SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended December 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.
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(Exact name of registrant as specified in its charter)
Delaware 001-14281 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)
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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
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(2) Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of February 8, 2000, the number of shares of registrant's common stock, par
value $.0001 per share, outstanding was 21,506,919.
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<CAPTION>
VDC COMMUNICATIONS, INC.
INDEX
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PART I FINANCIAL INFORMATION PAGE
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Item 1. Consolidated balance sheets as of June 30, 1999
And December 31, 1999 3
Consolidated statements of operations and
comprehensive loss for the three and six month
periods ended December 31, 1998 and 1999 4
Consolidated statements of cash flows for the
six months ended December 31, 1998 and 1999 5
Notes to consolidated financial statements 6-9
Item 2. Management's discussion and analysis of financial
condition and results of operations 9-17
Item 3. Quantitative and qualitative disclosures about
market risk 17-18
PART II OTHER INFORMATION
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Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18-19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19-20
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PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VDC COMMUNICATIONS, INC. AND SUBSIDARIES
CONSOLIDATED BALANCE SHEETS
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<CAPTION>
December 31, 1999 June 30, 1999
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(Unaudited)
<S> <C> <C>
Assets
Current:
Cash and cash equivalents $ 1,312,534 $ 317,799
Restricted cash - 475,770
Marketable securities 57,238 90,375
Accounts receivable, net of allowance for doubtful accounts
of $261,502 and at December 31, 1999 and $7,000 at June 30, 1999 1,402,099 1,251,581
Notes receivable - 249,979
Prepaid and other 177,948 0
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Total current assets 2,949,819 2,385,504
Property and equipment, less accumulated depreciation 3,922,206 4,888,163
Investment in MCC 2,400,000 2,400,000
Other assets 344,886 328,394
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Total assets $ 9,616,911 $10,002,061
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Liabilities and Stockholders' Equity
Current:
Accounts payable and accrued expenses $ 2,828,843 $ 2,160,839
Note payable - officer 80,000 -
Current portion of capitalized lease obligations 227,553 426,356
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Total current liabilities 3,136,396 2,587,195
Long-term portion of capitalized lease obligations 613,107 847,334
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Total liabilities 3,749,503 3,434,529
Commitment and Contingencies
Stockholders' equity:
Preferred stock, $0.0001 par value, authorized 10 million
shares; issued and outstanding-none - -
Common stock, $0.0001 par value, authorized 50 million shares
issued - 21,506,917 and 18,311,462 at
December 31, and June 30,1999, respectively 2,338 2,018
Additional paid-in capital 68,392,376 67,737,195
Accumulated deficit (62,006,581) (60,339,393)
Treasury stock - at cost, 1,875,000 shares (164,175) (164,175)
Stock subscriptions receivable - (344,700)
Accumulated comprehensive income (loss) (356,550) (323,413)
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Total stockholders' equity 5,867,408 6,567,532
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Total liabilities and stockholders' equity $ 9,616,911 $10,002,061
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See accompanying notes to consolidated financial statements.
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VDC COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE LOSS (Unaudited)
<TABLE>
<CAPTION>
Three Months ended Six-months ended
December 31, December 31,
1999 1998 1999 1998
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Revenue $ 2,204,166 $ 527,567 $ 4,516,363 $ 728,961
Operating Expenses:
Costs of services 2,277,437 944,365 4,876,294 1,285,786
Selling, general and administrative expenses 572,271 950,947 1,284,707 1,976,193
Non-cash compensation expense - - - 16,146,000
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Total operating expenses 2,849,708 1,895,312 6,161,001 19,407,979
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Operating loss (645,542) (1,367,745) (1,644,638) (18,679,018)
Other income (expense):
Loss on note restructuring - (1,198,425) - (1,598,425)
Other income (expense) (46,149) (161,752) (22,550) (72,610)
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Total other income (expense) (46,149) (1,360,177) (22,550) (1,671,035)
equity in loss of affiliate - (363,268) - (363,268)
Net loss (691,691) (3,091,190) (1,667,188) (20,713,321)
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Other comprehensive (loss), net of tax:
Unrealized (loss) on marketable securities (12,050) (57,237) (33,137) (396,175)
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Comprehensive loss $ (703,741) (3,148,427) (1,700,325) (21,109,496)
==============================================================
Net loss per common share - basic and diluted $ (0.03) $ (0.17) $ (0.09) $ (1.15)
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Weighted average number of shares outstanding 20,580,990 18,420,158 19,377,286 17,984,119
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</TABLE>
See accompanying notes to consolidated financial statements.
4
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VDC COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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<CAPTION>
Six-months ended
December 31,
1999 1998
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Cash flows from operating activities:
Net loss $ (1,667,188) $(20,713,321)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 527,141 343,713
Non-cash compensation expense - 16,146,000
Equity in losses of affiliate - 363,268
Gain on disposal of fixed asset (54,878)
Loss on note restructuring - 1,598,425
Provision for doubtful accounts 254,502 -
Changes in operating assets and liabilities:
Resticted cash 475,770 (406,720)
Accounts receivable (405,020) (152,709)
Other assets 5,560 198,077
Accounts payable and accrued expenses 458,996 664,303
--------------------------------
Net cash used by operating activities (405,117) (1,958,964)
Cash flows from investing activities:
Proceeds from return of escrow in connection
with the investment in MCC - 1,019,762
Payment for purchase of subsidiary - (589,169)
Investment in affiliate - (424,800)
Proceeds from repayment of notes receivable 249,979 526,587
Refund of fixed asset acquisition 210,018 -
Fixed asset acquisition (105,296) (1,899,002)
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Net cash flows provided by (used) in investing activities 354,701 (1,366,622)
Cash flows from financing activities:
Proceeds from issuance of common stock 1,000,000 888,701
Collections on stock subscription receivables - 917,076
Repayment of note payable - (65,000)
Proceeds from issuance of short-term debt 80,000 -
Repayments on capital lease obligations (34,849) -
--------------------------------
Net cash flows provided by financing activities 1,045,151 1,740,777
--------------------------------
Net increase (decrease) in cash and cash equivalents 994,735 (1,584,809)
Cash and cash equivalents, beginning of period 317,799 2,212,111
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Cash and cash equivalents, end of period $ 1,312,534 $ 627,302
================================
</TABLE>
See accompanying notes to consolidated financial statements.
5
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VDC Communications, Inc. and Subsidiaries
Notes to consolidated financial statements
1. General
These consolidated financial statements for the three and six month periods
ended December 31, 1999 and 1998 and the related footnote information are
unaudited and have been prepared on a basis substantially consistent with the
audited consolidated financial statements of VDC Communications, Inc. and its
subsidiaries (collectively, "VDC" or the "Company") as of and for the year ended
June 30, 1999 included in the Company's Annual Report on Form 10-K as filed with
the Securities and Exchange Commission (the "Annual Report"). These financial
statements should be read in conjunction with the audited financial statements
and the related notes to consolidated financial statements of the Company as of
and for the year ended June 30, 1999 included in the Annual Report and the
unaudited quarterly consolidated financial statements and related notes to
unaudited consolidated financial statements of the Company for the three month
period ended September 30, 1999 included in the Company's Form 10-Q for the
quarter then ended as filed with the Securities and Exchange Commission. In the
opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting of normal recurring adjustments)
which management considers necessary to present fairly the consolidated
financial position of the Company at December 31, 1999, the results of its
operations for the three and six month periods ended December 31, 1999 and 1998
and its cash flows for the six months ended December 31, 1999 and 1998. The
results of operations for the three and six month periods ended December 31,
1999 may not be indicative of the results expected for any succeeding quarter or
for the entire year ending June 30, 2000.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements. Actual results could
differ from those estimates.
Certain prior-year amounts have been reclassified to conform to the year ended
June 30, 2000 financial statement presentation.
Cost of services includes depreciation attributable to operating equipment of
$225,135 and $483,357 during the three and six-months ended December 31, 1999,
respectively. Selling, general and administrative expenses include depreciation
of $29,877 and $43,784 and bad debt expense of $154,258 and $254,502 during the
three and six-months ended December 31, 1999, respectively. Cost of services
includes depreciation attributable to operating equipment of $87,236 during the
three and six-months ended December 31, 1998. Selling, general and
administrative expenses include depreciation and amortization of $153,641 and
$256,477 during the three and six-months ended December 31, 1998, respectively.
Loss per common share is calculated by dividing the loss attributable to common
shares by the weighted average number of shares outstanding. Outstanding common
stock options and warrants are not included in the loss per share calculation as
their effect is anti-dilutive.
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2. Capital Transactions
In October 1999, the Company sold 666,667 shares of common stock to unrelated
investors and 666,667 shares to an adult son of the Company's Chief Executive
Officer at $0.75 per share.
In October 1999, a condition for the release from escrow of 2 million shares of
the Company's common stock to the seller of the Company's investment in
Metromedia China Corporation ("MCC") was satisfied. The condition provided for
the release of the escrowed shares in the event that the Company's stock price
closed below $5.00 for 40 trading days during the 120 consecutive trading days
subsequent to August 31, 1999. For financial statement purposes, the shares
became issued and outstanding in October 1999. Since the Company had previously
determined the value of its investment in MCC to be $2.4 million under FASB No.
121, the issuance of the 2 million Company shares was charged to operations for
the par value of the shares (i.e. $200).
