meet the suitability standards established
herein, or for any other reason. A closing (the "Closing") will occur
contemporaneously with the execution of this Agreement by all parties hereto.
5. Representations and Warranties of the Purchaser. The Purchaser
represents and warrants to the Company as follows:
(a) Accredited Investor. The Purchaser has such knowledge
and experience in business and financial matters such that the Purchaser is
capable of evaluating the merits and risks of purchasing the Shares. The
Purchaser is either an "accredited investor" as that term is defined in Rule 501
of Regulation D of the Act or a "qualified institutional buyer" as that term is
defined in Rule 144A of the Act, and represents that he satisfies the
suitability standards identified in Section 9 hereof;
(b) Loss of Investment. The Purchaser(`s) (i) overall
commitment to investments which are not readily marketable is not
disproportionate to his net worth; (ii) investment in the Company will not cause
such overall commitment to become excessive; (iii) can afford to bear the loss
of his entire investment in the Company; and (iv) has adequate means of
providing for his current needs and personal contingencies and has no need for
liquidity in his investment in the Company;
(c) Special Suitability. The Purchaser satisfies any special
suitability or other applicable requirements of his state of residence and/or
the state in which the transaction by which the Shares are purchased occurs;
55
<PAGE>
(d) Investment Intent. The Purchaser hereby acknowledges
that the Purchaser has been advised that this offering has not been registered
with, or reviewed by, the Securities and Exchange Commission ("SEC") because
this offering is intended to be a non-public offering pursuant to Section 4(2)
and Regulation D of the Act. The Purchaser represents that the Purchaser's
Shares are being purchased for the Purchaser's own account and not on behalf of
any other person, for investment purposes only and not with a view towards
distribution or resale to others. The Purchaser agrees that the Purchaser will
not attempt to sell, transfer, assign, pledge or otherwise dispose of all or any
portion of the Shares unless they are registered under the Act or unless in the
opinion of counsel an exemption from such registration is available, such
counsel and such opinion to be satisfactory to the Company. The Purchaser
understands that the Shares have not been registered under the Act by reason of
a claimed exemption under the provisions of the Act which depends, in part, upon
the Purchaser's investment intention;
(e) State Securities Laws. The Purchaser understands that no
securities administrator of any state has made any finding or determination
relating to the fairness of this investment and that no securities administrator
of any state has recommended or endorsed, or will recommend or endorse, the
offering of the Shares;
(f) Authority; Power; No Conflict. The execution, delivery
and performance by the Purchaser of the Agreement are within the powers of the
Purchaser, have been duly authorized and will not constitute or result in a
breach or default under, or conflict with, any order, ruling or regulation of
any court or other tribunal or of any governmental commission or agency, or any
agreement or other undertaking, to which the Purchaser is a party or by which
the Purchaser is bound, and, if the Purchaser is not an individual, will not
violate any provision of the charter documents, Bylaws, indenture of trust or
partnership agreement, as applicable, of the Purchaser. The signatures on the
Agreement are genuine, and the signatory, if the Purchaser is an individual, has
legal competence and capacity to execute the same, or, if the Purchaser is not
an individual, the signatory has been duly authorized to execute the same; and
the Agreement constitutes the legal, valid and binding obligations of the
Purchaser, enforceable in accordance with its terms;
(g) No General Solicitation. The Purchaser acknowledges that
no general solicitation or general advertising (including communications
published in any newspaper, magazine or other broadcast) has been received by
him and that no public solicitation or advertisement with respect to the
offering of the Shares has been made to him;
(h) Advice of Tax and Legal Advisors. The Purchaser has
relied solely upon the advice of his own tax and legal advisors with respect to
the tax and other legal aspects of this investment;
(i) No Broker Fees. The Purchaser is not aware that any
person, and has been advised that no person, will receive from the Company any
compensation as a broker, finder, adviser or in any other capacity in connection
with the purchase of the Shares other than as declared herein;
(j) Access to Information. Purchaser has had access to all
material and relevant information concerning the Company, its management,
financial condition, capitalization, market information, properties and
prospects necessary to enable Purchaser to make an informed investment decision
with respect to its investment in the Shares. Purchaser has carefully read and
reviewed, and is familiar with and understands the contents thereof and hereof,
including, without limitation, the risk factors described in this Agreement. See
"UNDERSTANDING OF INVESTMENT RISKS." Purchaser acknowledges that it has had the
opportunity to ask questions of and receive answers from, and to obtain
additional information from, representatives of the Company concerning the terms
and conditions of the acquisition of the Shares and the present and proposed
business and financial condition of the Company, and has had all such questions
answered to its satisfaction and has been supplied all information requested;
56
<PAGE>
(k) Review of Exchange Act Reports. The Purchaser
acknowledges that it has been provided with an opportunity to review: (i) a
copy of the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998; (ii) a copy of the Company's Registration Statement on
Form S-4, in accordance with which VDC Bermuda LTD., a Bermuda company merged
with and into the Company; and (iii) all other relevant reports filed by the
Company with the Securities and Exchange Commission under the Securities
Exchange Act of 1934.
(l) Understanding the Nature of Securities. The Purchaser
understands and acknowledges that:
(i) The Shares have not been registered under the Act
or any state securities laws and are being issued and sold in reliance upon
certain exemptions contained in the Act;
(ii) The Shares are "restricted securities" as that
term is defined in Rule 144 promulgated under the Act;
(iii) The Shares cannot be sold or transferred without
registration under the Act and applicable state securities laws, or unless
the Company receives an opinion of counsel reasonably acceptable to it (as to
both counsel and the opinion) that such registration is not necessary; and
(iv) The Shares and any certificates issued in
replacement therefor shall bear the following legend, in addition to any
other legend required by law or otherwise:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN TAKEN BY THE
REGISTERED OWNER FOR INVESTMENT, AND WITHOUT A VIEW TO RESALE OR
DISTRIBUTION THEREOF, AND MAY NOT BE TRANSFERRED OR DISPOSED OF
WITHOUT AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT
SUCH TRANSFER OR DISPOSITION DOES NOT VIOLATE THE SECURITIES ACT
OF 1933, AS AMENDED, OR THE RULES AND REGULATIONS THEREUNDER."
6. Understanding of Investment Risks. Any investment in the Shares
should not be made by a Purchaser who cannot afford the loss of his entire
Purchase Price. THE PURCHASER ACKNOWLEDGES THAT THE SHARES OFFERED HEREBY HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, OR
ANY STATE SECURITIES COMMISSIONS, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ADEQUACY OR ACCURACY OF THIS
SECURITIES PURCHASE AGREEMENT OR ANY EXHIBIT HERETO. PRIOR TO MAKING AN
INVESTMENT IN THE SHARES, THE PURCHASER HAS FULLY CONSIDERED, AMONG OTHER
THINGS, THE FINANCIAL AND OTHER INFORMATION SET FORTH IN THE COMPANY'S QUARTERLY
REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998, AND ACKNOWLEDGES
THAT SUCH INFORMATION HAVE BEEN CONSIDERED PRIOR TO MAKING THIS INVESTMENT
DECISION.
57
<PAGE>
7. Registration Rights. The Company agrees that within one hundred
twenty (120) days of the Closing, it will use its reasonable best efforts to
prepare and file with the Securities and Exchange Commission, and use its
reasonable best efforts to have declared effective thereafter, a Registration
Statement on Form S-1 or other equivalent form pursuant to which the Company
shall register the public resale of the Shares. The Company shall have the right
to include within such Registration Statement any other securities on behalf of
the Company or security holders. The expenses of such registration shall be
borne by the Company.
Notwithstanding the foregoing, the Company may: (A) delay filing
the Registration Statement and may withhold efforts to cause the Registration
Statement to become effective, if the Company determines in good faith that such
registration rights might (i) interfere with or affect the negotiation or
completion of any transaction that is being contemplated by the Company (whether
or not a final decision has been made to undertake such transaction) at the time
the right to delay is exercised, or (ii) involve initial or continuing
disclosure obligations that might not be in the best interest of the Company's
stockholders, and (B) not include the Shares in a Registration Statement
covering an underwritten offering to the extent that the inclusion of the Shares
would, in the opinion of the managing underwriter of such an offering, adversely
affect such an offering or the market for the Company's securities. In the event
that the Shares are not included in the Registration Statement in accordance
with the provisions of clause (B) above, the Company agrees to register the
Shares promptly after the completion of the underwritten offering described in
clause (B) as may be permitted by the managing underwriter of such an offering.
If, after the Registration Statement becomes effective, the Company advises the
holders of registered Shares that the Company considers it appropriate for the
Registration Statement to be amended, the holders of such Shares shall suspend
any further sales of their registered Shares until the Company advises them that
the Registration Statement has been amended.
Each holder of Shares whose shares are registered pursuant to the
Registration Statement set forth herein shall indemnify and hold harmless the
Company, each of its directors and each of its officers from and against any and
all claims, damages or liabilities, joint or several, to which they or any of
them may become subject, including all legal and other expenses, arising out of
or in connection with any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement, in any preliminary or
amended preliminary prospectus or in the prospectus (or the Registration
Statement or prospectus as from time to time amended or supplemented) or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading in the circumstances in which they were made,
but only insofar as any such statement or omission was made in reliance upon and
in conformity with information furnished in writing to the Company in connection
therewith by such holder expressly for use therein. The liability of any such
holder shall be limited to the aggregate price at which such holder's Shares of
the Company is sold.
In connection with the registration rights, the Company shall have no
obligation: (i) to assist or cooperate in the offering or disposition of such
Shares; (ii) to indemnify or hold harmless the holders of the securities being
registered; (iii) to obtain a commitment from an underwriter relative to the
sale of such Shares; or (iv) to include such Shares within an underwritten
offering of the Company.
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8. Representations and Warranties of the Company. The Company
hereby represents and warrants to Purchaser as follows:
(a) Organization and Standing of the Company. The Company is
a duly organized and validly existing corporation in good standing under the
laws of the State of Delaware with adequate power and authority to conduct the
business in which it is now engaged and has the corporate power and authority to
enter into this Agreement, and is duly qualified and licensed to do business as
a foreign corporation in such other jurisdictions as is necessary to enable it
to carry on its business, except where failure to do so would not have a
material adverse effect on its business;
(b) Corporate Power and Authority. The execution and
delivery of this Agreement and the transactions contemplated hereby have been
duly authorized by the Board of Directors of the Company. No other corporate act
or proceeding on the part of the Company is necessary to authorize this
Agreement or the consummation of the transactions contemplated hereby. When duly
executed and delivered by the parties hereto, this Agreement will constitute a
valid and legally binding obligation of the Company enforceable against it in
accordance with its terms, except as such enforceability may be limited by (i)
bankruptcy, insolvency, moratorium, reorganization or other similar laws and
legal and equitable principles limiting or affecting the rights of creditors
generally; and/or (ii) general principles of equity, regardless of whether
considered in a proceeding in equity or at law;
(c) Noncontravention. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby will not,
to the best of the Company's knowledge and belief, (i) permit the termination or
acceleration of the maturity of any material indebtedness or material obligation
of the Company; (ii) permit the termination of any material note, mortgage,
indenture, license, agreement, contract, or other instrument to which the
Company is a party or by which it is bound or the Certificate of Incorporation
or Bylaws of the Company; (iii) except as expressly provided in this Agreement
and except for state "blue sky" approvals that may be required and those
consents and waivers which already have been obtained by the Company, require
the consent, approval, waiver or authorization from or registration or filing
with any party, including but not limited to any party to a material agreement
to which the Company is a party or by which it is bound, or any regulatory or
governmental agency, body or entity except where failure to obtain such consent,
approval, waiver or authorization would not have a material adverse effect on
the Company's business; (iv) result in the creation or imposition of any lien,
claim or encumbrance of any kind or nature on any material properties or assets
of the Company; or (v) violate in any material aspect any statue, law, rule,
regulation or ordinance, or any judgment, decree, order, regulation or rule of
any court, tribunal, administrative or governmental agency, body or entity to
which the Company or its properties is subject except where such violation would
not have a material adverse effect on the Company's business.
9. IMPORTANT CONSIDERATIONS: SUITABILITY STANDARDS - WHO SHOULD INVEST.
INVESTMENT IN THE SHARES INVOLVES A HIGH DEGREE OF RISK AND IS
SUITABLE ONLY FOR PERSONS OF SUBSTANTIAL FINANCIAL RESOURCES WHO HAVE NO NEED
FOR LIQUIDITY IN THEIR INVESTMENT.
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A substantial number of state securities commissions have
established investor suitability standards for the marketing within their
respective jurisdictions of restricted securities. Some have also established
minimum dollar levels for purchases in their states. The reasons for these
standards appear to be, among others, the relative lack of liquidity of
securities of such programs as compared with other securities investments.
Investment in the Shares involves a high degree of risk and is suitable only for
persons of substantial financial means who have no need for liquidity in their
investments.
The Company has adopted as a general investor suitability
standard the requirement that each Subscriber for Shares represents in writing
that the Subscriber: (a) is acquiring the Shares for investment and not with a
view to resale or distribution; (b) can bear the economic risk of losing its
entire investment; (c) its overall commitment to investments which are not
readily marketable is not disproportionate to its net worth, and an investment
in the Shares will not cause such overall commitment to become excessive; (d)
has adequate means of providing for its current needs and personal contingencies
and has no need for liquidity in this investment in the Shares; (e) has
evaluated all the risks of investment in the Company; and (f) has such knowledge
and experience in financial and business matters as to be capable of evaluating
the merits and risks of investing in the Company or is relying on its own
purchaser representative in making an investment decision.
In addition, all of the Subscribers for Shares must be: (1)
extremely sophisticated investors with substantial net worth and experience in
making investments of this nature; and (2) "accredited investors," as defined in
Rule 501 of Regulation D under the Act, by meeting any of the following
conditions:
(i) he or she has an individual income in excess of $200,000
in each of the two most recent years or joint income with his or her spouse in
excess of $300,000 in each of those years, and he or she reasonably expects an
income in excess of the aforesaid levels in the current year, or
(ii) he or she has an individual net worth, or a joint net worth
with his or her spouse, at the time of his or her purchase, in excess of
$1,000,000 (net worth for these purposes includes homes, home furnishings and
automobiles), or
(iii) he or she otherwise satisfies the Company that he or she is
an accredited investor, as defined in Rule 501 under the Act.
Other categories of investors included within the definition of
accredited investor include the following: certain institutional investors,
including certain banks, whether acting in their individual or fiduciary
capacities; certain insurance companies; federally registered investment
companies; business development companies (as defined under the Investment
Company Act of 1940); Small Business Investment Companies licensed by the Small
Business Administration; certain employee benefit plans; private business
development companies (as defined in the Investment Advisers Act of 1940); tax
exempt organizations (as defined in Section 501(c)(3) of the Internal Revenue
Code) with total assets in excess of $5,000,000; entities in which all the
equity owners are accredited investors; and certain affiliates of the Company.
A partnership Subscriber, which satisfies the requirements set
forth in clauses (a) through (f) above shall satisfy the suitability standards
if it is an accredited investor by reason of clause (iii) above, or if all of
its partners are accredited investors. A corporate subscriber, which satisfies
the requirements set forth in clauses (a) through (f) above shall satisfy the
investor suitability standards if it is an accredited investor by reason of
clause (iii) above, or if all of its shareholders are accredited investors.
Corporate subscribers must have net worth of at least three (3) times the amount
of their investment in the Shares.
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The suitability standards referred to above represent minimum
suitability requirements for prospective purchasers and the satisfaction of such
standards by a prospective purchaser does not necessarily mean that the Shares
are a suitable investment for such purchaser. The Company may, in circumstances
it deems appropriate, modify such requirements. The Company may also reject
subscriptions for whatever reasons, in its sole discretion, it deems
appropriate.
Securities Purchase Agreements may not necessarily be accepted in
the order in which received. Purchasers who are residents of certain states may
be required to meet certain additional suitability standards.
THE ACCEPTANCE OF A SUBSCRIPTION FOR SHARES BY THE COMPANY DOES
NOT CONSTITUTE A DETERMINATION BY THE COMPANY THAT AN INVESTMENT IN THE SHARES
IS SUITABLE FOR A PROSPECTIVE INVESTOR. THE FINAL DETERMINATION OF THE
SUITABILITY OF INVESTMENT IN THE SHARES MUST BE MADE BY THE PROSPECTIVE INVESTOR
AND HIS OR HER ADVISERS.
10. State Law Considerations for Residents of All States.
IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR
OWN EXAMINATION OF THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE
MERITS AND RISKS INVOLVED. THESE SHARES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL
OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE
FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY
OF THE DESCRIPTION OF BUSINESS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY
AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE
SECURITIES ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY WILL BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD
OF TIME.
11. Notices. All notices, requests, consents or other
communications required or permitted hereunder shall be in writing and shall be
hand delivered or mailed first class postage prepaid, registered or certified
mail, to the following addresses:
If to the Company:
VDC Communications, Inc.
75 Holly Hill Lane
Greenwich, CT 06830
Attention: Frederick A. Moran
Chairman & C.E.O.
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In the case of Purchaser:
To the address set forth at the end of this Agreement or to such
other addresses as may be specified in accordance herewith from time to time.
Unless specified otherwise, such notices and other communications
shall for all purposes of this Agreement be treated as being effective upon
being delivered personally or, if sent by mail, five days after the same has
been deposited in a regularly maintained receptacle for the deposit of United
States mail, addressed as set forth above, and postage prepaid.
12. Survival of Representations and Warranties. Representations and
warranties contained herein shall survive the execution and delivery of this
Agreement.
13. Parties in Interest. All the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective successors and permitted assigns of the parties hereto,
provided that this Agreement and the interests herein may not be assigned by
either party without the express written consent of the other party.
14. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the jurisdiction of incorporation of
the Company without regard to the principles of conflict of laws. The parties
hereto hereby submit to the exclusive jurisdiction of the courts located in the
jurisdiction of incorporation of the Company with respect to any dispute arising
under this Agreement, the agreements entered into in connection herewith or the
transactions contemplated hereby or thereby.
15. Sections and Other Headings. The section and other headings
contained in this Agreement are for the convenience of reference only, and do
not constitute part of this Agreement or otherwise affect any of the provisions
hereof.
16. Counterpart Signatures. This agreement may be signed in
counterparts and all counterparts together shall become effective only when the
counterpart(s) have been executed and delivered by and on behalf of the Company
and the Purchaser.
17. Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction.
18. Entire Agreement; Amendments. This Agreement and the
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Purchaser
make any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than by
an instrument in writing signed by the party to be charged with enforcement.
19. United States Dollars. All dollar amounts stated herein refer
to and are payable solely in United States Dollars.
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IN WITNESS WHEREOF, intending to be legally bound, the parties hereto
have caused this Agreement to be signed by their duly authorized officers.
Purchaser:
Shares/$
- ---------------------
Number and dollar amount ____________________________________
of Shares purchased - Name (Signature)
Purchase Price
Address/Residence of Purchaser:
------------------------------------
------------------------------------
------------------------------------
Social Security No.:
-----------------
Accredited Investor Certification
(Place initials on the appropriate line(s))
____ (i) I am a natural person who had individual income of more
than $200,000 in each of the most recent two years or joint
income with my spouse in excess of $300,000 in each of the most
recent two years and reasonably expect to reach that same income
level for the current year ("income", for purposes hereof, should
be computed as follows: individual adjusted gross income, as
reported (or to be reported) on a federal income tax return,
increased by (1) any deduction of long-term capital gains under
Section 1202 of the Internal Revenue Code of 1986 (the "Code"),
(2) any deduction for depletion under Section 611 et seq. of the
Code, (3) any exclusion for interest under Section 103 of the
Code and (4) any losses of a partnership as reported on Schedule
E of Form 1040);
_____ (ii) I am a natural person whose individual net worth
(i.e., total assets in excess of total liabilities), or joint net
worth with my spouse, will at the time of purchase of the Shares
be in excess of $1,000,000;
_____ (iii) The Purchaser is an investor satisfying the
requirements of Section 501(a)(1), (2) or (3) of Regulation D
promulgated under the Securities Act, which includes but is not
limited to, a self-directed employee benefit plan where
investment decisions are made solely by persons who are
"accredited investors" as otherwise defined in Regulation D;
_____ (iv) The Purchaser is a "qualified institutional buyer" as
that term is defined in Rule 144A of the Securities Act;
_____ (v) The Purchaser is a trust, which trust has total assets
in excess of $5,000,000, which is not formed for the specific
purpose of acquiring the Shares offered hereby and whose purchase
is directed by a sophisticated person as described in Rule
506(b)(ii) of Regulation D and who has such knowledge and
experience in financial and business matters that he is capable
of evaluating the risks and merits of an investment in the
Shares;
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_____ (vi) I am a director or executive officer of the Company;
or
_____ (vii) The Purchaser is an entity (other than a trust) in
which all of the equity owners meet the requirements of at least
one of the above subparagraphs.
Agreed and Accepted by
VDC COMMUNICATIONS, INC.
By: _______________________
Frederick A. Moran
Chairman & C.E.O.
Dated:______________________
64
The following form was used in connection with a private placement in May, 1999,
pursuant to which: (i) Frederick A. Moran and Joan Moran, joint tenants,
purchased 280,000 shares of Company common stock at $3.00 per share; (ii) the
Kent F. Moran Trust purchased 24,160 shares of Company common stock at $3.00 per
share; and (iii) the Luke F. Moran Trust purchased 24,010 shares of Company
common stock at $3.00 per share.
VDC COMMUNICATIONS, INC.
----------
SECURITIES PURCHASE AGREEMENT
----------
SHARES OF COMMON STOCK
AT $3.00 PER SHARE
----------
MAY 5, 1999
65
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CONFIDENTIAL
- ------------
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement") is entered into as
of the 5th day of May, 1999, by and between VDC Communications, Inc., a Delaware
corporation ("VDC" or the "Company"), and the investor whose name appears at the
end of this Agreement ("Purchaser" or "Subscriber").
R E C I T A L S:
----------------
The Company wishes to obtain additional working capital and the
Purchaser desires to provide such working capital to the Company through the
purchase of certain shares of the Company's common stock, $.0001 par value per
share (the "Common Stock"), being privately offered by the Company.
NOW, THEREFORE, in consideration of the premises hereof and the
agreements set forth herein below, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Sale and Purchase of Shares.
Subject to the terms and conditions hereof, the Company agrees to
issue and sell, and the Purchaser agrees to purchase that number of shares of
Common Stock (the "Shares") identified on the signature page hereof at a
purchase price of $3.00 per share. The total purchase price is set forth on the
signature page hereof (the "Purchase Price"). The Purchase Price is payable upon
subscription in cash, check or wire transfer. If paying by check, the check
should be made payable to "VDC Communications, Inc." and delivered to VDC
Communications, Inc. at 75 Holly Hill Lane, Greenwich, Connecticut, 06830.
No broker, investment banker or any other person will receive
from the Company any compensation as a broker, finder, adviser or in any other
capacity in connection with the purchase of the Shares hereunder.
2. Description of the Shares.
(a) Restricted Securities. The shares of Common Stock of the
Company being offered hereby (the "Shares") shall be "restricted securities" as
that term is defined under Rule 144 of the Securities Act of 1933, as amended
(the "Act") and may not be offered for sale or sold or otherwise transferred in
a transaction which would constitute a sale thereof within the meaning of the
Act unless (i) such security has been registered for sale under the Act and
registered or qualified under applicable state securities laws relating to the
offer and sale of securities; or (ii) exemptions from the registration
requirements of the Act and the registration or qualification requirements of
all such state securities laws are available and the Company shall have received
an opinion of counsel that the proposed sale or other disposition of such
securities may be effected without registration under the Act and would not
result in any violation of any applicable state securities laws relating to the
registration or qualification of securities for sale, such counsel and such
opinion to be satisfactory to the Company.
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(b) Voting Rights; Dividends. Holders of Common Stock of the
Company have equal rights to receive dividends when, as, and if declared by the
Board of Directors out of funds legally available therefor. Holders of Common
Stock of the Company have one vote for each share held of record and do not have
cumulative voting rights.
(c) Liquidation; Redemption. Holders of Common Stock of the
Company are entitled upon liquidation of the Company to share ratably in the net
assets available for distribution, subject to the rights, if any of holders of
any preferred stock of the Company then outstanding. Shares of Common Stock of
the Company are not redeemable and have no preemptive or similar rights. All
outstanding shares of Common Stock of the Company are fully paid and
nonassessable.
(d) Restriction Upon Resale. The Subscriber hereby agrees
that the Shares shall be subject to restrictions upon the transfer, sale,
encumbrance or other disposition of the Shares. See "UNDERSTANDING OF INVESTMENT
RISKS" AND "REGISTRATION RIGHTS".
3. Shares Offered in a Private Placement Transaction.
The Shares offered by this Securities Purchase Agreement are
being offered as a non-public offering pursuant to Section 4(2) and Regulation D
of the Act ("Regulation D").
4. Binding Effect of Securities Purchase Agreement; The Closing.
This Securities Purchase Agreement shall not be binding on the
Company unless and until an authorized executive officer of the Company has
evidenced acceptance thereof by executing the signature page at the end hereof.
The Company may accept or reject this Securities Purchase Agreement in its sole
discretion if the Purchaser does not meet the suitability standards established
herein, or for any other reason. A closing (the "Closing") will occur
contemporaneously with the execution of this Agreement by all parties hereto.
5. Representations and Warranties of the Purchaser. The Purchaser
represents and warrants to the Company as follows:
(a) Accredited Investor. The Purchaser has such knowledge
and experience in business and financial matters such that the Purchaser is
capable of evaluating the merits and risks of purchasing the Shares. The
Purchaser is either an "accredited investor" as that term is defined in Rule 501
of Regulation D of the Act or a "qualified institutional buyer" as that term is
defined in Rule 144A of the Act, and represents that he satisfies the
suitability standards identified in Section 10 hereof;
(b) Loss of Investment. The Purchaser's (i) overall
commitment to investments which are not readily marketable is not
disproportionate to his net worth; (ii) investment in the Company will not cause
such overall commitment to become excessive; (iii) can afford to bear the loss
of his entire investment in the Company; and (iv) has adequate means of
providing for his current needs and personal contingencies and has no need for
liquidity in his investment in the Company;
(c) Special Suitability. The Purchaser satisfies any
special suitability or other applicable requirements of his state of residence
and/or the state in which the transaction b y which the Shares are purchased
occurs;
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(d) Investment Intent. The Purchaser hereby acknowledges
that the Purchaser has been advised that this offering has not been registered
with, or reviewed by, the Securities and Exchange Commission ("SEC") because
this offering is intended to be a non-public offering pursuant to Section 4(2)
and Regulation D of the Act. The Purchaser represents that the Purchaser's
Shares are being purchased for the Purchaser's own account and not on behalf of
any other person, for investment purposes only and not with a view towards
distribution or resale to others. The Purchaser agrees that the Purchaser will
not attempt to sell, transfer, assign, pledge or otherwise dispose of all or any
portion of the Shares unless they are registered under the Act or unless in the
opinion of counsel an exemption from such registration is available, such
counsel and such opinion to be satisfactory to the Company. The Purchaser
understands that the Shares have not been registered under the Act by reason of
a claimed exemption under the provisions of the Act which depends, in part, upon
the Purchaser's investment intention;
(e) State Securities Laws. The Purchaser understands that no
securities administrator of any state has made any finding or determination
relating to the fairness of this investment and that no securities administrator
of any state has recommended or endorsed, or will recommend or endorse, the
offering of the Shares;
(f) Authority; Power; No Conflict. The execution, delivery
and performance by the Purchaser of the Agreement are within the powers of the
Purchaser, have been duly authorized and will not constitute or result in a
breach or default under, or conflict with, any order, ruling or regulation of
any court or other tribunal or of any governmental commission or agency, or any
agreement or other undertaking, to which the Purchaser is a party or by which
the Purchaser is bound, and, if the Purchaser is not an individual, will not
violate any provision of the charter documents, Bylaws, indenture of trust or
partnership agreement, as applicable, of the Purchaser. The signatures on the
Agreement are genuine, and the signatory, if the Purchaser is an individual, has
legal competence and capacity to execute the same, or, if the Purchaser is not
an individual, the signatory has been duly authorized to execute the same; and
the Agreement constitutes the legal, valid and binding obligations of the
Purchaser, enforceable in accordance with its terms;
(g) No General Solicitation. The Purchaser acknowledges that
no general solicitation or general advertising (including communications
published in any newspaper, magazine or other broadcast) has been received by
him and that no public solicitation or advertisement with respect to the
offering of the Shares has been made to him;
(h) Advice of Tax and Legal Advisors. The Purchaser has
relied solely upon the advice of his own tax and legal advisors with respect to
the tax and other legal aspects of this investment;
(i) Broker Fees. Other than as provided for in Section 1,
the Purchaser is not aware that any person, and has been advised that no person,
will receive from the Company any compensation as a broker, finder, adviser or
in any other capacity in connection with the purchase of the Shares other than
as declared herein;
(j) Access to Information. Purchaser has had access to all
material and relevant information concerning the Company, its management,
financial condition, capitalization, market information, properties and
prospects necessary to enable Purchaser to make an informed investment decision
with respect to its investment in the Shares. Purchaser has carefully read and
reviewed, and is familiar with and understands the contents thereof and hereof,
including, without limitation, the risk factors described in this Agreement. See
"UNDERSTANDING OF INVESTMENT RISKS." Purchaser acknowledges that it has had the
opportunity to ask questions of and receive answers from, and to obtain
additional information from, representatives of the Company concerning the terms
and conditions of the acquisition of the Shares and the present and proposed
business and financial condition of the Company, and has had all such questions
answered to its satisfaction and has been supplied all information requested;
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<PAGE>
(k) Review of Reports. The Purchaser acknowledges that it
has been provided with an opportunity to review: (i) a copy of the Company's
Annual Report on Form 10-K for the year ended June 30, 1998; (ii) a copy of the
Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1998;
(iii) a copy of the Company's Registration Statement on Form S-4, pursuant to
which VDC Corporation Ltd., a Bermuda company, merged with and into the Company;
and (iv) all other recent reports filed by the Company with the Securities and
Exchange Commission under the Securities Exchange Act of 1934 (collectively, the
"Reports").
