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 March 31, 2000
[ ] 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
Not Applicable
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(Former name, if changed since last report)
Check whether the Registrant: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
(1) Yes X No
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(2) Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of May 5, 2000, the number of shares of registrant's common stock, par value
$.0001 per share, outstanding was 21,663,132.
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VDC COMMUNICATIONS, INC.
INDEX
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PART I FINANCIAL INFORMATION PAGE
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Item 1. Financial Statements
Consolidated balance sheets as of June 30, 1999
And March 31, 2000 3
Consolidated statements of operations and
comprehensive loss for the three and nine-month
periods ended March, 1999 and 2000 4
Consolidated statements of cash flows for the
nine-months ended March 31, 1999 and 2000 5
Notes to consolidated financial statements 6-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-17
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 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
Item 5. Other Information 18
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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March 31, 2000 June 30, 1999
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(Unaudited)
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Assets
Current:
Cash and cash equivalents $ 1,399,244 $ 317,799
Restricted cash - 475,770
Marketable securities 147,613 90,375
Accounts receivable, net of allowance for doubtful accounts
of $250,479 at March 31, 2000 and $7,000 at June 30, 1999 599,702 1,251,581
Notes receivable - 249,979
Prepaid and other 131,503 -
------------------------------
Total current assets 2,278,062 2,385,504
Property and equipment, less accumulated depreciation 3,696,737 4,888,163
Investment in MCC 2,400,000 2,400,000
Other assets 340,645 328,394
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Total assets $ 8,715,444 $10,002,061
==============================
Liabilities and Stockholders' Equity
Current:
Accounts payable and accrued expenses $ 2,225,006 $ 2,160,839
Note payable - officer 80,000 -
Current portion of capitalized lease obligations 175,098 426,356
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Total current liabilities 2,480,104 2,587,195
Long-term portion of capitalized lease obligations 552,586 847,334
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Total liabilities 3,032,690 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 - 21,611,916 and 18,311,462 at
March 31, 2000 and June 30,1999, respectively 2,349 2,018
Additional paid-in capital 68,617,366 67,737,195
Accumulated deficit (62,506,610) (60,339,393)
Treasury stock - at cost, 1,875,000 shares (164,175) (164,175)
Stock subscriptions receivable - (344,700)
Accumulated comprehensive income (loss) (266,176) (323,413)
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Total stockholders' equity 5,682,754 6,567,532
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Total liabilities and stockholders' equity $ 8,715,444 $10,002,061
==============================
</TABLE>
See accompanying notes to consolidated financial statements.
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VDC COMMUNICATIONS, INC. AND SUBSIDARIES CONSOLIDATED STATEMENTS
OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)
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Three Months ended Nine-months ended
March 31, March 31,
2000 1999 2000 1999
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Revenue $ 2,066,176 $ 696,991 $ 6,582,539 $ 1,425,952
Operating Expenses
Costs of services 1,970,400 1,161,050 6,846,694 2,446,836
Selling, general and administrative expenses 467,343 2,209,232 1,752,050 4,185,425
Non-cash compensation expense - - - 16,146,000
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Total operating expenses 2,437,743 3,370,282 8,598,744 22,778,261
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Operating loss (371,567) (2,673,291) (2,016,205) (21,352,309)
Other income (expense):
Loss on note restructuring - - - (1,598,425)
Writedown of investment in MCC - (19,388,641) - (19,388,641)
Other income (expense) 59,038 (11,390) 36,488 (84,000)
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Total other income (expense) 59,038 (19,400,031) 36,488 (21,071,066)
equity in loss of affiliate - (301,449) - (664,717)
Net loss (312,529) (22,374,771) (1,979,717) (43,088,092)
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Other comprehensive gain (loss), net of tax:
Unrealized gain (loss) on marketable securities 24,101 10,242 (57,237) (385,933)
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Comprehensive loss $ (288,428) (22,364,529) (2,036,954) (43,474,025)
====================================================================
Net loss per common share - basic and diluted $ (0.01) $ (1.33) $ (0.10) $ (2.45)
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Weighted average number of shares outstanding 21,514,805 16,848,751 20,089,477 17,604,937
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</TABLE>
See accompanying notes to consolidated financial statements.
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VDC COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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Nine-months ended
March 31,
2000 1999
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Cash flows from operating activities:
Net loss $ (1,979,717) $(43,088,092)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 771,642 704,166
Writedown of investment in MCC - 19,388,641
Non-cash compensation expense - 16,146,000
Equity in losses of affiliate - 664,717
Gain on disposal of fixed asset (54,878) -
Loss on note restructuring - 1,598,425
Impairment loss - fixed assets - 479,199
Non-cash severance - 391,875
Provision for doubtful accounts 243,479 -
Changes in operating assets and liabilities:
Resticted cash 475,770 (411,713)
Accounts receivable 408,400 (396,991)
Other assets 56,246 531,300
Accounts payable and accrued expenses 115,426 1,427,889
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Net cash provided by (used) in operating activities 36,368 (2,564,584)
Cash flows from investing activities:
Proceeds from return of escrow in connection
with the investment in MCC - 1,012,155
Payment for purchase of subsidiary - (589,169)
Investment in affiliate - (760,809)
Proceeds from repayment of notes receivable 249,979 1,446,596
Refund of fixed asset acquisition 210,018 -
Fixed asset acquisition (124,328) (2,628,191)
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Net cash flows provided by (used) in investing activities 335,669 (1,519,418)
Cash flows from financing activities:
Proceeds from issuance of common stock 1,000,000 888,701
Stock options exercised 37,500 -
Collections on stock subscription receivables - 917,076
Repayment of note payable - (192,379)
Proceeds from issuance of short-term debt 80,000 500,000
Repayments on capital lease obligations (408,092) -
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Net cash flows provided by financing activities 709,408 2,113,398
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Net increase (decrease) in cash and cash equivalents 1,081,445 (1,970,604)
Cash and cash equivalents, beginning of period 317,799 2,212,111
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Cash and cash equivalents, end of period $ 1,399,244 $ 241,507
==================================
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See accompanying notes to consolidated financial statements.
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VDC Communications, Inc. and Subsidiaries
Notes to consolidated financial statements
1. General
These consolidated financial statements for the three and nine month periods
ended March 31, 2000 and 1999 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
periods ended September 30, 1999 and December 31, 1999 included in the Company's
Form 10-Q for the quarters 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 March 31, 2000, the
results of its operations for the three and nine month periods ended March 31,
2000 and 1999 and its cash flows for the nine-months ended March 31, 2000 and
1999. The results of operations for the three and nine month periods ended March
31, 2000 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
$201,807 and $705,164 during the three and nine-months ended March 31, 2000,
respectively. Selling, general and administrative expenses include depreciation
of $22,691 and $66,478 and bad debt expense of $(11,023) and $243,479 during the
three and nine-months ended March 31, 2000, respectively. Cost of services
includes depreciation attributable to operating equipment of $200,390 and
$287,626 during the three and nine-months ended March 31, 1999, respectively.
Selling, general and administrative expenses include depreciation and
amortization of $160,063 and $416,540 during the three and nine-months ended
March 31, 1999, 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, the public market price at that time.
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 investment in Metromedia China
Corporation ("MCC"), which consists of 2 million shares of MCC common stock and
warrants to purchase 4 million shares of MCC common stock at $4 per share, 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).
In March 2000, the Company issued 75,000 shares of Company common stock to
investment bankers for services arising out of the merger of Sky King
Communications, Inc., a Connecticut corporation with and into VDC
Communications, Inc. (then a wholly-owned subsidiary of VDC Corporation Ltd., a
Bermuda company) on March 6, 1998 (the "Sky King Merger"). The shares were
issued at the fair market value as of the date of the merger ($2.50 per share)
and a corresponding charge to accumulated deficit. In April 2000, the Company
satisfied the investment banking fees by issuing an additional 52,500 shares of
Company common stock to investment bankers for services arising out of the Sky
King Merger.
In April 2000, the Company sold 540,000 shares of Company common stock to the
Chairman and C.E.O. at $2 per share, the public market price at that time.
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.
In March 2000, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 44 "Accounting for Certain Transactions involving Stock
Compensation an interpretation of APB No. 25". Among other issues, this
Interpretation clarifies the accounting consequence of various modifications to
the terms of a previously fixed stock option or award. The pronouncement will
require a charge to operations for the difference between the quoted market
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value of the Company's common stock at the end of each reporting period and the
option price of unexercised, outstanding stock options. The pronouncement is
effective July 1, 2000 but covers events that occur after December 15, 1998.
4. Investment in MCC
The Company is a passive minority shareholder of Metromedia China Corporation
("MCC"). As such, the Company makes no representations regarding the accuracy of
the information publicly provided by MCC's majority owner, Metromedia
International Group ("MMG"), from which the following summary is derived:
MCC's telephony joint ventures were terminated in late 1999 and MMG
reached agreement with China Unicom, its Chinese partner in the
ventures for the distribution of approximately $90.1 million (based on
the December 31, 1999 exchange rate) in settlement of all claims under
the joint ventures, of which $29.3 million has been received. Over
time, MMG anticipates that it will fully recover its investments in and
advances to the four affected joint ventures, but no assurances can be
made as to the exact timing or amount of such repayments. As of
December 31, 1999, investment in and advances to these four joint
ventures, exclusive of goodwill, were approximately $40.0 million.
Full distribution of all expected funds must await the Chinese
government's recognition and approval of the completion of formal
dissolution proceedings for the four joint ventures. This is expected
by mid-2000 and MMG anticipates no problems in ultimately dissolving
the joint ventures.
MCC has recently developed 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. Huaxia was
established as a sino-foreign equity joint venture between MCC and a
Chinese trading company. The joint venture develops and operates the
Internet-based information systems that the Chinese partner uses in its
electronic trading activities. This form of outsourcing arrangement is
allowed under current Chinese regulation. MCC is actively in
negotiation for the formation of several similar ventures operating in
other regions and commercial sectors of China.
During the year ended June 30, 1999, VDC recorded a $21,328,641 writedown of the
investment in MCC in accordance with FASB No. 121. At that time, the write-down
adjusted the carrying value of the investment in MCC to an amount relative to
MMG's carrying amount, excluding MMG's goodwill attributable to the investment
in MCC. As such, VDC adjusted the carrying value of its investment in MCC to
$2.4 million at June 30, 1999.
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. In April 2000, the
Company repaid the note and accrued interest in full.
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6. Commitments and Contingencies
Disputed Claims
The Company has accrued $1.1 million in current liabilities for disputed claims
including liabilities attributable to a wholly-owned subsidiary of the Company
(the "Subsidiary"). The Company has decided to reflect the potential liabilities
of the Subsidiary within its financial statements despite the fact management
has reason to believe that the Subsidiary may not be responsible for such
potential liabilities 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.