3. Option Repricing
In light of the decline in market price of the Company's common stock as of
October 1999, the Board of Directors believed that the outstanding stock options
with an exercise price in excess of the actual market price were no longer an
effective tool to encourage employee retention or to motivate high levels of
performance. As a result, in October 1999, the Board of Directors approved an
option repricing program under which options to acquire shares of common stock
that were originally issued with exercise prices above $1.25 per share were
reissued with an exercise price of $1.25 per share, the fair market value of the
common stock at the repricing date. These options will continue to vest under
the original terms of the option grant. Options to purchase 757,500 shares of
Company common stock were affected by the repricing program including options to
purchase 567,500 shares of common stock issued under the Company's 1998 Stock
Incentive Plan, as amended (the "Plan") and options to purchase 190,000 shares
of common stock issued outside of the Plan.
An accounting pronouncement is expected to be issued regarding how to account
for a change to the exercise price or the number of shares of a stock option
that was being accounted for as a fixed award (that is, option repricing). The
pronouncement is expected to be effective upon issuance (expected to be in the
spring of 2000) but generally would cover events that occur after December 15,
1998. It is anticipated that the pronouncement will require a charge to
operations for the difference between the market price of the Company's stock
and the exercise price of unexercised, outstanding stock options at the end of
each reporting period.
4. Investment in MCC
MCC operated telecommunications joint ventures in China under the direction of
its majority owner, Metromedia International Group ("MMG"). The joint ventures
invested in telephony system construction and development networks being
undertaken by the local partner, China Unicom. The completed systems are
operated by China Unicom.
VDC is a passive minority shareholder of MCC. As such, we make no
representations regarding the accuracy of the information publicly provided by
MMG, from which the following summary is derived:
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In December 1999, MMG announced that its MCC joint ventures had
executed definitive agreements with China Unicom setting forth terms
for the termination of all cooperation projects undertaken between the
joint ventures and China Unicom. MMG anticipates that MCC will
ultimately receive approximately $90 million (at December 1999 exchange
rates) and other distributions after the termination of the joint
ventures' cooperative projects. MMG cannot currently determine the
ultimate amount and time of payments that it will receive from MCC
after termination of the joint ventures' cooperation with China Unicom.
In addition, MMG made no assurances that it will be able to convert or
repatriate in full any amount received as a result of the settlement
with China Unicom or the dissolution of the joint ventures.
MCC has interests in an Internet joint venture in China, Huaxia
Metromedia Information Technology Co., Ltd. ("Huaxia"). Huaxia is not
engaged in any cooperation with China Unicom and is not affected by the
China Unicom project termination agreements. MCC intends to continue
active development of Huaxia as well as to pursue additional joint
ventures and other business opportunities in China's information
industry sector.
5. Note Payable-Officer
In September 1999, the Chairman and CEO loaned the Company $80,000. The note
bears interest at 8% per annum and is due in September 2000.
6. Other Matters
Approximately $1.1 million of the liabilities reflected in the Company's
consolidated financial statements are attributable to a wholly-owned subsidiary
of the Company (the "Subsidiary") and were accrued in connection with the
Subsidiary's former operations. The Company has elected to reflect the potential
liability within its financial statements despite the fact management has reason
to believe that the Subsidiary may not be responsible for such potential
liability and despite the fact that the Subsidiary has limited assets and would
be unable to pay this liability if it were, in fact, liable for it. Moreover,
due to the fact that the potential liability would be a liability of the
Subsidiary, a separate legal entity, and not of VDC Communications, Inc., the
parent company, management believes that the potential liability will not impact
the assets of the parent or its subsidiaries, other than the Subsidiary.
7. Commitments and Contingencies
Litigation
In July 1999, a former customer filed suit against the Company asserting various
purported misrepresentations and various purported breaches of contract. The
Company does not believe that the claims asserted are either meritorious or will
have a material adverse effect on the Company's assets or operations.
8. Supplemental Disclosure of Cash Flow Information
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.
8
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<CAPTION>
Six-months ended
December 31,
1999 1998
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Cash paid during the quarter for:
interest $82,259 $-
Schedule of non-cash investing and financing activities:
Equipment acquired through capital lease obligation 249,335 -
Cancellation of stock subscription receivable 344,700 -
Common stock placed in escrow in connection with investment in MCC - 13,962,500
Treasury stock acquired in exchange for subscription receivable - 164,175
Equipment exchanged for note - 192,379
Acquisition of subsidiary:
Fair value of assets acquired - 1,290,044
Common stock issued - 700,875
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Cash paid $ - $589,169
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</TABLE>
In December 1999, the Company sold a fixed asset with a carrying value of
approximately $383,000. The consideration received was the assumption by the
buyer of the related capital lease obligation of approximately $438,000. The
difference has been recorded as a gain on the disposal of fixed assets.
The Company received a $200,000 credit from a vendor during the six-months ended
December 31, 1999. The credit will be applied against future purchases. The
Company has recorded the credit as other assets with a corresponding reduction
in previously acquired long distance equipment from this vendor.
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," "could," 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 operate profitably; (ii) the Company's ability to secure
sufficient financing in order to fund its operations; (iii) competitive and
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other market conditions that may adversely affect the scope of the Company's
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) the Company's revenue dependence on a few customers.
Additional factors are described in the Company's other public reports and
filings with the Securities and Exchange Commission ("SEC") including Amendment
No. 1 to a Registration Statement on Form S-1 (No. 333-80107). 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 switching and ancillary equipment, leases telecommunications
lines and interconnects a global network of carriers and customers providing
domestic and international long distance telecommunications services. Our
customers are other long distance telephone companies that resell our services
to their retail customers or other telecommunications companies. In the future,
we anticipate offering our services directly to retail customers in addition to
our current wholesale customers. We currently employ digital switching and
transmission technology. This equipment, located in New York and Los Angeles
comprises our operating facilities.
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 for growth than the
domestic market, due to the relatively limited capacity in certain markets and
potentially greater gross margin per minute of traffic. Our objective is to
become an international telecommunications company with strategic assets and
transmission capability in many attractive markets worldwide. We currently
provide competitive transmission capability worldwide. We constantly strive to
increase our competitiveness while maintaining quality and are exploring
strategies to develop our international asset base. Our current facilities are
sufficient to handle significantly more traffic than we are currently
experiencing.
We began the development of our long-distance telecommunications business on
March 6, 1998 and have since developed our infrastructure and industry
relations. During pre-operating phases we focused upon: fund raising; developing
a strategic business plan; purchasing telecommunications switches; developing
corporate infrastructure; and developing and commencing marketing programs.
Effectively, operations began when our telecommunications network was activated
and our marketing efforts commenced in January 1999.
During the quarter ended December 31, 1999, we continued to build our network
and customer relations. In addition, we formed a Voice over Internet Protocol
("VoIP") Strategic Development Team to do market analysis and make strategic
recommendations to the Board of Directors on partners, technologies and
acquisition targets that complement the core VDC business.
Additionally, in the quarter ended December 31, 1999, several significant events
occurred including:
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- One of our largest customers significantly increased its capacity
connecting to our New York Switch.
- Warrants to purchase approximately 938,000 shares of VDC common stock
expired.
- We completed a private placement of VDC common stock, which raised $1.0
million.
- We filed a Registration Statement on Form S-1 with the Securities
and Exchange Commission ("SEC"). The Registration Statement, which
registers the potential sale of up to 9,939,245 shares of VDC common
stock on behalf of certain VDC shareholders, was declared effective
by the SEC in November 1999.
- We held our Annual Meeting of Shareholders on December 10, 1999.
Shareholders re-elected two board members, Mr. James Dittman and Dr.
Hussein Elkholy, to second terms. Their terms last three years. Over
99% of the votes cast were in favor of their re-election.
- The VDC Board of Directors appointed three officers to new positions:
Clayton Moran as Chief Financial Officer, Edwin Read as Vice
President, Operations and Peter Zagres as Vice President, Sales and
Buying.
- We ceased development of a direct telecommunications route into Asia.
- We implemented significant cost-cutting measures as more fully
described in "Liquidity and Capital Resources."
We earn revenue from three sources. The main source is from domestic and
international telecommunications long distance services which is earned based on
the number of minutes billable to our customers, which are other
telecommunications companies. These minutes are generally billed on a monthly
basis. Bills are generally due within zero to thirty days. Our second source of
revenues is derived from the rental of space and telecommunications
equipment/circuits at our telecommunications facilities. This revenue is
generated and billed on a month-to-month basis. Additionally, we derive minimal
revenues from the management of domestic 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
telecommunications traffic is normally in accordance with contracts with other
telecommunications companies. These contracts are often for a year or more, but
can generally be amended with a few days notice. Further, these contracts
generally do not provide for a fixed volume of telecommunications traffic to be
sent to us and, as such, the telecommunications traffic that any one customer
sends to us during any given month can vary considerably. Occasionally, however,
these contracts require payments to us if a customer does not send a fixed
minimum amount of telecommunications traffic to us.
Costs of services is primarily comprised of costs incurred from other domestic
and foreign telecommunications carriers to originate, transport and terminate
calls that we send to them. The majority of our cost of service is variable,
based on the number of minutes of use, with transmission and termination costs
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being our most significant expense. In addition, our costs of services include
circuit expenses, the allocable personnel and overhead associated with
operations, and depreciation of telecommunications equipment. We depreciate long
distance telecommunications equipment over a period of five years.
Our costs also include selling, general, and administrative expenses ("SG&A").
SG&A consists primarily of personnel costs, professional fees, travel, office
rental and business development related costs. We incur costs associated with
international market research and due diligence regarding potential projects
inside and outside of the U.S.