(l) Understanding the Nature of Securities. The Purchaser
understands and acknowledges that:
(i) The Shares have not been registered under the Act
or any state securities laws and are being issued and sold in reliance upon
certain exemptions contained in the Act;
(ii) The Shares are "restricted securities" as that
term is defined in Rule 144 promulgated under the Act;
(iii) The Shares cannot be sold or transferred without
registration under the Act and applicable state securities laws, or unless
the Company receives an opinion of counsel reasonably acceptable to it (as to
both counsel and the opinion) that such registration is not necessary; and
(iv) The Shares and any certificates issued in
replacement therefor shall bear the following legend, in addition to any
other legend required by law or otherwise:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES MAY
NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
REGISTRATION, OR THE AVAILABILITY OF EXEMPTION FROM REGISTRATION, UNDER
THE ACT, BASED ON AN OPINION LETTER OF COUNSEL SATISFACTORY TO THE
COMPANY OR A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE
COMMISSION."
6. _____ Indemnification. The Purchaser shall indemnify and hold
harmless the Company and the Company's officers, directors and employees from
and against any and all loss, damage or liability (including attorneys' fees),
due to, or arising out of, a breach or inaccuracy of any representation or
warranty contained in Section 5.
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7. Understanding of Investment Risks. Any investment in the
Securities should not be made by a Purchaser who cannot afford the loss of his
entire Purchase Price. THE PURCHASER ACKNOWLEDGES THAT THE SECURITIES OFFERED
HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION, OR ANY STATE SECURITIES COMMISSIONS, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ADEQUACY
OR ACCURACY OF THIS SECURITIES PURCHASE AGREEMENT OR ANY EXHIBIT HERETO. PRIOR
TO MAKING AN INVESTMENT IN THE SECURITIES, THE PURCHASER HAS FULLY CONSIDERED,
AMONG OTHER THINGS, THE FINANCIAL AND OTHER INFORMATION SET FORTH IN THE REPORTS
AS WELL AS THE RISK FACTORS ATTACHED HERETO AS EXHIBIT "A" AND ACKNOWLEDGES THAT
SUCH INFORMATION HAS BEEN CONSIDERED PRIOR TO MAKING THIS INVESTMENT DECISION.
8. Registration Rights. The Company agrees that within sixty (60)
days of the Closing, it will use its reasonable best efforts to prepare and file
with the Securities and Exchange Commission, and use its reasonable best efforts
to have declared effective thereafter, a Registration Statement on Form S-1 or
other equivalent form pursuant to which the Company shall register the public
resale of the Shares. The Company shall have the right to include within such
Registration Statement any other securities on behalf of the Company or security
holders. The expenses of such registration shall be borne by the Company.
Notwithstanding the foregoing, the Company may: (A) delay filing
the Registration Statement and may withhold efforts to cause the Registration
Statement to become effective, if the Company determines in good faith that such
registration rights might (i) interfere with or affect the negotiation or
completion of any transaction that is being contemplated by the Company (whether
or not a final decision has been made to undertake such transaction) at the time
the right to delay is exercised, or (ii) involve initial or continuing
disclosure obligations that might not be in the best interest of the Company's
stockholders, and (B) not include the Shares in a Registration Statement
covering an underwritten offering to the extent that the inclusion of the Shares
would, in the opinion of the managing underwriter of such an offering, adversely
affect such an offering or the market for the Company's securities. In the event
that the Shares are not included in the Registration Statement in accordance
with the provisions of clause (B) above, the Company agrees to register the
Shares promptly after the completion of the underwritten offering described in
clause (B) as may be permitted by the managing underwriter of such an offering.
If, after the Registration Statement becomes effective, the Company advises the
holders of registered Shares that the Company considers it appropriate for the
Registration Statement to be amended, the holders of such Shares shall suspend
any further sales of their registered Shares until the Company advises them that
the Registration Statement has been amended.
Each holder of Shares whose shares are registered pursuant to the
Registration Statement set forth herein shall indemnify and hold harmless the
Company, each of its directors and each of its officers from and against any and
all claims, damages or liabilities, joint or several, to which they or any of
them may become subject, including all legal and other expenses, arising out of
or in connection with any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement, in any preliminary or
amended preliminary prospectus or in the prospectus (or the Registration
Statement or prospectus as from time to time amended or supplemented) or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading in the circumstances in which they were made,
but only insofar as any such statement or omission was made in reliance upon and
in conformity with information furnished in writing to the Company in connection
therewith by such holder expressly for use therein.
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In connection with the registration rights, the Company shall have no
obligation: (i) to assist or cooperate in the offering or disposition of such
Shares; (ii) to indemnify or hold harmless the holders of the securities being
registered; (iii) to obtain a commitment from an underwriter relative to the
sale of such Shares; or (iv) to include such Shares within an underwritten
offering of the Company.
9. Representations and Warranties of the Company. The Company
hereby represents and warrants to Purchaser as follows:
(a) Organization and Standing of the Company. The Company is
a duly organized and validly existing corporation in good standing under the
laws of the State of Delaware with adequate power and authority to conduct the
business in which it is now engaged and has the corporate power and authority to
enter into this Agreement, and is duly qualified and licensed to do business as
a foreign corporation in such other jurisdictions as is necessary to enable it
to carry on its business, except where failure to do so would not have a
material adverse effect on its business;
(b) Corporate Power and Authority. The execution and
delivery of this Agreement and the transactions contemplated hereby have been
duly authorized by the Board of Directors of the Company. No other corporate act
or proceeding on the part of the Company is necessary to authorize this
Agreement or the consummation of the transactions contemplated hereby. When duly
executed and delivered by the parties hereto, this Agreement will constitute a
valid and legally binding obligation of the Company enforceable against it in
accordance with its terms, except as such enforceability may be limited by (i)
bankruptcy, insolvency, moratorium, reorganization or other similar laws and
legal and equitable principles limiting or affecting the rights of creditors
generally; and/or (ii) general principles of equity, regardless of whether
considered in a proceeding in equity or at law;
(c) Noncontravention. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby will not,
to the best of the Company's knowledge and belief, (i) permit the termination or
acceleration of the maturity of any material indebtedness or material obligation
of the Company; (ii) permit the termination of any material note, mortgage,
indenture, license, agreement, contract, or other instrument to which the
Company is a party or by which it is bound or the Certificate of Incorporation
or Bylaws of the Company; (iii) except as expressly provided in this Agreement
and except for state "blue sky" approvals that may be required and those
consents and waivers which already have been obtained by the Company, require
the consent, approval, waiver or authorization from or registration or filing
with any party, including but not limited to any party to a material agreement
to which the Company is a party or by which it is bound, or any regulatory or
governmental agency, body or entity except where failure to obtain such consent,
approval, waiver or authorization would not have a material adverse effect on
the Company's business; (iv) result in the creation or imposition of any lien,
claim or encumbrance of any kind or nature on any material properties or assets
of the Company; or (v) violate in any material aspect any statue, law, rule,
regulation or ordinance, or any judgment, decree, order, regulation or rule of
any court, tribunal, administrative or governmental agency, body or entity to
which the Company or its properties is subject except where such violation would
not have a material adverse effect on the Company's business.
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10. IMPORTANT CONSIDERATIONS: SUITABILITY STANDARDS - WHO SHOULD INVEST.
INVESTMENT IN THE SHARES INVOLVES A HIGH DEGREE OF RISK AND IS
SUITABLE ONLY FOR PERSONS OF SUBSTANTIAL FINANCIAL RESOURCES WHO HAVE NO NEED
FOR LIQUIDITY IN THEIR INVESTMENT.
A substantial number of state securities commissions have
established investor suitability standards for the marketing within their
respective jurisdictions of restricted securities. Some have also established
minimum dollar levels for purchases in their states. The reasons for these
standards appear to be, among others, the relative lack of liquidity of
securities of such programs as compared with other securities investments.
Investment in the Shares involves a high degree of risk and is suitable only for
persons of substantial financial means who have no need for liquidity in their
investments.
The Company has adopted as a general investor suitability
standard the requirement that each Subscriber for Shares represents in writing
that the Subscriber: (a) is acquiring the Shares for investment and not with a
view to resale or distribution; (b) can bear the economic risk of losing its
entire investment; (c) its overall commitment to investments which are not
readily marketable is not disproportionate to its net worth, and an investment
in the Shares will not cause such overall commitment to become excessive; (d)
has adequate means of providing for its current needs and personal contingencies
and has no need for liquidity in this investment in the Shares; (e) has
evaluated all the risks of investment in the Company; and (f) has such knowledge
and experience in financial and business matters as to be capable of evaluating
the merits and risks of investing in the Company or is relying on its own
purchaser representative in making an investment decision.
In addition, all of the Subscribers for Shares must be: (1)
extremely sophisticated investors with substantial net worth and experience in
making investments of this nature; and (2) "accredited investors," as defined in
Rule 501 of Regulation D under the Act, by meeting any of the following
conditions:
(i) he or she has an individual income in excess of $200,000
in each of the two most recent years or joint income with his or her spouse in
excess of $300,000 in each of those years, and he or she reasonably expects an
income in excess of the aforesaid levels in the current year, or
(ii) he or she has an individual net worth, or a joint net worth
with his or her spouse, at the time of his or her purchase, in excess of
$1,000,000 (net worth for these purposes includes homes, home furnishings and
automobiles), or
(iii) he or she otherwise satisfies the Company that he or she is
an accredited investor, as defined in Rule 501 under the Act.
Other categories of investors included within the definition of
accredited investor include the following: certain institutional investors,
including certain banks, whether acting in their individual or fiduciary
capacities; certain insurance companies; federally registered investment
companies; business development companies (as defined under the Investment
Company Act of 1940); Small Business Investment Companies licensed by the Small
Business Administration; certain employee benefit plans; private business
development companies (as defined in the Investment Advisers Act of 1940); tax
exempt organizations (as defined in Section 501(c)(3) of the Internal Revenue
Code) with total assets in excess of $5,000,000; entities in which all the
equity owners are accredited investors; and certain affiliates of the Company.
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A partnership Subscriber, which satisfies the requirements set
forth in clauses (a) through (f) above shall satisfy the suitability standards
if it is an accredited investor by reason of clause (iii) above, or if all of
its partners are accredited investors. A corporate subscriber, which satisfies
the requirements set forth in clauses (a) through (f) above shall satisfy the
investor suitability standards if it is an accredited investor by reason of
clause (iii) above, or if all of its shareholders are accredited investors.
Corporate subscribers must have net worth of at least three (3) times the amount
of their investment in the Shares.
The suitability standards referred to above represent minimum
suitability requirements for prospective purchasers and the satisfaction of such
standards by a prospective purchaser does not necessarily mean that the Shares
are a suitable investment for such purchaser. The Company may, in circumstances
it deems appropriate, modify such requirements. The Company may also reject
subscriptions for whatever reasons, in its sole discretion, it deems
appropriate.
Securities Purchase Agreements may not necessarily be accepted in
the order in which received. Purchasers who are residents of certain states may
be required to meet certain additional suitability standards.
THE ACCEPTANCE OF A SUBSCRIPTION FOR SHARES BY THE COMPANY DOES
NOT CONSTITUTE A DETERMINATION BY THE COMPANY THAT AN INVESTMENT IN THE SHARES
IS SUITABLE FOR A PROSPECTIVE INVESTOR. THE FINAL DETERMINATION OF THE
SUITABILITY OF INVESTMENT IN THE SHARES MUST BE MADE BY THE PROSPECTIVE INVESTOR
AND HIS OR HER ADVISERS.
11. State Law Considerations for Residents of All States.
IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON
THEIR OWN EXAMINATION OF THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE
MERITS AND RISKS INVOLVED. THESE SHARES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL
OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE
FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY
OF THE DESCRIPTION OF BUSINESS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY
AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE
SECURITIES ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY WILL BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD
OF TIME.
12. Notices. All notices, consents, waivers, and other
communications under this Agreement must be in writing and will be deemed to
have been duly given when (a) delivered by hand (with written confirmation of
receipt), (b) sent by facsimile (with written confirmation of receipt), provided
that a copy is mailed by registered mail, return receipt requested (provided
that facsimile notice shall be deemed received on the next business day if
received after 5:00 p.m. local time), or (c) when received by the addressee, if
sent by a nationally recognized overnight delivery service (receipt requested),
in each case to the appropriate addresses and facsimile numbers set forth below
(or to such other addresses and facsimile numbers as a party may designate by
notice to the other parties):
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If to the Company:
VDC Communications, Inc.
75 Holly Hill Lane
Greenwich, CT 06830
Attention: Frederick A. Moran
Chairman & C.E.O.
Facsimile: (203) 552-0908
with a copy to:
VDC Communications, Inc.
75 Holly Hill Lane
Greenwich, CT 06830
Attention: Louis D. Frost, Esq.
VDC Corporate Counsel
Facsimile: (203) 552-0908
If to Purchaser:
to the address set forth at the end of this Agreement or to such
other addresses as may be specified in accordance herewith from time to time.
13. Survival of Representations and Warranties. Representations and
warranties contained herein shall survive the execution and delivery of this
Agreement.
14. Parties in Interest. All the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective successors and permitted assigns of the parties hereto,
provided that this Agreement and the interests herein may not be assigned by
either party without the express written consent of the other party.
15. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the state of Delaware without regard to
the principles of conflict of laws.
16. Arbitration. All controversies which may arise between the
parties including, but not limited to, those arising out of or related to this
Agreement shall be determined by binding arbitration applying the laws of the
State of Delaware. Any arbitration between the parties shall be conducted at the
Company's offices in Greenwich, Connecticut, or at such other location
designated by the Company, before the American Arbitration Association (the
"AAA"). If the Parties are unable to agree on a single arbitrator with fifteen
(15) days of a demand for arbitration being filed with the AAA by one of the
parties, each party shall select an arbitrator and the two (2) arbitrators shall
mutually select a third arbitrator, the three of whom shall serve as an
arbitration panel. The decision of the arbitrator(s) shall be final and binding
upon the Parties and shall not be required to include written findings of law
and fact, and judgment may be obtained thereon by either party in a court of
competent jurisdiction. Each party shall bear the cost of preparing and
presenting its own case. The cost of the arbitration, including the fees and
expenses of the arbitrator(s), shall be shared equally by the parties hereto
unless the award otherwise provides. Nothing in this section will prevent either
party from resorting to judicial proceedings if interim injunctive relief under
the laws of the State of Delaware from a court is necessary to prevent serious
and irreparable injury to one of the parties, and the parties hereto agree that
the state courts in Stamford, Connecticut and the United States District Court
in the District of Connecticut in Bridgeport, Connecticut shall have exclusive
subject matter and in personam jurisdiction over the parties for purposes of
obtaining interim injunctive relief.
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17. Sections and Other Headings. The section and other headings
contained in this Agreement are for the convenience of reference only, and do
not constitute part of this Agreement or otherwise affect any of the provisions
hereof.
18. Pronouns. Whenever the context of this Agreement may require,
any pronoun will include the corresponding masculine, feminine and neuter form,
and the singular form of nouns and pronouns will include the plural.
19. Counterpart Signatures. This Agreement may be signed in
counterparts and all counterparts together shall become effective only when the
counterpart(s) have been executed and delivered by and on behalf of the Company
and the Purchaser.
20. Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction.
21. Entire Agreement; Amendments. This Agreement and the
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Purchaser
make any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than by
an instrument in writing signed by the party to be charged with enforcement.
22. Construction. This Agreement and any related instruments will
not be construed more strictly against one party then against the other by
virtue of the fact that drafts may have been prepared by counsel for one of the
parties, it being recognized that this Agreement and any related instruments are
the product of negotiations between the parties and that both parties have
contributed to the final preparation of this Agreement and all related
instruments.
23. Agreement Read and Understood. Both parties hereto acknowledge
that they have had an opportunity to consult with an attorney, and such other
experts or consultants as they deem necessary or prudent, regarding this
Agreement and that they, or their designated agents, have read and understand
this Agreement.
24. United States Dollars. All dollar amounts stated herein refer
to and are payable solely in United States Dollars.
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IN WITNESS WHEREOF, intending to be legally bound, the parties hereto
have caused this Agreement to be signed.
Purchaser:
Shares/$
Number and dollar amount ____________________________________
of Shares purchased - Name (Signature)
Purchase Price
Address/Residence of Purchaser:
------------------------------------
------------------------------------
------------------------------------
Social Security No.:
-----------------------
Accredited Investor Certification
(Place initials on the appropriate line(s))
____ (i) I am a natural person who had individual income of more
than $200,000 in each of the most recent two years or joint
income with my spouse in excess of $300,000 in each of the most
recent two years and reasonably expect to reach that same income
level for the current year ("income", for purposes hereof, should
be computed as follows: individual adjusted gross income, as
reported (or to be reported) on a federal income tax return,
increased by (1) any deduction of long-term capital gains under
Section 1202 of the Internal Revenue Code of 1986 (the "Code"),
(2) any deduction for depletion under Section 611 et seq. of the
Code, (3) any exclusion for interest under Section 103 of the
Code and (4) any losses of a partnership as reported on Schedule
E of Form 1040);
_____ (ii) I am a natural person whose individual net worth
(i.e., total assets in excess of total liabilities), or joint net
worth with my spouse, will at the time of purchase of the Shares
be in excess of $1,000,000;
_____ (iii) The Purchaser is an investor satisfying the
requirements of Section 501(a)(1), (2) or (3) of Regulation D
promulgated under the Securities Act, which includes but is not
limited to, a self-directed employee benefit plan where
investment decisions are made solely by persons who are
"accredited investors" as otherwise defined in Regulation D;
_____ (iv) The Purchaser is a "qualified institutional buyer" as
that term is defined in Rule 144A of the Securities Act;
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_____ (v) The Purchaser is a trust, which trust has total assets
in excess of $5,000,000, which is not formed for the specific
purpose of acquiring the Shares offered hereby and whose purchase
is directed by a sophisticated person as described in Rule
506(b)(ii) of Regulation D and who has such knowledge and
experience in financial and business matters that he is capable
of evaluating the risks and merits of an investment in the
Shares;
_____ (vi) I am a director or executive officer of the Company;
or
_____ (vii) The Purchaser is an entity (other than a trust) in
which all of the equity owners meet the requirements of at least
one of the above subparagraphs.
Agreed and Accepted by
VDC COMMUNICATIONS, INC.
By: __________________________
Frederick A. Moran
Chairman & C.E.O.
Dated: _______________________
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EXHIBIT "A"
RISK FACTORS
An investment in Company Common Stock and Warrants to purchase Company Common
Stock involves a high degree of risk. Purchasers of such securities should
carefully review the following risk factors.
This following Risk Factors contain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Although
forward-looking statements are based on assumptions made, and information
believed, by management to be reasonable, no assurance can be given that such
statements will prove to be correct. Such statements are subject to certain
risks, uncertainties and assumptions. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated, projected
or expected. Some, but not all, of such risks and uncertainties are described in
the risk factors set forth below.
1. WE ARE A DEVELOPMENT STAGE COMPANY. We have only recently commenced our
present operations, and therefore, have only a limited operating history
upon which you can evaluate our business. We have strategically placed
telecommunications equipment in cities that we believe will enable us to
efficiently transport telecommunications services. Now we are building our
customer base as rapidly as we can in order to achieve greater revenues and
market penetration. We will also add additional telecommunications
equipment in other areas of the world. We have not yet determined with
certainty where those areas will be.
2. WE ARE LOSING MONEY. We have not yet experienced a profitable quarter
and may not ever achieve profitability. By virtue of the early stage of our
development, we have yet to build sufficient volume of telecommunications
voice and facsimile traffic to reach profitability. Our current expenses
are greater than our revenues. This will probably continue until we reach a
greater level of maturity and it is possible that our revenues may never
exceed our expenses. If operating losses continue for longer than the
short-term, then our continued operation will be in jeopardy. However, we
believe that what we have developed over the past year is valuable and has
the potential to generate revenues greater than expenses.
3. NUMEROUS CONTINGENCIES COULD HAVE A MATERIAL ADVERSE EFFECT ON US.
Because we are a development stage company, and because of the nature of
the industry in which we operate, there are numerous contingencies over
which we have little or no control, any one of which could have a material
adverse effect on us. The contingencies include, but are not limited to,
the addition or loss of major customers, whether through competition,
merger, consolidation or otherwise; the loss of economically beneficial
routing options for the termination of our telecommunications traffic;
financial difficulties of major customers; pricing pressure resulting from
increased competition; and technical difficulties with or failures of
portions of our network that could impact our ability to provide service to
or bill our customers.
4. OUR ABILITY TO IMPLEMENT OUR PLAN SUCCESSFULLY IS DEPENDENT ON A FEW KEY
PEOPLE. We are particularly dependent upon Frederick A. Moran, Chairman,
Chief Executive Officer, Chief Financial Officer, Secretary and Director of
the Company. Mr. Moran is also a significant beneficial shareholder of the
Company. The Company has an employment agreement with Mr. Moran. We believe
the combination of his employment agreement and equity interest keeps Mr.
Moran highly motivated to remain with the Company.
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5. THE INTERNATIONAL TELECOMMUNICATIONS MARKET IS RISKY. The international
nature of the our operations involves certain risks, such as changes in
U.S. and foreign government regulations and telecommunications standards,
dependence on foreign partners, tariffs, taxes and other trade barriers,
the potential for nationalization and economic downturns and political
instability in foreign countries. At the current time, we are particularly
dependent on Central and North America. In addition, our business could be
adversely affected by a reversal in the current trend toward the
deregulation of the telecommunications industry. We will be increasingly
subject to these risks to the extent that we proceed with the planned
expansion of international operations.
6. OVERNMENT INVOLVEMENT IN INDUSTRY COULD HAVE AN ADVERSE EFFECT. We are
subject to various U.S. and foreign laws, regulations, agency actions and
court decisions. Our U.S. international telecommunications service
offerings are subject to regulation by the Federal Communications
Commission (the "FCC"). The FCC requires international carriers to obtain
certificates of public convenience and necessity prior to acquiring
international facilities by purchase or lease, or providing international
service to the public. Prior FCC approval is also generally required to
transfer control of a certificated carrier. We must file reports and
contracts with the FCC and must pay regulatory and other fees, which are
subject to change. We are also subject to the FCC policies and rules
discussed below. The FCC could determine, by its own actions or in response
to a third party's filing, that certain of our services, termination
arrangements, agreements with foreign carriers, transit or refile
arrangements or reports did not comply with FCC policies and rules. If this
occurred, the FCC could order us to terminate arrangements, fine us or
revoke our authorizations. Any of these actions could have a material
adverse effect on our business, operating results and financial condition.
7. POTENTIAL FOR TECHNICAL FAILURE. Our services are dependent on our own
and other companies' ability to successfully integrate technologies and
equipment. In connecting with other companies' equipment we take the risk
of not being able to provide service due to their error. In addition, there
is the risk that our equipment may malfunction or that we could make an
error which negatively affects our customers' service. We are also
dependent on the protection of our hardware and other equipment from damage
from natural disasters such as fires, floods, hurricanes and earthquakes,
other catastrophic events such as civil unrest, terrorism and war and other
sources of power loss and telecommunications failures. We have taken a
number of steps to prevent our service from being affected by natural
disasters, fire and the like. We have built redundant systems for power
supply to our equipment. Even though, there can be no assurance that any
such systems will prevent the switches from becoming disabled in the event
of an earthquake, power outage or otherwise. The failure of our network, or
a significant decrease in telephone traffic resulting from effects of a
natural or man-made disaster, could have a material adverse effect on our
relationship with our customers and our business, operating results and
financial condition.
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8. THE LONG DISTANCE AND INTERNATIONAL LONG DISTANCE TELEPHONE INDUSTRY IS
HIGHLY COMPETITIVE. We are a small company in an industry with many
companies that have more experience and greater resources than us.
International telecommunications providers compete mainly on the basis of
price, but also customer service, transmission quality, breadth of service
offerings and value-added services. Our operating history is probably not
long enough for you to make a judgment about our ability to compete in this
industry.
9. TECHNOLOGICAL ADVANCEMENT COULD RENDER OUR INFRASTRUCTURE OBSOLETE. The
international telecommunications industry is highly competitive and subject
to the introduction of new services facilitated by advances in technology.
We expect that the future will bring technological change. It is possible
that these changes could result in more advanced telecommunications
equipment that could render our current equipment obsolete. If this were to
happen, we would most likely have to invest significant capital into this
new technology.
10. WE HAVE LIMITED CAPITAL. Being a small company in a capital intensive
industry, our position of limited capital is a significant risk to our
future viability. We are currently seeking financing alternatives that
would put us in a better position financially. There is no guarantee that
we will be able to do this. We may sell additional shares of our stock in
order to provide the capital needed for our operations.
11. WE HAVE A SIGNIFICANT INVESTMENT IN A PRIVATE COMPANY THAT WE DO NOT
CONTROL. We have a non-controlling investment in a private company,
Metromedia China Corporation ("MCC"). Since this company is private and in
development, it is difficult to place a value on its worth. We currently
value our ownership interest based on extrapolating the value placed on MCC
by its majority shareholder, Metromedia International Group. As of March
31, 1999, that equaled $4.34 million. Our total assets were $13.7 million.
The value of our interest in MCC may change in the future. The value of MCC
may be unfavorably influenced by negative operating results, the Chinese
telecommunications market and/or other factors. Furthermore, changes in
governmental policy towards foreign investment in telecommunications in
China could also adversely effect the value of our investment. We have
decreased the value placed on this asset, in large part, due to the
uncertainty of the future of foreign participation in the Chinese
telecommunications market. Even so, there is still the possibility that
this asset will be worth less in the future than we believe is a fair value
currently.
12. OUR STOCK IS HIGHLY VOLATILE. Our stock price fluctuates significantly.
We believe that this will most likely continue. Historically, the market
prices for securities of emerging companies in the telecommunications
industry have been highly volatile. Future announcements concerning us or
our competitors, including results of operations, technological
innovations, government regulations, proprietary rights or significant
litigation, may have a significant impact on the market price of our stock.
13. ADDITIONAL SHARES WILL BE AVAILABLE FOR SALE IN THE PUBLIC MARKET. We
registered stock in connection with the domestication merger of VDC
Corporation Ltd. ("VDC Bermuda") with and into us (the "Domestication
Merger"). The effect of the Domestication Merger was that
members/shareholders of VDC Bermuda became shareholders of the Company
which then became the publicly traded company. In addition, we issued
shares in connection with the MCC investment and other additional business
related matters. These stock issuances and future registration statements
will have the effect of significantly increasing the number of shares
eligible for public trading. Sales of substantial amounts of the stock in
the public market could have an adverse effect on the price of the stock
and may make it more difficult for us to sell stock in the future. Although
it is impossible to predict market influences and prospective values for
securities, it is possible that the substantial increase in the number of
shares available for sale, in and of itself, could have a depressive effect
on the price of our stock.
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14. WE HAVE NOT PAID ANY DIVIDENDS TO OUR STOCKHOLDERS AND DO NOT EXPECT TO
ANY TIME IN THE NEAR FUTURE. Instead, we plan to retain earnings for
investment back into the company.
15. THE YEAR 2000 PROBLEM COULD HAVE A MATERIAL ADVERSE EFFECT ON US. The
Year 2000 issue is a matter of worldwide concern for carriers and affects
many aspects of telecommunications technology, including the computer
systems and software applications that are essential for operations. A
significant portion of the devices that we use to provide our basic
services use date-sensitive processes which affect functions such as
service activation, service assurance and billing processes.
We are currently evaluating the Year 2000 readiness of our computer
systems, software applications and telecommunications equipment. We are
sending Year 2000 compliance inquiries to certain third parties (i.e.
vendors, customers, outside contractors) with whom we have a relationship.
These inquiries include, among other things, requests to provide
documentation regarding the third party's Year 2000 programs, and questions
regarding how the third party specifically examined the Year 2000 effect on
their equipment and operations and what remedial actions will be taken with
regard to these problems.