Litigation
In July 1999, a former customer filed suit against the Company asserting that
the Company induced it to enter into an agreement through various purported
misrepresentations. The suit alleges that, due to these purported
misrepresentations and purported breaches of contract, the former customer has
been unable to provide services to its customers. The relief sought includes
monetary damages resulting from the purported breach of contract and the
purported misrepresentations and the recovery of attorneys' fees. In the event
that the former customer prevails, the Company could be liable for monetary
damages in an amount that would have a material adverse effect on the Company's
assets and operations.
The Company believes that the claims asserted are without merit and the Company
will, if it is served with process, vigorously defend itself against them. In
the opinion of management, based on the information that it presently possesses,
the claims will not have a material adverse effect on the Company's consolidated
financial position, results of operations or liquidity.
7. Subsequent Events
In April 2000, the Company reached an agreement to acquire a privately owned
U.S. retail long distance carrier ("Telephony Carrier") for 1,632,653 common
shares and the assumption of approximately $300,000 of debt (the "Transaction").
In April and May of 2000, the Company loaned Telephony Carrier a total of
$300,000 at 0% interest. The loans are due on October 20, 2000. In consideration
for the Company agreeing to make the loans and agreeing to forego interest on
the principal amount of the loans, Telephony Carrier shall pay the Company $2
million if Telephony Carrier does not consummate the Transaction on certain
terms.
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.
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<CAPTION>
Nine-months ended
March 31,
2000 1999
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Cash Paid for:
Interest $108,458 $ -
Schedule of non-cash investing and financing activities:
Cancellation of stock subscription receivable $344,700 $ -
Equipment financed through trade accounts payable $ - $ 1,932,031
Equipment acquired through capital lease obligations $249,335 $ 1,468,498
Equipment exchanged for note $ - $ 192,379
Release of investment banking shares $187,500 $ 725,000
Common stock placed in escrow in connection with investment in MCC $ - $13,962,500
Treasury stock acquired in exchange for subscription receivable $ - $ 164,175
Acquisition of subsidiary:
Fair value of assets acquired $ - $ 1,290,044
Common stock issued $ - $ 700,875
Cash Paid $ - $ 589,169
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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.
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
other market conditions that may adversely affect the scope of the Company's
operations; (iv) uncertainty as to whether the Internet will continue to grow as
a medium for voice and facsimile communications; (v) inherent regulatory,
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licensing and political risks associated with operations in foreign countries;
(vi) the Company's dependence on certain key personnel; (vii) the Company's
revenue dependence on a few customers; (viii) network failure or complications;
(ix) the Company's ability to successfully integrate potential mergers and/or
acquisitions into the Company, including the retention of certain key personnel;
(x) dependence upon a limited number of equipment vendors; and, (xi) network
capacity constraints. Additional factors are described below and 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," "we" or "us")
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, and expect to deploy Internet Telephony,
or Voice over Internet Protocol ("VoIP") gateway technology in the near term.
Our circuit switched telecommunications equipment, located in New York and Los
Angeles comprises our operating facilities. We expect to add VoIP equipment to
one or both of these locations in the future.
We believe the telecommunications industry is attractive given its current size
and future growth potential. We are currently a domestic and international
telecommunications company providing wholesale carrier services. Our objective
is to provide these services to both retail and wholesale customers utilizing
VoIP and circuit switched technologies in the short term; and, migrating towards
a pure VoIP network in the long term. We have already begun the process of
transforming our network with next generation technology.
During the quarter ended March 31, 2000, we initiated the development of the
Company's VoIP network through its wholly-owned subsidiary, VDC
Telecommunications, Inc. ("VDC Telecom"). We expect that utilizing new Internet
technologies to provide voice and facsimile, and possibly additional value added
services in the future, will provide us: (i) increased cost efficiencies; (ii)
greater network flexibility; and, (iii) an increased network scope. We expect
that this can be achieved with a relatively minimal capital outlay. During the
quarter, we began the development of this network through VDC Telecom by:
ordering IP, or Internet Protocol, gateway equipment; provisioning to connect to
the Internet; and, agreeing to the trial of a clearinghouse capability. Our
clearinghouse is expected to provide for wholesale customers to connect and use
our network via the public Internet. We expect that we may use our developing
Internet network for dedicated, or private network, connections to certain
customers as well. We expect to begin the clearinghouse trial during the quarter
ending June 30, 2000. Our ability to begin this trial is dependent on the
delivery of the necessary equipment and connectivity to the public Internet,
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among other things. After the network is operational and if the trial is
successful, we expect to begin delivering traffic via this mechanism.
We expect that the introduction of a VoIP network alongside our existing network
will benefit the Company and its customers. However, there are increased risks
to the Company as a result of this development. These risks include, but are not
limited to: the quality of call completion over the Internet; network capacity
constraints; our ability to fund and develop this new business; the intense
level of competition in this industry subsection; risks associated with starting
a new business; risks involved in utilizing a new technology; risk of network
complication and/or failure; domestic and international government regulation
and legal uncertainties; increased volatility in our stock; and, numerous other
risks, some of which we may not be fully aware of currently. If any one or more
of these risks factors proves significantly different than our expectations, it
could have a material adverse effect on us. Furthermore, it is possible that the
cost to develop and operate this network may be greater than our current
expectation. This would have a material adverse effect on us.
In February 2000, we began to carry telecommunications traffic for one of the
largest U.S. long distance carriers. In April 2000, that customer initiated
sending traffic through us to a second destination country. In addition, that
customer has indicated to us that it expects to send traffic through us to as
many as five destination countries in the short term. While this customer is
currently our third largest, we expect it could become our largest during the
remainder of calendar 2000.
In a prior filing, we stated that we were exploring the development of retail
long distance through VDC Telecoms' subsidiary, WorldConnectTelecom.com, Inc. We
have determined that we will not develop our retail long distance capability
through this subsidiary at this time. However, we are currently exploring other
ways to develop this business, which we expect would complement our wholesale
operations.
Subsequent to March 31, 2000, we came to an agreement to acquire 100% of a U.S.
based telecommunications company ("Telephony Carrier") providing long distance
services to U.S. retail customers. Upon completion of VDC's due diligence
investigation, its Board of Director's approval of the transaction, regulatory
approval if required, and the execution of proper closing documents, among other
things, the consideration given will consist of 1,632,653 Company common shares
and the assumption of approximately $300,000 of debt.
Telephony Carrier has been offering retail long distance services to domestic
customers only since December, 1999. As of April 30, 2000, it had approximately
3,500 customers. Through its subsidiaries, it currently employs approximately
190 salespeople. Telephony Carrier's April 2000 annualized run rate revenues
were approximately $3.9 million. Telephony Carrier has two retail long distance
marketing concepts. The first concept entices prepaid telemarketed customers
with monthly rebates and various other incentives. The other concept, which is
not yet operational, will utilize Telephony Carrier's exclusive right to use a
patent-pending Internet driven customer acquisition process that the Telephony
Carrier plans to employ to market its telephony services over the Internet. It
is anticipated that this right to use will be granted upon completion of the
acquisition.
The acquisition of Telephony Carrier is expected to both substantially broaden
our telephony customer base, as well as strengthen our ability to utilize the
Internet, both: (i) to deliver telecommunications services; and, (ii) to procure
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telephony customers. This development of a retail long distance business is
expected to result in increased: funding needs; regulatory compliance costs;
customer service needs; potential for employee issues; exposure to pricing
pressure in the domestic long distance market; potential for fraud; potential
for harm due to network failure; potential for increased volatility in our
stock; and numerous additional risks, which may not be known to us at this time.
If any one or more of these risks proves significantly different than our
expectations, it could have a material adverse effect on us.
We earn revenue from three sources. The first source is our domestic and
international telecommunications long distance services which is earned based on
the number of minutes billable to our customers, which are other telephone
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 and circuits
at our telecommunications facilities ("Partition") to other telephone companies.
This revenue is generated and billed on a month-to-month basis. We expect
Partition revenue to decrease significantly during the remainder of calendar
2000. Our third source of revenue is 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 a 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
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 and VoIP market research, the development of the VoIP strategy and
deployment, and due diligence regarding potential projects inside and outside of
the U.S.
Results of Operations
For the Three Months Ended March 31, 2000 Compared to the Three Months Ended
March 31, 1999
13
<PAGE>
Revenues: Total revenues in the three months ended March 31, 2000 ("Current
Quarter") increased to approximately $2.1 million from approximately $697,000
for the three months ended March 31, 1999 ("Prior Period Quarter"). Revenue of
approximately $1.7 million was generated during the Current Quarter by the
transmission of approximately 5.8 million minutes of telecommunications traffic
domestically and internationally ("Long Distance Revenue"). We also generated
revenue of approximately $343,000 from Partition, approximately $12,000 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 $537,000 was generated
during the Prior Period Quarter by the transmission of approximately 2.3 million
minutes of telecommunications traffic internationally. We also generated revenue
of approximately $129,000 from Partition and approximately $30,000 from site
tower management during the Prior Period Quarter.
Costs of Services: Costs of services in the Current Quarter increased to
approximately $2 million from approximately $1.2 million 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
and increased operational expenses including salaries, depreciation, and circuit
costs. Costs of services as a percentage of revenues decreased from 167% in the
Prior Period Quarter to 95% 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 $467,000 in the Current Quarter from approximately $2.2 million in
the Prior Period Quarter. This decrease was primarily the result of reductions
in personnel costs and professional fees as a result of cost cutting measures
implemented to increase overall efficiencies. The Prior Period Quarter also
included one-time write-offs and severance expenses of approximately $1.0
million.
Other income (expense): Other income (expense) was approximately $59,000 for the
three months ended March 31, 2000 compared with approximately $(19.4) 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 $19.4 million
writedown of the investment in MCC.
For the Nine-months Ended March 31, 2000 Compared to the Nine-months Ended March
31, 1999
Revenues: Total revenues in the nine-months ended March 31, 2000 ("Current
Period") increased to approximately $6.6 million from approximately $1.4 million
for the nine-months ended March 31, 1999 ("Prior Period"). Long Distance Revenue
of approximately $5.4 million was generated during the Current Period by the
transmission of approximately 24.2 million minutes of telecommunications traffic
domestically and internationally. We also generated revenue of approximately
$819,000 from Partition, approximately $253,000 from the shortfall of
contractual traffic termination requirements and approximately $92,000 from site
tower management. Long Distance Revenue of approximately $1.2 million was
generated during the Prior Period by the transmission of approximately 4 million
minutes of telecommunications traffic internationally. In the Prior Period, we
also generated revenue of approximately $172,000 from Partition, approximately
14
<PAGE>
$75,000 from site tower management and approximately $48,000 of non-recurring
revenue.