We are the successor to our former parent, VDC Corporation Ltd., a Bermuda
company ("VDC Bermuda") by virtue of a domestication merger. On November 6,
1998, VDC Bermuda merged with and into the Company (the "Domestication Merger").
The effect of the Domestication Merger was that members/stockholders of VDC
Bermuda became stockholders of the Company. The primary reason for the
Domestication Merger was to reorganize VDC Bermuda as a publicly traded United
States corporation domesticated in the State of Delaware.
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 Bermuda) acquired Sky King Communications, Inc., a Connecticut
corporation ("Sky King Connecticut") by merger. This merger transaction was
accounted for as a reverse acquisition whereby Sky King Connecticut was the
acquirer for accounting purposes.
Results of Operations
For the Three Months Ended December 31, 1999 Compared to the Three Months Ended
December 31, 1998
Revenues: Total revenues in the three months ended December 31, 1999 ("Current
Quarter") increased to approximately $2.2 million from approximately $528,000
for the three months ended December 31, 1998 ("Prior Period Quarter"). Revenue
of approximately $1.7 million was generated during the Current Quarter by the
transmission of approximately 8.1 million minutes of telecommunications traffic
domestically and internationally ("Long Distance Revenue"). We also generated
revenue of approximately $282,000 from the rental of space and
telecommunications equipment at our telecommunications facilities, approximately
$200,000 from contractually required payments from a customer due to its failure
to provide a certain minimum level of telecommunications traffic, and
approximately $30,000 from site tower management. Revenue of approximately
$431,000 was generated during the Prior Period Quarter by the transmission of
approximately 1.3 million minutes of telecommunications traffic internationally.
We also generated revenue of approximately $60,000 from the rental of space and
telecommunications equipment at our telecommunications facilities and
approximately $24,000 from site tower management during the Prior Period
Quarter. Current Quarter Long Distance Revenues were generated from carrying
traffic worldwide, whereas in the Prior Period Quarter, Long Distance Revenue
was generated exclusively from a direct route into Central America, a relatively
high rate region of the world.
Costs of Services: Costs of services in the Current Quarter increased to
approximately $2.3 million from approximately $944,000 in the Prior Period
Quarter. The increase is due to increased domestic and international minutes of
telecommunications traffic which we purchased from other long distance carriers
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and increased operational expenses including salaries, depreciation, and circuit
costs. Costs of services as a percentage of revenues decreased from 179% in the
Prior Period Quarter to 104% in the Current Quarter. The decrease was mostly
attributable to improved rates, increased traffic volume and lower fixed monthly
circuit costs.
Selling, general & administrative expenses ("SG&A"): SG&A expenses decreased to
approximately $572,000 in the Current Quarter from approximately $951,000 in the
Prior Period Quarter. This decrease was primarily the result of reductions in
personnel costs and professional fees as a part of cost cutting measures
implemented to increase overall efficiencies. Prior Period Quarter professional
fees also included legal and accounting expenses associated with the
redeployment of the Company's assets.
Other income (expense): Other income (expense) was approximately $(46,000) for
the three months ended December 31, 1999 compared with approximately $(1.4)
million for the Prior Period Quarter. Other income (expense) in the current
quarter was due to interest expense incurred on capital lease obligations offset
by interest income and the gain on a sale of telecommunications equipment. Other
(expense) in the Prior Period Quarter was mostly due to an approximate $1.6
million loss on note restructuring.
For the Six Months Ended December 31, 1999 Compared to the Six Months Ended
December 31, 1998
Revenues: Total revenues in the six months ended December 31, 1999 ("Current
Period") increased to approximately $4.5 million from approximately $729,000 for
the six months ended December 31, 1998 ("Prior Period"). Long Distance Revenue
of approximately $3.7 million was generated during the Current Period by the
transmission of approximately 18.4 million minutes of telecommunications traffic
domestically and internationally. We also generated revenue of approximately
$500,000 from the rental of space and telecommunications equipment at our
telecommunications facilities, approximately $200,000 from the shortfall of
contractual traffic termination requirements and approximately $62,000 from site
tower management. Long Distance Revenue of approximately $580,000 was generated
during the Prior Period by the transmission of approximately 1.7 million minutes
of telecommunications traffic internationally. In the Prior Period, we also
generated revenue of approximately $55,000 from the rental of space and
telecommunications equipment at our telecommunications facilities, approximately
$46,000 from site tower management and approximately $48,000 of non-recurring
revenue. Current Period Long Distance Revenues were generated from carrying
traffic worldwide, whereas in the Prior Period, Long Distance Revenue was
generated exclusively from a direct route into Central America, a relatively
high rate region of the world.
Costs of Services: Costs of services in the Current Period increased to
approximately $4.9 million from approximately $1.3 million in the Prior Period.
This increase reflects increased domestic and international minutes of
telecommunications traffic which we purchased from other carriers and increased
operational expenses including salaries, depreciation, and circuit costs. Costs
of services as a percentage of revenues decreased from 176% in the Prior Period
to 108% in the Current Period. The decrease was mostly attributable to improved
rates, increased traffic volume and lower fixed monthly circuit costs.
Selling, general & administrative expenses ("SG&A"): SG&A expenses decreased to
approximately $1.3 million in the Current Period from approximately $2 million
13
<PAGE>
in the Prior Period. This decrease was primarily the result of reductions in
personnel costs and professional fees as a part of cost cutting measures
implemented to increase overall efficiencies. Prior period professional fees
also included legal and accounting expenses associated with the redeployment of
the Company's assets.
Other income (expense): Other income (expense) was approximately $(23,000) in
the current period compared with approximately $(1.7) million in the Prior
Period. Other (expense) in the Current Period was mostly due to interest expense
incurred on capital lease obligations offset by interest income and a gain on a
sale of telecommunications equipment. Other (expense) in the Prior Period was
mostly due to a loss on note restructuring.
Liquidity and Capital Resources
Our liquidity requirements arise primarily from cash used in operating
activities, capital expenditures and payments of capital lease obligations. To
date, we have financed ourselves mostly through equity financing. During the
quarter ended December 31, 1999, we raised $1.0 million through the issuance of
common stock and approximately $475,000 of previously restricted cash was
released. Our cash position at December 31, 1999 was approximately $1.3 million.
We implemented cost-cutting measures during the quarter which included the
following:
1. Reduced circuit costs by over 50% by eliminating unused
capacity and more fully utilizing remaining capacity.
2. Obtained a release from the vendor on an equipment lease for
an asset that was not a strategic fit for our current network
and would have cost approximately $16,800 per month beginning
January 2000.
3. Reduced our employee base from 29 at September 14, 1999 to
20 at December 31, 1999.
4. Amended the lease with respect to our Colorado office so as to
reduce Colorado office rent by approximately 40 percent. In
addition, the amendment calls for a further cost reduction of
approximately 20% in May 2000.
Additionally, during the prior quarter, we amended our lease space in our
Connecticut office which reduced Connecticut office rent by approximately 42
percent.
Most cost-cutting measures were implemented, but did not have full effect,
during the three months ended December 31, 1999. We, therefore, expect an
increase in realized efficiencies in the upcoming quarter. In addition, we are
constantly investigating ways to cut costs and further increase efficiency.
However, we are currently operating at a cash deficit. Based upon current
revenues, expenses, and capital lease payments, we have been operating at a cash
deficit of approximately $100,000 to $125,000 per month. Although we expect this
to continue in the short term, we anticipate that recent cost-cutting measures
and the funds recently raised should be sufficient to sustain us in the short
term. In the longer term, however, we need to increase our revenues and gross
profit in order to continue operations without outside funding. Potential
sources of increased revenues include: (i) the initiation of services for new
customers and/or increased capacity available to existing customers and
additional utilization thereof by these customers, (ii) the development and
14
<PAGE>
operation of direct telecommunications route(s), and/or (iii) the addition of
telecommunications equipment/circuit rental customers. There are no assurances,
however, that these objectives will transpire. It is possible that we will need
to raise funds through debt, equity, or other sources in order to sustain
operations.
To meet these objectives, we believe we have developed a scalable network that
will continue to provide competitive telecommunications services. We intend to
continue operating and marketing the network to build our customer base.
Additionally, we intend to pursue new opportunities in the domestic and
international telecommunications industry through: (i) reinvestment of future
profits, if any; and/or (ii) mergers and acquisitions.
On February 1, 2000, a major telecommunications company initiated its use of our
network for termination of telecommunications traffic. The revenue run rate that
we expect from this customer, and whether it will be material, is currently
uncertain.
We are currently considering alternatives to monetize non-core assets. Without
limitation, we are considering strategic alternatives for our Colorado based
switch including, but not limited to: (i) the sale of the switch; or (ii) the
redeployment of the switch. We are also investigating the possibility of the
sale of our site tower rental contracts. We expect that any success in
monetizing these assets would improve liquidity.
We are currently contemplating capital expenditures of approximately $200,000
during Fiscal 2000. Depending on the outcome of our VoIP Strategic Development
Team's findings, we could, however, be investing significantly more capital and
further depleting liquidity during Fiscal 2000. The capital expenditures
represent telecommunications equipment that could potentially be located in
foreign countries. We would expect to fund these purchases through debt and/or
equity financing and cash flow from operations, if any.
Net cash used in operating activities was approximately $405,000 in the Current
Period. We collected approximately $4.1 million from customers while paying
approximately $4.5 million to carriers, other vendors and employees. Net cash
used by operating activities was approximately $2 million in the Prior Period.
We collected approximately $550,000 from customers while paying approximately
$2.5 million to vendors and employees.