Since we are a new company, our key systems have just recently been
implemented. Most of the vendors of such systems have represented to us
that the systems are compliant with the Year 2000 issues without any
modification. We will, however, continue to require confirmation of Year
2000 compliance in our future requests for proposals from equipment and
software vendors. The failure of the Company's computer systems and
software applications to accommodate the Year 2000, could have a material
adverse effect on our business, financial condition and results from
operations.
Further, if the software and equipment of those on whose services we depend
are not Year 2000 functional, it could have a material adverse effect on
our operations. While most major domestic telecommunications companies have
announced that they expect all of their network and support systems to be
Year 2000 functional by the middle of 1999, other domestic and
international carriers may not be Year 2000 functional. We intend to
continue to monitor the performance of our accounting, information and
other systems and software applications to identify and resolve any Year
2000 issues. Currently, through our discovery process, we have identified
an estimated $84,000 of expenditures associated with updating systems to be
Year 2000 compliant. However, we expect we will find additional expenses
pending the finalization of our Year 2000 investigation.
We believe that the most reasonably likely worst case scenario resulting
from the century change could be the inability to efficiently send voice
and facsimile calls at current rates to desired locations. We do not know
how long this might last. This would have a material adverse effect on our
results from operations.
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16. CERTAIN ANTI-TAKEOVER CONSIDERATIONS. Certain provisions of our
Certificate of Incorporation, as amended (the "Certificate of
Incorporation"), and Bylaws, as amended (the "Bylaws"), and the General
Corporation Law of the State of Delaware (the "GCL") could deter a change
in our management or render more difficult an attempt to obtain control of
us. For example, we are subject to the provisions of the GCL that prohibit
a public Delaware corporation from engaging in a broad range of business
combinations with a person who, together with affiliates and associates,
owns 15% or more of the corporation's outstanding voting shares (an
"interested stockholder") for three years after the person became an
interested stockholder, unless the business combination is approved in a
prescribed manner. The Certificate of Incorporation includes undesignated
Preferred Stock, which may enable the Board to discourage an attempt to
obtain control of us by means of a tender offer, proxy contest, merger or
otherwise. In addition, the Certificate of Incorporation provides for a
classified Board of Directors such that approximately only one-third of the
members of the Board will be elected at each annual meeting of
stockholders. Classified boards may have the effect of delaying, deferring
or discouraging changes in control of us. Further, certain other provisions
of the Certificate of Incorporation and Bylaws and of the GCL could delay
or make more difficult a merger, tender offer or proxy contest involving
us. Additionally, certain federal regulations require prior approval of
certain transfers of control of telecommunications companies, which could
also have the effect of delaying, deferring or preventing a change in
control.
82
The following form was used in connection with a private placement in May, 1999,
pursuant to which the following individuals and entities were involved on the
following terms:
<TABLE>
<CAPTION>
Shareholder Number of Shares Price Per Share Warrants
- ----------- ---------------- --------------- --------
<S> <C> <C>
Adase Partners, L.P. 60,000 $2.70 6,000
Arthur Cooper & Joanie Cooper 40,000 $2.70 4,000
Mark Eshman & Jill Eshman trustees for 20,000 $2.70 2,000
the Eshman Living Trust dated 9/24/90
Capital Opportunity Partners One, LP 20,000 $2.70 2,000
Scott Schenker & Randi Schenker 20,000 $2.70 2,000
Jeffrey Feingold & Barbara Feingold 20,000 $2.70 2,000
Dean Brizel & Jeanne Brizel 20,000 $2.70 2,000
Fred Fraenkel 20,000 $2.70 2,000
Robert Vicas 20,000 $2.70 2,000
Michael Weissman 10,000 $2.70 1,000
Ernst Von Olnhausen 10,000 $2.70 1,000
Torunn Garin 60,000 $2.70 6,000
Stephen Buell 20,000 $2.70 2,000
====== =====
Total 340,000 34,000
</TABLE>
VDC COMMUNICATIONS, INC.
----------
SECURITIES PURCHASE AGREEMENT
----------
SHARES OF COMMON STOCK
AT $2.70 PER SHARE
AND COMMON STOCK
PURCHASE WARRANTS
----------
MAY 7, 1999
83
<PAGE>
CONFIDENTIAL
- ------------
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement") is entered into as
of the 7th day of May, 1999, by and between VDC Communications, Inc., a Delaware
corporation ("VDC" or the "Company"), and the investor whose name appears at the
end of this Agreement ("Purchaser" or "Subscriber").
R E C I T A L S:
----------------
The Company wishes to obtain additional working capital and the
Purchaser desires to provide such working capital to the Company through the
purchase of certain shares of the Company's common stock, $.0001 par value per
share (the "Common Stock"), being privately offered by the Company.
NOW, THEREFORE, in consideration of the premises hereof and the
agreements set forth herein below, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Sale and Purchase of Shares and Warrants.
Subject to the terms and conditions hereof, the Company agrees to
issue and sell, and the Purchaser agrees to purchase that number of shares of
Common Stock (the "Shares") identified on the signature page hereof at a
purchase price of $2.70 per share. The total purchase price is set forth on the
signature page hereof (the "Purchase Price"). The Purchase Price is payable upon
subscription in cash, check or wire transfer. If paying by check, the check
should be made payable to "VDC Communications, Inc." and delivered to VDC
Communications, Inc. at 75 Holly Hill Lane, Greenwich, Connecticut, 06830. For
every full block of ten (10) Shares purchased pursuant to this Agreement, the
Purchaser shall be entitled to receive from the Company, and the Company shall
grant to the Purchaser, one (1) Common Stock Purchase Warrant (the "Warrants")
upon substantially the terms set forth in the document attached hereto as
Exhibit "A."
No broker, investment banker or any other person will receive
from the Company any compensation as a broker, finder, adviser or in any other
capacity in connection with the purchase of the Shares and Warrants hereunder.
2. Description of the Securities.
(a) Restricted Securities. The Shares, Warrants and shares
of Common Stock issuable upon exercise of the Warrants (the "Warrant Shares")
being offered hereby (collectively, the "Securities") shall be "restricted
securities" as that term is defined under Rule 144 promulgated under the
Securities Act of 1933, as amended (the "Act") and may not be offered for sale
or sold or otherwise transferred in a transaction which would constitute a sale
thereof within the meaning of the Act unless (i) such Security has been
registered for sale under the Act and registered or qualified under applicable
state securities laws relating to the offer and sale of securities; or (ii)
exemptions from the registration requirements of the Act and the registration or
qualification requirements of all such state securities laws are available and
the Company shall have received an opinion of counsel, prepared at Purchaser's
expense, that the proposed sale or other disposition of such securities may be
effected without registration under the Act and would not result in any
violation of any applicable state securities laws relating to the registration
or qualification of securities for sale, such counsel and such opinion to be
satisfactory to the Company.
84
<PAGE>
(b) Voting Rights; Dividends. Holders of Common Stock of the
Company have equal rights to receive dividends when, as, and if declared by the
Board of Directors out of funds legally available therefor. Holders of Common
Stock of the Company have one vote for each share held of record and do not have
cumulative voting rights.
(c) Liquidation; Redemption. Holders of Common Stock of the
Company are entitled upon liquidation of the Company to share ratably in the net
assets available for distribution, subject to the rights, if any of holders of
any preferred stock of the Company then outstanding. Shares of Common Stock of
the Company are not redeemable and have no preemptive or similar rights. All
outstanding shares of Common Stock of the Company are fully paid and
nonassessable.
(d) Description of Warrants. Each Warrant entitles the
holder to purchase one (1) share of Common Stock at an exercise price of $6.00
per share for a three year period from the date of Closing. Prior to the
exercise of the Warrants, holders of the Warrants shall not be entitled to any
right whatsoever, either in law or equity, of a stockholder of the Company,
including without limitation, the right to receive dividends or to vote or to
consent or to receive notice as a stockholder in respect of the meetings of
stockholders or the election of directors of the Company or any other matter.
(e) Restriction Upon Resale. The Subscriber hereby agrees
that the Securities shall be subject to restrictions upon the transfer, sale,
encumbrance or other disposition of the Securities. See "UNDERSTANDING OF
INVESTMENT RISKS" AND "REGISTRATION RIGHTS".
3. Securities Offered in a Private Placement Transaction.
The Securities offered by this Securities Purchase Agreement are
being offered as part of an overall private placement transaction in a
non-public offering pursuant to Section 4(2) and Regulation D of the Act
("Regulation D") to raise funds to extinguish existing indebtedness and increase
working capital. The Company may concurrently or in the future raise additional
working capital by offering its securities on terms similar to or different from
those of the Securities offered hereby.
4. Binding Effect of Securities Purchase Agreement; The Closing.
This Securities Purchase Agreement shall not be binding on the
Company unless and until an authorized executive officer of the Company has
evidenced acceptance thereof by executing the signature page at the end hereof.
The Company may accept or reject this Agreement in its sole discretion if the
Purchaser does not meet the suitability standards established herein, or for any
other reason. In the event the Company rejects this Agreement, the Purchaser's
funds will be returned without deduction of any costs and without interest.
85
<PAGE>
A closing (the "Closing") will occur contemporaneously with the
acceptance of this Agreement by the Company and the Company's receipt of the
Purchase Price. The Purchase Price must be received by the Company no later than
5 p.m. Eastern Standard Time on Wednesday, May 12, 1999. The Company shall
deliver to the Purchaser within fifteen business (15) days after the Closing:
(a) A stock certificate representing the number of Shares
purchased, bearing applicable restrictive legends, duly executed by the
appropriate officer(s) and registered on the books of the Company in Purchaser's
name; and
(b) The Warrants in substantially the form set forth at
Exhibit "A" duly executed by the appropriate officer(s) and registered on the
books of the Company in the Purchaser's name.
5. Representations and Warranties of the Purchaser. The Purchaser
represents and warrants to the Company as follows:
(a) Accredited Investor. The Purchaser has such knowledge
and experience in business and financial matters such that the Purchaser is
capable of evaluating the merits and risks of purchasing the Securities. The
Purchaser is either an "accredited investor" as that term is defined in Rule 501
of Regulation D of the Act or a "qualified institutional buyer" as that term is
defined in Rule 144A of the Act, and represents that he satisfies the
suitability standards identified in Section 10 hereof;
(b) Loss of Investment. The Purchaser('s) (i) overall
commitment to investments which are not readily marketable is not
disproportionate to his net worth; (ii) investment in the Company will not cause
such overall commitment to become excessive; (iii) can afford to bear the loss
of his entire investment in the Company; and (iv) has adequate means of
providing for his current needs and personal contingencies and has no need for
liquidity in his investment in the Company;
(c) Special Suitability. The Purchaser satisfies any special
suitability or other applicable requirements of his state of residence and/or
the state in which the transaction by which the Securities are purchased occurs;
(d) Investment Intent. The Purchaser hereby acknowledges
that the Purchaser has been advised that this offering has not been registered
with, or reviewed by, the Securities and Exchange Commission ("SEC") because
this offering is intended to be a non-public offering pursuant to Section 4(2)
and Regulation D of the Act. The Purchaser represents that the Purchaser's
Securities are being purchased for the Purchaser's own account and not on behalf
of any other person, for investment purposes only and not with a view towards
distribution or resale to others. The Purchaser will not attempt to sell,
transfer, assign, pledge or otherwise dispose of all or any portion of the
Securities unless they are registered under the Act or unless in the opinion of
counsel an exemption from such registration is available, such counsel and such
opinion to be satisfactory to the Company. The Purchaser understands that the
Securities have not been registered under the Act by reason of a claimed
exemption under the provisions of the Act which depends, in part, upon the
Purchaser's investment intention;
86
<PAGE>
(e) State Securities Laws. The Purchaser understands that no
securities administrator of any state has made any finding or determination
relating to the fairness of this investment and that no securities administrator
of any state has recommended or endorsed, or will recommend or endorse, the
offering of the Securities;
(f) Authority; Power; No Conflict. The execution, delivery
and performance by the Purchaser of the Agreement are within the powers of the
Purchaser, have been duly authorized and will not constitute or result in a
breach or default under, or conflict with, any order, ruling or regulation of
any court or other tribunal or of any governmental commission or agency, or any
agreement or other undertaking, to which the Purchaser is a party or by which
the Purchaser is bound, and, if the Purchaser is not an individual, will not
violate any provision of the charter documents, Bylaws, indenture of trust or
partnership agreement, as applicable, of the Purchaser. The signatures on the
Agreement are genuine, and the signatory, if the Purchaser is an individual, has
legal competence and capacity to execute the same, or, if the Purchaser is not
an individual, the signatory has been duly authorized to execute the same; and
the Agreement constitutes the legal, valid and binding obligations of the
Purchaser, enforceable in accordance with its terms;
(g) No General Solicitation. The Purchaser acknowledges that
no general solicitation or general advertising (including communications
published in any newspaper, magazine or other broadcast) has been received by
him and that no public solicitation or advertisement with respect to the
offering of the Securities has been made to him;
(h) Advice of Tax and Legal Advisors. The Purchaser has
relied solely upon the advice of his own tax and legal advisors with respect to
the tax and other legal aspects of this investment;
(i) Broker Fees. The Purchaser is not aware that any person,
and has been advised that no person, will receive from the Company any
compensation as a broker, finder, adviser or in any other capacity in connection
with the purchase of the Securities other than as declared herein;
(j) Access to Information. Purchaser has had access to all
material and relevant information concerning the Company, its management,
financial condition, capitalization, market information, properties and
prospects necessary to enable Purchaser to make an informed investment decision
with respect to its investment in the Securities. Purchaser has carefully read
and reviewed, and is familiar with and understands the contents thereof and
hereof, including, without limitation, the risk factors described in this
Agreement. See "UNDERSTANDING OF INVESTMENT RISKS." Purchaser acknowledges that
it has had the opportunity to ask questions of and receive answers from, and to
obtain additional information from, representatives of the Company concerning
the terms and conditions of the acquisition of the Securities and the present
and proposed business and financial condition of the Company, and has had all
such questions answered to its satisfaction and has been supplied all
information requested;
87
<PAGE>
(k) Review of Reports. The Purchaser acknowledges that it
has been provided with an opportunity to review: (i) a copy of the Company's
Annual Report on Form 10-K for the year ended June 30, 1998; (ii) a copy of the
Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1998;
(iii) a copy of the Company's Registration Statement on Form S-4, pursuant to
which VDC Corporation Ltd., a Bermuda company, merged with and into the Company;
and (iv) all other recent reports filed by the Company with the Securities and
Exchange Commission under the Securities Exchange Act of 1934 (collectively, the
"Reports").
(l) Understanding the Nature of Securities. The Purchaser
understands and acknowledges that:
(i) The Securities have not been registered under the
Act or any state securities laws and are being issued and sold in reliance
upon certain exemptions contained in the Act;
(ii) The Securities are "restricted securities" as
that term is defined in Rule 144 promulgated under the Act;
(iii) The Securities cannot be sold or transferred
without registration under the Act and applicable state securities laws, or
unless the Company receives an opinion of counsel reasonably acceptable to it
(as to both counsel and the opinion) that such registration is not necessary;
and
(iv) The Securities and any certificates issued in
replacement therefor shall bear the following legend, in addition to any
other legend required by law or otherwise:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN TAKEN BY THE
REGISTERED OWNER FOR INVESTMENT, AND WITHOUT A VIEW TO RESALE OR
DISTRIBUTION THEREOF, AND MAY NOT BE TRANSFERRED OR DISPOSED OF
WITHOUT AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT
SUCH TRANSFER OR DISPOSITION DOES NOT VIOLATE THE SECURITIES ACT
OF 1933, AS AMENDED, OR THE RULES AND REGULATIONS THEREUNDER."
6. Indemnification. The Purchaser shall indemnify and hold
harmless the Company and the Company's officers, directors and employees from
and against any and all loss, damage or liability (including attorneys' fees),
due to, or arising out of, a breach or inaccuracy of any representation or
warranty contained in Section 5.
88
<PAGE>
7. Understanding of Investment Risks. Any investment in the
Securities should not be made by a Purchaser who cannot afford the loss of his
entire Purchase Price. THE PURCHASER ACKNOWLEDGES THAT THE SECURITIES OFFERED
HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION, OR ANY STATE SECURITIES COMMISSIONS, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ADEQUACY
OR ACCURACY OF THIS SECURITIES PURCHASE AGREEMENT OR ANY EXHIBIT HERETO. PRIOR
TO MAKING AN INVESTMENT IN THE SECURITIES, THE PURCHASER HAS FULLY CONSIDERED,
AMONG OTHER THINGS, THE FINANCIAL AND OTHER INFORMATION SET FORTH IN THE REPORTS
AS WELL AS THE RISK FACTORS ATTACHED HERETO AS EXHIBIT "B" AND ACKNOWLEDGES THAT
SUCH INFORMATION HAS BEEN CONSIDERED PRIOR TO MAKING THIS INVESTMENT DECISION.
8. Registration Rights. The Company has agreed to advise the
Purchaser by written notice at least five (5) days prior to the filing of a
registration statement under the Act (excluding registration on Forms S-8, S-4
or any successor forms thereto), covering securities of the Company to be
offered and sold to the public generally (whether on behalf of the Company or
selling security holders) and shall, upon the request of the Purchaser given at
least five (5) days prior to the filing of such registration statement, include
in any such registration statement such information as may be required to permit
the public resale of the Shares and Warrant Shares; provided, however, that in
the event the resale of the Shares and Warrant Shares has not been previously
included within a registration statement, the Company shall in any event file a
registration statement under the Act within one year of the Closing, the purpose
of which is to register the resale of the Shares and Warrant Shares. The
registration rights associated with the Shares and Warrants Shares are described
more particularly and are subject in full to the terms of a Registration Rights
Agreement substantially in the form attached hereto as Exhibit "C."
The Company's obligation to register the Shares and the Warrant Shares
extends only to the inclusion of the Shares and the Warrant Shares in a
registration statement which covers the public resale thereof. In all events,
the Company shall have no obligation: (i) to assist or cooperate in the offering
or disposition of such Shares or Warrant Shares; (ii) to obtain a commitment
from an underwriter relative to the sale of such Shares or Warrant Shares; or
(iii) to include such Shares or Warrant Shares within an underwritten offering
of the Company. The Company shall assume no responsibility for the manner of
sale, timing of sale, or sales price relating to the resale of the Shares and
Warrant Shares.
9. Representations and Warranties of the Company. The Company
hereby represents and warrants to Purchaser as follows:
(a) Organization and Standing of the Company. The Company is
a duly organized and validly existing corporation in good standing under the
laws of the State of Delaware with adequate power and authority to conduct the
business in which it is now engaged and has the corporate power and authority to
enter into this Agreement, and is duly qualified and licensed to do business as
a foreign corporation in such other jurisdictions as is necessary to enable it
to carry on its business, except where failure to do so would not have a
material adverse effect on its business;
89
<PAGE>
(b) Corporate Power and Authority. The execution and
delivery of this Agreement and the transactions contemplated hereby have been
duly authorized by the Board of Directors of the Company. No other corporate act
or proceeding on the part of the Company is necessary to authorize this
Agreement or the consummation of the transactions contemplated hereby. When duly
executed and delivered by the parties hereto, this Agreement will constitute a
valid and legally binding obligation of the Company enforceable against it in
accordance with its terms, except as such enforceability may be limited by (i)
bankruptcy, insolvency, moratorium, reorganization or other similar laws and
legal and equitable principles limiting or affecting the rights of creditors
generally; and/or (ii) general principles of equity, regardless of whether
considered in a proceeding in equity or at law;
(c) Noncontravention. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby will not,
to the best of the Company's knowledge and belief, (i) permit the termination or
acceleration of the maturity of any material indebtedness or material obligation
of the Company; (ii) permit the termination of any material note, mortgage,
indenture, license, agreement, contract, or other instrument to which the
Company is a party or by which it is bound or the Certificate of Incorporation
or Bylaws of the Company; (iii) except as expressly provided in this Agreement
and except for state "blue sky" approvals that may be required and those
consents and waivers which already have been obtained by the Company, require
the consent, approval, waiver or authorization from or registration or filing
with any party, including but not limited to any party to a material agreement
to which the Company is a party or by which it is bound, or any regulatory or
governmental agency, body or entity except where failure to obtain such consent,
approval, waiver or authorization would not have a material adverse effect on
the Company's business; (iv) result in the creation or imposition of any lien,
claim or encumbrance of any kind or nature on any material properties or assets
of the Company; or (v) violate in any material aspect any statue, law, rule,
regulation or ordinance, or any judgment, decree, order, regulation or rule of
any court, tribunal, administrative or governmental agency, body or entity to
which the Company or its properties is subject except where such violation would
not have a material adverse effect on the Company's business.
10. IMPORTANT CONSIDERATIONS: SUITABILITY STANDARDS - WHO SHOULD INVEST.
INVESTMENT IN THE SECURITIES INVOLVES A HIGH DEGREE OF RISK AND
IS SUITABLE ONLY FOR PERSONS OF SUBSTANTIAL FINANCIAL RESOURCES WHO HAVE NO NEED
FOR LIQUIDITY IN THEIR INVESTMENT.
A substantial number of state securities commissions have
established investor suitability standards for the marketing within their
respective jurisdictions of restricted securities. Some have also established
minimum dollar levels for purchases in their states. The reasons for these
standards appear to be, among others, the relative lack of liquidity of
securities of such programs as compared with other securities investments.
Investment in the Securities involves a high degree of risk and is suitable only
for persons of substantial financial means who have no need for liquidity in
their investments.
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<PAGE>
The Company has adopted as a general investor suitability
standard the requirement that each Subscriber for Securities represents in
writing that the Subscriber: (a) is acquiring the Securities for investment and
not with a view to resale or distribution; (b) can bear the economic risk of
losing its entire investment; (c) its overall commitment to investments which
are not readily marketable is not disproportionate to its net worth, and an
investment in the Securities will not cause such overall commitment to become
excessive; (d) has adequate means of providing for its current needs and
personal contingencies and has no need for liquidity in this investment in the
Securities; (e) has evaluated all the risks of investment in the Company; and
(f) has such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of investing in the Company or is
relying on its own purchaser representative in making an investment decision.
In addition, all of the Subscribers for Securities must be: (1)
extremely sophisticated investors with substantial net worth and experience in
making investments of this nature; and (2) "accredited investors," as defined in
Rule 501 of Regulation D under the Act, by meeting any of the following
conditions:
(i) he or she has an individual income in excess of $200,000
in each of the two most recent years or joint income with his or her spouse in
excess of $300,000 in each of those years, and he or she reasonably expects an
income in excess of the aforesaid levels in the current year, or
(ii) he or she has an individual net worth, or a joint net worth
with his or her spouse, at the time of his or her purchase, in excess of
$1,000,000 (net worth for these purposes includes homes, home furnishings and
automobiles), or
(iii) he or she otherwise satisfies the Company that he or she is
an accredited investor, as defined in Rule 501 under the Act.
Other categories of investors included within the definition of
accredited investor include the following: certain institutional investors,
including certain banks, whether acting in their individual or fiduciary
capacities; certain insurance companies; federally registered investment
companies; business development companies (as defined under the Investment
Company Act of 1940); Small Business Investment Companies licensed by the Small
Business Administration; certain employee benefit plans; private business
development companies (as defined in the Investment Advisers Act of 1940); tax
exempt organizations (as defined in Section 501(c)(3) of the Internal Revenue
Code) with total assets in excess of $5,000,000; entities in which all the
equity owners are accredited investors; and certain affiliates of the Company.
A partnership Subscriber, which satisfies the requirements set
forth in clauses (a) through (f) above shall satisfy the suitability standards
if it is an accredited investor by reason of clause (iii) above, or if all of
its partners are accredited investors. A corporate subscriber, which satisfies
the requirements set forth in clauses (a) through (f) above shall satisfy the
investor suitability standards if it is an accredited investor by reason of
clause (iii) above, or if all of its shareholders are accredited investors.
Corporate subscribers must have net worth of at least three (3) times the amount
of their investment in the Securities.
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<PAGE>
The suitability standards referred to above represent minimum
suitability requirements for prospective purchasers and the satisfaction of such
standards by a prospective purchaser does not necessarily mean that the
Securities are a suitable investment for such purchaser. The Company may, in
circumstances it deems appropriate, modify such requirements. The Company may
also reject subscriptions for whatever reasons, in its sole discretion, it deems
appropriate.
Securities Purchase Agreements may not necessarily be accepted in
the order in which received. Purchasers who are residents of certain states may
be required to meet certain additional suitability standards.
THE ACCEPTANCE OF A SUBSCRIPTION FOR THE SECURITIES BY THE
COMPANY DOES NOT CONSTITUTE A DETERMINATION BY THE COMPANY THAT AN INVESTMENT IN
THE SECURITIES IS SUITABLE FOR A PROSPECTIVE INVESTOR. THE FINAL DETERMINATION
OF THE SUITABILITY OF INVESTMENT IN THE SECURITIES MUST BE MADE BY THE
PROSPECTIVE INVESTOR AND HIS OR HER ADVISERS.
11. State Law Considerations for Residents of All States.
IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON
THEIR OWN EXAMINATION OF THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE
MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY
FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE
FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY
OF THE DESCRIPTION OF BUSINESS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY
AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE
SECURITIES ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY WILL BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD
OF TIME.
12. Notices. All notices, consents, waivers, and other
communications under this Agreement must be in writing and will be deemed to
have been duly given when (a) delivered by hand (with written confirmation of
receipt), (b) sent by facsimile (with written confirmation of receipt), provided
that a copy is mailed by registered mail, return receipt requested (provided
that facsimile notice shall be deemed received on the next business day if
received after 5:00 p.m. local time), or (c) when received by the addressee, if
sent by a nationally recognized overnight delivery service (receipt requested),
in each case to the appropriate addresses and facsimile numbers set forth below
(or to such other addresses and facsimile numbers as a party may designate by
notice to the other parties):
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If to the Company:
VDC Communications, Inc.
75 Holly Hill Lane
Greenwich, CT 06830
Attention: Frederick A. Moran
Chairman & C.E.O.
Facsimile: (203) 552-0908
with a copy to:
VDC Communications, Inc.
75 Holly Hill Lane
Greenwich, CT 06830
Attention: Louis D. Frost, Esq.
VDC Corporate Counsel
Facsimile: (203) 552-0908
If to Purchaser:
to the address set forth at the end of this Agreement or to such
other addresses as may be specified in accordance herewith from time to time.
13. Survival of Representations and Warranties. Representations and
warranties contained herein shall survive the execution and delivery of this
Agreement.
14. Parties in Interest. All the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective successors and permitted assigns of the parties hereto,
provided that this Agreement and the interests herein may not be assigned by
either party without the express written consent of the other party.
15. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the state of Delaware without regard to
the principles of conflict of laws.
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16. Arbitration. All controversies which may arise between the
parties including, but not limited to, those arising out of or related to this
Agreement shall be determined by binding arbitration applying the laws of the
State of Delaware. Any arbitration between the parties shall be conducted at the
Company's offices in Greenwich, Connecticut, or at such other location
designated by the Company, before the American Arbitration Association (the
"AAA"). If the Parties are unable to agree on a single arbitrator with fifteen
(15) days of a demand for arbitration being filed with the AAA by one of the
parties, each party shall select an arbitrator and the two (2) arbitrators shall
mutually select a third arbitrator, the three of whom shall serve as an
arbitration panel. The decision of the arbitrator(s) shall be final and binding
upon the Parties and shall not be required to include written findings of law
and fact, and judgment may be obtained thereon by either party in a court of
competent jurisdiction. Each party shall bear the cost of preparing and
presenting its own case. The cost of the arbitration, including the fees and
expenses of the arbitrator(s), shall be shared equally by the parties hereto
unless the award otherwise provides. Nothing in this section will prevent either
party from resorting to judicial proceedings if interim injunctive relief under
the laws of the State of Delaware from a court is necessary to prevent serious
and irreparable injury to one of the parties, and the parties hereto agree that
the state courts in Stamford, Connecticut and the United States District Court
in the District of Connecticut in Bridgeport, Connecticut shall have exclusive
subject matter and in personam jurisdiction over the parties for purposes of
obtaining interim injunctive relief.
17. Sections and Other Headings. The section and other headings
contained in this Agreement are for the convenience of reference only, and do
not constitute part of this Agreement or otherwise affect any of the provisions
hereof.
18. Pronouns. Whenever the context of this Agreement may require,
any pronoun will include the corresponding masculine, feminine and neuter form,
and the singular form of nouns and pronouns will include the plural.
19. Signatures in Counterpart and Facsimile. This Agreement may be
executed in multiple counterparts and by facsimile signature, each of which
shall constitute an original, but all of which counterparts taken together shall
constitute one and the same instrument.
20. Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction.
21. Entire Agreement; Amendments. This Agreement and the
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Purchaser
make any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than by
an instrument in writing signed by the party to be charged with enforcement.