Costs of Services: Costs of services in the Current Period increased to
approximately $6.8 million from approximately $2.4 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 172% in the Prior Period
to 104% in the Current Period. The decrease was mostly attributable to improved
rates and increased traffic volume.
Selling, general & administrative expenses ("SG&A"): SG&A expenses decreased to
approximately $1.8 million in the Current Period from approximately $4.2 million
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.
Other income (expense): Other income (expense) was approximately $36,000 in the
current period compared with approximately $(21.1) million in the Prior Period.
Other income (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
due to a writedown of the investment in MCC and 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. We anticipate
our near term liquidity requirements to be approximately $1.2 million, to fund:
(i) Telephony Carrier during its ramp up phase; (ii) ongoing operating cash
deficits, if any; and (iii) certain cash outlays for the development of our VoIP
network. The $1.2 million does not include a $300,000 bridge financing loan
already made to Telephony Carrier. As of April 28, 2000, we had approximately
$1.9 million in cash to meet these anticipated expenditures.
We implemented cost-cutting measures during the current fiscal year 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 employees from 29 at September 14, 1999 to 18 at March
31, 2000.
4. Amended our lease space in our Colorado office which reduced
Colorado office rent by approximately 40 percent. In addition, as
of May 2000, rent was further reduced by approximately 20%.
We experienced our strongest results to date during the months ended March 31
and April 30, 2000. Our earnings before interest, taxes, depreciation and
amortization ("EBITDA") were approximately $(1,000) and $15,000 for the months
15
<PAGE>
ending March 31 and April 30, 2000, respectively. We expect our existing
operations (i.e., operations excluding Telephony Carrier) to continue to operate
at or near breakeven EBITDA in the short term. EBITDA is a financial measure
commonly used in the telecommunications industry. Still, EBITDA is not derived
from generally accepted accounting principles ("GAAP") and therefore investors
should not consider it as indicative of operating income or cash flows from
operating activities, as determined in accordance with GAAP, or as a measure of
liquidity. Also, our calculation of EBITDA does not take into account our
existing commitments for capital expenditures and should not be seen as
representative of the amount of funds generally available to us.
Although our cash and operating results have improved significantly during the
past nine months, the American Stock Exchange ("AMEX") has notified us that we
fall below certain of AMEX's continued listing qualifications. As such, there
can be no assurances of continued listing. Nevertheless, we believe AMEX's
notification results mainly from the going concern issue raised by our auditors
at June 30, 1999 year end. We have taken numerous steps since then to address
this issue, including: (i) raising $2.0 million through a private sale of
equity; and (ii) substantially reduced overhead costs and operational expenses.
As a result of these actions, we have reduced our negative EBITDA, from
approximately ($1.4) million during the June 1999 quarter to approximately
$(150,000) during the quarter ended March 31, 2000; and, our available cash has
increased from $318,000 at June 30, 1999 to approximately $1.9 million at April
28, 2000. We believe our auditors issued a going concern opinion based primarily
on the fact that our cash position at June 30, 1999 was not sufficient to fund
twelve months of losses at the then current rate. By way of contrast, at March
31, 2000, we had sufficient cash to fund the current rate of operating losses
for the next twelve months.
Furthermore, additional funds may come available to us, including the expected
sale of our Colorado based switch. We expect that any success in monetizing the
switch and/or other non-strategic assets would further improve liquidity.
As previously discussed, on April 24, 2000, we announced an agreement to acquire
Telephony Carrier. Telephony Carrier only recently began operations and is
currently experiencing negative EBITDA, which should continue to occur for at
least the next several months. Based upon our current understanding, we believe
that Telephony Carrier's cash needs during the expected ramp up of its business
are manageable. In connection with the acquisition, we are providing short-term
financing to cover Telephony Carrier's current negative cash flow. While our
negative EBITDA declined significantly during the quarter ended March 31, 2000,
the acquisition of Telephony Carrier is expected to significantly increase our
propensity to experience negative cash flow in the near term. We currently
expect that the completion of this acquisition, while depletive of cash in the
near term, will provide significant returns in the future.
In the expected event that the acquisition of Telephony Carrier closes, we
consider it less likely we will pursue other acquisition opportunities in the
short term. Although we would likely use 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. Furthermore,
any acquisition may increase our cash losses from operations, thereby reducing
our liquidity.
16
<PAGE>
We are projecting capital expenditures of approximately $300,000 to $400,000
during the remainder of calendar 2000. The capital expenditures are mainly
associated with our VoIP strategy and represent telecommunications equipment. We
expect to fund these purchases through vendor debt financing or equity financing
and cash flow from operations, if any. Although we do not expect Telephony
Carrier's capital expenditures to be material, we expect to revise our capital
expenditure projections if the Telephony Carrier acquisition is consummated.
We expect our existing operations to continue to operate at or near breakeven,
on an EBITDA basis, in the short term. We expect to close the acquisition of
Telephony Carrier prior to fiscal year end June 30, 2000. We expect the
acquisition to result in increased earnings per share and EBITDA losses in the
short term. However, we believe our current cash position, including funds
raised in April 2000, should prove sufficient to meet the expected liquidity
requirements of the Company and Telephony Carrier in the short term.
To meet liquidity requirements in the long term, we need to increase our
revenues and gross profit, which will most likely occur as a result of an
increase in minutes passed by new or existing customers, and/or as a result of
the ramp-up of Telephony Carrier. There are no assurances, however, that these
long term objectives will transpire.
In order to meet these long term objectives, we believe we have developed a
network that provides competitive telecommunications services and Telephony
Carrier has developed a marketing capability that is competitive in customer
acquisition. We expect that we will continue to operate and market the network
to build our customer base and that Telephony Carrier will continue to acquire
customers.
Net cash provided by operating activities was approximately $36,000 in the nine
months ended March 31, 2000, or Current Period. We collected approximately $7.0
million from customers while paying approximately $6.9 million to carriers,
other vendors and employees. Net cash used by operating activities was
approximately $2.6 million in the nine months ended March 31, 1999, or Prior
Period. In that period, we collected approximately $1.0 million from customers
while paying approximately $3.6 million to vendors and employees.
Net cash provided by investing activities was approximately $336,000 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 $1.5 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 $709,000 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 $2.1 million during the Prior Period were
from collections on stock subscriptions receivable, the issuance of common
stock, proceeds from short term debt less the repayment of a note.
17
<PAGE>
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.
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
On April 26, 2000, the Company sold 540,000 shares of Company common stock to
Frederick A. Moran and Joan Moran, joint tenants, both accredited investors, for
$1,080,000 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. The
540,000 shares of Company common stock purchased by Frederick A. Moran and Joan
Moran, joint tenants, have not yet been issued and are not reflected in the
Company's total shares outstanding.
In consideration for investment banking services arising out of the March 6,
1998 Sky King Merger, during March and April 2000, the Company issued 127,500
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: 52,500 shares to SPH
Investments, Inc.; 50,000 shares to KAB Investments, Inc.; and 25,000 to FAC
Enterprises, Inc.
Item 3. Defaults Upon Senior Securities
Item not applicable.
Item 4. Submission of Matters to a Vote of Securities Holders
Item not applicable.
Item 5. Other Information
Item not applicable.
18
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description Method of Filing
----------- ----------- ----------------
<S> <C> <C>
10.17 Master Agreement to Lease Equipment by and between Cisco (1)
Systems Capital Corporation and VDC Telecommunications, Inc.,
dated February 22, 2000
10.18 Letter Agreement by and between Cisco Systems Capital (1)
Corporation and VDC Telecommunications, Inc. dated March 3, 2000
10.19 Guaranty executed by VDC Communications, Inc. on February 22, (1)
2000 for the benefit of Cisco Systems Capital Corporation
10.20 Agreement by and between Level 3 Communications, LLC and VDC (1)
Telecommunications, Inc. dated March, 2000
10.21 Commercial Pilot Agreement by and between TransNexus, L.L.C. (1)
and VDC Telecommunications, Inc. dated March 27, 2000
10.22 Incentive Stock Option Agreement between Frederick A. Moran and (1)
VDC Communications, Inc., dated March 24, 2000
10.23 Form of Incentive Stock Option Agreement for March 2000 (1)
10.24 Agreement by and among VDC Communications, Inc., Masatepe (1)
Communications, U.S.A., L.L.C., General Electric Capital
Corporation, Newbridge Networks Corporation and Newbridge
Networks, Inc., dated March 2000
10.25 Securities Purchase Agreement by and between VDC (1)
Communications, Inc. and Frederick A. Moran and Joan Moran,
joint tenants, dated April 26, 2000
10.26 Promissory Note, dated April 20, 2000, made by Rare Telephony, (1)
Inc. and Cash Back Rebates LD.com, Inc. in favor of VDC
Communications, Inc.
19
<PAGE>
10.27 Guaranty Agreement, dated April 20, 2000, made by Network (1)
Consulting Group, Inc. in favor of VDC Communications, Inc.
10.28 Personal Guaranty Agreement, dated April 20, 2000, made by (1)
Peter J. Salzano in favor of VDC Communications, Inc.
10.29 Security Agreement, dated April 20, 2000, by and between (1)
Network Consulting Group, Inc. and VDC Communications, Inc.
10.30 Security Agreement, dated April 20, 2000, by and between (1)
Network Consulting Group, Inc. and VDC Communications, Inc.
10.31 Security Agreement, dated April 20, 2000, by and between Peter (1)
J. Salzano and VDC Communications, Inc.
10.32 Agreement, dated April 20, 2000, by and among VDC (1)
Communications, Inc., Rare Telephony, Inc., and Cash Back
Rebates LD.com, Inc.
10.33 Letter Agreement, dated April 7, 2000, by and among VDC (1)
Communications, Inc., Rare Telephony, Inc., and Cash Back
Rebates LD.com, Inc., and Free dot Calling.com, Inc.
10.34 Promissory Note, dated May 4, 2000, made by Rare Telephony, (1)
Inc. and Cash Back Rebates LD.com, Inc. in favor of VDC
Communications, Inc.
10.35 Guaranty Agreement, dated May 4, 2000, made by Network (1)
Consulting Group, Inc. in favor of VDC Communications, Inc.