Net cash provided by investing activities was approximately $355,000 in the
Current Period. Cash flows provided by investing activities included the
collection of notes receivable and a sales tax refund on previously acquired
switching equipment. Cash was used for fixed asset acquisitions. Net cash used
by investing activities was approximately $1.4 million in the Prior Period. This
was the result of capital expenditures, the acquisition of a subsidiary and an
investment in an affiliate, net of collections on notes receivable and proceeds
from the return of escrow in connection with the Company's investment in MCC.
Cash provided by financing activities was approximately $1 million in the
Current Period. This reflects proceeds from the issuance of common stock and
short-term debt less repayments on capital lease obligations. Proceeds provided
by financing activities of approximately $1.7 million during the Prior Period
were mostly from collections on stock subscriptions receivable and issuance of
common stock.
15
<PAGE>
Acquisitions
We expect to continue to explore acquisition opportunities. Generally, we would
consider using our common stock for acquisitions. 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.
Investment in MCC
We own 2.0 million shares and warrants to purchase 4.0 million shares of MCC
common stock, a private telecommunications company. MCC operated
telecommunications joint ventures in China under the direction of its majority
owner, Metromedia International Group ("MMG"). The joint ventures invested in
telephony system construction and development networks being undertaken by the
local partner, China Unicom. The completed systems are operated by China Unicom.
We are a passive minority shareholder of MCC. As such, we make no
representations regarding the accuracy of the information publicly provided by
MMG, from which the following summary is derived:
MMG's June 1999 10-Q stated that the supervisory department of the
Chinese government had requested that China Unicom terminate the joint
ventures. The notification requested that negotiations begin
immediately regarding the amounts to be paid to the joint ventures,
including return of investment made and appropriate compensation and
other matters related to winding up the joint ventures' activities as a
result of this notice.
In December 1999, MMG announced that its MCC joint ventures had
executed definitive agreements with China Unicom setting forth terms
for the termination of all cooperation projects undertaken between the
joint ventures and China Unicom. Under the terms of the termination
agreements, MMG's joint ventures will immediately receive RMB 807.5
million in cash and they are entitled to receive an additional RMB 50
million in cash after completion of certain conditions. These amounts
represent full and final payment for settlement of all matters
pertaining to the termination of China Unicom's cooperation projects
with the joint ventures. As part of the termination settlement, China
Unicom will unconditionally own any assets pertaining to the
cooperation projects in which the joint ventures held an interest. In
the termination agreements, China Unicom, the joint ventures and joint
ventures' shareholders waived all of their respective rights associated
with the contracts underlying the cooperation projects now being
terminated.
MMG has stated that it anticipates that MCC will ultimately receive
approximately $90 million (at December 1999 exchange rates) and other
distributions after the termination of the joint ventures' cooperative
projects. MMG cannot currently determine the ultimate amount and time
of payments that it will receive from MCC after termination of joint
ventures' cooperation with China Unicom. In addition, MMG made no
assurances that it will be able to convert or repatriate in full any
amount received as a result of the settlement with China Unicom or the
dissolution of the joint ventures.
16
<PAGE>
Based on representations by MMG, our understanding is that MCC has interests in
an Internet joint venture in China, Huaxia Metromedia Information Technology
Co., Ltd. ("Huaxia"). Huaxia is not engaged in any cooperation with China Unicom
and is not affected by the China Unicom project termination agreements. MCC
intends to continue active development of Huaxia as well as to pursue additional
joint ventures and other business opportunities in China's information industry
sector.
The Year 2000 Readiness Disclosure
Most of the problem dates associated with the year 2000 computer compliance
issues, including January 1, 2000, have passed. To date, we have had no material
problems associated with these dates. Given the smooth transition that occurred
from December 31, 1999 to January 1, 2000, we do not expect any problem with the
last remaining problem date, February 29, 2000. However, it is still possible
that problems may occur on this date or that currently unknown computer problems
exist within our systems or equipment. We have completed a contingency plan in
case of any year 2000 issues and we will address these concerns as they arise.
Our contingency plan provides, in part, for the following: in the case of
routing difficulties, we will test and reroute to alternative options; and, in
case of billing difficulties, we will utilize already identified alternative
solutions for both delivery and processing of data.
Prior to December 31, 1999, we completed our evaluation of the year 2000
readiness of our computer systems, software applications and telecommunications
equipment. We did not, and do not currently, expect to experience any material
year 2000 issues. Through our discovery process, we identified and remedied
$84,000 worth of expenditures associated with updating our systems to be
compliant with the year 2000. We do not expect any additional material
expenditures.
Our key processing systems have been implemented in the past two years. Most of
the vendors of such systems have represented to us that their systems are
compliant with the year 2000 issues without any modification. The failure of our
computer systems and software applications to accommodate year 2000 issues,
could have a material adverse effect on our business, financial condition and
result of operations.
Further, if the networks and systems of those on whose services we depend and
with whom our networks and systems must interface are not year 2000 functional,
it could have a material adverse effect on the operation of our network and, as
a result, have a material adverse effect on us. We intend to continue to monitor
the performance of our accounting, information and processing systems and
software applications and those of our third-party constituents to identify and
resolve any year 2000 issues.
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
17
<PAGE>
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 receivable,
accounts payable, marketable securities-available for sale, and notes payable
are a reasonable approximation of their fair value.
Part II - Other Information
Item 1. Legal Proceedings
Other than as reported in Part II - Item 1 "Legal Proceedings" of the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, there
have been no material developments to any of the matters that require reporting
under this Item.
Item 2. Changes in Securities and Use of Proceeds
Recent Sales of Unregistered Securities
In October 1999, the Company sold 1,333,334 shares of Company common stock to
accredited investors 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, as
amended, as follows:
<TABLE>
<CAPTION>
Shareholder Number of Shares Consideration ($)
<S> <C> <C>
Adase Partners, L.P. 140,000 105,000.00
The Lucien I. Levy Revocable Living Trust 10,000 7,500.00
Frederick W. Moran (1) 666,667 500,000.25
Merl Trust 28,000 21,000.00
O.T. Finance, SA 22,000 16,500.00
Alan B. Snyder 266,667 200,000.25
Eric M. Zachs 200,000 150,000.00
------- ----------
Total 1,333,334 1,000,000.50
</TABLE>
(1) An adult son of Frederick A. Moran.
Item 3. Defaults Upon Senior Securities
Item not applicable.
Item 4. Submission of Matters to a Vote of Securities Holders
The Company's annual meeting of stockholders was held on December 10, 1999.
The following table sets forth information regarding the number of votes for,
against, withheld, or abstaining and broker non-votes, with respect to each
matter presented at the meeting.
18
<PAGE>
1. Both nominees for Class I director were elected as follows:
<TABLE>
<CAPTION>
NOMINEES FOR WITHHOLD
<S> <C> <C>
James B. Dittman 18,830,647 42,105
Dr. Hussein Elkholy 18,830,647 42,105
</TABLE>
2. The selection of BDO Seidman, LLP as the Company's independent auditors
for the fiscal year ending June 30, 2000 was approved as follows:
<TABLE>
<CAPTION>
BROKER
FOR AGAINST ABSTAIN NON-VOTE
<S> <C> <C> <C>
18,827,315 28,862 16,575 0
</TABLE>
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 1998 Stock Incentive Plan, as Amended (1)
10.2 Settlement, Release and Separation Agreement by and among VDC (1)
Communications, Inc. and William H. Zimmerling, dated October
1, 1999
10.3 Settlement, Release and Separation Agreement by and among VDC (1)
Communications, Inc. and Robert E. Warner, dated October 18,
1999
10.4 Form of Non-Qualified Stock Option Agreement (1)
10.5 Incentive Stock Option Agreement between Frederick A. Moran and (1)
VDC Communications, Inc., dated October 1, 1999
10.6 Form of Incentive Stock Option Agreement (1)
10.7 Form of Incentive Stock Option Agreement (1)
10.8 Form of Securities Purchase Agreement for October 1999 (1)
19
<PAGE>
10.9 Form of Registration Rights Agreement for October 1999 (1)
10.10 Form of Non-Qualified Stock Option Agreement for November 1999 (2)
10.11 Form of Incentive Stock Option Agreement for November 1999 (2)
10.12 Incentive Stock Option Agreement between Frederick A. Moran and (2)
VDC Communications, Inc., dated November 30, 1999
10.13 Incentive Stock Option Agreement between Peter Zagres and VDC (2)
Communications, Inc., dated November 30, 1999
10.14 Incentive Stock Option Agreement between Charles W. Mulloy and (2)
VDC Communications, Inc., dated December 21, 1999
10.15 Release Agreement by and among Zions Credit Corporation, VDC (2)
Communications, Inc., and VDC Telecommunications, Inc., dated
December 6, 1999
10.16 Assumption Agreement between Zions Credit Corporation, VDC (2)
Communications, Inc., VDC Telecommunications, Inc. and Wang
Communications, Inc., dated December 1999
27.1 Financial Data Schedule (2)
</TABLE>
(1) Filed as an Exhibit to Registrant's Amendment No. 1 to Registration
Statement on Form S-1, filed with the SEC on November 8, 1999, and
incorporated by reference herein.
(2) Filed herewith.
(b) Reports on Form 8-K
Item not applicable.
20
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Form 10-Q to be signed on its behalf by the
undersigned, thereunto duly authorized.
VDC COMMUNICATIONS, INC.