22. Construction. This Agreement and any related instruments will
not be construed more strictly against one party then against the other by
virtue of the fact that drafts may have been prepared by counsel for one of the
parties, it being recognized that this Agreement and any related instruments are
the product of negotiations between the parties and that both parties have
contributed to the final preparation of this Agreement and all related
instruments.
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23. Agreement Read and Understood. Both parties hereto acknowledge
that they have had an opportunity to consult with an attorney, and such other
experts or consultants as they deem necessary or prudent, regarding this
Agreement and that they, or their designated agents, have read and understand
this Agreement.
24. United States Dollars. All dollar amounts stated herein refer
to and are payable solely in United States Dollars.
IN WITNESS WHEREOF, intending to be legally bound, the parties hereto
have caused this Agreement to be signed.
Purchaser:
Shares/$
- ------------------------
Number and dollar amount ____________________________________
of Shares purchased - Name (Signature)
Purchase Price
Address/Residence of Purchaser:
------------------------------------
------------------------------------
------------------------------------
- --------
Warrants
Social Security No.:
------------------------
Accredited Investor Certification
(Place initials on the appropriate line(s))
____ (i) I am a natural person who had individual income of more
than $200,000 in each of the most recent two years or joint
income with my spouse in excess of $300,000 in each of the most
recent two years and reasonably expect to reach that same income
level for the current year ("income", for purposes hereof, should
be computed as follows: individual adjusted gross income, as
reported (or to be reported) on a federal income tax return,
increased by (1) any deduction of long-term capital gains under
Section 1202 of the Internal Revenue Code of 1986 (the "Code"),
(2) any deduction for depletion under Section 611 et seq. of the
Code, (3) any exclusion for interest under Section 103 of the
Code and (4) any losses of a partnership as reported on Schedule
E of Form 1040);
_____ (ii) I am a natural person whose individual net worth
(i.e., total assets in excess of total liabilities), or joint net
worth with my spouse, will at the time of purchase of the
Securities be in excess of $1,000,000;
_____ (iii) The Purchaser is an investor satisfying the
requirements of Section 501(a)(1), (2) or (3) of Regulation D
promulgated under the Securities Act, which includes but is not
limited to, a self-directed employee benefit plan where
investment decisions are made solely by persons who are
"accredited investors" as otherwise defined in Regulation D;
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_____ (iv) The Purchaser is a "qualified institutional buyer" as
that term is defined in Rule 144A of the Securities Act;
_____ (v) The Purchaser is a trust, which trust has total assets
in excess of $5,000,000, which is not formed for the specific
purpose of acquiring the Securities offered hereby and whose
purchase is directed by a sophisticated person as described in
Rule 506(b)(ii) of Regulation D and who has such knowledge and
experience in financial and business matters that he is capable
of evaluating the risks and merits of an investment in the
Securities;
_____ (vi) I am a director or executive officer of the Company;
or
_____ (vii) The Purchaser is an entity (other than a trust) in
which all of the equity owners meet the requirements of at least
one of the above subparagraphs.
Agreed and Accepted by
VDC COMMUNICATIONS, INC.
By: __________________________
Frederick A. Moran
Chairman & C.E.O.
Dated: _______________________
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EXHIBIT "A"
-----------
Warrant No. 1999-W
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE
SECURITIES LAWS. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF REGISTRATION, OR THE AVAILABILITY OF EXEMPTION
FROM REGISTRATION, UNDER THE ACT, BASED ON AN OPINION LETTER OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY OR A NO-ACTION LETTER FROM THE SECURITIES
AND EXCHANGE COMMISSION.
FORM OF
WARRANT TO PURCHASE COMMON STOCK
OF
VDC COMMUNICATIONS, INC.
Void after 5:00 p.m. Eastern Standard Time on May __, 2002
This is to verify that, FOR VALUE RECEIVED, the undersigned, or its
registered assigns (hereinafter referred to as the "Holder"), is entitled to
purchase, subject to the terms and conditions hereof, from VDC COMMUNICATIONS,
INC., a Delaware corporation (the "Company"), that number of shares of Common
Stock, par value $.0001 per share of the Company (the "Common Stock") set forth
on the signature page hereto at any time during the period commencing at 9:00
a.m., Eastern Standard Time on May __, 1999 (the "Commencement Date") and ending
at 5:00 p.m. Eastern Standard Time on May __, 2002 (the "Termination Date") at
an exercise price of $6.00 per share of Common Stock. The number of shares of
Common Stock purchasable upon exercise of this Warrant (the "Warrant(s)") and
the exercise price per share shall be subject to adjustment from time to time
upon the occurrence of certain events as set forth below.
The shares of Common Stock or any other shares or other units of stock or
other securities or property, or any combination thereof then receivable upon
exercise of this Warrant, as adjusted from time to time, are sometimes referred
to hereinafter as "Exercise Shares". The exercise price per share as from time
to time in effect is referred to hereinafter as the "Exercise Price".
1. Exercise of Warrant: Issuance of Exercise Shares.
(a) Exercise of Warrant. This Warrant may be exercised in whole or
in part at any time or from time to time on or after the Commencement Date and
until and including the Termination Date, upon surrender on any business day to
the Company at its principal office, presently located at the address of the
Company set forth in Section 8 hereof (or such other office of the Company, if
any, as shall theretofore have been designated by the Company by written notice
to the Holder), together with: (i) a completed and executed Notice of Warrant
Exercise in the form set forth in Appendix A hereto and made a part hereof and
(ii) payment of the full Exercise Price for the amount of Exercise Shares set
forth in the Notice of Warrant Exercise, in lawful money of the United States of
America by certified check or cashier's check, made payable to the order of the
Company.
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In the event that this Warrant shall be duly exercised in part prior to the
Termination Date, the Company shall issue a new Warrant or Warrants of like
tenor evidencing the rights of the Holder thereof to purchase the balance of the
Exercise Shares purchasable under the Warrant so surrendered that shall not have
been purchased.
No adjustments shall be made for any cash dividends on Exercise Shares
issuable upon exercise of the Warrant. The Company shall cancel Warrant
Certificates surrendered upon exercise of Warrants.
(b) Issuance of Exercise Shares: Delivery of Warrant Certificate.
The Company shall, within fifteen (15) business days or as soon thereafter as is
practicable of the exercise of this Warrant, issue in the name of and cause to
be delivered to the Holder (or such other person or persons, if any, as the
Holder shall have designated in the Notice of Warrant Exercise) one or more
certificates representing the Exercise Shares to which the Holder (or such other
person or persons) shall be entitled upon such exercise under the terms hereof.
Such certificate or certificates shall be deemed to have been issued and the
Holder (or such other person or persons so designated) shall be deemed to have
become the record holder of the Exercise Shares as of the date of the due
exercise of this Warrant.
(c) Exercise Shares Fully Paid and Non-assessable. The Company
agrees and covenants that all Exercise Shares issuable upon the due exercise of
the Warrant represented by this Warrant Certificate will, upon issuance in
accordance with the terms hereof, be duly authorized, validly issued, fully paid
and non-assessable and free and clear of all taxes (other than taxes which,
pursuant to Section 2 hereof, the Company shall not be obligated to pay) or
liens, charges, and security interests created by the Company with respect to
the issuance thereof.
(d) Reservation of Exercise Shares. At the time of or before taking
any action which would cause an adjustment pursuant to Section 5 hereof
increasing the number of shares of capital stock constituting the Exercise
Shares, the Company will take any corporate action which may, in the opinion of
its counsel, be necessary in order that the Company have remaining, after such
adjustment, a number of shares of such capital stock unissued and unreserved for
other purposes sufficient to permit the exercise of all the then outstanding
Warrants of like tenor immediately after such adjustment; the Company will also
from time to time take action to increase the authorized amount of its capital
stock constituting the Exercise Shares if at any time the number of shares of
capital stock authorized but remaining unissued and unreserved for other
purposes shall be insufficient to permit the exercise of the Warrants then
outstanding. The Company may but shall not be limited to reserve and keep
available, out of the aggregate of its authorized but unissued shares of capital
stock, for the purpose of enabling it to satisfy any obligation to issue
Exercise Shares upon exercise of Warrants, through the Termination Date, the
number of Exercise Shares deliverable upon the full exercise of this Warrant and
all other Warrants of like tenor then outstanding.
(e) Fractional Shares. The Company shall not be required to issue
fractional shares of capital stock upon the exercise of this Warrant or to
deliver Warrant Certificates which evidence fractional shares of capital stock.
In the event that any fraction of an Exercise Share would, except for the
provisions of this subparagraph (e), be issuable upon the exercise of this
Warrant, the Company shall pay to the Holder exercising the Warrant an amount in
cash equal to such fraction multiplied by the current market value of the
Exercise Share. For purposes of this subparagraph (e), the current market value
shall be determined as follows:
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(i) if the Exercise Shares are traded in the
over-the-counter market and not on any national securities exchange and not in
the NASDAQ Reporting System, the average of the mean between the last bid and
asked prices per share, as reported by the National Quotation Bureau, Inc., or
an equivalent generally accepted reporting service, for the last business day
prior to the date on which this Warrant is exercised, or if not so reported, the
average of the closing bid and asked prices for an Exercise Share as furnished
to the Company by any member of the National Association of Securities Dealers,
Inc., selected by the Company for that purpose; or
(ii) if the Exercise Shares are listed or traded on a national
securities exchange or in the NASDAQ National Market System, the closing price
on the principal national securities exchange on which they are so listed or
traded or in the NASDAQ National Market System, as the case may be, on the last
business day prior to the date of the exercise of this Warrant. The closing
price referred to in this clause (ii) shall be the last reported sales price or,
in case no such reported sale takes place on such day, the average of the
reported closing bid and asked prices, in either case on the national securities
exchange on which the Exercise Shares are then listed or in the NASDAQ Reporting
System; or
(iii) if no such closing price or closing bid and asked prices
are available, as determined in any reasonable manner as may be prescribed by
the Board of Directors of the Company.
2. Payment of Taxes.
(a) The Company will pay all documentary stamp taxes, if any,
attributable to the initial issuance of Exercise Shares upon the exercise of
this Warrant; provided, however, that the Company shall not be required to pay
any tax or taxes which may be payable in respect of any transfer involved in the
issue of any Warrant Certificates or any certificates for Exercise Shares in a
name other than that of the Holder of a Warrant Certificate surrendered upon the
exercise of a Warrant, and the Company shall not be required to issue or deliver
such certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
(b) Upon exercise of a Warrant, the Company shall have the right to
require the Holder to remit to the Company an amount sufficient to satisfy
federal, state and local tax withholding requirements prior to the delivery of
any certificate for Exercise Shares issuable pursuant to the exercise of such
Warrant.
(c) A Holder who is obligated to pay the Company an amount required
to be withheld under applicable tax withholding requirements may pay such amount
(i) in cash; (ii) in the discretion of the Company's Chief Executive Officer,
through the delivery to the Company of previously-owned shares of common stock
of the Company having an aggregate current market value equal to the tax
obligation, provided that the previously owned shares delivered in satisfaction
of the withholding obligations must have been held by the Holder for at least
six (6) months; (iii) in the discretion of the Company's Chief Executive
Officer, through the withholding of shares of common stock of the Company
otherwise issuable to the Holder in connection with the exercise of a Warrant;
or (iv) in the discretion of the Company's Chief Executive Officer, through a
combination of the procedures set forth in clauses (i), (ii) and (iii) of this
Section 2(c).
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3. Mutilated or Missing Warrant Certificates. In case any Warrant
Certificate shall be mutilated, lost, stolen or destroyed, the Company may in
its discretion issue, in exchange and substitution for and upon cancellation of
the mutilated Warrant Certificate, or in lieu of and in substitution for the
Warrant Certificate lost, stolen or destroyed, a new Warrant Certificate or
Warrant Certificates of like tenor and in the same aggregate denomination, but
only (i) in the case of loss, theft or destruction, upon receipt of evidence
satisfactory to the Company of such loss, theft or destruction of such Warrant
Certificate and indemnity or bond, if requested, also satisfactory to them and
(ii) in the case of mutilation, upon surrender of the mutilated Warrant.
Applicants for such substitute Warrant Certificates shall also comply with such
other reasonable regulations and pay such other reasonable charges as the
Company or its counsel may prescribe.
4. Rights of Holder. The Holder shall not, by virtue of anything
contained in this Warrant Certificate or otherwise, be entitled to any right
whatsoever, either in law or equity, of a stockholder of the Company, including
without limitation, the right to receive dividends or to vote or to consent or
to receive notice as a shareholder in respect of the meetings of shareholders or
the election of directors of the Company or any other matter.
5. Adjustment of Exercise Shares and Exercise Price. The Exercise Price
and the number and kind of Exercise Shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the happening of
certain events as hereinafter provided. The Exercise Price in effect at any time
and the number and kind of securities purchasable upon exercise of each Warrant
shall be subject to adjustment as follows:
(a) In case the Company shall (i) pay a dividend on its
shares of Common Stock in shares of Common Stock, (ii) subdivide its outstanding
Common Stock into a greater number of shares, or (iii) combine its outstanding
Common Stock into a smaller number of shares, the Exercise Price in effect at
the time of the record date for such dividend or distribution or of the
effective date of such subdivision, combination or reclassification, shall be
proportionally adjusted so that the Holder of this Warrant exercised after such
date shall be entitled to receive the aggregate number and kind of shares which,
if this Warrant had been exercised by such Holder immediately prior to such
date, he would have owned upon such exercise and been entitled to receive upon
such dividend, subdivision, combination or reclassification. For example, if the
Company declares a 2 for 1 stock dividend or stock split and the Exercise Price
immediately prior to such event was $5.00 per share, the adjusted Exercise Price
immediately after such event would be $2.50 per share. Such adjustment shall be
made successively whenever any event listed above shall occur.
(b) If at any time while this Warrant, or any portion thereof, is
outstanding and unexpired there shall be (i) a capital reorganization pursuant
to which the shares of the Company's capital stock outstanding immediately prior
to such reorganization are converted by virtue of such reorganization into other
property, whether in the form of new securities, cash or otherwise (other than a
combination, reclassification, exchange or subdivision of shares otherwise
provided for herein), (ii) a merger or consolidation of the Company with or into
another corporation in which the Company is not the surviving entity, or a
reverse triangular merger in which the Company is the surviving entity but the
shares of the Company's capital stock outstanding immediately prior to the
merger are converted by virtue of the merger into other property, whether in the
form of securities, cash or otherwise, or (iii) a sale or transfer of all or
substantially all of the Company's properties and assets as, or substantially
as, an entirety to any other person, then, as a part of such capital
reorganization, merger, consolidation, sale or transfer, lawful provision shall
be made so that the holder of this Warrant shall thereafter be entitled to
receive upon payment of the Exercise Price then in effect, the number of shares
of stock or other securities or property of the successor corporation resulting
from such capital reorganization, merger, consolidation, sale or transfer that a
holder of the shares deliverable upon exercise of this Warrant would have been
entitled to receive in such capital reorganization, consolidation, merger, sale
or transfer if this Warrant had been exercised immediately before such capital
reorganization, merger, consolidation, sale or transfer, all subject to further
adjustment as provided in Section 5. The foregoing provisions of this Subsection
5(b) shall similarly apply to successive capital reorganizations,
consolidations, mergers, sales and transfers and to the stock or securities of
any other corporation that are at the time receivable upon the exercise of this
Warrant. If the per-share consideration payable to the Holder hereof for shares
in connection with any such transaction is in a form other than cash or
marketable securities, then the value of such consideration shall be determined
in good faith by the Company's Board of Directors. In all events, appropriate
adjustment (as determined in good faith by the Company's Board of Directors)
shall be made in the application of the provisions of this Warrant with respect
to the rights and interests of the Holder after the transaction, to the end that
the provisions of this Warrant shall be applicable after that event, as near as
reasonably may be, in relation to any shares or other property deliverable after
that event upon exercise of this Warrant.
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(c) Whenever the Exercise Price payable upon exercise of
each Warrant is adjusted pursuant to subsections (a) and (b) above, the number
of Exercise Shares purchasable upon exercise of this Warrant shall
simultaneously be adjusted by multiplying the number of Exercise Shares
initially issuable upon exercise of this Warrant by the Exercise Price in effect
on the date hereof and dividing the product so obtained by the Exercise Price,
as adjusted.
(d) No adjustment in the Exercise Price shall be required
unless such adjustment would require an increase or decrease of at least
twenty-five cents ($0.25) in such price; provided, however, that any adjustments
which by reason of this subsection (d) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment required to
be made hereunder. All calculations under this Section 5 shall be made to the
nearest cent or to the nearest one-hundredth of a share, as the case may be.
(e) Whenever the Exercise Price is adjusted, as herein
provided, the Company shall promptly cause a notice setting forth the adjusted
Exercise Price and adjusted number of Exercise Shares issuable upon exercise of
each Warrant to be mailed to the Holders, at their last addresses appearing on
the books of the Company. The Company may retain a firm of independent certified
public accountants selected by the Board of Directors (who may be the regular
accountants employed by the Company) to make any computation required by this
Section 5, and a certificate signed by such firm shall be conclusive evidence of
the correctness of such adjustment.
(f) Irrespective of any adjustments in the Exercise Price or
the number or kind of Exercise Shares purchasable upon exercise of this Warrant,
Warrants theretofore or thereafter issued may continue to express the same price
and number and kind of shares as are stated in the similar Warrants initially
issuable pursuant to this Warrant.
(g) Whenever the Exercise Price shall be adjusted as
required by the provisions of the foregoing Section 5, the Company shall
forthwith file in the custody of its Secretary or an Assistant Secretary at its
principal office an officer's certificate showing the adjusted Exercise Price
determined as herein provided, setting forth in reasonable detail the facts
requiring such adjustment, including a statement of the number of additional
shares of Common Stock, if any, and such other facts as shall be necessary to
show the reason for and the manner of computing such adjustment. Each such
officer's certificate shall be made available at all reasonable times for
inspection by the Holder and the Company shall, forthwith after each such
adjustment, mail a copy by certified mail of such certificate to the Holder.
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6. Transfers, Exchanges, and Certain Restrictions.
(a) The Warrant shall be transferable, subject to the provisions of
Section 6 hereof, only upon the books of the Company, if any, to be maintained
by it for that purpose, upon surrender of the Warrant to the Company at its
principal office accompanied (if so required by it) by a written instrument or
instruments of transfer in form satisfactory to the Company and duly executed by
the Holder thereof or by the duly appointed legal representative thereof or by a
duly authorized attorney and upon payment of any necessary transfer tax or other
governmental charge imposed upon such transfer. In all cases of transfer by an
attorney, the original letter of attorney, duly approved, or an official copy
thereof, duly certified, shall be deposited and remain with the Company. In case
of transfer by executors, administrators, guardians or other legal
representatives, duly authenticated evidence of their authority shall be
produced, and may be required to be deposited and remain with the Company in its
discretion. Upon any such registration of transfer, a new Warrant Certificate
shall be issued to the transferee named in such instrument of transfer, and the
surrendered Warrant Certificate shall be canceled by the Company.
(b) The Warrant may be exchanged, at the option of the Holder
thereof and without change, when surrendered to the Company at its principal
office, or at the office of its transfer agent, if any, for another Warrant or
other Warrants of like tenor and representing in the aggregate the right to
purchase from the Company a like number and kind of Shares as the Warrant
surrendered for exchange or transfer, and the Warrant so surrendered shall be
canceled by the Company or transfer agent, as the case may be.
(c) The Holder of this Warrant, by acceptance hereof, acknowledges
that this Warrant and the Shares to be issued upon exercise hereof are being
acquired solely for the Holder's own account and not as a nominee for any other
party, and for investment, and that the Holder will not offer, sell or otherwise
dispose of this Warrant or any Shares to be issued upon exercise hereof except
under circumstances that will not result in a violation of applicable federal
and state securities laws. Upon exercise of this Warrant, the Holder shall, if
requested by the Company, execute the Company's standard Investor Representation
Letter which shall, among other things, confirm in writing that the Exercise
Shares so purchased are being acquired solely for the Holder's own account and
not as a nominee for any other party, for investment, and not with a view toward
distribution or resale.
(d) Neither this Warrant nor any Exercise Share may be offered for
sale or sold, or otherwise transferred or sold, unless (i) such security has
been registered for sale under the Securities Act of 1933, as amended (the "1933
Act") and registered or qualified under applicable state securities laws
relating to the offer and sale of securities, or (ii) exemptions from the
registration requirements of the 1933 Act and the registration or qualification
requirements of all such state securities laws are available and the Company
shall have received an opinion of counsel, prepared at Holder's expense,
reasonably satisfactory to the Company that the proposed sale or other
disposition of such securities may be effected without registration under the
1933 Act and would not result in any violation of any applicable state
securities laws relating to the registration or qualification of securities for
sale, such counsel and such opinion to be satisfactory to the Company.
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(e) All Shares issued upon exercise hereof shall be stamped or
imprinted with a legend in substantially the following form (in addition to any
legend required by law or otherwise deemed necessary or appropriate by Company's
counsel, including, but not limited to, an affiliate legend).
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION, OR
THE AVAILABILITY OF EXEMPTION FROM REGISTRATION, UNDER THE ACT, BASED ON
AN OPINION LETTER OF COUNSEL SATISFACTORY TO THE COMPANY OR A NO-ACTION
LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION."
The Company is hereby authorized to notify its transfer agent of the status of
the Exercise Shares and to take such other action including, but not limited to,
the placing of a "stop-transfer" order on the transfer agent's books and records
to assure compliance with the Act.
(f) Holder recognizes that investing in the Warrant and the Exercise
Shares involves a high degree of risk, and Holder is in a financial position to
hold the Warrant and the Exercise Shares indefinitely and is able to bear the
economic risk and withstand a complete loss of its investment in the Warrant and
the Exercise Shares. The Holder is a sophisticated investor and is capable of
evaluating the merits and risks of investing in the Company. The Holder has had
an opportunity to discuss the Company's business, management and financial
affairs with the Company's management, has been given full and complete access
to information concerning the Company, and has utilized such access to its
satisfaction for the purpose of obtaining information or verifying information
and have had the opportunity to inspect the Company's operation. Holder has had
the opportunity to ask questions of, and receive answers from, the management of
the Company (and any person acting on its behalf) concerning the Warrant and the
Shares and the agreements and transactions contemplated hereby, and to obtain
any additional information as Holder may have requested in making its investment
decision. The initial Holder of this Warrant is an "accredited investor", as
defined by Regulation D promulgated under the 1933 Act.
(g) The Holder agrees to indemnify and hold harmless the
Company against any loss, damage, claim or liability arising from any inaccuracy
in the provisions of Section 6 hereof or the disposition of this Warrant or any
Exercise Share held by such holder or any interest therein in violation of the
provisions of Section 6 hereof.
7. Registration Rights. The shares of Common Stock or other equity
securities of the Company that may be issued to the Holder upon the exercise of
the Warrants are entitled to the registration rights set forth in the
Registration Rights Agreement of even date herewith between the Company and the
Holder.
8. Notices. All notices or other communications under this Warrant
Certificate shall be in writing and shall be deemed to have been given on the
day of delivery if delivered by hand, on the fifth day after deposit in the mail
if mailed by certified mail, postage prepaid, return receipt requested, or on
the next business day after mailing if sent by a nationally recognized overnight
courier such as federal express, addressed as follows:
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If to the Company:
VDC Communications, Inc.
75 Holly Hill Lane
Greenwich, CT 06830
Attn: Frederick A. Moran, Chief Executive Officer
and to the Holder at the address of the Holder appearing on the
books of the Company or the Company's transfer agent, if any.
Either of the Company or the Holder may from time to time change the
address to which notices to it are to be mailed hereunder by notice in
accordance with the provisions of this Section 8.
9. Supplements and Amendments. The Company may from time to time
supplement or amend this Warrant Certificate without the approval of any holders
of Warrants in order to cure any ambiguity or to correct or supplement any
provision contained herein which may be defective or inconsistent with any other
provision, or to make any other provisions in regard to matters or questions
herein arising hereunder which the Company may deem necessary or desirable and
which shall not materially adversely affect the interests of the Holder.
10. Successors and Assigns. This Warrant shall inure to the benefit of and
be binding on the respective successors, assigns and legal representatives of
the Holder and the Company.
11. Severability. If for any reason any provision, paragraph or terms of
this Warrant Certificate is held to be invalid or unenforceable, all other valid
provisions herein shall remain in full force and effect and all terms,
provisions and paragraphs of this Warrant shall be deemed to be severable.
12. Governing Law. This Warrant shall be deemed to be a contract made
under the laws of the State of Delaware and for all purposes shall be governed
by and construed in accordance with the laws of said jurisdiction without regard
to such jurisdiction's conflicts of laws provisions.
13. Headings. Paragraph and subparagraph headings used herein are included
herein for convenience of reference only and shall not affect the construction
of this Warrant Certificate nor constitute a part of this Warrant Certificate
for any other purpose.
14. Counterparts. This Warrant may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
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IN WITNESS WHEREOF, the Company has caused these presents to be duly
executed as of the ______th day of May, 1999 defined herein as the "Commencement
Date."
Number of Warrants:
-------------
VDC COMMUNICATIONS, INC.
By:
---------------------------
Frederick A. Moran
Chief Executive Officer
Acknowledged and Agreed
to by the undersigned
this ____ day of May 1999.
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APPENDIX A
NOTICE OF WARRANT EXERCISE
Pursuant to a Warrant by and between the undersigned and VDC
COMMUNICATIONS, INC., a Delaware corporation (the "Company"), dated as of May
___, 1999, the undersigned hereby irrevocably elects to exercise its warrant to
the extent of purchasing _______________ shares of Common Stock, $.0001 par
value (the "Warrant Shares"), of the Company as provided for therein.
The undersigned hereby represents and agrees that the Warrant Shares
purchased pursuant hereto are being purchased for investment and not with a view
to the distribution or resale thereof, and that the undersigned understands that
said Warrant Shares have not been registered under the Securities Act of 1933,
as amended.
Payment of the full Purchase Price of the Warrant Shares is enclosed
herewith, in the form of a check made payable to the Company.
The undersigned requests that a certificate for the Warrant Shares be
issued in the name of:
----------------------------------------------------
----------------------------------------------------
----------------------------------------------------
(Please print name, address and social security number)
Dated:_______________________________________
Address:___________________________________________________
Signature:__________________________________________________
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EXHIBIT "B"
RISK FACTORS
An investment in Company Common Stock and Warrants to purchase Company Common
Stock involves a high degree of risk. Purchasers of such securities should
carefully review the following risk factors.
This following Risk Factors contain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Although
forward-looking statements are based on assumptions made, and information
believed, by management to be reasonable, no assurance can be given that such
statements will prove to be correct. Such statements are subject to certain
risks, uncertainties and assumptions. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated, projected
or expected. Some, but not all, of such risks and uncertainties are described in
the risk factors set forth below.
1. WE ARE A DEVELOPMENT STAGE COMPANY. We have only recently commenced our
present operations, and therefore, have only a limited operating history
upon which you can evaluate our business. We have strategically placed
telecommunications equipment in cities that we believe will enable us to
efficiently transport telecommunications services. Now we are building our
customer base as rapidly as we can in order to achieve greater revenues and
market penetration. We will also add additional telecommunications
equipment in other areas of the world. We have not yet determined with
certainty where those areas will be.
2. WE ARE LOSING MONEY. We have not yet experienced a profitable quarter
and may not ever achieve profitability. By virtue of the early stage of our
development, we have yet to build sufficient volume of telecommunications
voice and facsimile traffic to reach profitability. Our current expenses
are greater than our revenues. This will probably continue until we reach a
greater level of maturity and it is possible that our revenues may never
exceed our expenses. If operating losses continue for longer than the
short-term, then our continued operation will be in jeopardy. However, we
believe that what we have developed over the past year is valuable and has
the potential to generate revenues greater than expenses.
3. NUMEROUS CONTINGENCIES COULD HAVE A MATERIAL ADVERSE EFFECT ON US.
Because we are a development stage company, and because of the nature of
the industry in which we operate, there are numerous contingencies over
which we have little or no control, any one of which could have a material
adverse effect on us. The contingencies include, but are not limited to,
the addition or loss of major customers, whether through competition,
merger, consolidation or otherwise; the loss of economically beneficial
routing options for the termination of our telecommunications traffic;
financial difficulties of major customers; pricing pressure resulting from
increased competition; and technical difficulties with or failures of
portions of our network that could impact our ability to provide service to
or bill our customers.
4. OUR ABILITY TO IMPLEMENT OUR PLAN SUCCESSFULLY IS DEPENDENT ON A FEW KEY
PEOPLE. We are particularly dependent upon Frederick A. Moran, Chairman,
Chief Executive Officer, Chief Financial Officer, Secretary and Director of
the Company. Mr. Moran is also a significant beneficial shareholder of the
Company. The Company has an employment agreement with Mr. Moran. We believe
the combination of his employment agreement and equity interest keeps Mr.
Moran highly motivated to remain with the Company.