10.36 Personal Guaranty Agreement, dated May 4, 2000, made by Peter (1)
J. Salzano in favor of VDC Communications, Inc.
27.1 Financial Data Schedule (1)
</TABLE>
(1) 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/ Clayton F. Moran Dated: May 12, 2000
-----------------------------------------
Clayton F. Moran
Chief Financial Officer and Authorized Signatory
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>
10.17 Master Agreement to Lease Equipment by and between
Cisco Systems Capital Corporation and VDC
Telecommunications, Inc., dated February 22, 2000
10.18 Letter Agreement by and between Cisco Systems
Capital Corporation and VDC Telecommunications, Inc.
dated March 3, 2000
10.19 Guaranty executed by VDC Communications, Inc. on
February 22, 2000 for the benefit of Cisco Systems
Capital Corporation
10.20 Agreement by and between Level 3 Communications, LLC
and VDC Telecommunications, Inc. dated March, 2000
10.21 Commercial Pilot Agreement by and between TransNexus,
L.L.C. and VDC Telecommunications, Inc. dated March
27, 2000
10.22 Incentive Stock Option Agreement between Frederick A.
Moran and VDC Communications, Inc., dated March 24,
2000
10.23 Form of Incentive Stock Option Agreement for March
2000
10.24 Agreement by and among VDC Communications, Inc.,
Masatepe Communications, U.S.A., L.L.C., General
Electric Capital Corporation, Newbridge Networks
Corporation and Newbridge Networks, Inc., dated March
2000
10.25 Securities Purchase Agreement by and between VDC
Communications, Inc. and Frederick A. Moran and
Joan Moran, joint tenants, dated April 26, 2000
22
<PAGE>
10.26 Promissory Note, dated April 20, 2000, made by Rare
Telephony, Inc. and Cash Back Rebates LD.com, Inc. in
favor of VDC Communications, Inc.
10.27 Guaranty Agreement, dated April 20, 2000, made by
Network Consulting Group, Inc. in favor of
VDC Communications, Inc.
10.28 Personal Guaranty Agreement, dated April 20, 2000,
made by Peter J. Salzano in favor of VDC
Communications, Inc.
10.29 Security Agreement, dated April 20, 2000, by and
between Network Consulting Group, Inc. and VDC
Communications, Inc.
10.30 Security Agreement, dated April 20, 2000, by and
between Network Consulting Group, Inc. and VDC
Communications, Inc.
10.31 Security Agreement, dated April 20, 2000, by and
between Peter J. Salzano and VDC Communications, Inc.
10.32 Agreement, dated April 20, 2000, by and among VDC
Communications, Inc., Rare Telephony, Inc., and Cash
Back Rebates LD.com, Inc.
10.33 Letter Agreement, dated April 7, 2000, by and among
VDC Communications, Inc., Rare Telephony, Inc., and
Cash Back Rebates LD.com, Inc., and Free dot
Calling.com, Inc.
10.34 Promissory Note, dated May 4, 2000, made by Rare
Telephony, Inc. and Cash Back Rebates LD.com, Inc. in
favor of VDC Communications, Inc.
10.35 Guaranty Agreement, dated May 4, 2000, made by
Network Consulting Group, Inc. in favor of
VDC Communications, Inc.
10.36 Personal Guaranty Agreement, dated May 4, 2000, made
by Peter J. Salzano in favor of VDC Communications,
Inc.
27.1 Financial Data Schedule
</TABLE>
23
No. 2719
-----
MASTER AGREEMENT TO LEASE EQUIPMENT
THIS MASTER AGREEMENT TO LEASE EQUIPMENT (this "Agreement") is entered
into as of February 22, 2000 by and between CISCO SYSTEMS CAPITAL CORPORATION
("Lessor"), having its principal place of business at 170 West Tasman Drive,
Mailstop SJC2, 3rd Floor, San Jose, California 95134 and VDC TELECOMMUNICATIONS,
INC., a Delaware corporation ("Lessee"), having its principal place of business
at 75 Holly Hill Lane, Greenwich, Connecticut 06830.
1. THE LEASE
---------
1.1 Lease of Equipment. In accordance with the terms and conditions
of this Agreement, Lessor shall lease to Lessee, and Lessee shall lease from
Lessor, the personal property described in the lease schedule(s) (each, a
"Schedule") to be entered into from time to time into which this Agreement is
incorporated (each Schedule, together with this Agreement, a "Lease"), together
with all substitutions, replacements, repairs, parts and attachments,
improvements and accessions thereto (the "Equipment"). Capitalized terms not
otherwise defined in this Agreement have the meanings specified in the
applicable Schedule. Each Lease shall constitute a separate, distinct, and
independent lease and contractual obligation of Lessee. Except as expressly set
forth in any Lease, Lessor shall at all times retain the full legal title to the
Equipment, it being expressly agreed by both parties that each Lease is an
agreement of lease only.
1.2 Equipment Procurement. Lessee has ordered or may order the
Equipment pursuant to one or more purchase orders or purchase contracts
(together, "Purchase Order") to or with Cisco Systems, Inc., or a Cisco-approved
reseller (together, "Vendor"), which Purchase Order shall be promptly delivered
to Lessor in the event that the parties agree to enter into a lease transaction
with respect to the Equipment described in such Purchase Order. Lessor's
agreement to enter into such a lease transaction is evidenced by Lessor's
preparation and delivery of a Schedule, and the terms of such agreement will be
set forth in such Schedule, provided, however, that the terms of this Agreement
are hereby incorporated into every Schedule whether or not such incorporation is
stated therein. Lessor's failure or refusal to deliver a Schedule to Lessee will
not constitute a breach of this Agreement or of any Lease. Lessee's agreement to
enter into such a lease transaction according to the terms of the previously
delivered Schedule is evidenced by Lessee's execution of the Purchase Order
together with either notification of its decision to execute the Schedule or the
absence of any affirmative notification from Lessee that it has not agreed to
execute the Schedule delivered to it (i.e. silence by Lessee up to and including
the time that Lessee executes a Purchase Order is deemed to be Lessee's
agreement to execute the Schedule).
If it agrees or is deemed to agree to lease from Lessor, then Lessee
shall execute and return to Lessor (a) each Schedule within ten days of Lessee's
receipt of same, and (b) all related or accompanying Certificate of Acceptance
within ten days of receipt and acceptance of the applicable Equipment. Upon
Lessee's agreement or deemed agreement to lease from Lessor (as evidenced
<PAGE>
above), Lessee shall be deemed to have assigned to Lessor all Lessee's right,
title and interest in and to the Equipment and the Purchase Order; provided that
Lessor shall have no obligations under the Purchase Order other than as set
forth in the next sentence. Upon Lessee's execution of each Schedule and the
related Certificate(s) of Acceptance, and subject to the following sentence,
Lessor shall cause the purchaser's obligations with respect to that portion of
the purchase price contained in such Purchase Orders which is subject to the
Lease (as set forth in the Schedule) to be discharged. Notwithstanding anything
to the contrary contained herein, if for whatever reason a lease transaction in
respect of the Equipment or a Purchase Order is not consummated, then no
assignment of the Purchase Order shall have occurred, and Lessee shall remain
solely liable to pay Vendor in accordance with the Purchase Order. In the event
that Lessee does not execute the Schedule and related Certificate(s) of
Acceptance or that Lessor determines that no lease transaction has been
consummated for any other reason but that Vendor may seek payment from Lessor
anyway, then the Purchase Order will not be returned to Lessee, and Lessee will
have no rights thereunder until Lessee has fully paid the Purchase Order and
provided Lessor with proof of such full payment.
1.3 Term of Lease. The Original Term of each Lease shall begin on
the Commencement Date as specified in the applicable Schedule and, subject to
Sections 3.5 and 4.2, shall terminate on the date specified in the applicable
Schedule. If so provided in the applicable Schedule, the Original Term for any
Lease may be succeeded by one or more Extended Terms. Subject to Sections 3.5
and 4.2 and any express provisions of the Schedule, no Lease may be terminated
by Lessor or Lessee, for any reason whatsoever, prior to the end of the Original
Term or any pending Extended Term.
1.4 Rental Payments. Lessee shall pay Lessor Rent for the Equipment
in the amounts and at the times specified in the applicable Schedule. All Rent
and other amounts payable by Lessee to Lessor hereunder shall be paid to Lessor
at the address specified above, or at such other place as Lessor may designate
in writing to Lessee from time to time.
1.5 Return of Equipment. If Lessee has not exercised a purchase
option, if any, with respect to the Equipment, then, upon expiration of the
Lease Term, Lessee shall immediately return the Equipment to Lessor in the
condition and at the place provided in Section 3.3.
2. DISCLAIMERS AND WARRANTIES; INTELLECTUAL PROPERTY
-------------------------------------------------
2.1 Disclaimers; Warranties. Lessee represents and acknowledges
that the Equipment is of a size, design, capacity and manufacture selected by
it, and that it expects that the Equipment is suitable for its purposes
(provided, that upon executing a Certificate of Acceptance, Lessee represents
that the Equipment is suitable for its purposes). LESSEE LEASES THE EQUIPMENT AS
IS, AND, NOT BEING THE MANUFACTURER OF THE EQUIPMENT, THE MANUFACTURER'S AGENT
OR THE SELLER'S AGENT, LESSOR MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR
IMPLIED, AS TO THE MERCHANTABILITY, FITNESS FOR ANY PARTICULAR PURPOSE, DESIGN
OR CONDITION OF THE EQUIPMENT. LESSOR SHALL NOT BE RESPONSIBLE FOR ANY LOSS OR
DAMAGE RESULTING FROM THE INSTALLATION, OPERATION OR OTHER USE, OR
DEINSTALLATION OF THE EQUIPMENT, INCLUDING ANY DIRECT, INDIRECT, INCIDENTAL OR
2
<PAGE>
CONSEQUENTIAL DAMAGES OR LOSS. Lessee shall look solely to the manufacturer or
the supplier of the Equipment for correction of any problems that may arise with
respect thereto, and all transferable manufacturer and supplier warranty rights
are, to the extent such rights have been transferred to Lessor, hereby assigned
without representation or warranty by Lessor to Lessee for the Lease Term, which
warranties Lessee is authorized to enforce (except that Lessee is not authorized
to enforce such rights if and when there exists an Event of Default and the
enforcement of such rights would materially hamper, delay or prejudice Lessor's
enforcement rights and remedies hereunder). Any such enforcement shall be at
Lessee's sole cost and expense.
2.2 Intellectual Property. Lessee acknowledges that neither this
Agreement nor any Lease conveys any explicit or implicit license for the use of
software or other intellectual property of Cisco Systems, Inc. or its affiliates
relating to the Equipment and that such license rights, to the extent they
exist, are contained in separate documentation entered into between Lessee and
Cisco Systems, Inc. or other persons. LESSOR MAKES NO WARRANTIES OR
REPRESENTATIONS WHATSOEVER WITH RESPECT TO THE INTELLECTUAL PROPERTY RIGHTS,
INCLUDING ANY PATENT, COPYRIGHT AND TRADEMARK RIGHTS, OF ANY THIRD PARTY WITH
RESPECT TO THE EQUIPMENT, WHETHER RELATING TO INFRINGEMENT OR OTHERWISE. Lessor
shall, when reasonably requested in writing by Lessee, provided there exists no
Event of Default and an indemnity satisfactory to Lessor is delivered by Lessee,
and at Lessee's cost and expense, enforce rights of indemnification, if any, for
patent, copyright or other intellectual property infringement obtained from the
manufacturer under any agreement for purchase of the Equipment. If notified
promptly in writing of any action brought against Lessee based on a claim that
the Equipment infringes a United States patent, copyright or other intellectual
property right, Lessor shall promptly notify the manufacturer thereof for
purposes of exercising, for the benefit of Lessee, Lessor's rights with respect
to such claim under any such agreement.