By:/s/ Frederick A. Moran Dated: February 10, 2000
--------------------------------------------------
Frederick A. Moran
Chairman, Chief Executive Officer,
and Director
By:/s/ Clayton F. Moran Dated: February 10, 2000
--------------------------------------------------
Clayton F. Moran
Chief Financial Officer
21
<PAGE>
<TABLE>
<CAPTION>
Exhibit Index
Exhibit Number Page Number in
(Referenced to Rule 0-3(b)
Item 601 of Sequential
Reg. S-K Numbering System
Where Exhibit Can
Be Found
<S> <C>
10.10 Form of Non-Qualified Stock Option Agreement for November 1999
10.11 Form of Incentive Stock Option Agreement for November 1999
10.12 Incentive Stock Option Agreement between Frederick A. Moran and
VDC Communications, Inc., dated November 30, 1999
10.13 Incentive Stock Option Agreement between Peter Zagres and VDC
Communications, Inc., dated November 30, 1999
10.14 Incentive Stock Option Agreement between Charles W. Mulloy and
VDC Communications, Inc., dated December 21, 1999
10.15 Release Agreement by and among Zions Credit Corporation, VDC
Communications, Inc., and VDC Telecommunications, Inc., dated
December 6, 1999
10.16 Assumption Agreement between Zions Credit Corporation, VDC
Communications, Inc., VDC Telecommunications, Inc. and Wang
Communications, Inc., dated December 1999
27.1 Financial Data Schedule
</TABLE>
22
The following Form of Non-Qualified Stock Option Agreement was entered into with
the following directors: James B. Dittman, Dr. Hussein Elkholy, and Dr. Leonard
Hausman.
Optionee
VDC COMMUNICATIONS, INC.
------------------------
FORM OF NON-QUALIFIED STOCK OPTION AGREEMENT
UNDER THE
VDC COMMUNICATIONS, INC.
1998 STOCK INCENTIVE PLAN, AS AMENDED (the "Plan")
This Agreement is made as of November 30, 1999 (the "Grant
Date") by and between VDC Communications, Inc., a Delaware corporation (the
"Corporation"), and the person named on Schedule A hereto (the "Optionee").
WHEREAS, Optionee is an agent of the Corporation or one of its
subsidiaries and the Corporation considers it desirable and in its best interest
that Optionee be given an inducement to acquire a proprietary interest in the
Corporation and an incentive to advance the interests of the Corporation by
granting the Optionee an option to purchase shares of common stock of the
Corporation (the "Common Stock");
NOW, THEREFORE, the parties hereto, intending to be legally
bound, hereby agree that as of the Grant Date, the Corporation hereby grants
Optionee an option to purchase from it, upon the terms and conditions set forth
in the Plan and this Agreement, that number of shares of the authorized and
unissued Common Stock of the Corporation as is set forth on Schedule A hereto.
1. Terms of Stock Option. The option to purchase Common
Stock granted hereby is subject to the terms, conditions, and covenants set
forth in the Plan as well as the following:
(a) This option shall constitute a Non-Qualified
Stock Option which is not intended to
qualify under Section 422 of the Internal
Revenue Code of 1986, as amended;
(b) The per share exercise price for the shares
subject to this option shall be the Fair
Market Value (as defined in the Plan) of the
Common Stock on the Grant Date, which
exercise price is set forth on Schedule A
hereto;
<PAGE>
(c) This option shall vest in accordance with
the vesting schedule set forth on Schedule A
hereto; and
(d) No portion of this option may be exercised
more than ten (10) years from the Grant
Date.
2. Payment of Exercise Price. The option may be
exercised, in part or in whole, only by written request to the Corporation
accompanied by payment of the exercise price in full either: (i) in cash for the
shares with respect to which it is exercised; (ii) by delivering to the
Corporation a notice of exercise with an irrevocable direction to a
broker-dealer registered under the Securities Exchange Act of 1934, as amended,
to sell a sufficient portion of the shares and deliver the sale proceeds
directly to the Corporation to pay the exercise price; (iii) in the discretion
of the Plan Administrator, through the delivery to the Corporation of
previously-owned shares of Common Stock having an aggregate Fair Market Value
equal to the option exercise price of the shares being purchased pursuant to the
exercise of the Option; provided, however, that shares of Common Stock delivered
in payment of the option price must have been held by the Optionee for at least
six (6) months in order to be utilized to pay the option price; (iv) in the
discretion of the Plan Administrator, through an election to have shares of
Common Stock otherwise issuable to the Optionee withheld to pay the exercise
price of such Option; or (v) in the discretion of the Plan Administrator,
through any combination of the payment procedures set forth in Subsections (i) -
(iv) of this paragraph.
3. Miscellaneous.
(a) This Agreement is binding upon the parties
hereto and their respective heirs, personal
representatives, successors and assigns.
(b) This Agreement will be governed and
interpreted in accordance with the laws of
the State of Connecticut, and may be
executed in more than one counterpart, each
of which shall constitute an original
document.
(c) No alterations, amendments, changes or
additions to this agreement will be binding
upon either the Corporation or Optionee
unless reduced to writing and signed by both
parties.
(d) All controversies or claims arising out of
this Agreement shall be determined by
binding arbitration, conducted at the
Corporation's offices in Greenwich,
Connecticut, or at such other location
designated by the Corporation, before the
American Arbitration Association.
(e) No rule of construction requiring
interpretation against the drafting party
shall apply to the interpretation of this
Agreement.
(f) If any provision of this Agreement is held
to be invalid, the remaining provisions
shall remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Grant Date.
VDC COMMUNICATIONS, INC.
By:/s/ Frederick A. Moran
----------------------
Frederick A. Moran
Chief Executive Officer
OPTIONEE:
-------------------------
<PAGE>
Optionee
Schedule A
1. Grant Date: November 30, 1999
2. Number of Shares of Common Stock covered by the Option: 10,000
3. Exercise Price (100% of Fair Market Value of Common Stock on the Grant
Date): .9375
4. The Option shall vest in accordance with the following schedule:
(i) 3,333 shares shall vest on the first anniversary of the Grant
Date, provided Optionee continuously serves as a member of the
Corporation's Board of Directors from November 30, 1999
through November 29, 2000;
(ii) 3,333 shares shall vest on the second anniversary of the
Grant Date, provided Optionee continuously serves as a member
of the Corporation's Board of Directors from November 30,
1999 through November 29, 2001; and
(iii) 3,334 shares shall vest on the third anniversary of the Grant
Date, provided Optionee continuously serves as a member of the
Corporation's Board of Directors from November 30, 1999
through November 29, 2002.
The following Form of Incentive Stock Option Agreement was entered into with the
following executive officers:
<TABLE>
<CAPTION>
Name / Optionee Number of Shares Underlying Options Annual Vesting Amount
<S> <C> <C>
Clayton F. Moran 90,000 18,000
Charles W. Mulloy 50,000 10,000
Edwin B. Read 125,000 25,000
Peter Zagres 180,000 36,000
</TABLE>
Optionee
VDC COMMUNICATIONS, INC.
------------------------
FORM OF INCENTIVE STOCK OPTION AGREEMENT
UNDER THE VDC COMMUNICATIONS, INC.
1998 STOCK INCENTIVE PLAN, AS AMENDED (the "Plan")
This Agreement is made as of November 30, 1999, (the "Grant
Date") by and between VDC Communications, Inc., a Delaware corporation (the
"Corporation") and (the "Optionee").
WHEREAS, Optionee is an employee of the Corporation or one of
its subsidiaries and the Corporation considers it desirable and in its best
interest that Optionee be given an inducement to acquire a proprietary interest
in the Corporation and an incentive to advance the interests of the Corporation
by granting the Optionee an option to purchase shares of common stock of the
Corporation (the "Common Stock");
NOW, THEREFORE, the parties hereto, intending to be legally
bound, hereby agree that as of the Grant Date, the Corporation hereby grants
Optionee an option to purchase from it, upon the terms and conditions set forth
in the Plan (a copy of which is attached hereto) and this Agreement, that number
of shares of the authorized and unissued Common Stock of the Corporation as is
set forth on Schedule A hereto.
1. Terms of Stock Option. The option to purchase Common
Stock granted herein is subject to the terms, conditions, and covenants set
forth in the Plan as well as the following:
<PAGE>
(a) This option shall constitute an Incentive
Stock Option which is intended to qualify
under Section 422 of the Internal Revenue
Code of 1986, as amended;
(b) The per share exercise price for the shares
subject to this option shall be the 100% of
the Fair Market Value (as defined in the
Plan) of the Common Stock on the Grant Date,
which exercise price is set forth on
Schedule A hereto;
(c) This option shall vest in accordance with
the vesting schedule set forth on Schedule A
hereto; and
(d) No portion of this option may be exercised
more than ten (10) years from the Grant
Date.
2. Payment of Exercise Price. The option may be
exercised, in part or in whole, only by written request to the Corporation
accompanied by payment of the exercise price in full either: (i) in cash for the
shares with respect to which it is exercised; (ii) by delivering to the
Corporation a notice of exercise with an irrevocable direction to a
broker-dealer registered under the Securities Exchange Act of 1934, as amended,
to sell a sufficient portion of the shares and deliver the sale proceeds
directly to the Corporation to pay the exercise price; (iii) in the discretion
of the Plan Administrator, through the delivery to the Corporation of
previously-owned shares of Common Stock having an aggregate Fair Market Value
equal to the option exercise price of the shares being purchased pursuant to the
exercise of the Option; provided, however, that shares of Common Stock delivered
in payment of the option price must have been held by the Optionee for at least
six (6) months in order to be utilized to pay the option price; (iv) in the
discretion of the Plan Administrator, through an election to have shares of
Common Stock otherwise issuable to the Optionee withheld to pay the exercise
price of such Option; or (v) in the discretion of the Plan Administrator,
through any combination of the payment procedures set forth in Subsections (i) -
(iv) of this paragraph.