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5. THE INTERNATIONAL TELECOMMUNICATIONS MARKET IS RISKY. The international
nature of the our operations involves certain risks, such as changes in
U.S. and foreign government regulations and telecommunications standards,
dependence on foreign partners, tariffs, taxes and other trade barriers,
the potential for nationalization and economic downturns and political
instability in foreign countries. At the current time, we are particularly
dependent on Central and North America. In addition, our business could be
adversely affected by a reversal in the current trend toward the
deregulation of the telecommunications industry. We will be increasingly
subject to these risks to the extent that we proceed with the planned
expansion of international operations.
6. GOVERNMENT INVOLVEMENT IN INDUSTRY COULD HAVE AN ADVERSE EFFECT. We are
subject to various U.S. and foreign laws, regulations, agency actions and
court decisions. Our U.S. international telecommunications service
offerings are subject to regulation by the Federal Communications
Commission (the "FCC"). The FCC requires international carriers to obtain
certificates of public convenience and necessity prior to acquiring
international facilities by purchase or lease, or providing international
service to the public. Prior FCC approval is also generally required to
transfer control of a certificated carrier. We must file reports and
contracts with the FCC and must pay regulatory and other fees, which are
subject to change. We are also subject to the FCC policies and rules
discussed below. The FCC could determine, by its own actions or in response
to a third party's filing, that certain of our services, termination
arrangements, agreements with foreign carriers, transit or refile
arrangements or reports did not comply with FCC policies and rules. If this
occurred, the FCC could order us to terminate arrangements, fine us or
revoke our authorizations. Any of these actions could have a material
adverse effect on our business, operating results and financial condition.
7. POTENTIAL FOR TECHNICAL FAILURE. Our services are dependent on our own
and other companies' ability to successfully integrate technologies and
equipment. In connecting with other companies' equipment we take the risk
of not being able to provide service due to their error. In addition, there
is the risk that our equipment may malfunction or that we could make an
error which negatively affects our customers' service. We are also
dependent on the protection of our hardware and other equipment from damage
from natural disasters such as fires, floods, hurricanes and earthquakes,
other catastrophic events such as civil unrest, terrorism and war and other
sources of power loss and telecommunications failures. We have taken a
number of steps to prevent our service from being affected by natural
disasters, fire and the like. We have built redundant systems for power
supply to our equipment. Even though, there can be no assurance that any
such systems will prevent the switches from becoming disabled in the event
of an earthquake, power outage or otherwise. The failure of our network, or
a significant decrease in telephone traffic resulting from effects of a
natural or man-made disaster, could have a material adverse effect on our
relationship with our customers and our business, operating results and
financial condition.
8. THE LONG DISTANCE AND INTERNATIONAL LONG DISTANCE TELEPHONE INDUSTRY IS
HIGHLY COMPETITIVE. We are a small company in an industry with many
companies that have more experience and greater resources than us.
International telecommunications providers compete mainly on the basis of
price, but also customer service, transmission quality, breadth of service
offerings and value-added services. Our operating history is probably not
long enough for you to make a judgment about our ability to compete in this
industry.
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9. TECHNOLOGICAL ADVANCEMENT COULD RENDER OUR INFRASTRUCTURE OBSOLETE. The
international telecommunications industry is highly competitive and subject
to the introduction of new services facilitated by advances in technology.
We expect that the future will bring technological change. It is possible
that these changes could result in more advanced telecommunications
equipment that could render our current equipment obsolete. If this were to
happen, we would most likely have to invest significant capital into this
new technology.
10. WE HAVE LIMITED CAPITAL. Being a small company in a capital intensive
industry, our position of limited capital is a significant risk to our
future viability. We are currently seeking financing alternatives that
would put us in a better position financially. There is no guarantee that
we will be able to do this. We may sell additional shares of our stock in
order to provide the capital needed for our operations.
11. WE HAVE A SIGNIFICANT INVESTMENT IN A PRIVATE COMPANY THAT WE DO NOT
CONTROL. We have a non-controlling investment in a private company,
Metromedia China Corporation ("MCC"). Since this company is private and in
development, it is difficult to place a value on its worth. We currently
value our ownership interest based on extrapolating the value placed on MCC
by its majority shareholder, Metromedia International Group. As of March
31, 1999, that equaled $4.34 million. Our total assets were $13.7 million.
The value of our interest in MCC may change in the future. The value of MCC
may be unfavorably influenced by negative operating results, the Chinese
telecommunications market and/or other factors. Furthermore, changes in
governmental policy towards foreign investment in telecommunications in
China could also adversely effect the value of our investment. We have
decreased the value placed on this asset, in large part, due to the
uncertainty of the future of foreign participation in the Chinese
telecommunications market. Even so, there is still the possibility that
this asset will be worth less in the future than we believe is a fair value
currently.
12. OUR STOCK IS HIGHLY VOLATILE. Our stock price fluctuates significantly.
We believe that this will most likely continue. Historically, the market
prices for securities of emerging companies in the telecommunications
industry have been highly volatile. Future announcements concerning us or
our competitors, including results of operations, technological
innovations, government regulations, proprietary rights or significant
litigation, may have a significant impact on the market price of our stock.
13. ADDITIONAL SHARES WILL BE AVAILABLE FOR SALE IN THE PUBLIC MARKET. We
registered stock in connection with the domestication merger of VDC
Corporation Ltd. ("VDC Bermuda") with and into us (the "Domestication
Merger"). The effect of the Domestication Merger was that
members/shareholders of VDC Bermuda became shareholders of the Company
which then became the publicly traded company. In addition, we issued
shares in connection with the MCC investment and other additional business
related matters. These stock issuances and future registration statements
will have the effect of significantly increasing the number of shares
eligible for public trading. Sales of substantial amounts of the stock in
the public market could have an adverse effect on the price of the stock
and may make it more difficult for us to sell stock in the future. Although
it is impossible to predict market influences and prospective values for
securities, it is possible that the substantial increase in the number of
shares available for sale, in and of itself, could have a depressive effect
on the price of our stock.
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14. WE HAVE NOT PAID ANY DIVIDENDS TO OUR STOCKHOLDERS AND DO NOT EXPECT TO
ANY TIME IN THE NEAR FUTURE. Instead, we plan to retain earnings for
investment back into the company.
15. THE YEAR 2000 PROBLEM COULD HAVE A MATERIAL ADVERSE EFFECT ON US. The
Year 2000 issue is a matter of worldwide concern for carriers and affects
many aspects of telecommunications technology, including the computer
systems and software applications that are essential for operations. A
significant portion of the devices that we use to provide our basic
services use date-sensitive processes which affect functions such as
service activation, service assurance and billing processes.
We are currently evaluating the Year 2000 readiness of our computer
systems, software applications and telecommunications equipment. We are
sending Year 2000 compliance inquiries to certain third parties (i.e.
vendors, customers, outside contractors) with whom we have a relationship.
These inquiries include, among other things, requests to provide
documentation regarding the third party's Year 2000 programs, and questions
regarding how the third party specifically examined the Year 2000 effect on
their equipment and operations and what remedial actions will be taken with
regard to these problems.
Since we are a new company, our key systems have just recently been
implemented. Most of the vendors of such systems have represented to us
that the systems are compliant with the Year 2000 issues without any
modification. We will, however, continue to require confirmation of Year
2000 compliance in our future requests for proposals from equipment and
software vendors. The failure of the Company's computer systems and
software applications to accommodate the Year 2000, could have a material
adverse effect on our business, financial condition and results from
operations.
Further, if the software and equipment of those on whose services we depend
are not Year 2000 functional, it could have a material adverse effect on
our operations. While most major domestic telecommunications companies have
announced that they expect all of their network and support systems to be
Year 2000 functional by the middle of 1999, other domestic and
international carriers may not be Year 2000 functional. We intend to
continue to monitor the performance of our accounting, information and
other systems and software applications to identify and resolve any Year
2000 issues. Currently, through our discovery process, we have identified
an estimated $84,000 of expenditures associated with updating systems to be
Year 2000 compliant. However, we expect we will find additional expenses
pending the finalization of our Year 2000 investigation.
We believe that the most reasonably likely worst case scenario resulting
from the century change could be the inability to efficiently send voice
and facsimile calls at current rates to desired locations. We do not know
how long this might last. This would have a material adverse effect on our
results from operations.
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16. CERTAIN ANTI-TAKEOVER CONSIDERATIONS. Certain provisions of our
Certificate of Incorporation, as amended (the "Certificate of
Incorporation"), and Bylaws, as amended (the "Bylaws"), and the General
Corporation Law of the State of Delaware (the "GCL") could deter a change
in our management or render more difficult an attempt to obtain control of
us. For example, we are subject to the provisions of the GCL that prohibit
a public Delaware corporation from engaging in a broad range of business
combinations with a person who, together with affiliates and associates,
owns 15% or more of the corporation's outstanding voting shares (an
"interested stockholder") for three years after the person became an
interested stockholder, unless the business combination is approved in a
prescribed manner. The Certificate of Incorporation includes undesignated
Preferred Stock, which may enable the Board to discourage an attempt to
obtain control of us by means of a tender offer, proxy contest, merger or
otherwise. In addition, the Certificate of Incorporation provides for a
classified Board of Directors such that approximately only one-third of the
members of the Board will be elected at each annual meeting of
stockholders. Classified boards may have the effect of delaying, deferring
or discouraging changes in control of us. Further, certain other provisions
of the Certificate of Incorporation and Bylaws and of the GCL could delay
or make more difficult a merger, tender offer or proxy contest involving
us. Additionally, certain federal regulations require prior approval of
certain transfers of control of telecommunications companies, which could
also have the effect of delaying, deferring or preventing a change in
control.
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EXHIBIT "C"
FORM OF
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This Registration Rights Agreement (this "AGREEMENT") is dated as of May
___, 1999 by and between VDC COMMUNICATIONS, INC., a Delaware corporation (the
"COMPANY"), and the undersigned (the "HOLDER" or the "INVESTOR").
W I T N E S S E T H:
--------------------
WHEREAS, simultaneously with the execution and delivery of this
Agreement, the Investor is purchasing from the Company, pursuant to a Securities
Purchase Agreement dated the date hereof (the "PURCHASE AGREEMENT"), certain
shares of the Company's common stock (the "SHARES") and Warrants to purchase
certain shares of the Company's common stock (the "WARRANTS") (the Shares and
Warrants are collectively referred to as the "SECURITIES" of the Company);
WHEREAS, all capitalized terms not hereinafter defined shall have
that meaning assigned to them in the Purchase Agreement; and
WHEREAS, the Company desires to grant to the Holder the
registration rights set forth herein with respect to the Securities.
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions.
(a) "CLOSING" shall mean the closing provided for in the
Purchase Agreement.
(b) "COMMON STOCK" shall mean the common stock of the
Company, par value $.0001 per share.
(c) "COMPANY" shall mean VDC Communications, Inc.
(d) "OFFERING" shall mean that private placement transaction
pursuant to which the Company shall offer shares of Common Stock and Warrants to
purchase shares of Common Stock upon terms and conditions set forth in the
Purchase Agreements.
(e) "PERSON" means an individual, a partnership (general or
limited), corporation, limited liability company, joint venture, business trust,
cooperative, association or other form of business organization, whether or not
regarded as a legal entity under applicable law, a trust (inter vivos or
testamentary), an estate of a deceased, insane or incompetent person, a
quasi-governmental entity, a government or any agency, authority, political
subdivision or other instrumentality thereof, or any other entity.
(f) "PRINCIPAL MARKET" means the OTC Electronic Bulletin
Board, the Nasdaq National Market, the Nasdaq Small Cap Stock Market, the
American Stock Exchange or the New York Stock Exchange, whichever is at the time
the principal trading exchange or market for the Common Stock.
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(h) "REGISTRATION STATEMENT" shall mean the Registration
Statement of the Company filed with the SEC pursuant to the provisions of
Section 2 of this Agreement which covers the resale of the Shares and the shares
of Common Stock underlying the Warrants (the "Warrant Shares") on Form S-1, SB-2
or any other appropriate form then permitted by the SEC to be used for such
registration and the sales contemplated to be made thereby under the Securities
Act, or any similar rule that may be adopted by the SEC, and all amendments and
supplements to such Registration Statement, including any pre-and post-
effective amendments thereto, in each case including the prospectus contained
therein, all exhibits thereto and all materials incorporated by reference
therein.
(i) "RESTRICTED STOCK" shall mean the Shares, the Warrant
Shares, and any additional shares of Common Stock or other equity securities of
the Company issued or issuable after the date hereof in respect of any such
securities (or other equity securities issued in respect thereof) by way of a
stock dividend or stock split, in connection with a combination, exchange,
reorganization, recapitalization or reclassification of Company securities, or
pursuant to a merger, division, consolidation or other similar business
transaction or combination involving the Company; provided that: as to any
particular shares of Restricted Stock, such securities shall cease to constitute
Restricted Stock (i) when a registration statement with respect to the sale of
such securities shall have become effective under the Securities Act and such
securities shall have been disposed of thereunder, or (ii) when and to the
extent such securities are permitted to be distributed pursuant to subparagraph
(k) of Rule 144 (or any successor provision to such Rule) promulgated under the
Securities Act or are otherwise freely transferable to the public without
further registration under the Securities Act.
(j) "SECURITIES ACT" shall mean the Securities Act of 1933,
as amended, or any similar or successor federal statute, and the rules and
regulations of the SEC thereunder, all as the same shall be in effect at any
relevant time.
(k) "SEC" shall mean the United States Securities and
Exchange Commission.
(l) "TRADING DAY" means a day on which the Principal Market
on which the Common Stock is listed or admitted to trading is open for the
transaction of business or, if the Common Stock is not listed or admitted to
trading on any national securities exchange, any day other than a Saturday,
Sunday, or a day on which banking institutions in the State of Delaware are
authorized or obligated by law or executive order to close.
2. Registration Rights.
(a) Piggyback Registration Rights.
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The Company shall advise the Holder by written notice at least
five (5) days prior to the filing of a Registration Statement under the
Securities Act (excluding registration on Forms S-8, S-4, or any successor forms
thereto), covering securities of the Company to be offered and sold (whether by
the Company or any stockholder thereof) and shall, upon the request of the
Holder given at least five (5) days prior to the filing of such Registration
Statement, include in any such Registration Statement such information as may be
required to permit the public distribution of the Restricted Stock. The Holder
shall furnish such information as may be reasonably requested by the Company in
order to include such Restricted Stock in the Registration Statement. In the
event that any registration pursuant to this Section 2 shall be, in whole or in
part, an underwritten public offering of Common Stock on behalf of the Company,
and the managing underwriters advise the Company in writing that in their
opinion the number of securities requested to be included in such registration
exceeds the number which can be sold in an orderly manner in such offering
within a price range acceptable to the Company, the Company shall include in
such registration (i) first, the securities the Company proposes to sell, and
(ii) second, the Restricted Stock and any other securities eligible and
requested to be included in such registration to the extent that the number of
shares to be registered will not, in the opinion of the managing underwriters,
adversely affect the offering of the securities pursuant to clause (i), pro rata
among the holders of such securities, including the Holder of the Restricted
Stock, on the basis of the number of shares eligible for registration which are
owned by all such holders. Notwithstanding the foregoing, the Company may
withdraw any registration statement referred to in this Section 2 without
thereby incurring liability to the holders of the Restricted Stock.
(b) Shelf Registration.
In the event that the Restricted Stock is not otherwise included
within a Registration Statement filed pursuant to Section 2(a) above, the
Company shall use its best efforts to prepare and file, not later than twelve
(12) months following the Closing of the Offering, a Registration Statement with
the SEC and use its best efforts to, as promptly as possible, have such
Registration Statement declared effective for the purpose of facilitating the
public resale of the Restricted Stock.
(c) Notwithstanding anything to the contrary contained
herein, the Company's obligation in Section 2(a) and 2(b) above shall extend
only to the inclusion of the Restricted Stock in a Registration Statement filed
under the Securities Act. The Company shall have no obligation to assure the
terms and conditions of distribution, to obtain a commitment from an underwriter
relative to the sale of the Restricted Stock or to otherwise assume any
responsibility for the manner, price or terms of the distribution of the
Restricted Stock. Furthermore, the Company shall not be restricted in any manner
from including within the Registration Statement the distribution, issuance or
resale of any of its or any other securities.
3. Registration Procedures. Whenever it is obligated to register any
Restricted Stock pursuant to this Agreement, the Company shall:
(a) prepare and file with the SEC a Registration Statement
with respect to the Restricted Stock in the manner set forth at Sections 2(a) or
2(b) hereof and use its best efforts to cause such Registration Statement to
become effective as promptly as possible and to remain effective for that period
identified in Section 3(g) hereafter;
(b) prepare and file with the SEC such amendments and
supplements to such Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such Registration Statement effective for
the period specified in Section 3(g) below and to comply with the provisions of
the Securities Act with respect to the disposition of all Restricted Stock
covered by such Registration Statement in accordance with the Holders intended
method of disposition set forth in such Registration Statement for such period;
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(c) furnish to the Holder and to each underwriter, if any,
such number of copies of the Registration Statement and the prospectus included
therein (including each preliminary prospectus), as such person may reasonably
request in order to facilitate the public sale or other disposition of the
Restricted Stock covered by such Registration Statement;
(d) use its best efforts to register or qualify the
Restricted Stock covered by such Registration Statement under the securities or
blue sky laws of such jurisdictions as the Holder, or, in the case of an
underwritten public offering, the managing underwriter shall reasonably request;
provided, however, that the Company shall not for any such purpose be required
to qualify generally to transact business as a foreign corporation in any
jurisdiction where it is not so qualified or to consent to general service of
process in any such jurisdiction;
(e) promptly notify the Holder under such Registration
Statement and each underwriter, at any time when a prospectus relating thereto
is required to be delivered under the Securities Act, of the happening of any
event as a result of which the prospectus contained in such Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state any material fact required or necessary to be stated therein in
order to make the statements contained therein not misleading in light of the
circumstances under which they were made;
(f) make available for inspection by any underwriter
participating in an underwritten disposition on behalf of any Holder, and any
attorney, accountant or other agent retained by such underwriter, all financial
and other records, pertinent corporate documents and properties of the Company,
and cause the Company's officers, directors and employees to supply all
information reasonably requested by the underwriter, attorney, accountant or
agent in connection with such Registration Statement;
(g) for purposes of Sections 3(a) and 3(b) above, the period
of distribution of Restricted Stock shall be deemed to extend until the earlier
of: (A) in an underwritten public offering of all of the Restricted Stock, the
period in which each underwriter has completed the distribution of all
securities purchased by it; (B) in any other registration, the earlier of the
period in which all shares of Restricted Stock covered thereby shall have been
sold or three (3) years from the date of Closing.
(h) if the Common Stock of the Company is listed on any
securities exchange or automated quotation system, the Company shall use its
best efforts to list (with the listing application being made at the time of the
filing of such Registration Statement or as soon thereafter as is reasonably
practicable) the Restricted Stock covered by such Registration Statement on such
exchange or automated quotation system;
(i) enter into normal and customary underwriting
arrangements or an underwriting agreement and take all other reasonable and
customary actions if the Holder sells its shares of Restricted Stock pursuant to
an underwriting (however, in no event shall the Company, in connection with such
underwriting, be required to undertake any special audit of a fiscal period in
which an audit is normally not required);
(j) notify the Holder if there are any amendments to the
Registration Statement, any requests by the SEC to supplement or amend the
Registration Statement, or of any threat by the SEC or state securities
commission to undertake a stop order with respect to sales under the
Registration Statement; and
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(k) cooperate in the timely removal of any restrictive
legends from the shares of Restricted Stock in connection with the resale of
such shares covered by an effective Registration Statement.
4. Expenses.
(a) For the purposes of this Section 4, the term
"REGISTRATION EXPENSES" shall mean: all expenses incurred by the Company in
complying with Sections 2 and 3 of this Agreement, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel and independent public accountants for the Company,
"blue sky" fees, fees of the National Association of Securities Dealers, Inc.
("NASD"), fees and expenses of listing shares of Restricted Stock on any
securities exchange or automated quotation system on which the Company's shares
are listed and fees of transfer agents and registrars. The term "SELLING
EXPENSES" shall mean: all underwriting discounts and selling commissions
applicable to the sale of Restricted Stock and all accountable or
non-accountable expenses paid to any underwriter in respect of the sale of
Restricted Stock.
(b) Except as otherwise provided herein, the Company will
pay all Registration Expenses in connection with the Registration Statements
filed pursuant to Section 2 of this Agreement. All Selling Expenses in
connection with any Registration Statements filed pursuant to Section 2 of this
Agreement shall, in the case of an underwritten offering, be borne by the
participating Holders in proportion to the number of shares sold by each, or, in
all other instances, shall be borne by the Holder incurring such expenses.
5. Obligations of Holder.
(a) In connection with each registration hereunder, each
selling Holder will furnish to the Company in writing such information with
respect to such seller and the securities held by such seller, and the proposed
distribution by him or them as shall be reasonably requested by the Company in
order to assure compliance with federal and applicable state securities laws, as
a condition precedent to including such seller's Restricted Stock in the
Registration Statement. Each selling Holder also shall agree to promptly notify
the Company of any changes in such information included in the Registration
Statement or prospectus as a result of which there is an untrue statement of
material fact or an omission to state any material fact required or necessary to
be stated therein in order to make the statements contained therein not
misleading in light of the circumstances then existing.
(b) In connection with each registration pursuant to this
Agreement, the Holder whose shares are included therein will not effect sales
thereof until notified by the Company of the effectiveness of the Registration
Statement, and thereafter will suspend such sales after receipt of telegraphic
or written notice from the Company to suspend sales to permit the Company to
correct or update a Registration Statement or prospectus. At the end of any
period during which the Company is obligated to keep a Registration Statement
current, the Holder included in said Registration Statement shall discontinue
sales of shares pursuant to such Registration Statement upon receipt of notice
from the Company of its intention to remove from registration the shares covered
by such Registration Statement which remain unsold, and such Holder shall notify
the Company of the number of shares registered which remain unsold immediately
upon receipt of such notice from the Company.
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6. Information Blackout.
At any time when a Registration Statement effected pursuant to
Section 2 relating to Restricted Stock is effective, upon written notice from
the Company to the Holder that the Company has determined in good faith that
sale of Restricted Stock pursuant to the Registration Statement would require
disclosure of non-public material information, the Holder shall suspend sales of
Restricted Stock pursuant to such Registration Statement until such time as the
Company notifies the Holder that such material information has been disclosed to
the public or has ceased to be material or that sales pursuant to such
Registration Statement may otherwise be resumed.
7. Indemnification.
(a) The Company agrees to indemnify, to the extent permitted
by law, each Holder of Restricted Stock, its officers and directors and each
Person who controls such Holder (within the meaning of the Securities Act)
against all losses, claims, damages, liabilities and expenses caused by any
untrue statement of material fact contained in any Registration Statement,
prospectus or preliminary prospectus or any amendment thereof or supplement
thereto or any omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as the
same are caused by or contained in any information furnished to the Company by
such Holder for use therein or by such Holder's failure to deliver a copy of the
Registration Statement or prospectus or any amendments or supplements thereto
after the Company has furnished such Holder with a sufficient number of copies
of the same.
(b) In connection with any Registration Statement in which a
Holder of Restricted Stock is participating, each such Holder shall furnish to
the Company in writing such information and affidavits as the Company reasonably
requests for use in connection with any such Registration Statement or
prospectus and, to the extent permitted by law, shall indemnify the Company, its
directors and officers and each Person who controls the Company (within the
meaning of the Securities Act) against any losses, claims, damages, liabilities
and expenses resulting from: (i) any untrue or alleged untrue statement of
material fact contained in the Registration Statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, (but only to the extent that such
untrue statement or omission is contained in any information or affidavit so
furnished by such Holder); or (ii) any disposition of the Restricted Stock in a
manner that fails to comply with the permitted methods of distribution
identified within the Registration Statement; provided that the obligation to
indemnify (if there shall be more than one Holder) shall be individual, not
joint and several, for each Holder and shall be limited to the net amount of
proceeds received by such Holder from the sale of Restricted Stock pursuant to
such Registration Statement.
(c) Any Person entitled to indemnification hereunder shall
(i) give prompt written notice to the indemnifying party of any claim with
respect to which it seeks indemnification (provided that the failure to give
prompt notice shall not impair any Person's right to indemnification hereunder
to the extent such failure has not prejudiced the indemnifying party) and (ii)
unless in such indemnified party's reasonable judgment a conflict of interest
between such indemnified and indemnifying parties may exist with respect to such
claim, permit such indemnifying party to assume the defense of such claim with
counsel reasonably satisfactory to the indemnified party. If such defense is
assumed, the indemnifying party shall not be subject to any liability for any
settlement made by the indemnified party without its consent (but such consent
shall not be unreasonably withheld). An indemnifying party who is not entitled
to, or elects not to, assume the defense of a claim shall not be obligated to
pay the fees and expenses of more than one counsel for all parties indemnified
by such indemnifying party with respect to such claim, unless in the reasonable
judgment of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
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(d) The indemnification provided for under this Agreement
shall remain in full force and effect regardless of any investigation made by or
on behalf of the indemnified party or any officer, director or controlling
Person of such indemnified party and shall survive the transfer of securities.
The Company also agrees to make such provisions, as are reasonably requested by
any indemnified party, for contribution to such party in the event the Company's
indemnification is unavailable for any reason.
8. Miscellaneous Provisions.
(a) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware with regard to
principles of conflicts of laws.
(b) Counterparts. This Agreement may be signed in any number
of counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
(c) Amendments and Waivers. Except as otherwise provided
herein, the provisions of this Agreement may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given without the written consent of the Company and the Holder.
(d) Notices. All notices, consents, waivers, and other
communications under this Agreement must be in writing and will be deemed to
have been duly given when (a) delivered by hand (with written confirmation of
receipt), (b) sent by facsimile (with written confirmation of receipt), provided
that a copy is mailed by registered mail, return receipt requested (provided
that facsimile notice shall be deemed received on the next business day if
received after 5:00 p.m. local time), or (c) when received by the addressee, if
sent by a nationally recognized overnight delivery service (receipt requested),
in each case to the appropriate addresses and facsimile numbers set forth below
(or to such other addresses and facsimile numbers as a party may designate by
notice to the other parties)
(i) if to the Company to:
VDC Communications, Inc.
75 Holly Hill Lane
Greenwich, CT 06830
Attn: Frederick A. Moran, Chief Executive Officer
Telephone: (203) 869-5100
Facsimile: (203) 552-0908
(ii) if to the Holder, to the address identified on the
books and records of the Company
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(e) Successors and Assigns; Holders as Beneficiaries. This
Agreement shall inure to the benefit of and be binding upon the parties and
their respective successors and assigns, and the agreements of the Company
herein shall inure to the benefit of the Holders and their respective successors
and assigns.
(f) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(g) Entire Agreement; Survival; Termination. This Agreement
is intended by the parties as a final expression of their agreement and intended
to be a complete and exclusive statement of the agreement and understanding of
the parties hereto in respect of the subject matter contained herein. There are
no restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
(h) Construction. This Agreement and any related instruments
will not be construed more strictly against one party then against the other by
virtue of the fact that drafts may have been prepared by counsel for one of the
parties, it being recognized that this Agreement and any related instruments are
the product of negotiations between the parties and that both parties have
contributed to the final preparation of this Agreement and all related
instruments.
(i) Arbitration. All controversies which may arise between
the parties including, but not limited to, those arising out of or related to
this Agreement shall be determined by binding arbitration applying the laws of
the State of Delaware. Any arbitration between the parties shall be conducted at
the Company's offices in Greenwich, Connecticut, or at such other location
designated by the Company, before the American Arbitration Association (the
"AAA"). If the Parties are unable to agree on a single arbitrator with fifteen
(15) days of a demand for arbitration being filed with the AAA by one of the
parties, each party shall select an arbitrator and the two (2) arbitrators shall
mutually select a third arbitrator, the three of whom shall serve as an
arbitration panel. The decision of the arbitrator(s) shall be final and binding
upon the Parties and shall not be required to include written findings of law
and fact, and judgment may be obtained thereon by either party in a court of
competent jurisdiction. Each party shall bear the cost of preparing and
presenting its own case. The cost of the arbitration, including the fees and
expenses of the arbitrator(s), shall be shared equally by the parties hereto
unless the award otherwise provides. Nothing in this section will prevent either
party from resorting to judicial proceedings if interim injunctive relief under
the laws of the State of Delaware from a court is necessary to prevent serious
and irreparable injury to one of the parties, and the parties hereto agree that
the state courts in Stamford, Connecticut and the United States District Court
in the District of Connecticut in Bridgeport, Connecticut shall have exclusive
subject matter and in personam jurisdiction over the parties for purposes of
obtaining interim injunctive relief.
(j) Agreement Read and Understood. Both parties hereto
acknowledge that they have had an opportunity to consult with an attorney, and
such other experts or consultants as they deem necessary or prudent, regarding
this Agreement and that they, or their designated agents, have read and
understand this Agreement.
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IN WITNESS WHEREOF, intending to be legally bound, the parties hereto
have caused this Agreement to be signed.
ATTEST: VDC COMMUNICATIONS, INC.