3. LESSEE OBLIGATIONS
------------------
3.1 Net Lease; Payments Unconditional. EACH LEASE IS A NET LEASE,
AND ALL COSTS, EXPENSES AND LIABILITIES RELATING TO THE EQUIPMENT, INCLUDING IN
RESPECT OF TAXES, INSURANCE AND MAINTENANCE, SHALL BE BORNE SOLELY BY LESSEE.
EXCEPT IN THE EVENT THAT LESSOR OR ITS AGENTS REPOSSESS THE EQUIPMENT IN
MATERIAL BREACH OF THE TERMS OF THIS AGREEMENT, LESSEE'S OBLIGATION TO PAY ALL
RENT AND OTHER SUMS THEREUNDER, AND THE RIGHTS OF LESSOR IN AND TO SUCH
PAYMENTS, SHALL BE ABSOLUTE AND UNCONDITIONAL, AND SHALL NOT BE SUBJECT TO ANY
ABATEMENT, REDUCTION, SETOFF, DEFENSE, COUNTERCLAIM, INTERRUPTION, DEFERMENT OR
RECOUPMENT, FOR ANY REASON WHATSOEVER.
3.2 Use of Equipment. Lessee shall use the Equipment solely in the
conduct of its business, in a manner and for the use contemplated by the
manufacturer thereof, and in compliance with all laws, rules and regulations of
every governmental authority having jurisdiction over the Equipment or Lessee
and with the provisions of all policies of insurance carried by Lessee pursuant
to Section 3.6.
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3.3 Delivery; Installation; Return; Maintenance and Repair;
Inspection. Lessee shall be solely responsible, at its own expense, for (a) the
delivery of the Equipment to Lessee, (b) the packing, rigging and delivery of
the Equipment back to Lessor, upon expiration or termination of the Lease Term
(provided that Lessee has not exercised a purchase option, if any, with respect
to such Equipment), in good repair, condition and working order, ordinary wear
and tear excepted, at the location(s) within the continental United States
specified by Lessor, and (c) the installation, de-installation, maintenance and
repair of the Equipment. During the Lease Term, Lessee shall ensure that the
Equipment is covered by a maintenance agreement, to the extent available, with
the manufacturer of the Equipment or other party reasonably acceptable to
Lessor. Lessee shall, at its expense, keep the Equipment in good repair,
condition and working order, ordinary wear and tear excepted, and at the
expiration or termination of the Lease Term with respect to any of the
Equipment, have such Equipment inspected and certified acceptable for
maintenance service by the manufacturer. If any of the Equipment, upon its
return to Lessor, is not in good repair, condition and working order, ordinary
wear and tear excepted, and so inspected and certified, Lessee shall be
obligated to pay Lessor for the out-of-pocket expenses Lessor incurs in bringing
such Equipment up to such status, but not in excess of the Casualty Value for
such Equipment, promptly after its receipt of an invoice for such expenses.
Lessor shall be entitled to inspect the Equipment at reasonable times.
3.4 Taxes. Lessee shall pay, and hereby indemnifies Lessor on a net,
after-tax basis, against, and shall hold it harmless from, all license fees,
assessments, and sales, use, property, excise and other taxes and charges, other
than those measured by Lessor's net income, now and hereafter imposed by any
governmental body or agency upon or with respect to any of the Equipment, or the
possession, ownership, use or operation thereof, or any Lease, or the
consummation of the transactions contemplated by any Lease. Notwithstanding the
foregoing, to the extent required of it by applicable law and in reliance upon
Lessee's disclosure of the location of such Equipment, Lessor shall file
personal property tax returns, and shall pay personal property taxes payable
with respect to the Equipment. Lessee shall pay to Lessor the amount of all such
personal property taxes within 15 days of its receipt of an invoice for such
taxes. For any Lease that is specified as an FMV Lease in the applicable
Schedule, Lessee acknowledges that it is the intent of Lessor, and a material
inducement to Lessor to enter into such Lease, to obtain all state and Federal
income tax benefits of ownership with respect to the Equipment under such Lease,
including entitlement to annual accelerated cost recovery deductions.
3.5 Loss of Equipment. Lessee assumes the risk that, and shall
promptly notify Lessor in writing if, any item of Equipment becomes lost,
stolen, damaged, destroyed or otherwise unfit or unavailable for use from any
cause whatsoever (an "Event of Loss") after it has been delivered to a common
carrier for shipment to Lessee. Unless the item is damaged and is reparable
within a reasonable period of time in the judgment of Lessor (in which event
Lessee shall promptly cause such item to be repaired and restored to the
condition and value it had prior to such Event of Loss, at its own cost and
expense), Lessee shall pay to Lessor on the Rent payment date following Lessor's
receipt of such notice (or, if none, 30 days after such Event of Loss), an
amount equal to the Rent payment or payments due and payable with respect to
such Equipment on or prior to such date, plus a sum equal to the Casualty Value
of such Equipment as of such date. Upon making such payment, the Rent for such
Equipment shall cease to accrue, the term of the Lease as to such Equipment
shall terminate and (except in the case of loss, unrecovered theft or complete
destruction) Lessor shall be entitled to recover possession of such Equipment in
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accordance with the provisions of Section 3.3 above. If Lessor has received the
foregoing amount, Lessee shall be entitled to the proceeds of any recovery in
respect of such Equipment from insurance or otherwise, provided that if the
Equipment is subject to an FMV Lease, Lessee shall be entitled to receive such
proceeds only up to the Casualty Value therefor, any excess amount to be paid to
Lessor.
3.6 Insurance. Lessee shall obtain and maintain for the Lease Term
at its own expense, property damage and liability insurance and insurance
against loss or damage to the Equipment as a result of fire, explosion, theft,
vandalism and such other risks of loss as are normally maintained on equipment
of the type leased hereunder by companies carrying on the business in which
Lessee is engaged, in such amounts, in such form and with such insurers as shall
be satisfactory to Lessor. Each insurance policy shall name Lessee as insured
and Lessor and its assignees as additional insureds and loss payees thereof as
their interest may appear, and shall provide that it may not be cancelled or
altered without at least 30 days' prior written notice thereof being given to
Lessor (or 10 days', in the event of non-payment of premium).
3.7 Indemnity. Except with respect to the gross negligence or
willful misconduct of Lessor (and this exception includes cases in which Lessee
must commence an action against Lessor on account of a gross and material
violation of Lessor's obligations under this Agreement), Lessee hereby
indemnifies, protects, defends and holds harmless Lessor from and against any
and all claims, liabilities (including negligence, tort and strict liability),
demands, actions, suits, and proceedings, losses, costs, expenses and damages,
including reasonable attorneys' fees and costs (collectively, "Claims"), arising
out of, connected with, or resulting from any Lease or any of the Equipment, or
any ancillary or related software or other intangibles, whether arising before,
during or after the Lease Term (but not Claims relating to events occurring
after Lessee has returned the Equipment to Lessor in accordance with Section 3.3
or after the Equipment has otherwise been removed from Lessee's possession or
control by Lessor), including Claims relating to the manufacture, selection,
purchase, delivery, possession, condition, use, operation, return or other
disposition of the Equipment. Each of the parties shall give the other prompt
written notice of any Claim of which it becomes aware.
3.8 Prohibitions Related to Lease and Equipment. Without the prior
written consent of Lessor, which consent as it pertains to clauses (b) and (d)
below shall not be unreasonably withheld, Lessee shall not: (a) assign,
transfer, or otherwise dispose of any Equipment, the Lease or any rights or
obligations thereunder; (b) sublease any of the Equipment or permit the
Equipment to be controlled by any other person; (c) create or incur, or permit
to exist, any security interest, lien or encumbrance with respect to any of the
Equipment; (d) cause or permit any of the Equipment to be moved from the
location specified in the applicable Schedule; or (e) cause or permit any of the
Equipment to be moved outside the continental United States.
3.9 Identification. Lessee shall place and maintain permanent
markings provided by Lessor on the Equipment evidencing ownership, security and
other interests therein, as specified from time to time by Lessor.
3.10 Alterations and Modifications. Lessee shall not make any
additions, attachments, alterations or improvements to the Equipment without the
prior written consent of Lessor, not to be unreasonably withheld. Any addition,
attachment, alteration or improvement to any item of Equipment shall belong to
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and become the property of Lessor unless, at the request of Lessor, it is
removed prior to the return of such item of Equipment by Lessee. Lessee shall be
responsible for all costs relating to such removal and shall restore such item
of Equipment to the condition and value otherwise required hereunder.
3.11 Personal Property. Lessee acknowledges and represents that the
Equipment shall be and remain personal property, notwithstanding the manner by
which it may be attached or affixed to realty, and Lessee shall do all acts and
enter into all agreements necessary to ensure that the Equipment remains
personal property. If reasonably requested by Lessor with respect to any item of
Equipment, Lessee shall obtain and deliver to Lessor equipment access agreements
or like protections, reasonably satisfactory to Lessor, from all persons
claiming any interest in the real property on which such item of Equipment is
installed or located.
3.12 Financial Statements. Lessee shall promptly furnish to Lessor
such financial or other statements regarding the condition and operations of
Lessee and any guarantor of any Lease, and information regarding the Equipment,
as Lessor may from time to time reasonably request, provided, however, that
Lessee has no obligation to furnish financial information where the release of
such information would violate or be reasonably likely to violate state or
federal securities laws or applicable regulations of any stock exchange where
Lessee's securities are listed.
3.13 Lessee Representations. Lessee hereby represents that, with
respect to this Agreement, and each Schedule, certificate evidencing acceptance
of equipment, assignment of purchase order, insurance letter, proposal letter,
UCC financing statement, or other document now or hereafter executed by Lessee
in connection with any Lease (collectively, "Lease Documents"): (a) the
execution, delivery and performance thereof by Lessee or its attorney-in-fact
have been duly authorized by all necessary corporate, partnership or company
action; (b) the person executing such documents is duly authorized to do so; and
(c) such documents constitute legal, valid and binding obligations of Lessee,
enforceable in accordance with their terms.