3. Miscellaneous.
(a) This Agreement and the options represented
hereby may not be assigned or transferred in
any manner except by will or by the laws of
descent and distribution.
(b) This Agreement will be governed and
interpreted in accordance with the laws of
the State of Connecticut, and may be
executed in more than one counter0part, each
of which shall constitute an original
document.
2
<PAGE>
(c) No alterations, amendments, changes or
additions to this agreement will be binding
upon either the Corporation or Optionee
unless reduced to writing and signed by both
parties.
(d) All controversies or claims arising out of
this Agreement shall be determined by
binding arbitration, conducted at the
Corporation's offices in Greenwich,
Connecticut, or at such other location
designated by the Corporation, before the
American Arbitration Association.
(e) No rule of construction requiring
interpretation against the drafting party
shall apply to the interpretation of this
Agreement.
(f) If any provision of this Agreement is held
to be invalid, the remaining provisions
shall remain in full force and effect.
In witness whereof, the parties have executed this Agreement as of the
Grant Date.
CORPORATION:
VDC COMMUNICATIONS, INC.
By:/s/Frederick A. Moran
---------------------
Frederick A. Moran
Chief Executive Officer
OPTIONEE:
------------------------
3
<PAGE>
Optionee
Schedule A
1. Grant Date: November 30, 1999
2. Number of Shares of Common Stock covered by the Option:
3. Exercise Price (100% of Fair Market Value of Common Stock on the Grant
Date): $.9375
4. The Option shall vest in accordance with the following schedule:
(i) shares shall vest on the first anniversary of the Grant Date,
provided Optionee remains continuously employed by the
Corporation, or its subsidiaries, from November 30, 1999
through November 29, 2000;
(ii) shares shall vest on the second anniversary of the Grant Date,
provided Optionee remains continuously employed by the
Corporation, or its subsidiaries, from November 30, 1999
through November 29, 2001;
(iii) shares shall vest on the third anniversary of the Grant Date,
provided Optionee remains continuously employed by the
Corporation, or its subsidiaries, from November 30, 1999
through November 29, 2002;
(iv) shares shall vest on the fourth anniversary of the Grant Date,
provided Optionee remains continuously employed by the
Corporation, or its subsidiaries, from November 30, 1999
through November 29, 2003; and
(v) shares shall vest on the fifth anniversary of the Grant Date,
provided Optionee remains continuously employed by the
Corporation, or its subsidiaries, from November 30, 1999
through November 29, 2004.
4
1999-OP18
Frederick A. Moran
Optionee
VDC COMMUNICATIONS, INC.
------------------------
INCENTIVE STOCK OPTION AGREEMENT
UNDER THE VDC COMMUNICATIONS, INC.
1998 STOCK INCENTIVE PLAN, AS AMENDED (the "Plan")
This Agreement is made as of November 30, 1999, (the "Grant
Date") by and between VDC Communications, Inc., a Delaware corporation (the
"Corporation") and Frederick A. Moran (the "Optionee").
WHEREAS, Optionee is an employee of the Corporation or one of
its subsidiaries and the Corporation considers it desirable and in its best
interest that Optionee be given an inducement to acquire a proprietary interest
in the Corporation and an incentive to advance the interests of the Corporation
by granting the Optionee an option to purchase shares of common stock of the
Corporation (the "Common Stock");
NOW, THEREFORE, the parties hereto, intending to be legally
bound, hereby agree that as of the Grant Date, the Corporation hereby grants
Optionee an option to purchase from it, upon the terms and conditions set forth
in the Plan (a copy of which is attached hereto) and this Agreement, that number
of shares of the authorized and unissued Common Stock of the Corporation as is
set forth on Schedule A hereto.
1. Terms of Stock Option. The option to purchase Common
Stock granted herein is subject to the terms, conditions, and covenants set
forth in the Plan as well as the following:
(a) This option shall constitute an Incentive
Stock Option which is intended to qualify
under Section 422 of the Internal Revenue
Code of 1986, as amended;
(b) The per share exercise price for the shares
subject to this option shall be 110% of the
Fair Market Value (as defined in the Plan)
of the Common Stock on the Grant Date, which
exercise price is set forth on Schedule A
hereto;
1
<PAGE>
(c) This option shall vest in accordance with
the vesting schedule set forth on Schedule A
hereto; and
(d) No portion of this option may be exercised
more than five (5) years from the Grant
Date.
2. Payment of Exercise Price. The option may be
exercised, in part or in whole, only by written request to the Corporation
accompanied by payment of the exercise price in full either: (i) in cash for the
shares with respect to which it is exercised; (ii) by delivering to the
Corporation a notice of exercise with an irrevocable direction to a
broker-dealer registered under the Securities Exchange Act of 1934, as amended,
to sell a sufficient portion of the shares and deliver the sale proceeds
directly to the Corporation to pay the exercise price; (iii) in the discretion
of the Plan Administrator, through the delivery to the Corporation of
previously-owned shares of Common Stock having an aggregate Fair Market Value
equal to the option exercise price of the shares being purchased pursuant to the
exercise of the Option; provided, however, that shares of Common Stock delivered
in payment of the option price must have been held by the Optionee for at least
six (6) months in order to be utilized to pay the option price; (iv) in the
discretion of the Plan Administrator, through an election to have shares of
Common Stock otherwise issuable to the Optionee withheld to pay the exercise
price of such Option; or (v) in the discretion of the Plan Administrator,
through any combination of the payment procedures set forth in Subsections (i) -
(iv) of this paragraph.
3. Miscellaneous.
(a) This Agreement and the options represented
hereby may not be assigned or transferred in
any manner except by will or by the laws of
descent and distribution.
(b) This Agreement will be governed and
interpreted in accordance with the laws of
the State of Connecticut, and may be
executed in more than one counterpart, each
of which shall constitute an original
document.
(c) No alterations, amendments, changes or
additions to this agreement will be binding
upon either the Corporation or Optionee
unless reduced to writing and signed by both
parties.
(d) All controversies or claims arising out of
this Agreement shall be determined by
binding arbitration, conducted at the
Corporation's offices in Greenwich,
Connecticut, or at such other location
designated by the Corporation, before the
American Arbitration Association.
2
<PAGE>
(e) No rule of construction requiring
interpretation against the drafting party
shall apply to the interpretation of this
Agreement.
(f) If any provision of this Agreement is held
to be invalid, the remaining provisions
shall remain in full force and effect.
In witness whereof, the parties have executed this Agreement
as of the Grant Date.
VDC COMMUNICATIONS, INC.
By:/s/ Frederick A. Moran
----------------------
Frederick A. Moran
Chief Executive Officer
OPTIONEE
/s/ Frederick A. Moran
----------------------
Frederick A. Moran
3
<PAGE>
Frederick A. Moran
Optionee
Schedule A
1. Grant Date: November 30, 1999
2. Number of Shares of Common Stock covered by the Option: 450,000
3. Exercise Price (110% of Fair Market Value of Common Stock on the Grant
Date): $1.03125
4. The Option shall vest in accordance with the following schedule:
(i) 90,000 shares shall vest on the first anniversary of the Grant
Date, provided Optionee remains continuously employed by the
Corporation, or its subsidiaries, from November 30, 1999
through November 29, 2000;
(ii) 90,000 shares shall vest on the second anniversary of the
Grant Date, provided Optionee remains continuously employed
by the Corporation, or its subsidiaries, from November 30,
1999 through November 29, 2001;
(iii) 90,000 shares shall vest on the third anniversary of the Grant
Date, provided Optionee remains continuously employed by the
Corporation, or its subsidiaries, from November 30, 1999
through November 29, 2002;
(iv) 90,000 shares shall vest on the fourth anniversary of the
Grant Date, provided Optionee remains continuously employed by
the Corporation, or its subsidiaries, from November 30, 1999
through November 29, 2003; and
(v) 90,000 shares shall vest on the fifth anniversary of the Grant
Date, provided Optionee remains continuously employed by the
Corporation, or its subsidiaries, from November 30, 1999
through November 29, 2004.
4
THIS AGREEMENT SUPERSEDES AND RENDERS NULL AND VOID A PRIOR INCENTIVE STOCK
OPTION AGREEMENT BETWEEN THE PARTIES MADE AS OF OCTOBER 1, 1999 (NO. 1999-OP5).
1999-OP5/A
Peter Zagres
Optionee
VDC COMMUNICATIONS, INC.
------------------------
INCENTIVE STOCK OPTION AGREEMENT
UNDER THE VDC COMMUNICATIONS, INC.
1998 STOCK INCENTIVE PLAN, AS AMENDED (the "Plan")
This Agreement is made as of November 30, 1999, by and between
VDC Communications, Inc., a Delaware corporation (the "Corporation") and Peter
Zagres (the "Optionee").
WHEREAS, the parties entered into an Incentive Stock Option
Agreement (the "October Option Agreement") dated October 1, 1999 (the "Grant
Date") representing an option (the "October Option") to purchase 20,000 shares
of Corporation common stock ("Common Stock");
WHEREAS, on November 30, 1999 the Board of Directors of the
Corporation amended the vesting schedule of the October Option; and
WHEREAS, the parties wish to enter into a new agreement that
amends, supersedes and renders null and void the October Option Agreement and
the October Option.