______________________________ By:________________________________
Frederick A. Moran
Chief Executive Officer
WITNESS:
- ------------------------------ --------------------------------
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VDC COMMUNICATIONS, INC.
----------
SECURITIES PURCHASE AGREEMENT
----------
SHARES OF COMMON STOCK
AT $2.70 PER SHARE
AND COMMON STOCK
PURCHASE WARRANTS
----------
MAY 12, 1999
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CONFIDENTIAL
- ------------
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement") is entered into as
of the 12th day of May, 1999, by and between VDC Communications, Inc., a
Delaware corporation ("VDC" or the "Company"), and the investor whose name
appears at the end of this Agreement ("Purchaser" or "Subscriber").
R E C I T A L S:
----------------
The Company wishes to obtain additional working capital and the
Purchaser desires to provide such working capital to the Company through the
purchase of certain shares of the Company's common stock, $.0001 par value per
share (the "Common Stock"), being privately offered by the Company.
NOW, THEREFORE, in consideration of the premises hereof and the
agreements set forth herein below, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Sale and Purchase of Shares and Warrants.
Subject to the terms and conditions hereof, the Company agrees to
issue and sell, and the Purchaser agrees to purchase that number of shares of
Common Stock (the "Shares") identified on the signature page hereof at a
purchase price of $2.70 per share. The total purchase price is set forth on the
signature page hereof (the "Purchase Price"). The Purchase Price is payable upon
subscription in cash, check or wire transfer. If paying by check, the check
should be made payable to "VDC Communications, Inc." and delivered to VDC
Communications, Inc. at 75 Holly Hill Lane, Greenwich, Connecticut, 06830. For
every full block of ten (10) Shares purchased pursuant to this Agreement, the
Purchaser shall be entitled to receive from the Company, and the Company shall
grant to the Purchaser, one (1) Common Stock Purchase Warrant (the "Warrants")
upon substantially the terms set forth in the document attached hereto as
Exhibit "A." The sale of Shares and Warrants evidenced by this Agreement is part
of an overall private placement transaction being undertaken by the Company of a
maximum principal amount of $1,499,998.50. See Section 3 hereafter.
No broker, investment banker or any other person, other than
Paradigm Group LLC ("Paradigm") and Santa Fe Capital Group (NM), Inc. ("Santa
Fe"), will receive from the Company any compensation as a broker, finder,
adviser or in any other capacity in connection with the purchase of the Shares
and Warrants hereunder. As a consulting fee, for every full block of twenty (20)
Shares purchased by "accredited investors," as that term is defined in Rule 501
of Regulation D of the Securities Act of 1933, as amended (the "Act") introduced
to the Company exclusively by Paradigm ("Paradigm Purchasers"), Paradigm shall
be entitled to receive from the Company, and the Company shall grant to the
Paradigm, one (1) Warrant. The Company shall pay Santa Fe an investment banking
fee (the "Santa Fe Fee") based upon gross proceeds paid to the Company by
Paradigm Purchasers (the "Proceeds"). Specifically, Santa Fe is entitled to:
five percent (5%) of the first $1,000,000 in Proceeds; four percent (4%) of the
second $1,000,000 in Proceeds; three percent (3%) of the third $1,000,000 in
Proceeds; two percent (2%) of the fourth $1,000,000 in proceeds; and one percent
(1%) for all Proceeds in excess of $4,000,000. Twenty percent (20%) of the Santa
Fe Fee shall be paid to Santa Fe in shares of Company Common valued at $2.70 per
share.
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2. Description of the Securities.
(a) Restricted Securities. The Shares, Warrants and shares
of Common Stock issuable upon exercise of the Warrants (the "Warrant Shares")
being offered hereby (collectively, the "Securities") shall be "restricted
securities" as that term is defined under Rule 144 promulgated under the Act and
may not be offered for sale or sold or otherwise transferred in a transaction
which would constitute a sale thereof within the meaning of the Act unless (i)
such Security has been registered for sale under the Act and registered or
qualified under applicable state securities laws relating to the offer and sale
of securities; or (ii) exemptions from the registration requirements of the Act
and the registration or qualification requirements of all such state securities
laws are available and the Company shall have received an opinion of counsel,
prepared at Purchaser's expense, that the proposed sale or other disposition of
such securities may be effected without registration under the Act and would not
result in any violation of any applicable state securities laws relating to the
registration or qualification of securities for sale, such counsel and such
opinion to be satisfactory to the Company.
(b) Voting Rights; Dividends. Holders of Common Stock of the
Company have equal rights to receive dividends when, as, and if declared by the
Board of Directors out of funds legally available therefor. Holders of Common
Stock of the Company have one vote for each share held of record and do not have
cumulative voting rights.
(c) Liquidation; Redemption. Holders of Common Stock of the
Company are entitled upon liquidation of the Company to share ratably in the net
assets available for distribution, subject to the rights, if any of holders of
any preferred stock of the Company then outstanding. Shares of Common Stock of
the Company are not redeemable and have no preemptive or similar rights. All
outstanding shares of Common Stock of the Company are fully paid and
nonassessable.
(d) Description of Warrants. Each Warrant entitles the
holder to purchase one (1) share of Common Stock at an exercise price of $6.00
per share, exercisable for a three year period from the date of Closing. Prior
to the exercise of the Warrants, holders of the Warrants shall not be entitled
to any right whatsoever, either in law or equity, of a stockholder of the
Company, including without limitation, the right to receive dividends or to vote
or to consent or to receive notice as a stockholder in respect of the meetings
of stockholders or the election of directors of the Company or any other matter.
(e) Restriction Upon Resale. The Subscriber hereby agrees
that the Securities shall be subject to restrictions upon the transfer, sale,
encumbrance or other disposition of the Securities. See "UNDERSTANDING OF
INVESTMENT RISKS" AND "REGISTRATION RIGHTS".
3. Securities Offered in a Private Placement Transaction.
The Securities offered by this Securities Purchase Agreement are
being offered as a non-public offering (the "Offering") pursuant to Section 4(2)
and Regulation D of the Act ("Regulation D") by the Company on a "best efforts"
basis of a maximum principal amount of $1,499,998.50 (the "Maximum Offering") to
be offered to the Paradigm Purchasers. Accordingly, there can be no assurances
as to the number of securities that will be sold in the Offering. The Company
may, in its sole discretion, reject, in whole or part, subscriptions from
Paradigm Purchasers to the extent such subscriptions, when aggregated with other
subscriptions from Paradigm Purchasers exceed the Maximum Offering.
Additionally, the Company may, in its sole discretion, reject any subscription
from any Paradigm Purchaser to the extent funds for such subscription are not
received by the Company on or before 5 p.m. Eastern Standard Time on Wednesday,
May 26, 1999, (the "Outside Payment Date").
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The Company is concurrently offering up to 700,000 shares of
Common Stock and up to 70,000 three-year warrants to purchase one (1) share of
Common Stock at an exercise price of $6.00 per share in a private placement at a
purchase price of between $2.70 and approximately $4.00 per share of Common
Stock with the right to receive one (1) warrant for every full block of ten (10)
shares of Common Stock (the "Concurrent Offering"). The proceeds of this
Offering and the Concurrent Offering are intended to raise working capital for
the Company.
4. Binding Effect of Securities Purchase Agreement; The Closing.
This Securities Purchase Agreement shall not be binding on the
Company unless and until an authorized executive officer of the Company has
evidenced acceptance thereof by executing the signature page at the end hereof.
The Company may accept or reject this Agreement in its sole discretion if the
Purchaser does not meet the suitability standards established herein.
Additionally, the Company may reject this Agreement, in its sole discretion, if
the Purchase Price is not received by the Company on or before 5 p.m. Eastern
Standard Time on Thursday, May 13, 1999. In the event the Company rejects this
Agreement, the Purchaser's funds will be returned without deduction of any costs
and without interest.
A closing (the "Closing") will occur contemporaneously with the
acceptance of this Agreement by the Company and the Company's receipt of the
Purchase Price. The Company shall deliver to the Purchaser within fifteen
business (15) days after the Outside Payment Date:
(a) A stock certificate representing the number of Shares
purchased, bearing applicable restrictive legends, duly executed by the
appropriate officer(s) and registered on the books of the Company in Purchaser's
name; and
(b) The Warrants in substantially the form set forth at
Exhibit "A" duly executed by the appropriate officer(s) and registered on the
books of the Company in the Purchaser's name.
5. Representations and Warranties of the Purchaser. The Purchaser
represents and warrants to the Company as follows:
(a) Accredited Investor. The Purchaser has such knowledge
and experience in business and financial matters such that the Purchaser is
capable of evaluating the merits and risks of purchasing the Securities. The
Purchaser is either an "accredited investor" as that term is defined in Rule 501
of Regulation D of the Act or a "qualified institutional buyer" as that term is
defined in Rule 144A of the Act, and represents that he satisfies the
suitability standards identified in Section 10 hereof;
(b) Loss of Investment. The Purchaser('s) (i) overall
commitment to investments which are not readily marketable is not
disproportionate to his net worth; (ii) investment in the Company will not cause
such overall commitment to become excessive; (iii) can afford to bear the loss
of his entire investment in the Company; and (iv) has adequate means of
providing for his current needs and personal contingencies and has no need for
liquidity in his investment in the Company;
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(c) Special Suitability. The Purchaser satisfies any special
suitability or other applicable requirements of his state of residence and/or
the state in which the transaction by which the Securities are purchased occurs;
(d) Investment Intent. The Purchaser hereby acknowledges
that the Purchaser has been advised that this offering has not been registered
with, or reviewed by, the Securities and Exchange Commission ("SEC") because
this offering is intended to be a non-public offering pursuant to Section 4(2)
and Regulation D of the Act. The Purchaser represents that the Purchaser's
Securities are being purchased for the Purchaser's own account and not on behalf
of any other person, for investment purposes only and not with a view towards
distribution or resale to others. The Purchaser will not attempt to sell,
transfer, assign, pledge or otherwise dispose of all or any portion of the
Securities unless they are registered under the Act or unless in the opinion of
counsel an exemption from such registration is available, such counsel and such
opinion to be satisfactory to the Company. The Purchaser understands that the
Securities have not been registered under the Act by reason of a claimed
exemption under the provisions of the Act which depends, in part, upon the
Purchaser's investment intention;
(e) State Securities Laws. The Purchaser understands that no
securities administrator of any state has made any finding or determination
relating to the fairness of this investment and that no securities administrator
of any state has recommended or endorsed, or will recommend or endorse, the
offering of the Securities;
(f) Authority; Power; No Conflict. The execution, delivery
and performance by the Purchaser of the Agreement are within the powers of the
Purchaser, have been duly authorized and will not constitute or result in a
breach or default under, or conflict with, any order, ruling or regulation of
any court or other tribunal or of any governmental commission or agency, or any
agreement or other undertaking, to which the Purchaser is a party or by which
the Purchaser is bound, and, if the Purchaser is not an individual, will not
violate any provision of the charter documents, Bylaws, indenture of trust or
partnership agreement, as applicable, of the Purchaser. The signatures on the
Agreement are genuine, and the signatory, if the Purchaser is an individual, has
legal competence and capacity to execute the same, or, if the Purchaser is not
an individual, the signatory has been duly authorized to execute the same; and
the Agreement constitutes the legal, valid and binding obligations of the
Purchaser, enforceable in accordance with its terms;
(g) No General Solicitation. The Purchaser acknowledges that
no general solicitation or general advertising (including communications
published in any newspaper, magazine or other broadcast) has been received by
him and that no public solicitation or advertisement with respect to the
offering of the Securities has been made to him;
(h) Advice of Tax and Legal Advisors. The Purchaser has
relied solely upon the advice of his own tax and legal advisors with respect to
the tax and other legal aspects of this investment;
(i) Broker Fees. The Purchaser is not aware that any person,
and has been advised that no person, will receive from the Company any
compensation as a broker, finder, adviser or in any other capacity in connection
with the purchase of the Securities other than as declared herein;
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(j) Access to Information. Purchaser has had access to all
material and relevant information concerning the Company, its management,
financial condition, capitalization, market information, properties and
prospects necessary to enable Purchaser to make an informed investment decision
with respect to its investment in the Securities. Purchaser has carefully read
and reviewed, and is familiar with and understands the contents thereof and
hereof, including, without limitation, the risk factors described in this
Agreement. See "UNDERSTANDING OF INVESTMENT RISKS." Purchaser acknowledges that
it has had the opportunity to ask questions of and receive answers from, and to
obtain additional information from, representatives of the Company concerning
the terms and conditions of the acquisition of the Securities and the present
and proposed business and financial condition of the Company, and has had all
such questions answered to its satisfaction and has been supplied all
information requested;
(k) Review of Reports. The Purchaser acknowledges that it
has been provided with an opportunity to review: (i) a copy of the Company's
Annual Report on Form 10-K for the year ended June 30, 1998; (ii) a copy of the
Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1998;
(iii) a copy of the Company's Registration Statement on Form S-4, pursuant to
which VDC Corporation Ltd., a Bermuda company, merged with and into the Company;
and (iv) all other recent reports filed by the Company with the Securities and
Exchange Commission under the Securities Exchange Act of 1934 (collectively, the
"Reports").
(l) Understanding the Nature of Securities. The Purchaser
understands and acknowledges that:
(i) The Securities have not been registered under the
Act or any state securities laws and are being issued and sold in reliance upon
certain exemptions contained in the Act;
(ii) The Securities are "restricted securities" as that
term is defined in Rule 144 promulgated under the Act;
(iii) The Securities cannot be sold or transferred
without registration under the Act and applicable state securities laws, or
unless the Company receives an opinion of counsel reasonably acceptable to it
(as to both counsel and the opinion) that such registration is not necessary;
and
(iv) The Securities and any certificates issued in
replacement therefor shall bear the following legend, in addition to any
other legend required by law or otherwise:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES
MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF REGISTRATION, OR THE AVAILABILITY OF EXEMPTION FROM
REGISTRATION, UNDER THE ACT, BASED ON AN OPINION LETTER OF
COUNSEL SATISFACTORY TO THE COMPANY OR A NO-ACTION LETTER FROM
THE SECURITIES AND EXCHANGE COMMISSION."
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6. Indemnification. The Purchaser shall indemnify and hold
harmless the Company and the Company's officers, directors and employees from
and against any and all loss, damage or liability (including attorneys' fees),
due to, or arising out of, a breach or inaccuracy of any representation or
warranty contained in Section 5.
7. Understanding of Investment Risks. Any investment in the
Securities should not be made by a Purchaser who cannot afford the loss of his
entire Purchase Price. THE PURCHASER ACKNOWLEDGES THAT THE SECURITIES OFFERED
HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION, OR ANY STATE SECURITIES COMMISSIONS, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ADEQUACY
OR ACCURACY OF THIS SECURITIES PURCHASE AGREEMENT OR ANY EXHIBIT HERETO. PRIOR
TO MAKING AN INVESTMENT IN THE SECURITIES, THE PURCHASER HAS FULLY CONSIDERED,
AMONG OTHER THINGS, THE FINANCIAL AND OTHER INFORMATION SET FORTH IN THE REPORTS
AS WELL AS THE RISK FACTORS ATTACHED HERETO AS EXHIBIT "B" AND ACKNOWLEDGES THAT
SUCH INFORMATION HAS BEEN CONSIDERED PRIOR TO MAKING THIS INVESTMENT DECISION.
8. Registration Rights. The Company has agreed to advise the
Purchaser by written notice at least ten (10) calendar days prior to the filing
of a registration statement under the Act (excluding registration on Forms S-8,
S-4 or any successor forms thereto), covering securities of the Company to be
offered and sold to the public generally (whether on behalf of the Company or
selling security holders) and shall, upon the request of the Purchaser given at
least five (5) calendar days prior to the filing of such registration statement,
include in any such registration statement such information as may be required
to permit the public resale of the Shares and Warrant Shares; provided, however,
that in the event the resale of the Shares and Warrant Shares has not been
previously included within a registration statement, the Company shall in any
event file a registration statement under the Act within one year of the
Closing, the purpose of which is to register the resale of the Shares and
Warrant Shares. The registration rights associated with the Shares and Warrants
Shares are described more particularly and are subject in full to the terms of a
Registration Rights Agreement substantially in the form attached hereto as
Exhibit "C."
The Company shall use its best efforts to file, within thirty (30) days
of the Outside Payment Date, a registration statement on Form S-1 on behalf of
certain Company security holders which, if filed, will include the Shares and
Warrant Shares referenced in this Agreement.
The Company's obligation to register the Shares and the Warrant Shares
extends only to the inclusion of the Shares and the Warrant Shares in a
registration statement which covers the public resale thereof. In all events,
the Company shall have no obligation: (i) to assist or cooperate in the offering
or disposition of such Shares or Warrant Shares; (ii) to obtain a commitment
from an underwriter relative to the sale of such Shares or Warrant Shares; or
(iii) to include such Shares or Warrant Shares within an underwritten offering
of the Company. The Company shall assume no responsibility for the manner of
sale, timing of sale, or sales price relating to the resale of the Shares and
Warrant Shares.
9. Representations and Warranties of the Company. The Company
hereby represents and warrants to Purchaser as follows:
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(a) Organization and Standing of the Company. The Company is
a duly organized and validly existing corporation in good standing under the
laws of the State of Delaware with adequate power and authority to conduct the
business in which it is now engaged and has the corporate power and authority to
enter into this Agreement, and is duly qualified and licensed to do business as
a foreign corporation in such other jurisdictions as is necessary to enable it
to carry on its business, except where failure to do so would not have a
material adverse effect on its business;
(b) Corporate Power and Authority. The execution and
delivery of this Agreement and the transactions contemplated hereby have been
duly authorized by the Board of Directors of the Company. No other corporate act
or proceeding on the part of the Company is necessary to authorize this
Agreement or the consummation of the transactions contemplated hereby. When duly
executed and delivered by the parties hereto, this Agreement will constitute a
valid and legally binding obligation of the Company enforceable against it in
accordance with its terms, except as such enforceability may be limited by (i)
bankruptcy, insolvency, moratorium, reorganization or other similar laws and
legal and equitable principles limiting or affecting the rights of creditors
generally; and/or (ii) general principles of equity, regardless of whether
considered in a proceeding in equity or at law;
(c) Noncontravention. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby will not,
to the best of the Company's knowledge and belief, (i) permit the termination or
acceleration of the maturity of any material indebtedness or material obligation
of the Company; (ii) permit the termination of any material note, mortgage,
indenture, license, agreement, contract, or other instrument to which the
Company is a party or by which it is bound or the Certificate of Incorporation
or Bylaws of the Company; (iii) except as expressly provided in this Agreement
and except for state "blue sky" approvals that may be required and those
consents and waivers which already have been obtained by the Company, require
the consent, approval, waiver or authorization from or registration or filing
with any party, including but not limited to any party to a material agreement
to which the Company is a party or by which it is bound, or any regulatory or
governmental agency, body or entity except where failure to obtain such consent,
approval, waiver or authorization would not have a material adverse effect on
the Company's business; (iv) result in the creation or imposition of any lien,
claim or encumbrance of any kind or nature on any material properties or assets
of the Company; or (v) violate in any material aspect any statue, law, rule,
regulation or ordinance, or any judgment, decree, order, regulation or rule of
any court, tribunal, administrative or governmental agency, body or entity to
which the Company or its properties is subject except where such violation would
not have a material adverse effect on the Company's business.
10. IMPORTANT CONSIDERATIONS: SUITABILITY STANDARDS - WHO SHOULD INVEST.
INVESTMENT IN THE SECURITIES INVOLVES A HIGH DEGREE OF RISK AND
IS SUITABLE ONLY FOR PERSONS OF SUBSTANTIAL FINANCIAL RESOURCES WHO HAVE NO NEED
FOR LIQUIDITY IN THEIR INVESTMENT.
A substantial number of state securities commissions have
established investor suitability standards for the marketing within their
respective jurisdictions of restricted securities. Some have also established
minimum dollar levels for purchases in their states. The reasons for these
standards appear to be, among others, the relative lack of liquidity of
securities of such programs as compared with other securities investments.
Investment in the Securities involves a high degree of risk and is suitable only
for persons of substantial financial means who have no need for liquidity in
their investments.
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The Company has adopted as a general investor suitability
standard the requirement that each Subscriber for Securities represents in
writing that the Subscriber: (a) is acquiring the Securities for investment and
not with a view to resale or distribution; (b) can bear the economic risk of
losing its entire investment; (c) its overall commitment to investments which
are not readily marketable is not disproportionate to its net worth, and an
investment in the Securities will not cause such overall commitment to become
excessive; (d) has adequate means of providing for its current needs and
personal contingencies and has no need for liquidity in this investment in the
Securities; (e) has evaluated all the risks of investment in the Company; and
(f) has such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of investing in the Company or is
relying on its own purchaser representative in making an investment decision.
In addition, all of the Subscribers for Securities must be: (1)
extremely sophisticated investors with substantial net worth and experience in
making investments of this nature; and (2) "accredited investors," as defined in
Rule 501 of Regulation D under the Act, by meeting any of the following
conditions:
(i) he or she has an individual income in excess of $200,000
in each of the two most recent years or joint income with his or her spouse in
excess of $300,000 in each of those years, and he or she reasonably expects an
income in excess of the aforesaid levels in the current year, or
(ii) he or she has an individual net worth, or a joint net worth
with his or her spouse, at the time of his or her purchase, in excess of
$1,000,000 (net worth for these purposes includes homes, home furnishings and
automobiles), or
(iii) he or she otherwise satisfies the Company that he or she is
an accredited investor, as defined in Rule 501 under the Act.
Other categories of investors included within the definition of
accredited investor include the following: certain institutional investors,
including certain banks, whether acting in their individual or fiduciary
capacities; certain insurance companies; federally registered investment
companies; business development companies (as defined under the Investment
Company Act of 1940); Small Business Investment Companies licensed by the Small
Business Administration; certain employee benefit plans; private business
development companies (as defined in the Investment Advisers Act of 1940); tax
exempt organizations (as defined in Section 501(c)(3) of the Internal Revenue
Code) with total assets in excess of $5,000,000; entities in which all the
equity owners are accredited investors; and certain affiliates of the Company.
A partnership Subscriber, which satisfies the requirements set
forth in clauses (a) through (f) above shall satisfy the suitability standards
if it is an accredited investor by reason of clause (iii) above, or if all of
its partners are accredited investors. A corporate subscriber, which satisfies
the requirements set forth in clauses (a) through (f) above shall satisfy the
investor suitability standards if it is an accredited investor by reason of
clause (iii) above, or if all of its shareholders are accredited investors.
Corporate subscribers must have net worth of at least three (3) times the amount
of their investment in the Securities.
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The suitability standards referred to above represent minimum
suitability requirements for prospective purchasers and the satisfaction of such
standards by a prospective purchaser does not necessarily mean that the
Securities are a suitable investment for such purchaser. The Company may, in
circumstances it deems appropriate, modify such requirements. The Company may
also reject subscriptions for whatever reasons, in its sole discretion, it deems
appropriate.
Securities Purchase Agreements may not necessarily be accepted in
the order in which received. Purchasers who are residents of certain states may
be required to meet certain additional suitability standards.
THE ACCEPTANCE OF A SUBSCRIPTION FOR THE SECURITIES BY THE
COMPANY DOES NOT CONSTITUTE A DETERMINATION BY THE COMPANY THAT AN INVESTMENT IN
THE SECURITIES IS SUITABLE FOR A PROSPECTIVE INVESTOR. THE FINAL DETERMINATION
OF THE SUITABILITY OF INVESTMENT IN THE SECURITIES MUST BE MADE BY THE
PROSPECTIVE INVESTOR AND HIS OR HER ADVISERS.
11. State Law Considerations for Residents of All States.
IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON
THEIR OWN EXAMINATION OF THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE
MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY
FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE
FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY
OF THE DESCRIPTION OF BUSINESS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY
AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE
SECURITIES ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY WILL BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD
OF TIME.
12. Notices. All notices, consents, waivers, and other
communications under this Agreement must be in writing and will be deemed to
have been duly given when (a) delivered by hand (with written confirmation of
receipt), (b) sent by facsimile (with written confirmation of receipt), provided
that a copy is mailed by registered mail, return receipt requested (provided
that facsimile notice shall be deemed received on the next business day if
received after 5:00 p.m. local time), or (c) when received by the addressee, if
sent by a nationally recognized overnight delivery service (receipt requested),
in each case to the appropriate addresses and facsimile numbers set forth below
(or to such other addresses and facsimile numbers as a party may designate by
notice to the other parties):
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If to the Company:
VDC Communications, Inc.
75 Holly Hill Lane
Greenwich, CT 06830
Attention: Frederick A. Moran
Chairman & C.E.O.
Facsimile: (203) 552-0908
with a copy to:
VDC Communications, Inc.
75 Holly Hill Lane
Greenwich, CT 06830
Attention: Louis D. Frost, Esq.
VDC Corporate Counsel
Facsimile: (203) 552-0908
If to Purchaser:
to the address set forth at the end of this Agreement or to such
other addresses as may be specified in accordance herewith from time to time.
13. Survival of Representations and Warranties. Representations and
warranties contained herein shall survive the execution and delivery of this
Agreement.
14. Parties in Interest. All the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective successors and permitted assigns of the parties hereto,
provided that this Agreement and the interests herein may not be assigned by
either party without the express written consent of the other party.
15. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the state of Delaware without regard to
the principles of conflict of laws.
16. Arbitration. All controversies which may arise between the
parties including, but not limited to, those arising out of or related to this
Agreement shall be determined by binding arbitration applying the laws of the
State of Delaware. Any arbitration between the parties shall be conducted at the
Company's offices in Greenwich, Connecticut, or at such other location
designated by the Company, before the American Arbitration Association (the
"AAA"). If the Parties are unable to agree on a single arbitrator with fifteen
(15) days of a demand for arbitration being filed with the AAA by one of the
parties, each party shall select an arbitrator and the two (2) arbitrators shall
mutually select a third arbitrator, the three of whom shall serve as an
arbitration panel. The decision of the arbitrator(s) shall be final and binding
upon the Parties and shall not be required to include written findings of law
and fact, and judgment may be obtained thereon by either party in a court of
competent jurisdiction. Each party shall bear the cost of preparing and
presenting its own case. The cost of the arbitration, including the fees and
expenses of the arbitrator(s), shall be shared equally by the parties hereto
unless the award otherwise provides. Nothing in this section will prevent either
party from resorting to judicial proceedings if interim injunctive relief under
the laws of the State of Delaware from a court is necessary to prevent serious
and irreparable injury to one of the parties, and the parties hereto agree that
the state courts in Stamford, Connecticut and the United States District Court
in the District of Connecticut in Bridgeport, Connecticut shall have exclusive
subject matter and in personam jurisdiction over the parties for purposes of
obtaining interim injunctive relief.
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17. Sections and Other Headings. The section and other headings
contained in this Agreement are for the convenience of reference only, and do
not constitute part of this Agreement or otherwise affect any of the provisions
hereof.
18. Pronouns. Whenever the context of this Agreement may require,
any pronoun will include the corresponding masculine, feminine and neuter form,
and the singular form of nouns and pronouns will include the plural.
19. Signatures in Counterpart and Facsimile. This Agreement may be
executed in multiple counterparts and by facsimile signature, each of which
shall constitute an original, but all of which counterparts taken together shall
constitute one and the same instrument.
20. Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction.
21. Entire Agreement; Amendments. This Agreement and the
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Purchaser
make any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than by
an instrument in writing signed by the party to be charged with enforcement.
22. Construction. This Agreement and any related instruments will
not be construed more strictly against one party then against the other by
virtue of the fact that drafts may have been prepared by counsel for one of the
parties, it being recognized that this Agreement and any related instruments are
the product of negotiations between the parties and that both parties have
contributed to the final preparation of this Agreement and all related
instruments.
23. Agreement Read and Understood. Both parties hereto acknowledge
that they have had an opportunity to consult with an attorney, and such other
experts or consultants as they deem necessary or prudent, regarding this
Agreement and that they, or their designated agents, have read and understand
this Agreement.
24. United States Dollars. All dollar amounts stated herein refer
to and are payable solely in United States Dollars.
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IN WITNESS WHEREOF, intending to be legally bound, the parties hereto
have caused this Agreement to be signed.