4. DEFAULT AND REMEDIES
---------------------
4.1 Events of Default. The occurrence of any of the following shall
constitute an "Event of Default" hereunder and under each Lease: (a) Lessee
fails to pay any Rent or other amount due under any Lease within ten days after
it becomes due and payable; (b) any representation or warranty of Lessee made in
any Lease Document proves to have been false or misleading in any material
respect as of the date when it was made; (c) Lessee fails to maintain insurance
as required herein or breaches any of clauses (a), (b) or (e) of Section 3.8;
(d) Lessee fails to perform any other material covenant, condition or agreement
made by it under any Lease, and such failure continues for 20 days; (e)
bankruptcy, receivership, insolvency, reorganization, dissolution, liquidation
or other similar proceedings are instituted by or against Lessee, any guarantor
of any Lease or any partner of a partnership Lessee or guarantor, or all or any
part of such person's property, under the Federal Bankruptcy Code or other law
of the United States or of any other competent jurisdiction, and, if such
proceeding is brought against such person, it consents thereto or fails to cause
the same to be discharged within 45 days after it is filed; (f) Lessee
materially defaults under any agreement with respect to the purchase or
installation of any of the Equipment; or (g) Lessee or any guarantor of any
Lease, or any of their respective subsidiaries or other affiliates, defaults
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under any other material instrument or agreement with Lessor or Cisco Systems,
Inc.
4.2 Remedies. If an Event of Default exists, Lessor may exercise
any one or more of the following remedies, in addition to those arising under
applicable law: (a) proceed, by appropriate court action, to enforce performance
by Lessee of the applicable covenants of any or all of the Leases; (b) terminate
any or all Leases by notice to Lessee and take possession of any or all of the
Equipment and, for such purpose (and to the extent permitted by applicable law),
enter upon any premises where the Equipment is located with or without notice or
process of law and free from all claims by Lessee, or require Lessee to assemble
the Equipment and deliver it to Lessor in accordance with Section 3.3; (c)
recover any and all direct and incidental damages, including all accrued and
unpaid Rent and other amounts owing under any Lease, and (i) for any Lease that
is an FMV Lease, the Equipment for which has not been returned to Lessor in the
condition required hereunder, an amount equal to the Casualty Value thereof; or
(ii) for any Lease that is an FMV Lease, the Equipment for which has been so
returned to Lessor, such amounts as are provided for the lessee breach of a
personal property lease under the Uniform Commercial Code of the jurisdiction
specified in Section 5.11 (the "Code"), using the Discount Rate to calculate
present values for such purpose; or (iii) for any Lease that is not an FMV
Lease, an amount equal to the present value, discounted at the Discount Rate, of
the sum of all Rent and other payments remaining to be paid under such Lease
through the Lease Term plus the applicable purchase option amount specified in
Paragraph 7 of the Schedule; and (d) sell or re-lease any or all of the
Equipment, through public or private sale or lease transactions, and apply the
proceeds thereof to Lessee's obligations under such Leases or otherwise seek
recovery in accordance with applicable provisions of the Code. Lessee shall
remain liable for any resulting deficiency and Lessor may retain any surplus it
may realize in connection with an FMV Lease. The "Discount Rate" shall be the
rate for U.S. Treasury obligations having a constant maturity of three months,
as specified in the Federal Reserve Statistical Release H.15 (or replacement
publication) issued most recently prior to the date of termination of the Lease.
Lessee shall pay all costs and expenses (including reasonable attorneys' fees)
reasonably incurred by Lessor in retaking possession of, and removing, storing,
repairing, refurbishing and selling or leasing such Equipment and enforcing any
obligations of Lessee pursuant to any Lease.
5. MISCELLANEOUS
-------------
5.1 Performance of Lessee's Obligations. Upon Lessee's failure to
pay any amount or perform any obligation under any Lease when due, Lessor shall
have the right, but shall not be obligated, to pay such sum or perform such
obligation, whereupon such sum or cost of such performance shall immediately
become due and payable thereunder, with interest thereon at the Default Rate
from the date such payment or performance was made.
5.2 Right to Use. So long as no Event of Default exists, neither
Lessor nor its assignee shall interfere with Lessee's right to use the Equipment
under any Lease.
5.3 Assignment by Lessor. Lessor may assign or transfer any or all
of Lessor's interest in this Agreement, any Lease, any Equipment or Rents that
does not purport to change the substantive terms of this Agreement or any Lease,
without notice to Lessee. Any assignee of Lessor shall have all of the rights,
but none of the obligations (unless otherwise provided in the applicable
assignment), of a "Lessor" under this Agreement and the applicable Lease
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(except, however, that any assignee of the Lessor will assume obligations
relating entirely to transactions under each Lease which occur after
assignment), and Lessee agrees that it will not assert against any assignee any
defense, counterclaim or offset that Lessee may have against Lessor or any
preceding assignee, and that upon notice of such assignment or transfer, it will
pay all Rent and other sums due under this Agreement and the applicable Lease to
such assignee or transferee. Lessee acknowledges that any assignment or transfer
by Lessor shall not materially change Lessee's duties or obligations under this
Agreement or any Lease, nor materially increase the burdens or risks imposed on
Lessee.
5.4 Further Assurances. Upon the request of Lessor from time to
time, Lessee shall execute and deliver such further documents and do such
further acts as Lessor may be reasonably required or appropriate to fully to
effect the purposes of this Agreement or any Lease. Lessee hereby appoints
Lessor its attorney in fact, coupled with an interest, authorized, without any
obligation to do so, (a) to sign on Lessee's behalf and file, record and
register financing statements, and amendments and continuations thereof, and any
other documents relating to liens, security interests or property rights of
Lessor or Lessee with respect to any Equipment and ancillary property, in
accordance with any Uniform Commercial Code or other code or statute (provided
that such "other documents" must be reasonably necessary to protect Lessor's
contract expectancies under the Lease), and (b) to enforce, in its own name or
in the name of Lessee, claims relating to any Equipment against insurers,
manufacturers or other persons, and to make, adjust, settle, compromise and
receive payments as to such claims. Upon request of Lessee from time to time,
Lessor shall respond to reasonable requests for information from Lessee or its
auditors concerning outstanding or terminated Leases with Lessee, and will
prepare and sign such documents relating to this Agreement to the extent that it
is otherwise lawfully obligated to do so (including, but not limited to UCC-3
Termination Statements relating to specific Leases after Lessee has fully
performed all its obligations under such Leases), provided, however, that
Lessor's failure to fully or timely perform its obligations hereunder shall not
be deemed to be a material breach of its obligations under this Agreement or
under any Lease.
5.5 Rights and Remedies. Each right and remedy granted under any
Lease shall be cumulative and in addition to any other right or remedy existing
in equity, at law, by virtue of statute or otherwise, and may be exercised from
time to time concurrently or independently and as often and in such order as the
enforcing party may elect. Any failure or delay on the part of Lessor in
exercising any such right or remedy shall not operate as a waiver thereof.
5.6 Notices. Any notice, request, demand, consent, approval or
other communication provided for or permitted in relation to any Lease shall be
in writing and shall be conclusively deemed to have been received by a party
hereto on the day it is delivered to such party at its address, or received by
the party at such facsimile number, as is set forth in such Lease (or at such
other addresses or fax numbers such party shall specify to the other party in
writing), or if sent by registered or certified mail, return receipt requested,
on the fifth day after the day on which it is mailed, postage prepaid, addressed
to such party.
5.7 Section Headings; Interpretation. Section headings are inserted
for convenience of reference only and shall not affect any construction or
interpretation of any Lease Document. In interpreting the provisions of any
Lease Document, (a) the term "including" is not limiting; (b) references to
"person" include individuals, corporations and other legal persons and entities;
(c) the singular of defined terms includes the plural and vice-versa; and (d)
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section and paragraph references are to the document in which such reference
appears, unless the context otherwise requires.
5.8 Entire Lease. This Agreement, together with the other Lease
Documents, constitute the entire agreement between Lessor and Lessee with
respect to the lease of the Equipment. No waiver or amendment of, or any consent
with respect to, any provision of any Lease Document shall bind either party
unless set forth in a writing, specifying such waiver, consent, or amendment,
signed by both parties. TO THE EXTENT PERMITTED BY APPLICABLE LAW AND NOT
OTHERWISE SPECIFICALLY GRANTED TO LESSEE IN ANY LEASE DOCUMENT, LESSEE HEREBY
WAIVES ANY AND ALL RIGHTS OR REMEDIES CONFERRED UPON A LESSEE UNDER THE CODE OR
ANY OTHER APPLICABLE LAW OR STATUTE, WITH RESPECT TO A NON-MATERIAL DEFAULT BY
LESSOR UNDER THIS AGREEMENT OR ANY LEASE. Each FMV Lease is intended by the
parties as a "finance lease" under the Code.
5.9 Severability. Should any provision of any Lease Document be
or become invalid, illegal, or unenforceable under applicable law, the other
provisions of such Lease Document shall not be affected and shall remain in full
force and effect.
5.10 Attorneys' Fees; Default Interest; Maximum Rates. Lessee shall
reimburse Lessor for all reasonable and verifiable charges, costs, expenses and
attorney's fees reasonably incurred by Lessor (a) in defending or protecting its
interests in the Equipment, (b) in the enforcement of this Agreement or any
Lease, and (c) in any lawsuit or other legal proceeding to which this Agreement
or any Lease gives rise. However, that Lessee has no reimbursement obligation in
the event that (w) Lessee is not in default under the Agreement, (x) Lessor has
materially breached this Agreement or any Lease, (y) Lessee has commenced a
proceeding against Lessor (which proceeding is not commenced as a counterclaim
or affirmative defense in response to a proceeding commenced by any Lessor), and
(z) Lessee prevails in its claim against Lessor ("prevails" means that Lessee
has been awarded all or substantially all of the relief sought in its
proceeding). Also, Lessee has no reimbursement obligation for the attorneys fees
and costs expended in the negotiation and preparation of this Agreement or any
Schedule or related documents. Any nonpayment of Rent or other amount payable
under any Lease shall result in Lessee's obligation to promptly pay Lessor on
such overdue payment, for the period of time during which it is overdue
(including during any grace period), interest at a rate ("Default Rate") equal
to fourteen percent (14%) per annum. To the extent that any payment of interest
(including any amount deemed imputed interest for purposes of applicable law)
under any Lease Document would otherwise exceed provisions of any law limiting
the highest rate of interest that may be lawfully contracted for, charged or
received by Lessor, such payment amount shall be deemed reduced to such amount
as is equal to or consistent with the highest rate permitted by applicable law.
5.11 Governing Law and Jurisdiction. THIS AGREEMENT AND THE OTHER
LEASE DOCUMENTS SHALL BE GOVERNED IN ALL RESPECTS BY THE LAWS OF THE STATE OF
CALIFORNIA. LESSOR AND LESSEE WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY
LITIGATION ARISING FROM ANY LEASE DOCUMENT. LESSEE CONSENTS TO THE NON-EXCLUSIVE
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JURISDICTION OF THE STATE COURTS AND THE FEDERAL COURTS LOCATED IN NEW YORK
CITY, NEW YORK, FOR THE RESOLUTION OF ANY DISPUTES UNDER ANY LEASE DOCUMENT.