NOW, THEREFORE, the parties hereto, intending to be legally
bound, hereby agree that the Corporation has granted Optionee an option to
purchase from it, upon the terms and conditions set forth in the Plan (a copy of
which is attached hereto) and this Agreement, that number of shares of the
authorized and unissued Common Stock of the Corporation as is set forth on
Schedule A hereto.
1. Terms of Stock Option. The option to purchase Common
Stock granted herein is subject to the terms, conditions, and covenants set
forth in the Plan as well as the following:
(a) This option shall constitute an Incentive
Stock Option which is intended to qualify
under Section 422 of the Internal Revenue
Code of 1986, as amended;
<PAGE>
(b) The per share exercise price for the shares
subject to this option shall be the 100% of
the Fair Market Value (as defined in the
Plan) of the Common Stock on the Grant Date,
which exercise price is set forth on
Schedule A hereto;
(c) This option shall vest in accordance with
the vesting schedule set forth on Schedule A
hereto; and
(d) No portion of this option may be exercised
more than ten (10) years from the Grant
Date.
2. Payment of Exercise Price. The option may be
exercised, in part or in whole, only by written request to the Corporation
accompanied by payment of the exercise price in full either: (i) in cash for the
shares with respect to which it is exercised; (ii) by delivering to the
Corporation a notice of exercise with an irrevocable direction to a
broker-dealer registered under the Securities Exchange Act of 1934, as amended,
to sell a sufficient portion of the shares and deliver the sale proceeds
directly to the Corporation to pay the exercise price; (iii) in the discretion
of the Plan Administrator, through the delivery to the Corporation of
previously-owned shares of Common Stock having an aggregate Fair Market Value
equal to the option exercise price of the shares being purchased pursuant to the
exercise of the Option; provided, however, that shares of Common Stock delivered
in payment of the option price must have been held by the Optionee for at least
six (6) months in order to be utilized to pay the option price; (iv) in the
discretion of the Plan Administrator, through an election to have shares of
Common Stock otherwise issuable to the Optionee withheld to pay the exercise
price of such Option; or (v) in the discretion of the Plan Administrator,
through any combination of the payment procedures set forth in Subsections (i) -
(iv) of this paragraph.
3. Miscellaneous.
(a) This Agreement and the options represented
hereby may not be assigned or transferred in
any manner except by will or by the laws of
descent and distribution or pursuant to a
domestic relations order.
(b) This Agreement will be governed and
interpreted in accordance with the laws of
the State of Connecticut and may be executed
in more than one counterpart, each of which
shall constitute an original document.
(c) No alterations, amendments, changes or
additions to this agreement will be binding
upon either the Corporation or Optionee
unless reduced to writing and signed by both
parties.
2
<PAGE>
(d) All controversies or claims arising out of
this Agreement shall be determined by
binding arbitration, conducted at the
Corporation's offices in Greenwich,
Connecticut, or at such other location
designated by the Corporation, before the
American Arbitration Association.
(e) No rule of construction requiring
interpretation against the drafting party
shall apply to the interpretation of this
Agreement.
(f) If any provision of this Agreement is held
to be invalid, the remaining provisions
shall remain in full force and effect.
(g) This Agreement supersedes and renders null
and void the October Option Agreement and
the October Option.
(h) The recitals to this Agreement constitute a
part of this Agreement.
In witness whereof, the parties have executed this Agreement
as of the Grant Date.
CORPORATION:
VDC COMMUNICATIONS, INC.
By:/s/ Frederick A. Moran
----------------------
Frederick A. Moran
Chief Executive Officer
OPTIONEE:
/s/ Peter Zagres
----------------
Peter Zagres
3
<PAGE>
Peter Zagres
Optionee
Schedule A
1. Grant Date: October 1, 1999
2. Number of Shares of Common Stock covered by the Option: 20,000
3. Exercise Price (100% of Fair Market Value of Common Stock on the Grant
Date): $1.25
4. The Option shall vest in accordance with the following schedule:
(i) 4,000 shares shall vest on March 29, 2000, provided Optionee
remains continuously employed by the Corporation, or its
subsidiaries, from October 1, 1999 through March 28, 2000;
(ii) 4,000 shares shall vest on March 29, 2001, provided Optionee
remains continuously employed by the Corporation, or its
subsidiaries, from October 1, 1999 through March 28, 2001;
(iii) 4,000 shares shall vest on March 29, 2002, provided Optionee
remains continuously employed by the Corporation, or its
subsidiaries, from October 1, 1999 through March 28, 2002;
(iv) 4,000 shares shall vest on March 29, 2003, provided Optionee
remains continuously employed by the Corporation, or its
subsidiaries, from October 1, 1999 through March 28, 2003; and
(v) 4,000 shares shall vest on March 29, 2004, provided Optionee
remains continuously employed by the Corporation, or its
subsidiaries, from October 1, 1999 through March 28, 2004.
4
1999-OP41
Charles W. Mulloy
Optionee
VDC COMMUNICATIONS, INC.
------------------------
INCENTIVE STOCK OPTION AGREEMENT
UNDER THE VDC COMMUNICATIONS, INC.
1998 STOCK INCENTIVE PLAN, AS AMENDED (the "Plan")
This Agreement is made as of December 21, 1999 (the "Grant
Date") by and between VDC Communications, Inc., a Delaware corporation (the
"Corporation") and Charles W. Mulloy (the "Optionee").
WHEREAS, Optionee is an employee of the Corporation or one of
its subsidiaries and the Corporation considers it desirable and in its best
interest that Optionee be given an inducement to acquire a proprietary interest
in the Corporation and an incentive to advance the interests of the Corporation
by granting the Optionee an option to purchase shares of common stock of the
Corporation (the "Common Stock");
NOW, THEREFORE, the parties hereto, intending to be legally
bound, hereby agree that as of the Grant Date, the Corporation hereby grants
Optionee an option to purchase from it, upon the terms and conditions set forth
in the Plan (a copy of which is attached hereto) and this Agreement, that number
of shares of the authorized and unissued Common Stock of the Corporation as is
set forth on Schedule A hereto.
1. Terms of Stock Option. The option to purchase Common
Stock granted herein is subject to the terms, conditions, and covenants set
forth in the Plan as well as the following:
(a) This option shall constitute an Incentive
Stock Option which is intended to qualify
under Section 422 of the Internal Revenue
Code of 1986, as amended;
(b) The per share exercise price for the shares
subject to this option shall be the 100% of
the Fair Market Value (as defined in the
Plan) of the Common Stock on the Grant Date,
which exercise price is set forth on
Schedule A hereto;
(c) This option shall vest in accordance with
the vesting schedule set forth on Schedule A
hereto; and
<PAGE>
(d) No portion of this option may be exercised
more than ten (10) years from the Grant
Date.
(e) This option shall immediately expire and be
forfeited on July 1, 2000 unless the
Corporation does one of the following by
June 30, 2000: (1) the Corporation acquires
ipx inc.; or (2) the Corporation launches
its Internet protocol telephony strategy.
The determination of whether either of the
two foregoing events occurs shall be in the
sole discretion of the Chief Executive
Officer of the Corporation.
2. Payment of Exercise Price. The option may be
exercised, in part or in whole, only by written request to the Corporation
accompanied by payment of the exercise price in full either: (i) in cash for the
shares with respect to which it is exercised; (ii) by delivering to the
Corporation a notice of exercise with an irrevocable direction to a
broker-dealer registered under the Securities Exchange Act of 1934, as amended,
to sell a sufficient portion of the shares and deliver the sale proceeds
directly to the Corporation to pay the exercise price; (iii) in the discretion
of the Plan Administrator, through the delivery to the Corporation of
previously-owned shares of Common Stock having an aggregate Fair Market Value
equal to the option exercise price of the shares being purchased pursuant to the
exercise of the Option; provided, however, that shares of Common Stock delivered
in payment of the option price must have been held by the Optionee for at least
six (6) months in order to be utilized to pay the option price; (iv) in the
discretion of the Plan Administrator, through an election to have shares of
Common Stock otherwise issuable to the Optionee withheld to pay the exercise
price of such Option; or (v) in the discretion of the Plan Administrator,
through any combination of the payment procedures set forth in Subsections (i) -
(iv) of this paragraph.
3. Miscellaneous.
(a) This Agreement and the options represented
hereby may not be assigned or transferred in
any manner except by will or by the laws of
descent and distribution or pursuant to a
domestic relations order.
(b) This Agreement will be governed and
interpreted in accordance with the laws of
the State of Connecticut, and may be
executed in more than one counterpart, each
of which shall constitute an original
document.
(c) No alterations, amendments, changes or
additions to this Agreement will be binding
upon either the Corporation or Optionee
unless reduced to writing and signed by both
parties.
2
<PAGE>
(d) All controversies or claims arising out of
this Agreement shall be determined by
binding arbitration, conducted at the
Corporation's offices in Greenwich,
Connecticut, or at such other location
designated by the Corporation, before the
American Arbitration Association.
(e) No rule of construction requiring
interpretation against the drafting party
shall apply to the interpretation of this
Agreement.
(f) If any provision of this Agreement is held
to be invalid, the remaining provisions
shall remain in full force and effect.
In witness whereof, the parties have executed this Agreement as of the
Grant Date.
CORPORATION:
VDC COMMUNICATIONS, INC.