Purchaser: PGP I Investors, LLC
185,185 Shares/$499,999.50
- -------------------------- -------------------------------------------
Number and dollar amount By:/s/ Randall Goulding
of Shares purchased -
Purchase Price Its:Manager
Address/Residence of Purchaser:
3000 W. Dundee Suite 105
-------------------------------------------
18,518
- ------
Warrants Northbrook, IL 60062
-------------------------------------------
Employer Identification No.: 36-4238285
---------------
Accredited Investor Certification
(Place initials on the appropriate line(s))
____ (i) I am a natural person who had individual income of more than
$200,000 in each of the most recent two years or joint income with my
spouse in excess of $300,000 in each of the most recent two years and
reasonably expect to reach that same income level for the current year
("income", for purposes hereof, should be computed as follows:
individual adjusted gross income, as reported (or to be reported) on a
federal income tax return, increased by (1) any deduction of long-term
capital gains under Section 1202 of the Internal Revenue Code of 1986
(the "Code"), (2) any deduction for depletion under Section 611 et
seq. of the Code, (3) any exclusion for interest under Section 103 of
the Code and (4) any losses of a partnership as reported on Schedule E
of Form 1040);
_____ (ii) I am a natural person whose individual net worth (i.e.,
total assets in excess of total liabilities), or joint net worth with
my spouse, will at the time of purchase of the Securities be in excess
of $1,000,000;
_____ (iii) The Purchaser is an investor satisfying the requirements
of Section 501(a)(1), (2) or (3) of Regulation D promulgated under the
Securities Act, which includes but is not limited to, a self-directed
employee benefit plan where investment decisions are made solely by
persons who are "accredited investors" as otherwise defined in
Regulation D;
_____ (iv) The Purchaser is a "qualified institutional buyer" as that
term is defined in Rule 144A of the Securities Act;
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_____ (v) The Purchaser is a trust, which trust has total assets in
excess of $5,000,000, which is not formed for the specific purpose of
acquiring the Securities offered hereby and whose purchase is directed
by a sophisticated person as described in Rule 506(b)(ii) of
Regulation D and who has such knowledge and experience in financial
and business matters that he is capable of evaluating the risks and
merits of an investment in the Securities;
_____ (vi) I am a director or executive officer of the Company; or
__X__ (vii) The Purchaser is an entity (other than a trust) in which
all of the equity owners meet the requirements of at least one of the
above subparagraphs.
Agreed and Accepted by
VDC COMMUNICATIONS, INC.
By: /s/ Frederick A. Moran
------------------------
Frederick A. Moran
Chairman & C.E.O.
Dated: May 13, 1999
--------------
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EXHIBIT "A"
Warrant No.1999-W___
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE
SECURITIES LAWS. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF REGISTRATION, OR THE AVAILABILITY OF EXEMPTION
FROM REGISTRATION, UNDER THE ACT, BASED ON AN OPINION LETTER OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY OR A NO-ACTION LETTER FROM THE SECURITIES
AND EXCHANGE COMMISSION.
FORM OF
WARRANT TO PURCHASE COMMON STOCK
OF
VDC COMMUNICATIONS, INC.
Void after 5:00 p.m. Eastern Standard Time on May ___, 2002
This is to verify that, FOR VALUE RECEIVED, the undersigned, or its
registered assigns (hereinafter referred to as the "Holder"), is entitled to
purchase, subject to the terms and conditions hereof, from VDC COMMUNICATIONS,
INC., a Delaware corporation (the "Company"), that number of shares of Common
Stock, par value $.0001 per share of the Company (the "Common Stock") set forth
on the signature page hereto at any time during the period commencing at 9:00
a.m., Eastern Standard Time on May ___, 1999 (the "Commencement Date") and
ending at 5:00 p.m. Eastern Standard Time on May ___, 2002 (the "Termination
Date") at an exercise price of $6.00 per share of Common Stock. The number of
shares of Common Stock purchasable upon exercise of this Warrant (the
"Warrant(s)") and the exercise price per share shall be subject to adjustment
from time to time upon the occurrence of certain events as set forth below.
The shares of Common Stock or any other shares or other units of stock or
other securities or property, or any combination thereof then receivable upon
exercise of this Warrant, as adjusted from time to time, are sometimes referred
to hereinafter as "Exercise Shares". The exercise price per share as from time
to time in effect is referred to hereinafter as the "Exercise Price".
1. Exercise of Warrant: Issuance of Exercise Shares.
(a) Exercise of Warrant. This Warrant may be exercised in whole or
in part at any time or from time to time on or after the Commencement Date and
until and including the Termination Date, upon surrender on any business day to
the Company at its principal office, presently located at the address of the
Company set forth in Section 8 hereof (or such other office of the Company, if
any, as shall theretofore have been designated by the Company by written notice
to the Holder), together with: (i) a completed and executed Notice of Warrant
Exercise in the form set forth in Appendix A hereto and made a part hereof and
(ii) payment of the full Exercise Price for the amount of Exercise Shares set
forth in the Notice of Warrant Exercise, in lawful money of the United States of
America by certified check or cashier's check, made payable to the order of the
Company.
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In the event that this Warrant shall be duly exercised in part prior to the
Termination Date, the Company shall issue a new Warrant or Warrants of like
tenor evidencing the rights of the Holder thereof to purchase the balance of the
Exercise Shares purchasable under the Warrant so surrendered that shall not have
been purchased.
No adjustments shall be made for any cash dividends on Exercise Shares
issuable upon exercise of the Warrant. The Company shall cancel Warrant
Certificates surrendered upon exercise of Warrants.
(b) Issuance of Exercise Shares: Delivery of Warrant Certificate.
The Company shall, within fifteen (15) business days or as soon thereafter as is
practicable of the exercise of this Warrant, issue in the name of and cause to
be delivered to the Holder (or such other person or persons, if any, as the
Holder shall have designated in the Notice of Warrant Exercise) one or more
certificates representing the Exercise Shares to which the Holder (or such other
person or persons) shall be entitled upon such exercise under the terms hereof.
Such certificate or certificates shall be deemed to have been issued and the
Holder (or such other person or persons so designated) shall be deemed to have
become the record holder of the Exercise Shares as of the date of the due
exercise of this Warrant.
(c) Exercise Shares Fully Paid and Non-assessable. The Company
agrees and covenants that all Exercise Shares issuable upon the due exercise of
the Warrant represented by this Warrant Certificate will, upon issuance in
accordance with the terms hereof, be duly authorized, validly issued, fully paid
and non-assessable and free and clear of all taxes (other than taxes which,
pursuant to Section 2 hereof, the Company shall not be obligated to pay) or
liens, charges, and security interests created by the Company with respect to
the issuance thereof.
(d) Reservation of Exercise Shares. At the time of or before taking
any action which would cause an adjustment pursuant to Section 5 hereof
increasing the number of shares of capital stock constituting the Exercise
Shares, the Company will take any corporate action which may, in the opinion of
its counsel, be necessary in order that the Company have remaining, after such
adjustment, a number of shares of such capital stock unissued and unreserved for
other purposes sufficient to permit the exercise of all the then outstanding
Warrants of like tenor immediately after such adjustment; the Company will also
from time to time take action to increase the authorized amount of its capital
stock constituting the Exercise Shares if at any time the number of shares of
capital stock authorized but remaining unissued and unreserved for other
purposes shall be insufficient to permit the exercise of the Warrants then
outstanding. The Company may but shall not be limited to reserve and keep
available, out of the aggregate of its authorized but unissued shares of capital
stock, for the purpose of enabling it to satisfy any obligation to issue
Exercise Shares upon exercise of Warrants, through the Termination Date, the
number of Exercise Shares deliverable upon the full exercise of this Warrant and
all other Warrants of like tenor then outstanding.
(e) Fractional Shares. The Company shall not be required to issue
fractional shares of capital stock upon the exercise of this Warrant or to
deliver Warrant Certificates which evidence fractional shares of capital stock.
In the event that any fraction of an Exercise Share would, except for the
provisions of this subparagraph (e), be issuable upon the exercise of this
Warrant, the Company shall pay to the Holder exercising the Warrant an amount in
cash equal to such fraction multiplied by the current market value of the
Exercise Share. For purposes of this subparagraph (e), the current market value
shall be determined as follows:
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(i) if the Exercise Shares are traded in the
over-the-counter market and not on any national securities exchange and not in
the NASDAQ Reporting System, the average of the mean between the last bid and
asked prices per share, as reported by the National Quotation Bureau, Inc., or
an equivalent generally accepted reporting service, for the last business day
prior to the date on which this Warrant is exercised, or if not so reported, the
average of the closing bid and asked prices for an Exercise Share as furnished
to the Company by any member of the National Association of Securities Dealers,
Inc., selected by the Company for that purpose; or
(ii) if the Exercise Shares are listed or traded on a national
securities exchange or in the NASDAQ National Market System, the closing price
on the principal national securities exchange on which they are so listed or
traded or in the NASDAQ National Market System, as the case may be, on the last
business day prior to the date of the exercise of this Warrant. The closing
price referred to in this clause (ii) shall be the last reported sales price or,
in case no such reported sale takes place on such day, the average of the
reported closing bid and asked prices, in either case on the national securities
exchange on which the Exercise Shares are then listed or in the NASDAQ Reporting
System; or
(iii) if no such closing price or closing bid and asked prices
are available, as determined in any reasonable manner as may be prescribed by
the Board of Directors of the Company.
2. Payment of Taxes.
(a) The Company will pay all documentary stamp taxes, if any,
attributable to the initial issuance of Exercise Shares upon the exercise of
this Warrant; provided, however, that the Company shall not be required to pay
any tax or taxes which may be payable in respect of any transfer involved in the
issue of any Warrant Certificates or any certificates for Exercise Shares in a
name other than that of the Holder of a Warrant Certificate surrendered upon the
exercise of a Warrant, and the Company shall not be required to issue or deliver
such certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
(b) Upon exercise of a Warrant, the Company shall have the right to
require the Holder to remit to the Company an amount sufficient to satisfy
federal, state and local tax withholding requirements prior to the delivery of
any certificate for Exercise Shares issuable pursuant to the exercise of such
Warrant.
(c) A Holder who is obligated to pay the Company an amount required
to be withheld under applicable tax withholding requirements may pay such amount
(i) in cash; (ii) in the discretion of the Company's Chief Executive Officer,
through the delivery to the Company of previously-owned shares of common stock
of the Company having an aggregate current market value equal to the tax
obligation, provided that the previously owned shares delivered in satisfaction
of the withholding obligations must have been held by the Holder for at least
six (6) months; (iii) in the discretion of the Company's Chief Executive
Officer, through the withholding of shares of common stock of the Company
otherwise issuable to the Holder in connection with the exercise of a Warrant;
or (iv) in the discretion of the Company's Chief Executive Officer, through a
combination of the procedures set forth in clauses (i), (ii) and (iii) of this
Section 2(c).
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3. Mutilated or Missing Warrant Certificates. In case any Warrant
Certificate shall be mutilated, lost, stolen or destroyed, the Company may in
its discretion issue, in exchange and substitution for and upon cancellation of
the mutilated Warrant Certificate, or in lieu of and in substitution for the
Warrant Certificate lost, stolen or destroyed, a new Warrant Certificate or
Warrant Certificates of like tenor and in the same aggregate denomination, but
only (i) in the case of loss, theft or destruction, upon receipt of evidence
satisfactory to the Company of such loss, theft or destruction of such Warrant
Certificate and indemnity or bond, if requested, also satisfactory to them and
(ii) in the case of mutilation, upon surrender of the mutilated Warrant.
Applicants for such substitute Warrant Certificates shall also comply with such
other reasonable regulations and pay such other reasonable charges as the
Company or its counsel may prescribe.
4. Rights of Holder. The Holder shall not, by virtue of anything
contained in this Warrant Certificate or otherwise, be entitled to any right
whatsoever, either in law or equity, of a stockholder of the Company, including
without limitation, the right to receive dividends or to vote or to consent or
to receive notice as a shareholder in respect of the meetings of shareholders or
the election of directors of the Company or any other matter.
5. Adjustment of Exercise Shares and Exercise Price. The Exercise Price
and the number and kind of Exercise Shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the happening of
certain events as hereinafter provided. The Exercise Price in effect at any time
and the number and kind of securities purchasable upon exercise of each Warrant
shall be subject to adjustment as follows:
(a) In case the Company shall (i) pay a dividend on its shares of
Common Stock in shares of Common Stock, (ii) subdivide its outstanding Common
Stock into a greater number of shares, or (iii) combine its outstanding Common
Stock into a smaller number of shares, the Exercise Price and number of
securities purchasable under this Warrant in effect at the time of the record
date for such dividend or distribution or of the effective date of such
subdivision, combination or reclassification, shall be proportionally adjusted
so that the Holder of this Warrant exercised after such date shall be entitled
to receive the aggregate number and kind of shares which, if this Warrant had
been exercised by such Holder immediately prior to such date, he would have
owned upon such exercise and been entitled to receive upon such dividend,
subdivision, combination or reclassification. For example, if the Company
declares a 2 for 1 stock dividend or stock split and the Exercise Price
immediately prior to such event was $5.00 per share, the adjusted Exercise Price
immediately after such event would be $2.50 per share. Additionally, the number
of securities purchasable under this Warrant would be adjusted accordingly. Such
adjustment shall be made successively whenever any event listed above shall
occur.
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(b) If at any time while this Warrant, or any portion thereof, is
outstanding and unexpired there shall be (i) a capital reorganization pursuant
to which the shares of the Company's capital stock outstanding immediately prior
to such reorganization are converted by virtue of such reorganization into other
property, whether in the form of new securities, cash or otherwise (other than a
combination, reclassification, exchange or subdivision of shares otherwise
provided for herein), (ii) a merger or consolidation of the Company with or into
another corporation in which the Company is not the surviving entity, or a
reverse triangular merger in which the Company is the surviving entity but the
shares of the Company's capital stock outstanding immediately prior to the
merger are converted by virtue of the merger into other property, whether in the
form of securities, cash or otherwise, or (iii) a sale or transfer of all or
substantially all of the Company's properties and assets as, or substantially
as, an entirety to any other person, then, as a part of such capital
reorganization, merger, consolidation, sale or transfer, lawful provision shall
be made so that the holder of this Warrant shall thereafter be entitled to
receive upon payment of the Exercise Price then in effect, the number of shares
of stock or other securities or property of the successor corporation resulting
from such capital reorganization, merger, consolidation, sale or transfer that a
holder of the shares deliverable upon exercise of this Warrant would have been
entitled to receive in such capital reorganization, consolidation, merger, sale
or transfer if this Warrant had been exercised immediately before such capital
reorganization, merger, consolidation, sale or transfer, all subject to further
adjustment as provided in Section 5. The foregoing provisions of this Subsection
5(b) shall similarly apply to successive capital reorganizations,
consolidations, mergers, sales and transfers and to the stock or securities of
any other corporation that are at the time receivable upon the exercise of this
Warrant. If the per-share consideration payable to the Holder hereof for shares
in connection with any such transaction is in a form other than cash or
marketable securities, then the value of such consideration shall be determined
in good faith by the Company's Board of Directors. In all events, appropriate
adjustment (as determined in good faith by the Company's Board of Directors)
shall be made in the application of the provisions of this Warrant with respect
to the rights and interests of the Holder after the transaction, to the end that
the provisions of this Warrant shall be applicable after that event, as near as
reasonably may be, in relation to any shares or other property deliverable after
that event upon exercise of this Warrant.
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(c) Whenever the Exercise Price payable upon exercise of each
Warrant is adjusted pursuant to subsections (a) and (b) above, the number of
Exercise Shares purchasable upon exercise of this Warrant shall simultaneously
be adjusted by multiplying the number of Exercise Shares initially issuable upon
exercise of this Warrant by the Exercise Price in effect on the date hereof and
dividing the product so obtained by the Exercise Price, as adjusted.
(d) No adjustment in the Exercise Price shall be required unless
such adjustment would require an increase or decrease of at least twenty-five
cents ($0.25) in such price; provided, however, that any adjustments which by
reason of this subsection (d) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment required to be made
hereunder. All calculations under this Section 5 shall be made to the nearest
cent or to the nearest one-hundredth of a share, as the case may be.
(e) Whenever the Exercise Price is adjusted, as herein provided,
the Company shall promptly cause a notice setting forth the adjusted Exercise
Price and adjusted number of Exercise Shares issuable upon exercise of each
Warrant to be mailed to the Holders, at their last addresses appearing on the
books of the Company. The Company may retain a firm of independent certified
public accountants selected by the Board of Directors (who may be the regular
accountants employed by the Company) to make any computation required by this
Section 5, and a certificate signed by such firm shall be conclusive evidence of
the correctness of such adjustment.
(f) Irrespective of any adjustments in the Exercise Price or the
number or kind of Exercise Shares purchasable upon exercise of this Warrant,
Warrants theretofore or thereafter issued may continue to express the same price
and number and kind of shares as are stated in the similar Warrants initially
issuable pursuant to this Warrant.
(g) Whenever the Exercise Price shall be adjusted as required by
the provisions of the foregoing Section 5, the Company shall forthwith file in
the custody of its Secretary or an Assistant Secretary at its principal office
an officer's certificate showing the adjusted Exercise Price determined as
herein provided, setting forth in reasonable detail the facts requiring such
adjustment, including a statement of the number of additional shares of Common
Stock, if any, and such other facts as shall be necessary to show the reason for
and the manner of computing such adjustment. Each such officer's certificate
shall be made available at all reasonable times for inspection by the Holder and
the Company shall, forthwith after each such adjustment, mail a copy by
certified mail of such certificate to the Holder.
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6. Transfers, Exchanges, and Certain Restrictions.
(a) The Warrant shall be transferable, subject to the provisions of
Section 6 hereof, only upon the books of the Company, if any, to be maintained
by it for that purpose, upon surrender of the Warrant to the Company at its
principal office accompanied (if so required by it) by a written instrument or
instruments of transfer in form satisfactory to the Company and duly executed by
the Holder thereof or by the duly appointed legal representative thereof or by a
duly authorized attorney and upon payment of any necessary transfer tax or other
governmental charge imposed upon such transfer. In all cases of transfer by an
attorney, the original letter of attorney, duly approved, or an official copy
thereof, duly certified, shall be deposited and remain with the Company. In case
of transfer by executors, administrators, guardians or other legal
representatives, duly authenticated evidence of their authority shall be
produced, and may be required to be deposited and remain with the Company in its
discretion. Upon any such registration of transfer, a new Warrant Certificate
shall be issued to the transferee named in such instrument of transfer, and the
surrendered Warrant Certificate shall be canceled by the Company.
(b) The Warrant may be exchanged, at the option of the Holder
thereof and without change, when surrendered to the Company at its principal
office, or at the office of its transfer agent, if any, for another Warrant or
other Warrants of like tenor and representing in the aggregate the right to
purchase from the Company a like number and kind of Shares as the Warrant
surrendered for exchange or transfer, and the Warrant so surrendered shall be
canceled by the Company or transfer agent, as the case may be.
(c) The Holder of this Warrant, by acceptance hereof, acknowledges
that this Warrant and the Shares to be issued upon exercise hereof are being
acquired solely for the Holder's own account and not as a nominee for any other
party, and for investment, and that the Holder will not offer, sell or otherwise
dispose of this Warrant or any Shares to be issued upon exercise hereof except
under circumstances that will not result in a violation of applicable federal
and state securities laws. Upon exercise of this Warrant, the Holder shall, if
requested by the Company, execute the Company's standard Investor Representation
Letter which shall, among other things, confirm in writing that the Exercise
Shares so purchased are being acquired solely for the Holder's own account and
not as a nominee for any other party, for investment, and not with a view toward
distribution or resale.
(d) Neither this Warrant nor any Exercise Share may be offered for
sale or sold, or otherwise transferred or sold, unless (i) such security has
been registered for sale under the Securities Act of 1933, as amended (the "1933
Act") and registered or qualified under applicable state securities laws
relating to the offer and sale of securities, or (ii) exemptions from the
registration requirements of the 1933 Act and the registration or qualification
requirements of all such state securities laws are available and the Company
shall have received an opinion of counsel, prepared at Holder's expense,
reasonably satisfactory to the Company that the proposed sale or other
disposition of such securities may be effected without registration under the
1933 Act and would not result in any violation of any applicable state
securities laws relating to the registration or qualification of securities for
sale, such counsel and such opinion to be satisfactory to the Company.
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(e) All Shares issued upon exercise hereof shall be stamped or
imprinted with a legend in substantially the following form (in addition to any
legend required by law or otherwise deemed necessary or appropriate by Company's
counsel, including, but not limited to, an affiliate legend).
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION, OR
THE AVAILABILITY OF EXEMPTION FROM REGISTRATION, UNDER THE ACT, BASED ON
AN OPINION LETTER OF COUNSEL SATISFACTORY TO THE COMPANY OR A NO-ACTION
LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION."
The Company is hereby authorized to notify its transfer agent of the status of
the Exercise Shares and to take such other action including, but not limited to,
the placing of a "stop-transfer" order on the transfer agent's books and records
to assure compliance with the Act.
(f) Holder recognizes that investing in the Warrant and the Exercise
Shares involves a high degree of risk, and Holder is in a financial position to
hold the Warrant and the Exercise Shares indefinitely and is able to bear the
economic risk and withstand a complete loss of its investment in the Warrant and
the Exercise Shares. The Holder is a sophisticated investor and is capable of
evaluating the merits and risks of investing in the Company. The Holder has had
an opportunity to discuss the Company's business, management and financial
affairs with the Company's management, has been given full and complete access
to information concerning the Company, and has utilized such access to its
satisfaction for the purpose of obtaining information or verifying information
and have had the opportunity to inspect the Company's operation. Holder has had
the opportunity to ask questions of, and receive answers from, the management of
the Company (and any person acting on its behalf) concerning the Warrant and the
Shares and the agreements and transactions contemplated hereby, and to obtain
any additional information as Holder may have requested in making its investment
decision. The initial Holder of this Warrant is an "accredited investor", as
defined by Regulation D promulgated under the 1933 Act.
(g) The Holder agrees to indemnify and hold harmless the Company
against any loss, damage, claim or liability arising from any inaccuracy in the
provisions of Section 6 hereof or the disposition of this Warrant or any
Exercise Share held by such holder or any interest therein in violation of the
provisions of Section 6 hereof.
7. Registration Rights. The shares of Common Stock or other equity
securities of the Company that may be issued to the Holder upon the exercise of
the Warrants are entitled to the registration rights set forth in the
Registration Rights Agreement of even date herewith between the Company and the
Holder.
8. Notices. All notices or other communications under this Warrant
Certificate shall be in writing and shall be deemed to have been given on the
day of delivery if delivered by hand, on the fifth day after deposit in the mail
if mailed by certified mail, postage prepaid, return receipt requested, or on
the next business day after mailing if sent by a nationally recognized overnight
courier such as federal express, addressed as follows:
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If to the Company:
VDC Communications, Inc.
75 Holly Hill Lane
Greenwich, CT 06830
Attn: Frederick A. Moran, Chief Executive Officer
and to the Holder at the address of the Holder appearing on the
books of the Company or the Company's transfer agent, if any.
Either of the Company or the Holder may from time to time change the
address to which notices to it are to be mailed hereunder by notice in
accordance with the provisions of this Section 8.
9. Supplements and Amendments. The Company may from time to time
supplement or amend this Warrant Certificate without the approval of any holders
of Warrants in order to cure any ambiguity or to correct or supplement any
provision contained herein which may be defective or inconsistent with any other
provision, or to make any other provisions in regard to matters or questions
herein arising hereunder which the Company may deem necessary or desirable and
which shall not materially adversely affect the interests of the Holder.
10. Successors and Assigns. This Warrant shall inure to the benefit of and
be binding on the respective successors, assigns and legal representatives of
the Holder and the Company.
11. Severability. If for any reason any provision, paragraph or terms of
this Warrant Certificate is held to be invalid or unenforceable, all other valid
provisions herein shall remain in full force and effect and all terms,
provisions and paragraphs of this Warrant shall be deemed to be severable.
12. Governing Law. This Warrant shall be deemed to be a contract made
under the laws of the State of Delaware and for all purposes shall be governed
by and construed in accordance with the laws of said jurisdiction without regard
to such jurisdiction's conflicts of laws provisions.
13. Headings. Paragraph and subparagraph headings used herein are included
herein for convenience of reference only and shall not affect the construction
of this Warrant Certificate nor constitute a part of this Warrant Certificate
for any other purpose.
14. Counterparts. This Warrant may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
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IN WITNESS WHEREOF, the Company has caused these presents to be duly
executed as of the ___th day of May, 1999 defined herein as the "Commencement
Date."
Number of Warrants:
VDC COMMUNICATIONS, INC.
By:
-------------------------
Frederick A. Moran
Chief Executive Officer
Acknowledged and Agreed
to by the undersigned
this ____ day of May 1999.
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APPENDIX A
NOTICE OF WARRANT EXERCISE
Pursuant to a Warrant by and between the undersigned and VDC
COMMUNICATIONS, INC., a Delaware corporation (the "Company"), dated as of May
___, 1999, the undersigned hereby irrevocably elects to exercise its warrant to
the extent of purchasing _______________ shares of Common Stock, $.0001 par
value (the "Warrant Shares"), of the Company as provided for therein.
The undersigned hereby represents and agrees that the Warrant Shares
purchased pursuant hereto are being purchased for investment and not with a view
to the distribution or resale thereof, and that the undersigned understands that
said Warrant Shares have not been registered under the Securities Act of 1933,
as amended.
Payment of the full Purchase Price of the Warrant Shares is enclosed
herewith, in the form of a check made payable to the Company.
The undersigned requests that a certificate for the Warrant Shares be
issued in the name of:
--------------------------------------------------------
--------------------------------------------------------
--------------------------------------------------------
(Please print name, address and social security number)
Dated:_______________________________________
Address:___________________________________________________
Signature:__________________________________________________
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EXHIBIT "B"
RISK FACTORS
An investment in Company Common Stock and Warrants to purchase Company Common
Stock involves a high degree of risk. Purchasers of such securities should
carefully review the following risk factors.
This following Risk Factors contain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Although
forward-looking statements are based on assumptions made, and information
believed, by management to be reasonable, no assurance can be given that such
statements will prove to be correct. Such statements are subject to certain
risks, uncertainties and assumptions. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated, projected
or expected. Some, but not all, of such risks and uncertainties are described in
the risk factors set forth below.
1. WE ARE A DEVELOPMENT STAGE COMPANY. We have only recently commenced our
present operations, and therefore, have only a limited operating history
upon which you can evaluate our business. We have strategically placed
telecommunications equipment in cities that we believe will enable us to
efficiently transport telecommunications services. Now we are building our
customer base as rapidly as we can in order to achieve greater revenues and
market penetration. We will also add additional telecommunications
equipment in other areas of the world. We have not yet determined with
certainty where those areas will be.
2. WE ARE LOSING MONEY. We have not yet experienced a profitable quarter
and may not ever achieve profitability. By virtue of the early stage of our
development, we have yet to build sufficient volume of telecommunications
voice and facsimile traffic to reach profitability. Our current expenses
are greater than our revenues. This will probably continue until we reach a
greater level of maturity and it is possible that our revenues may never
exceed our expenses. If operating losses continue for longer than the
short-term, then our continued operation will be in jeopardy. However, we
believe that what we have developed over the past year is valuable and has
the potential to generate revenues greater than expenses.
3. NUMEROUS CONTINGENCIES COULD HAVE A MATERIAL ADVERSE EFFECT ON US.
Because we are a development stage company, and because of the nature of
the industry in which we operate, there are numerous contingencies over
which we have little or no control, any one of which could have a material
adverse effect on us. The contingencies include, but are not limited to,
the addition or loss of major customers, whether through competition,
merger, consolidation or otherwise; the loss of economically beneficial
routing options for the termination of our telecommunications traffic;
financial difficulties of major customers; pricing pressure resulting from
increased competition; and technical difficulties with or failures of
portions of our network that could impact our ability to provide service to
or bill our customers.
4. OUR ABILITY TO IMPLEMENT OUR PLAN SUCCESSFULLY IS DEPENDENT ON A FEW KEY
PEOPLE. We are particularly dependent upon Frederick A. Moran, Chairman,
Chief Executive Officer, Chief Financial Officer, Secretary and Director of
the Company. Mr. Moran is also a significant beneficial shareholder of the
Company. The Company has an employment agreement with Mr. Moran. We believe
the combination of his employment agreement and equity interest keeps Mr.
Moran highly motivated to remain with the Company.
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5. THE INTERNATIONAL TELECOMMUNICATIONS MARKET IS RISKY. The international
nature of the our operations involves certain risks, such as changes in
U.S. and foreign government regulations and telecommunications standards,
dependence on foreign partners, tariffs, taxes and other trade barriers,
the potential for nationalization and economic downturns and political
instability in foreign countries. At the current time, we are particularly
dependent on Central and North America. In addition, our business could be
adversely affected by a reversal in the current trend toward the
deregulation of the telecommunications industry. We will be increasingly
subject to these risks to the extent that we proceed with the planned
expansion of international operations.
6. GOVERNMENT INVOLVEMENT IN INDUSTRY COULD HAVE AN ADVERSE EFFECT. We are
subject to various U.S. and foreign laws, regulations, agency actions and
court decisions. Our U.S. international telecommunications service
offerings are subject to regulation by the Federal Communications
Commission (the "FCC"). The FCC requires international carriers to obtain
certificates of public convenience and necessity prior to acquiring
international facilities by purchase or lease, or providing international
service to the public. Prior FCC approval is also generally required to
transfer control of a certificated carrier. We must file reports and
contracts with the FCC and must pay regulatory and other fees, which are
subject to change. We are also subject to the FCC policies and rules
discussed below. The FCC could determine, by its own actions or in response
to a third party's filing, that certain of our services, termination
arrangements, agreements with foreign carriers, transit or refile
arrangements or reports did not comply with FCC policies and rules. If this
occurred, the FCC could order us to terminate arrangements, fine us or
revoke our authorizations. Any of these actions could have a material
adverse effect on our business, operating results and financial condition.