5.12 Survival. All obligations of Lessee to make payments to Lessor
under any Lease or to indemnify Lessor, including pursuant to Section 3.4 or 3.7
above, with respect to a Lease, and all rights of Lessor hereunder with respect
to a Lease, shall survive the termination of such Lease and the return of the
Equipment.
5.13 Security. To secure the payment and performance by Lessee of all
obligations under each Lease, Lessee hereby grants Lessor a security interest in
Lessee's right, title and interest, now existing and hereafter arising, in and
to, (a) all Equipment subject to such Lease, (b) all insurance, warranty, rental
and other claims and rights to payment and chattel paper arising out of such
Equipment, and (c) all books, records and proceeds relating to the foregoing.
5.14 Counterparts; Chattel Paper. Each Lease Document may be executed
in counterparts, and when so executed each counterpart shall be deemed to be an
original, and such counterparts together shall constitute one and the same
instrument. The original of each Schedule shall constitute chattel paper for
purposes of the Code. If there exist multiple originals of a Schedule, the one
marked "Lessor's Copy" or words of similar import, shall be the only chattel
paper.
5.15 Appendix. Any lease Appendix executed by Lessor and Lessee
making reference to this Agreement is a part of and incorporated into this
Agreement by this reference.
5.16 No Obligation to Purchase or Lease Equipment; Non-Exclusive
Relationship. Nothing in this Agreement shall impose upon Lessee any obligation
to purchase or lease any equipment from Vendor, Lessor or any other person prior
to its execution of a Purchase Order. Also, nothing in this Agreement shall
impose upon Lessor any obligation to either enter into any lease transaction
prior to its delivery of a Schedule or to prepare or deliver a Schedule to
Lessee when presented with a Purchase Order (whether in draft or final form).
Lessee's relationship with Lessor is non-exclusive, and provided that Lessee has
not agreed or deemed to have agreed to enter into a lease transaction with
Lessor or to otherwise execute a Schedule, Lessee is free to purchase equipment
subject to such Purchase Order without leasing it from Lessor or any other
party.
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EACH PARTY, BY THE SIGNATURE BELOW OF ITS AUTHORIZED REPRESENTATIVE,
ACKNOWLEDGES THAT IT HAS READ THIS AGREEMENT, UNDERSTANDS IT, AND AGREES TO BE
BOUND BY ITS TERMS AND CONDITIONS. EACH PERSON SIGNING BELOW REPRESENTS THAT HE
OR SHE IS AUTHORIZED TO EXECUTE AND DELIVER THIS AGREEMENT ON BEHALF OF HIS OR
HER RESPECTIVE PARTY.
LESSOR: LESSEE:
CISCO SYSTEMS CAPITAL CORPORATION VDC TELECOMMUNICATIONS
By: /s/ John F. Linford By: /s/ Frederick A. Moran
----------------------- ----------------------
(Authorized Signature) (Authorized Signature)
Servicing Operations Manager President
- ---------------------------- ---------------------------
(Name/Title) (Name/Title)
11
[GRAPHIC OMITTED]
February 17, 2000
Charles Mulloy
VDC Communications, Inc.
75 Holly Hill lane
Greenwich, CT. 06830
Dear Charles,
Cisco Systems Capital Corporation ("CSC"), a wholly owned subsidiary of Cisco
Systems, Inc., specializes in providing innovative finance solutions for Cisco
Systems products and services. We are pleased to present this proposal
("Proposal") for the transaction described below:
LESSOR: Cisco Systems Capital Corporation
LESSEE: VDC Telecommunications, Inc. ("VDC")
GUARANTOR: VDC Communications, Inc.
EQUIPMENT: Cisco Systems Products, as presented by Nick Shkreli
MAXIMUM EQUIPMENT COSTS: In the aggregate, up to $1,000,000, including softcosts
(not to exceed 10%)
SHIP TO: The equipment may be shipped to or used in locations
within the U.S. as advised by VDC and those locations
outside the US as may be approved by CSC. In connection
with any equipment to be placed outside the U.S.,
Lessee shall assume responsibility for all applicable
withholding taxes, value-added taxes, duties and
compliance with all other U.S. and foreign laws
relating to the sale, leasing, delivery, export, import
or use of the equipment outside the U.S.
PARTIAL SHIPMENTS: Please indicate at the bottom of this letter whether
Lessee will accept scheduling of partial purchase order
shipments. (If not, please note that Cisco Systems
will retain shipments until complete.)
ORIGINAL TERM: 36 months
RENTAL FACTOR: The rental amount, expressed as a percentage of net
equipment cost after Advance Payment, "Equipment
Cost"), is Months 1-6 (Lease Rate Factor of .0095833);
Months 7-36 (Lease Rate Factor of .03815). The Rental
factor shall also apply to softcosts and software.
PERIODIC RENT PAYMENT: In accordance with the pricing and configuration
referenced above, the rent payment for each Rental
Period ("Rent") on the lease would be the net Equipment
Cost multiplied by the Lease Rate Factor.
ADVANCE PAYMENTS: 20% of equipment cost with signed schedule, but
deemed acceptance of the equipment will take place 30
days after shipment of the final piece of equipment per
schedule. There is no interim rent, and commencement
will take place according to the date referenced above.
SOFT COSTS: "Soft Costs," such as shipping, taxes, maintenance,
installation, cabling, may be included in or financed
by the lease, as approved by CSC in its discretion.
Assuming that Soft Costs make up less than 10% of the
total Equipment Cost, Soft Costs will be included at
the above Lease Rate Factor.
Notwithstanding the foregoing, CSC is not responsible
for maintenance, software or ancillary services
relating to the equipment, nor for ensuring that any
necessary maintenance or services agreements or
software licenses with Cisco Systems or any other third
party are in effect at any time.
<PAGE>
March 3, 2000
Page 2
NET LEASE: This is a net lease transaction under which all costs
and liabilities, including without limitation, for
insurance, maintenance and taxes, are paid by Lessee
for the term of the lease. Transferable manufacturer's
guarantees or warranties will be passed on to Lessee.
ADJUSTMENT OF
RENTAL FACTORS: The rental amount quoted in this Proposal will be
adjusted prior to the date of preparation of any
Equipment Lease Schedule to reflect changes equal to or
greater than one quarter of one percent (.25%) in the
weekly average of the Three Year Treasury Note interest
rate, as specified in Federal Reserve statistical
release H.15 from the week preceding the date of this
Proposal to the week preceding the date of preparation
of the Schedule. Changes to the benchmark rate of less
than one quarter of one percent (.25%) will not affect
the Lease Rate Factor quoted herein. The Three Year
Treasury Note H.15 statistic is updated weekly by the
U.S. Federal Reserve for the preceding week's average
yield. The statistic is publicly available on the
Internet at http://www.bog.frb.fed.us/ releases/h15/.
EQUIPMENT PROCUREMENT: Purchase orders for equipment shall be placed by Lessee
with Cisco Systems, Inc., or a Cisco Value Added
Reseller, with all rights assigned to Lessor upon
Lessor's election to fund. All such purchase orders
shall be subject to the standard Terms and Conditions
of Sale of Cisco Systems, Inc. or such Cisco Value
Added Reseller, including the "net 30" payment terms
commencing from date of shipment. No funding shall
occur prior to execution by the parties of CSC's
standard Master Agreement to Lease Equipment ("Master
Lease Agreement"). If, for any reason, Lessor does not
fund any equipment or lease, or any contemplated lease
is otherwise not consummated, Lessee shall be solely
responsible for payment in full of the purchase price
(together with ancillary costs and expenses) associated
with any outstanding orders executed by Lessee.
INVOICING: A single invoice will be furnished monthly, detailing
all Lease Schedules and rental payments due. Freight
charges will be added to CSC's invoice and billed to
lessee with the first rental payment.
END OF LEASE OPTION: At the end of the Original Term of the Lease, Lessee
may purchase the equipment for $1.
UTILIZATION PERIOD: All Purchase Orders for equipment under this proposal
shall be submitted no later than 90 days from the date
of acceptance.
DOCUMENTATION FEE: None
OTHER FEES: None
EXPIRATION DATE: This Proposal shall terminate 30 days from today's
date, unless accepted.
CREDIT APPROVAL: This Proposal includes only a brief description of the
substantive terms and conditions of the contemplated
lease transactions and is not intended as a formal
commitment of credit by CSC or Cisco Systems or a
formal commitment by VDC. Any funding by CSC for the
purchase of equipment is subject to the ongoing credit
approval of CSC (including the absence of any material
adverse change, in the judgment of CSC, in the business
or financial condition or prospects of Lessee) and to
satisfactory documentation including as described
below. You agree to provide two years' audited
financial statements, bank references, a completed
credit application and any other required credit
information along with the signed copy of this
Proposal. You hereby authorize CSC and/or its agents to
make a complete credit investigation and to relate this
information to others as necessary to secure credit
approval.
<PAGE>
March 3, 2000
Page 3
The parties acknowledge that the financing contemplated by this Proposal is
subject to the above-referenced conditions and the execution and delivery of all
appropriate documents (in form and substance satisfactory to CSC), including
without limitation, to the extent applicable, the Master Lease Agreement, any
Schedule, certificate of acceptance, lease assignment of purchase order, UCC
financing statements, legal opinion and other documents and agreements
reasonably required by CSC. You agree to execute and return to CSC, within 10
days of receipt, the Master Lease Agreement.
This Proposal is confidential and may not be disclosed to any person or entity
without our consent, unlesss disclosure pursuant to state or federal securities
law, or the rules and regulations associated therewith, is deemed required or
reasonable by counsel of disclosing party.
Thank you for the opportunity to present this Proposal. We look forward to doing
business with you. If you have any questions, please do not hesitate to call me
at 781-402-6597.
Sincerely,
/s/ James E. Hogan
James E. Hogan ACKNOWLEDGED AND AGREED:
CISCO SYSTEMS CAPITAL CORPORATION
55 Hayden Avenue
Lexington, MA.02421 USA VDC Telecommunications, Inc. (Lessee)
Fax: 781-402-6499
Email: [email protected]
By: /s/ Clayton F. Moran
----------------------------------
(Authorized Signature)
Name: Clay Moran
--------------------------------
Title:Treasurer
-------------------------------
Dated: 3/3/00
-------------------------------
Lessee is / is not [circle one]
willing to accept scheduling of
partial purchase order shipments.
-------------------------------------
[Note: Failure to circle either
option shall be deemed an instruction
not to schedule partial purchase
order shipments.]