By: /s/Frederick A. Moran
---------------------
Frederick A. Moran
Chief Executive Officer
OPTIONEE:
/s/ Charles W. Mulloy
---------------------
Charles W. Mulloy
3
<PAGE>
Charles W. Mulloy
Optionee
Schedule A
1. Grant Date: December 21, 1999
2. Number of Shares of Common Stock covered by the Option: 50,000
3. Exercise Price (100% of Fair Market Value of Common Stock on the Grant Date):
$1.00
4. The Option shall vest in accordance with the following schedule:
(i) 10,000 shares shall vest on the first anniversary of the Grant
Date, provided Optionee remains continuously employed by the
Corporation, or its subsidiaries, from December 21, 1999
through December 20, 2000;
(ii) 10,000 shares shall vest on the second anniversary of the
Grant Date, provided Optionee remains continuously employed by
the Corporation, or its subsidiaries, from December 21, 1999
through December 20, 2001;
(iii) 10,000 shares shall vest on the third anniversary of the Grant
Date, provided Optionee remains continuously employed by the
Corporation, or its subsidiaries, from December 21, 1999
through December 20, 2002;
(iv) 10,000 shares shall vest on the fourth anniversary of the
Grant Date, provided Optionee remains continuously employed by
the Corporation, or its subsidiaries, from December 21, 1999
through December 20, 2003; and
(v) 10,000 shares shall vest on the fifth anniversary of the Grant
Date, provided Optionee remains continuously employed by the
Corporation, or its subsidiaries, from December 21, 1999
through December 20, 2004.
4
RELEASE AGREEMENT
-----------------
THIS RELEASE AGREEMENT (the "Agreement"), is made as of December 6,
1999 by and among ZIONS CREDIT CORPORATION, VDC COMMUNICATIONS, INC. AND VDC
TELECOMMUNICATIONS, INC.
RECITALS:
---------
WHEREAS, the parties to this Agreement wish to resolve certain matters
between them.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements set forth in this Agreement and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
intending to be legally bound hereby, the parties agree as follows:
1. Payment. Contemporaneously with the delivery of this
Agreement to Zions Credit Corporation ("Zions"), VDC Communications, Inc.
("VDC") and VDC Telecommunications, Inc. ("VDC Telecommunications") shall
deliver to Zions an aggregate of TEN DOLLARS ($10.00).
2. Release and Certain Covenants.
2.1 Zions and all of its subsidiaries, affiliates,
officers, directors, shareholders, agents, attorneys, representatives,
predecessors, successors and assigns, do hereby fully and forever remise,
release, acquit and forever discharge VDC, VDC Telecommunications and their
parent corporations, subsidiaries, affiliates, predecessors, successors,
assigns, and all of their present and former officers, directors, shareholders,
employees, agents, representatives, attorneys, insurers, and all of the
foregoing's present and former officers, directors, partners, principals,
employees, shareholders, trustees, attorneys, insurers, and their respective
spouses, successors, heirs, executors, estates, administrators, representatives,
attorneys and agents (collectively, the "Released Parties"), from and against
all claims, causes of action, demands, or suits of any kind, known or unknown,
arising out of or related in any way to the Master Finance Lease by and between
Zions, VDC Corporation Ltd. and VDC Telecommunications, dated November 3, 1998
(including an Equipment Schedule by and between Zions, VDC and VDC
Telecommunications dated November 3, 1998) which Zions, its subsidiaries,
affiliates, officers, directors, shareholders, agents, attorneys,
representatives, predecessors, successors and/or assigns had, now have, or may
in the future have whatsoever, in law or in equity or otherwise.
2.2 Zions for itself and each of its subsidiaries,
affiliates, officers, directors, shareholders, agents, attorneys,
representatives, predecessors, successors and assigns covenants and agrees that
neither it, nor any person, organization or other entity on its or their behalf,
will file, charge, claim, sue or cause or permit to be filed, charged or claimed
Page 1 of 3
<PAGE>
any action for legal or equitable relief (including damages, injunctive,
declaratory, monetary or other relief) involving any matter within the scope of
the Release in Section 2.
2.3 Zions for itself and each of its subsidiaries,
affiliates, officers, directors, shareholders, agents, attorneys,
representatives, predecessors, successors and assigns covenants and agrees that
neither it, nor any person, organization or other entity on its or their behalf
will 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
Released Parties, or any one of them.
2.4 Zions represents and warrants that: (1) the
execution, delivery and performance of this Agreement are within the powers of
Zions, 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 Zions is a party or by which it is bound; this
Agreement constitutes the legal, valid and binding obligation of Zions,
enforceable in accordance with its terms; and (2) Zions has not sold, assigned,
transferred, conveyed, or otherwise disposed of any of the claims within the
scope of the Release in Section 2.
2.5 Zions shall indemnify and hold harmless the Released
Parties, and each one of them, from and against all damages, expenses, costs and
attorneys' fees which the Released Parties, or any one of them, may suffer or
incur by reason of breach of any of the provisions of this Agreement or the
inaccuracy of Section 2.4 hereof.
3. Miscellaneous.
3.1 If any provision of this Agreement is held invalid
or unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
3.2 This Agreement may not be changed except in writing
signed by the person(s) against whose interest such change shall operate.
3.3 This Agreement shall be construed in accordance with
the laws of the State of Connecticut. Zions acknowledges that it has read this
Agreement and has received the advice of counsel with respect hereto.
3.4 This Agreement may be executed by facsimile
signature.
Page 2 of 3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
Sworn and Subscribed to ZIONS CREDIT CORPORATION
before me this 6th day of
December, 1999. By:/s/Norman Weldon
-------------------
Signature
Norman Weldon
-------------
Print Name
/s/ unreadable
- --------------
Notary Public VP
-------------
Title
Sworn and Subscribed to VDC COMMUNICATIONS, INC.
before me this 6th day of
December, 1999. By:/s/ Frederick A. Moran
----------------------
Frederick A. Moran
Chairman & CEO
/s/ Joan Moran
- --------------
Notary Public
Sworn and Subscribed to VDC TELECOMMUNICATIONS, INC.
before me this 6th day of
December, 1999 By:/s/ Frederick A. Moran
----------------------
Frederick A. Moran
President
/s/ Joan Moran
- --------------
Notary Public
Page 3 of 3
Lease No: 7750
------------------------
Lease Date: November 3, 1998
----------------------
Schedule No.: 1
--------------------
Schedule Date: November 3, 1998
-------------------
ASSUMPTION AGREEMENT
This Assumption Agreement is made between ZIONS CREDIT CORPORATION
("Lessor"), VDC Communications, Inc. and VDC Telecommunications, Inc. as
Co-Lessees ("Lessee"), and Wang Communications, Inc. dba West Comm ("Assignee"),
and is ALSO considered as an amendment to Equipment Schedule No. 1 to the Master
Lease No. 7750, entered into by Lessor and Lessee on November 3, 1998.
WHEREAS, Lessee wishes to assign its interest in the Lease to Assignee,
in consideration of the terms thereof, the parties mutually agree as follows:
1. Lessee hereby assigns and transfers to Assignee all its right,
title, and interest as Lessee in the above described Lease.
2. Assignee hereby assumes all of the obligations of Lessee under
said Lease and agrees to make payments of rental thereunder
when due and to perform promptly all of the covenants,
conditions, and stipulations contained therein.
3. This assignment shall relieve Lessee from all of its
obligations under said Lease.
4. Assignee hereby assumes the following payment schedule
beginning with the January 23, 2000 payment:
<TABLE>
<CAPTION>
Due Date No. of Payments Rent Use Tax Total
-------- --------------- ---- ------- -----
<S> <C> <C> <C> <C>
23rd 30@ $16,766.10 $1,342.09 $18,118.19
</TABLE>
Notices shall be sent to Assignee addressed as follows:
Wang Communications, Inc.
4155 E. Jewell Avenue, Suite 912
Denver, CO 80222
ZIONS CREDIT CORPORATION
Lessor
By: /s/ Norman Weldon
-----------------------------------
Norman Weldon
Title: Vice President
--------------------------------
Date: December 20, 1999
---------------------------------
Wang Communications, Inc. dba West Comm. VDC Communications, Inc. and VDC
Assignee Telecommunications, Inc. as Co-Lessees
By: /s/ Paul Wang Lessee
--------------------------- By: /s/ Frederick A. Moran
Paul Wang -----------------------------------
Frederick A. Moran
Title: President & C.E.O.
------------------------ Title: Chairman & C.E.O./President
--------------------------------
Date: December 13, 1999
------------------------- Date: December 10, 1999
---------------------------------
<PAGE>
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the
corporate seal of this day of , 19 .
--------------------------------------
Secretary
STATE OF COLORADO
CITY & COUNTY OF DENVER
The foregoing was acknowledged before me this 13th day of December, 1999, by
Paul Wang. My commission expires November 18, 2000.
/s/ Eloise Anne Burchett
--------------------------------------
Notary Public
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains Summary Financial information extracted from the
financial statements for the three months ended December 31, 1999 and is
qualified in its entirety by reference to such statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 1313
<SECURITIES> 57
<RECEIVABLES> 1664
<ALLOWANCES> 262
<INVENTORY> 0
<CURRENT-ASSETS> 2950
<PP&E> 4985
<DEPRECIATION> 1062
<TOTAL-ASSETS> 9617
<CURRENT-LIABILITIES> 3136
<BONDS> 841
0
0
<COMMON> 2
<OTHER-SE> 5865
<TOTAL-LIABILITY-AND-EQUITY> 9617
<SALES> 2204
<TOTAL-REVENUES> 2204
<CGS> 2277
<TOTAL-COSTS> 2277
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 255
<INTEREST-EXPENSE> 92
<INCOME-PRETAX> (692)
<INCOME-TAX> 0
<INCOME-CONTINUING> (692)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (692)
<EPS-BASIC> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