7. POTENTIAL FOR TECHNICAL FAILURE. Our services are dependent on our own
and other companies' ability to successfully integrate technologies and
equipment. In connecting with other companies' equipment we take the risk
of not being able to provide service due to their error. In addition, there
is the risk that our equipment may malfunction or that we could make an
error which negatively affects our customers' service. We are also
dependent on the protection of our hardware and other equipment from damage
from natural disasters such as fires, floods, hurricanes and earthquakes,
other catastrophic events such as civil unrest, terrorism and war and other
sources of power loss and telecommunications failures. We have taken a
number of steps to prevent our service from being affected by natural
disasters, fire and the like. We have built redundant systems for power
supply to our equipment. Even though, there can be no assurance that any
such systems will prevent the switches from becoming disabled in the event
of an earthquake, power outage or otherwise. The failure of our network, or
a significant decrease in telephone traffic resulting from effects of a
natural or man-made disaster, could have a material adverse effect on our
relationship with our customers and our business, operating results and
financial condition.
8. THE LONG DISTANCE AND INTERNATIONAL LONG DISTANCE TELEPHONE INDUSTRY IS
HIGHLY COMPETITIVE. We are a small company in an industry with many
companies that have more experience and greater resources than us.
International telecommunications providers compete mainly on the basis of
price, but also customer service, transmission quality, breadth of service
offerings and value-added services. Our operating history is probably not
long enough for you to make a judgment about our ability to compete in this
industry.
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9. TECHNOLOGICAL ADVANCEMENT COULD RENDER OUR INFRASTRUCTURE OBSOLETE. The
international telecommunications industry is highly competitive and subject
to the introduction of new services facilitated by advances in technology.
We expect that the future will bring technological change. It is possible
that these changes could result in more advanced telecommunications
equipment that could render our current equipment obsolete. If this were to
happen, we would most likely have to invest significant capital into this
new technology.
10. WE HAVE LIMITED CAPITAL. Being a small company in a capital intensive
industry, our position of limited capital is a significant risk to our
future viability. We are currently seeking financing alternatives that
would put us in a better position financially. There is no guarantee that
we will be able to do this. We may sell additional shares of our stock in
order to provide the capital needed for our operations.
11. WE HAVE A SIGNIFICANT INVESTMENT IN A PRIVATE COMPANY THAT WE DO NOT
CONTROL. We have a non-controlling investment in a private company,
Metromedia China Corporation ("MCC"). Since this company is private and in
development, it is difficult to place a value on its worth. We currently
value our ownership interest based on extrapolating the value placed on MCC
by its majority shareholder, Metromedia International Group. As of March
31, 1999, that equaled $4.34 million. Our total assets were $13.7 million.
The value of our interest in MCC may change in the future. The value of MCC
may be unfavorably influenced by negative operating results, the Chinese
telecommunications market and/or other factors. Furthermore, changes in
governmental policy towards foreign investment in telecommunications in
China could also adversely effect the value of our investment. We have
decreased the value placed on this asset, in large part, due to the
uncertainty of the future of foreign participation in the Chinese
telecommunications market. Even so, there is still the possibility that
this asset will be worth less in the future than we believe is a fair value
currently.
12. OUR STOCK IS HIGHLY VOLATILE. Our stock price fluctuates significantly.
We believe that this will most likely continue. Historically, the market
prices for securities of emerging companies in the telecommunications
industry have been highly volatile. Future announcements concerning us or
our competitors, including results of operations, technological
innovations, government regulations, proprietary rights or significant
litigation, may have a significant impact on the market price of our stock.
13. ADDITIONAL SHARES WILL BE AVAILABLE FOR SALE IN THE PUBLIC MARKET. We
registered stock in connection with the domestication merger of VDC
Corporation Ltd. ("VDC Bermuda") with and into us (the "Domestication
Merger"). The effect of the Domestication Merger was that
members/shareholders of VDC Bermuda became shareholders of the Company
which then became the publicly traded company. In addition, we issued
shares in connection with the MCC investment and other additional business
related matters. These stock issuances and future registration statements
will have the effect of significantly increasing the number of shares
eligible for public trading. Sales of substantial amounts of the stock in
the public market could have an adverse effect on the price of the stock
and may make it more difficult for us to sell stock in the future. Although
it is impossible to predict market influences and prospective values for
securities, it is possible that the substantial increase in the number of
shares available for sale, in and of itself, could have a depressive effect
on the price of our stock.
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14. WE HAVE NOT PAID ANY DIVIDENDS TO OUR STOCKHOLDERS AND DO NOT EXPECT TO
ANY TIME IN THE NEAR FUTURE. Instead, we plan to retain earnings for
investment back into the company.
15. THE YEAR 2000 PROBLEM COULD HAVE A MATERIAL ADVERSE EFFECT ON US. The
Year 2000 issue is a matter of worldwide concern for carriers and affects
many aspects of telecommunications technology, including the computer
systems and software applications that are essential for operations. A
significant portion of the devices that we use to provide our basic
services use date-sensitive processes which affect functions such as
service activation, service assurance and billing processes.
We are currently evaluating the Year 2000 readiness of our computer
systems, software applications and telecommunications equipment. We are
sending Year 2000 compliance inquiries to certain third parties (i.e.
vendors, customers, outside contractors) with whom we have a relationship.
These inquiries include, among other things, requests to provide
documentation regarding the third party's Year 2000 programs, and questions
regarding how the third party specifically examined the Year 2000 effect on
their equipment and operations and what remedial actions will be taken with
regard to these problems.
Since we are a new company, our key systems have just recently been
implemented. Most of the vendors of such systems have represented to us
that the systems are compliant with the Year 2000 issues without any
modification. We will, however, continue to require confirmation of Year
2000 compliance in our future requests for proposals from equipment and
software vendors. The failure of the Company's computer systems and
software applications to accommodate the Year 2000, could have a material
adverse effect on our business, financial condition and results from
operations.
Further, if the software and equipment of those on whose services we depend
are not Year 2000 functional, it could have a material adverse effect on
our operations. While most major domestic telecommunications companies have
announced that they expect all of their network and support systems to be
Year 2000 functional by the middle of 1999, other domestic and
international carriers may not be Year 2000 functional. We intend to
continue to monitor the performance of our accounting, information and
other systems and software applications to identify and resolve any Year
2000 issues. Currently, through our discovery process, we have identified
an estimated $84,000 of expenditures associated with updating systems to be
Year 2000 compliant. However, we expect we will find additional expenses
pending the finalization of our Year 2000 investigation.
We believe that the most reasonably likely worst case scenario resulting
from the century change could be the inability to efficiently send voice
and facsimile calls at current rates to desired locations. We do not know
how long this might last. This would have a material adverse effect on our
results from operations.
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16. CERTAIN ANTI-TAKEOVER CONSIDERATIONS. Certain provisions of our
Certificate of Incorporation, as amended (the "Certificate of
Incorporation"), and Bylaws, as amended (the "Bylaws"), and the General
Corporation Law of the State of Delaware (the "GCL") could deter a change
in our management or render more difficult an attempt to obtain control of
us. For example, we are subject to the provisions of the GCL that prohibit
a public Delaware corporation from engaging in a broad range of business
combinations with a person who, together with affiliates and associates,
owns 15% or more of the corporation's outstanding voting shares (an
"interested stockholder") for three years after the person became an
interested stockholder, unless the business combination is approved in a
prescribed manner. The Certificate of Incorporation includes undesignated
Preferred Stock, which may enable the Board to discourage an attempt to
obtain control of us by means of a tender offer, proxy contest, merger or
otherwise. In addition, the Certificate of Incorporation provides for a
classified Board of Directors such that approximately only one-third of the
members of the Board will be elected at each annual meeting of
stockholders. Classified boards may have the effect of delaying, deferring
or discouraging changes in control of us. Further, certain other provisions
of the Certificate of Incorporation and Bylaws and of the GCL could delay
or make more difficult a merger, tender offer or proxy contest involving
us. Additionally, certain federal regulations require prior approval of
certain transfers of control of telecommunications companies, which could
also have the effect of delaying, deferring or preventing a change in
control.
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EXHIBIT "C"
FORM OF
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This Registration Rights Agreement (this "AGREEMENT") is dated as of May
___, 1999 by and between VDC COMMUNICATIONS, INC., a Delaware corporation (the
"COMPANY"), and the undersigned (the "HOLDER" or the "INVESTOR").
W I T N E S S E T H:
--------------------
WHEREAS, simultaneously with the execution and delivery of this
Agreement, the Investor is purchasing from the Company, pursuant to a Securities
Purchase Agreement dated the date hereof (the "PURCHASE AGREEMENT"), certain
shares of the Company's common stock (the "SHARES") and Warrants to purchase
certain shares of the Company's common stock (the "WARRANTS") (the Shares and
Warrants are collectively referred to as the "SECURITIES" of the Company);
WHEREAS, all capitalized terms not hereinafter defined shall have
that meaning assigned to them in the Purchase Agreement; and
WHEREAS, the Company desires to grant to the Holder the
registration rights set forth herein with respect to the Securities.
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions.
(a) "CLOSING" shall mean the closing provided for in the
Purchase Agreement.
(b) "COMMON STOCK" shall mean the common stock of the
Company, par value $.0001 per share.
(c) "COMPANY" shall mean VDC Communications, Inc.
(d) "OFFERING" shall mean that private placement transaction
pursuant to which the Company shall offer shares of Common Stock and Warrants to
purchase shares of Common Stock upon terms and conditions set forth in the
Purchase Agreements.
(e) "PERSON" means an individual, a partnership (general or
limited), corporation, limited liability company, joint venture, business trust,
cooperative, association or other form of business organization, whether or not
regarded as a legal entity under applicable law, a trust (inter vivos or
testamentary), an estate of a deceased, insane or incompetent person, a
quasi-governmental entity, a government or any agency, authority, political
subdivision or other instrumentality thereof, or any other entity.
(f) "PRINCIPAL MARKET" means the OTC Electronic Bulletin
Board, the Nasdaq National Market, the Nasdaq Small Cap Stock Market, the
American Stock Exchange or the New York Stock Exchange, whichever is at the time
the principal trading exchange or market for the Common Stock.
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(h) "REGISTRATION STATEMENT" shall mean the Registration
Statement of the Company filed with the SEC pursuant to the provisions of
Section 2 of this Agreement which covers the resale of the Shares and the shares
of Common Stock underlying the Warrants (the "Warrant Shares") on Form S-1, SB-2
or any other appropriate form then permitted by the SEC to be used for such
registration and the sales contemplated to be made thereby under the Securities
Act, or any similar rule that may be adopted by the SEC, and all amendments and
supplements to such Registration Statement, including any pre-and post-
effective amendments thereto, in each case including the prospectus contained
therein, all exhibits thereto and all materials incorporated by reference
therein.
(i) "RESTRICTED STOCK" shall mean the Shares, the Warrant
Shares, and any additional shares of Common Stock or other equity securities of
the Company issued or issuable after the date hereof in respect of any such
securities (or other equity securities issued in respect thereof) by way of a
stock dividend or stock split, in connection with a combination, exchange,
reorganization, recapitalization or reclassification of Company securities, or
pursuant to a merger, division, consolidation or other similar business
transaction or combination involving the Company; provided that: as to any
particular shares of Restricted Stock, such securities shall cease to constitute
Restricted Stock (i) when a registration statement with respect to the sale of
such securities shall have become effective under the Securities Act and such
securities shall have been disposed of thereunder, or (ii) when and to the
extent such securities are permitted to be distributed pursuant to subparagraph
(k) of Rule 144 (or any successor provision to such Rule) promulgated under the
Securities Act or are otherwise freely transferable to the public without
further registration under the Securities Act.
(j) "SECURITIES ACT" shall mean the Securities Act of 1933,
as amended, or any similar or successor federal statute, and the rules and
regulations of the SEC thereunder, all as the same shall be in effect at any
relevant time.
(k) "SEC" shall mean the United States Securities and
Exchange Commission.
(l) "TRADING DAY" means a day on which the Principal Market
on which the Common Stock is listed or admitted to trading is open for the
transaction of business or, if the Common Stock is not listed or admitted to
trading on any national securities exchange, any day other than a Saturday,
Sunday, or a day on which banking institutions in the State of Delaware are
authorized or obligated by law or executive order to close.
2. Registration Rights.
(a) Piggyback Registration Rights.
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The Company shall advise the Holder by written notice at least
ten (10) calendar days prior to the filing of a Registration Statement under the
Securities Act (excluding registration on Forms S-8, S-4, or any successor forms
thereto), covering securities of the Company to be offered and sold (whether by
the Company or any stockholder thereof) and shall, upon the request of the
Holder given at least five calendar (5) days prior to the filing of such
Registration Statement, include in any such Registration Statement such
information as may be required to permit the public distribution of the
Restricted Stock. The Holder shall furnish such information as may be reasonably
requested by the Company in order to include such Restricted Stock in the
Registration Statement. In the event that any registration pursuant to this
Section 2 shall be, in whole or in part, an underwritten public offering of
Common Stock on behalf of the Company, and the managing underwriters advise the
Company in writing that in their opinion the number of securities requested to
be included in such registration exceeds the number which can be sold in an
orderly manner in such offering within a price range acceptable to the Company,
the Company shall include in such registration (i) first, the securities the
Company proposes to sell, and (ii) second, the Restricted Stock and any other
securities eligible and requested to be included in such registration to the
extent that the number of shares to be registered will not, in the opinion of
the managing underwriters, adversely affect the offering of the securities
pursuant to clause (i), pro rata among the holders of such securities, including
the Holder of the Restricted Stock, on the basis of the number of shares
eligible for registration which are owned by all such holders. Notwithstanding
the foregoing, the Company may withdraw any registration statement referred to
in this Section 2 without thereby incurring liability to the holders of the
Restricted Stock.
(b) Shelf Registration.
In the event that the Restricted Stock is not otherwise included
within a Registration Statement filed pursuant to Section 2(a) above, the
Company shall use its best efforts to prepare and file, not later than twelve
(12) months following the Closing of the Offering, a Registration Statement with
the SEC and use its best efforts to, as promptly as possible, have such
Registration Statement declared effective for the purpose of facilitating the
public resale of the Restricted Stock.
(c) Notwithstanding anything to the contrary contained
herein, the Company's obligation in Section 2(a) and 2(b) above shall extend
only to the inclusion of the Restricted Stock in a Registration Statement filed
under the Securities Act. The Company shall have no obligation to assure the
terms and conditions of distribution, to obtain a commitment from an underwriter
relative to the sale of the Restricted Stock or to otherwise assume any
responsibility for the manner, price or terms of the distribution of the
Restricted Stock. Furthermore, the Company shall not be restricted in any manner
from including within the Registration Statement the distribution, issuance or
resale of any of its or any other securities.
3. Registration Procedures. Whenever it is obligated to register any
Restricted Stock pursuant to this Agreement, the Company shall:
(a) prepare and file with the SEC a Registration Statement
with respect to the Restricted Stock in the manner set forth at Sections 2(a) or
2(b) hereof and use its best efforts to cause such Registration Statement to
become effective as promptly as possible and to remain effective for that period
identified in Section 3(g) hereafter;
(b) prepare and file with the SEC such amendments and
supplements to such Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such Registration Statement effective for
the period specified in Section 3(g) below and to comply with the provisions of
the Securities Act with respect to the disposition of all Restricted Stock
covered by such Registration Statement in accordance with the Holders intended
method of disposition set forth in such Registration Statement for such period;
153
<PAGE>
(c) furnish to the Holder and to each underwriter, if any,
such number of copies of the Registration Statement and the prospectus included
therein (including each preliminary prospectus), as such person may reasonably
request in order to facilitate the public sale or other disposition of the
Restricted Stock covered by such Registration Statement;
(d) use its best efforts to register or qualify the
Restricted Stock covered by such Registration Statement under the securities or
blue sky laws of such jurisdictions as the Holder, or, in the case of an
underwritten public offering, the managing underwriter shall reasonably request;
provided, however, that the Company shall not for any such purpose be required
to qualify generally to transact business as a foreign corporation in any
jurisdiction where it is not so qualified or to consent to general service of
process in any such jurisdiction;
(e) promptly notify the Holder under such Registration
Statement and each underwriter, at any time when a prospectus relating thereto
is required to be delivered under the Securities Act, of the happening of any
event as a result of which the prospectus contained in such Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state any material fact required or necessary to be stated therein in
order to make the statements contained therein not misleading in light of the
circumstances under which they were made;
(f) make available for inspection by any underwriter
participating in an underwritten disposition on behalf of any Holder, and any
attorney, accountant or other agent retained by such underwriter, all financial
and other records, pertinent corporate documents and properties of the Company,
and cause the Company's officers, directors and employees to supply all
information reasonably requested by the underwriter, attorney, accountant or
agent in connection with such Registration Statement;
(g) for purposes of Sections 3(a) and 3(b) above, the period
of distribution of Restricted Stock shall be deemed to extend until the earlier
of: (A) in an underwritten public offering of all of the Restricted Stock, the
period in which each underwriter has completed the distribution of all
securities purchased by it; (B) in any other registration, the earlier of the
period in which all shares of Restricted Stock covered thereby shall have been
sold or three (3) years from the date of Closing.
(h) if the Common Stock of the Company is listed on any
securities exchange or automated quotation system, the Company shall use its
best efforts to list (with the listing application being made at the time of the
filing of such Registration Statement or as soon thereafter as is reasonably
practicable) the Restricted Stock covered by such Registration Statement on such
exchange or automated quotation system;
(i) enter into normal and customary underwriting
arrangements or an underwriting agreement and take all other reasonable and
customary actions if the Holder sells its shares of Restricted Stock pursuant to
an underwriting (however, in no event shall the Company, in connection with such
underwriting, be required to undertake any special audit of a fiscal period in
which an audit is normally not required);
(j) notify the Holder if there are any amendments to the
Registration Statement, any requests by the SEC to supplement or amend the
Registration Statement, or of any threat by the SEC or state securities
commission to undertake a stop order with respect to sales under the
Registration Statement; and
154
<PAGE>
(k) cooperate in the timely removal of any restrictive
legends from the shares of Restricted Stock in connection with the resale of
such shares covered by an effective Registration Statement.
4. Expenses.
(a) For the purposes of this Section 4, the term
"REGISTRATION EXPENSES" shall mean: all expenses incurred by the Company in
complying with Sections 2 and 3 of this Agreement, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel and independent public accountants for the Company,
"blue sky" fees, fees of the National Association of Securities Dealers, Inc.
("NASD"), fees and expenses of listing shares of Restricted Stock on any
securities exchange or automated quotation system on which the Company's shares
are listed and fees of transfer agents and registrars. The term "SELLING
EXPENSES" shall mean: all underwriting discounts and selling commissions
applicable to the sale of Restricted Stock and all accountable or
non-accountable expenses paid to any underwriter in respect of the sale of
Restricted Stock.
(b) Except as otherwise provided herein, the Company will
pay all Registration Expenses in connection with the Registration Statements
filed pursuant to Section 2 of this Agreement. All Selling Expenses in
connection with any Registration Statements filed pursuant to Section 2 of this
Agreement shall, in the case of an underwritten offering, be borne by the
participating Holders in proportion to the number of shares sold by each, or, in
all other instances, shall be borne by the Holder incurring such expenses.
5. Obligations of Holder.
(a) In connection with each registration hereunder, each
selling Holder will furnish to the Company in writing such information with
respect to such seller and the securities held by such seller, and the proposed
distribution by him or them as shall be reasonably requested by the Company in
order to assure compliance with federal and applicable state securities laws, as
a condition precedent to including such seller's Restricted Stock in the
Registration Statement. Each selling Holder also shall agree to promptly notify
the Company of any changes in such information included in the Registration
Statement or prospectus as a result of which there is an untrue statement of
material fact or an omission to state any material fact required or necessary to
be stated therein in order to make the statements contained therein not
misleading in light of the circumstances then existing.
(b) In connection with each registration pursuant to this
Agreement, the Holder whose shares are included therein will not effect sales
thereof until notified by the Company of the effectiveness of the Registration
Statement, and thereafter will suspend such sales after receipt of telegraphic
or written notice from the Company to suspend sales to permit the Company to
correct or update a Registration Statement or prospectus. At the end of any
period during which the Company is obligated to keep a Registration Statement
current, the Holder included in said Registration Statement shall discontinue
sales of shares pursuant to such Registration Statement upon receipt of notice
from the Company of its intention to remove from registration the shares covered
by such Registration Statement which remain unsold, and such Holder shall notify
the Company of the number of shares registered which remain unsold immediately
upon receipt of such notice from the Company.
155
<PAGE>
6. Information Blackout.
At any time when a Registration Statement effected pursuant to
Section 2 relating to Restricted Stock is effective, upon written notice from
the Company to the Holder that the Company has determined in good faith that
sale of Restricted Stock pursuant to the Registration Statement would require
disclosure of non-public material information, the Holder shall suspend sales of
Restricted Stock pursuant to such Registration Statement until such time as the
Company notifies the Holder that such material information has been disclosed to
the public or has ceased to be material or that sales pursuant to such
Registration Statement may otherwise be resumed.
7. Indemnification.
(a) The Company agrees to indemnify, to the extent permitted
by law, each Holder of Restricted Stock, its officers and directors and each
Person who controls such Holder (within the meaning of the Securities Act)
against all losses, claims, damages, liabilities and expenses caused by any
untrue statement of material fact contained in any Registration Statement,
prospectus or preliminary prospectus or any amendment thereof or supplement
thereto or any omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as the
same are caused by or contained in any information furnished to the Company by
such Holder for use therein or by such Holder's failure to deliver a copy of the
Registration Statement or prospectus or any amendments or supplements thereto
after the Company has furnished such Holder with a sufficient number of copies
of the same.
(b) In connection with any Registration Statement in which a
Holder of Restricted Stock is participating, each such Holder shall furnish to
the Company in writing such information and affidavits as the Company reasonably
requests for use in connection with any such Registration Statement or
prospectus and, to the extent permitted by law, shall indemnify the Company, its
directors and officers and each Person who controls the Company (within the
meaning of the Securities Act) against any losses, claims, damages, liabilities
and expenses resulting from: (i) any untrue or alleged untrue statement of
material fact contained in the Registration Statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, (but only to the extent that such
untrue statement or omission is contained in any information or affidavit so
furnished by such Holder); or (ii) any disposition of the Restricted Stock in a
manner that fails to comply with the permitted methods of distribution
identified within the Registration Statement; provided that the obligation to
indemnify (if there shall be more than one Holder) shall be individual, not
joint and several, for each Holder and shall be limited to the net amount of
proceeds received by such Holder from the sale of Restricted Stock pursuant to
such Registration Statement.
(c) Any Person entitled to indemnification hereunder shall
(i) give prompt written notice to the indemnifying party of any claim with
respect to which it seeks indemnification (provided that the failure to give
prompt notice shall not impair any Person's right to indemnification hereunder
to the extent such failure has not prejudiced the indemnifying party) and (ii)
unless in such indemnified party's reasonable judgment a conflict of interest
between such indemnified and indemnifying parties may exist with respect to such
claim, permit such indemnifying party to assume the defense of such claim with
counsel reasonably satisfactory to the indemnified party. If such defense is
assumed, the indemnifying party shall not be subject to any liability for any
settlement made by the indemnified party without its consent (but such consent
shall not be unreasonably withheld). An indemnifying party who is not entitled
to, or elects not to, assume the defense of a claim shall not be obligated to
pay the fees and expenses of more than one counsel for all parties indemnified
by such indemnifying party with respect to such claim, unless in the reasonable
judgment of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
156
<PAGE>
(d) The indemnification provided for under this Agreement
shall remain in full force and effect regardless of any investigation made by or
on behalf of the indemnified party or any officer, director or controlling
Person of such indemnified party and shall survive the transfer of securities.
The Company also agrees to make such provisions, as are reasonably requested by
any indemnified party, for contribution to such party in the event the Company's
indemnification is unavailable for any reason.
8. Miscellaneous Provisions.
(a) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware with regard to
principles of conflicts of laws.
(b) Counterparts. This Agreement may be signed in any number
of counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
(c) Amendments and Waivers. Except as otherwise provided
herein, the provisions of this Agreement may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given without the written consent of the Company and the Holder.
(d) Notices. All notices, consents, waivers, and other
communications under this Agreement must be in writing and will be deemed to
have been duly given when (a) delivered by hand (with written confirmation of
receipt), (b) sent by facsimile (with written confirmation of receipt), provided
that a copy is mailed by registered mail, return receipt requested (provided
that facsimile notice shall be deemed received on the next business day if
received after 5:00 p.m. local time), or (c) when received by the addressee, if
sent by a nationally recognized overnight delivery service (receipt requested),
in each case to the appropriate addresses and facsimile numbers set forth below
(or to such other addresses and facsimile numbers as a party may designate by
notice to the other parties)
(ii) if to the Company to:
VDC Communications, Inc.
75 Holly Hill Lane
Greenwich, CT 06830
Attn: Frederick A. Moran, Chief Executive Officer
Telephone: (203) 869-5100
Facsimile: (203) 552-0908
(ii) if to the Holder, to the address identified on the
books and records of the Company
157
<PAGE>
(e) Successors and Assigns; Holders as Beneficiaries. This
Agreement shall inure to the benefit of and be binding upon the parties and
their respective successors and assigns, and the agreements of the Company
herein shall inure to the benefit of the Holders and their respective successors
and assigns.
(f) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(g) Entire Agreement; Survival; Termination. This Agreement
is intended by the parties as a final expression of their agreement and intended
to be a complete and exclusive statement of the agreement and understanding of
the parties hereto in respect of the subject matter contained herein. There are
no restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
(h) Construction. This Agreement and any related instruments
will not be construed more strictly against one party then against the other by
virtue of the fact that drafts may have been prepared by counsel for one of the
parties, it being recognized that this Agreement and any related instruments are
the product of negotiations between the parties and that both parties have
contributed to the final preparation of this Agreement and all related
instruments.
(i) Arbitration. All controversies which may arise between
the parties including, but not limited to, those arising out of or related to
this Agreement shall be determined by binding arbitration applying the laws of
the State of Delaware. Any arbitration between the parties shall be conducted at
the Company's offices in Greenwich, Connecticut, or at such other location
designated by the Company, before the American Arbitration Association (the
"AAA"). If the Parties are unable to agree on a single arbitrator with fifteen
(15) days of a demand for arbitration being filed with the AAA by one of the
parties, each party shall select an arbitrator and the two (2) arbitrators shall
mutually select a third arbitrator, the three of whom shall serve as an
arbitration panel. The decision of the arbitrator(s) shall be final and binding
upon the Parties and shall not be required to include written findings of law
and fact, and judgment may be obtained thereon by either party in a court of
competent jurisdiction. Each party shall bear the cost of preparing and
presenting its own case. The cost of the arbitration, including the fees and
expenses of the arbitrator(s), shall be shared equally by the parties hereto
unless the award otherwise provides. Nothing in this section will prevent either
party from resorting to judicial proceedings if interim injunctive relief under
the laws of the State of Delaware from a court is necessary to prevent serious
and irreparable injury to one of the parties, and the parties hereto agree that
the state courts in Stamford, Connecticut and the United States District Court
in the District of Connecticut in Bridgeport, Connecticut shall have exclusive
subject matter and in personam jurisdiction over the parties for purposes of
obtaining interim injunctive relief.
(j) Agreement Read and Understood. Both parties hereto
acknowledge that they have had an opportunity to consult with an attorney, and
such other experts or consultants as they deem necessary or prudent, regarding
this Agreement and that they, or their designated agents, have read and
understand this Agreement.
158
<PAGE>
IN WITNESS WHEREOF, intending to be legally bound, the parties hereto
have caused this Agreement to be signed.
ATTEST: VDC COMMUNICATIONS, INC.
______________________________ By:________________________________
Frederick A. Moran
Chief Executive Officer
WITNESS:
- ------------------------------ --------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains Summary Financial information extracted from the
Financial Statements for the nine-months ended March 31, 1999 and is qualified
in its entirety by reference to such statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 653
<SECURITIES> 104
<RECEIVABLES> 1652
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2409
<PP&E> 6083
<DEPRECIATION> 336
<TOTAL-ASSETS> 13673
<CURRENT-LIABILITIES> 4571
<BONDS> 1968
0
0
<COMMON> 2
<OTHER-SE> 8187
<TOTAL-LIABILITY-AND-EQUITY> 13673
<SALES> 0
<TOTAL-REVENUES> 1426
<CGS> 0
<TOTAL-COSTS> 2159
<OTHER-EXPENSES> 37921
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (42423)
<INCOME-TAX> 0
<INCOME-CONTINUING> (43088)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (43088)
<EPS-BASIC> (2.45)
<EPS-DILUTED> (2.45)
</TABLE>