GUARANTY
THIS GUARANTY is executed as of February 22, 2000, by VDC Communications, Inc. a
Delaware corporation ("Guarantor") to and for the benefit of CISCO SYSTEMS
CAPITAL CORPORATION, a Nevada corporation ("Lessor").
WHEREAS Guarantor desires that VDC Telecommunications, Inc., a Delaware
corporation ("Lessee"), pursuant to a Master Agreement to Lease Equipment
("Master Agreement"), dated as of February 22, 2000 between Lessor and Lessee,
enter into one or more leases of personal property in the form of Schedule(s)
thereto (collectively, the "Lease"); and
WHEREAS as a condition to entering into the Lease, Lessor requires that all the
obligations of Lessee under the Lease be guaranteed by Guarantor;
NOW, THEREFORE, in order to induce Lessor to enter into the Lease, Guarantor
hereby agrees as follows:
1. Guarantor does hereby acknowledge that it is fully aware of the terms
and conditions of the Lease and does hereby irrevocably and
unconditionally guarantee, as primary obligor and not as a surety merely,
without offset or deduction, the due and punctual payment when due by
Lessee of all Rent (as defined in the Lease) which may from time to time
become due and payable in accordance with the terms of the Lease and the
performance by Lessee of all of its other obligations under the Lease
(the payment of Rent and each other obligation of Lessee guaranteed
hereby being hereinafter referred to as an "Obligation" and collectively
as the "Obligations"). Guarantor does hereby agree that in the event that
Lessee fails to perform any Obligation for any reason, Guarantor will
perform or otherwise provide for and bring about promptly when due the
performance of each such Obligation. This Guaranty of the Obligations
shall constitute a guaranty of payment and performance and not of
collection. Guarantor specifically agrees that it shall not be necessary
or required, and that Guarantor shall not be entitled to require, that
Lessor (a) file suit or proceed to obtain or assert a claim for personal
judgment against Lessee or any other person for any Obligation, (b) make
any effort at collection or other enforcement of any Obligation from or
against Lessee or any other person, (c) foreclose against or seek to
realize upon any security now or hereafter existing for any Obligation
or upon any balance of any deposit account or credit on the books of
Lessor or any other person in favor of Lessee or any other person, (d)
exercise or assert any other right or remedy to whic Lessor is or may be
entitled in connection with any Obligation or any security or other
guaranty therefor, or (e) assert or file any claim against the assets of
Lessee or any other guarantor of other person liable for any Obligation,
or any part thereof, before or as a condition of enforcing the liability
of Guarantor under this Guaranty or requiring payment or performance of
any Obligation by Guarantor hereunder, or at any time thereafter.
2. Guarantor waives notice of the acceptance of this Guaranty and of the
performance or nonperformance by Lessee, presentment to or demand for
payment or other performance from Lessee or any other person and notice
of nonpayment or failure to perform on the part of Lessee. The
obligations of Guarantor hereunder shall be absolute and unconditional
and shall remain in full force and effect and shall not be subject to any
reduction, limitation, impairment or termination for any reason.
3. No right, power or remedy herein conferred upon or reserved to Lessor is
intended to be exclusive of any other right, power or remedy or remedies
and each and every right, power and remedy of Lessor pursuant to this
Guaranty now or hereafter existing at law or in equity or by statute or
otherwise shall, to the extent permitted by law, be cumulative and
concurrent and shall be in addition to each other right, power or remedy
pursuant to this Guaranty, and the exercise by Lessor of anyone or more
of such rights, powers or remedies shall not preclude the simultaneous or
later exercise by Lessor of any or all such other rights, powers or
remedies.
4. No failure or delay by Lessor to insist upon the strict performance of
any term, condition, covenant or agreement of this Guaranty or to
exercise any right, power or remedy hereunder or consequent upon a breach
hereof shall constitute a waiver of any such term, condition, covenant,
agreement, right, power or remedy or of any such breach, or preclude
Lessor from exercising any such right, power or remedy at any later time
or times.
5. In case any one or more of the provisions contained in this Guaranty
should be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein
shall not in any way be affected or impaired thereby.
6. This Guaranty (a) constitutes the entire agreement, and supersedes all
prior agreements and understandings, both written and oral, among Lessee,
Lessor and Guarantor with respect to the subject matter hereof, (b) may
be executed in several counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument, and (c) shall be binding upon Guarantor and its successors
and assigns and shall inure to the benefit of, and shall be enforceable
by, Lessor and its successors and assigns.
7. Unless otherwise specifically provided herein, all notices, instructions,
requests and other communications required or permitted hereunder shall
be in writing and shall become effective when received or if mailed when
deposited in the United States mail, postage prepaid, registered or
certified mail, return receipt requested. Notices shall be directed to
Lessor at its address set forth in the Lease, and to Guarantor at its
address set forth below, or at such other address as such party may from
time to time furnish to the other by notice similarly given.
8. This Guaranty shall be governed by, and construed in accordance with, the
laws of the State of California.
IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be duly executed as of
the date first hereinabove set forth.
VDC Communications, Inc., Guarantor
----------------------------------------
By: /s/ Frederick A. Moran
------------------------------------
(Authorized Signature)
Title: Chairman & C.E.O.
----------------------------------
Dated: 2/22/00
----------------------------------
Address: 75 Holly Hill Lane
--------------------------------
Greenwich, CT
--------------------------------
06830
--------------------------------
Telephone:
------------------------------
GENERAL TERMS AND CONDITIONS
FOR DELIVERY OF SERVICE
These Terms and Conditions for Delivery of Service are applicable to Customer
Orders executed by Customer for Services delivered by Level 3 Communications,
LLC ("Level 3"), and are incorporated into each Customer Order. The Terms and
Conditions include these General Terms and Conditions for Delivery of Service
and all terms and conditions attached hereto which relate to any Service
provided by Level 3 to Customer. These Terms and Conditions are applicable to
sales of Services originating or terminating in the United States.
DEFINITIONS
- -----------
Confidential Information: Licensed Software, and all source code, source
documentation, inventions, know-how, ideas, updates and any documentation and
information related to the Licensed Software, and any non-public information
regarding the business of a party provided to either party by the other party
where such information is marked or otherwise communicated as being
"proprietary" or "confidential" or the like, or where such information is, by
its nature, confidential.
Committed Data Rate: A commitment made by Customer (where applicable) obligating
it to order and pay for a minimum amount of a Level 3 Service expressed in
Megabits per second (Mbps), as set forth in the Customer Order (See Section
1.1).
Customer: The person, firm or corporation so named on the Customer Order.
Customer Order: A request for Level 3 Service submitted by the Customer for
acceptance by Level 3.
Facilities: Any and all devices supplied by Level 3 used to deliver Services,
including but not limited to all terminal and other equipment, wires, lines,
circuits, ports, routers, switches, channel service units, data service units,
cabinets, racks, private rooms and the like. Facilities shall not include any
such devices sold to Customer by Level 3 and paid for by Customer or owned by
Customer or any third party.
Level 3 Gateway: Buildings owned or leased by Level 3 for the purpose of
locating and colocating communications equipment.
Licensed Software: Computer software, in object code format only, the use of
which is required for use of Service ordered by Customer.
Premises: The location(s) occupied by Customer or its end users to which Service
will be delivered by Level 3. Premises does not include Space as defined below.
Revenue Commitment: A commitment made by Customer obligating it to order and pay
for a minimum volume of Services during an agreed term, as set forth in the
Customer Order (See Section 1.1).
Service: A service offered by Level 3 pursuant to a Customer Order.
Space: The location(s) within Level 3 Gateways into which Customer is permitted
to colocate telecommunications or internet equipment pursuant to a Customer
Order accepted by Level 3.
Target Install Date: A written communication from Level 3 to Customer indicating
the date upon which it is anticipated that Services will be available to
Customer.
SECTION 1. CUSTOMER ORDERS
- --------------------------
1.1 Submission of Customer Orders. To order any Service, Customer may submit
------------------------------
to Level 3 an order form for Services, completed with Level 3's assistance
("Customer Order") requesting the provision of Service. Level 3's delivery of a
Target Install Date respecting such Service shall constitute Level 3's
acceptance of the Customer Order. The Customer Order and its backup detail shall
set forth the Service, the Premises and/or Space, the prices to be charged for
Services and any applicable term and/or Revenue Commitment.
1.2 Undertaking of Level 3. If Level 3 issues a Target Install Date respecting
-----------------------
Services, Level 3 will furnish such Services in accordance with the Terms and
Conditions and any Customer Orders.
SECTION 2. BILLING AND PAYMENT
- ------------------------------
Page 1 of 27
<PAGE>
2.1 Payment of Bills. Level 3 bills all charges incurred by Customer on a
-----------------
monthly basis. Level 3 bills in advance for all Services to be provided during
the upcoming month, except for charges which are dependent upon usage of
Service, which are billed in arrears. Billing for partial months will be
prorated based on a calendar month. All bills are due upon receipt, and become
past due ten (10) days later. The unpaid balance of any past due balance which
is not reasonably disputed under Section 2.4 hereof shall bear interest at a
rate of 1.5% per month (prorated on a daily basis beginning on the past due
date), or the highest rate allowed by law, whichever is less.
To the extent Customer orders any service designated as "Burstable" (defined
below), the following billing method shall apply: Customer will be billed as set
forth above for its Committed Data Rate. In addition, over each month,
Customer's usage of the Service will be sampled by Level 3 in five minute
inbound and outbound averages. At the end of the month, the top ten percent of
the inbound and outbound averages shall be discarded. The highest of the
resulting ninetieth percentile for inbound and outbound traffic will be compared
to the Committed Data Rate. If the ninetieth percentile of either inbound or
outbound traffic is higher than the Committed Data Rate, Customer will, in
addition to being billed for its Committed Data Rate, be billed for its
utilization of the Service that exceeds their Committed Data Rate, which shall
be billed at the contracted-for price per Mbps. Burstable shall mean Customer's
ability to use Services above and beyond a stated Committed Data Rate.
In the event the Services ordered by Customer involve a local loop, Customer may
arrange, through a local exchange carrier colocated in Level 3's gateway Space,
for its own local loop, or it may have Level 3 provide the same. In the event
Customer provides for its own local loop, Customer must provide to Level 3 all
circuit facility assignment information, firm order commitment information and
the design layout records necessary to enable Level 3 to make the necessary
cross-connection between the Services and Customer's designated local exchange
carrier. Level 3 may charge Customer a non-recurring cross-connect fee to make
such connection, and an additional non-recurring charge may apply in the event
that Customer requests and Level 3 permits Customer to change its Service
installation date. In the event Customer provides for its own local loop, Level
3's billing for the Services will commence once it has installed and tested the
Services up to the Level 3 side of the cross-connect circuit. Otherwise, Level
3's billing for the Services will commence once the Services are installed and
tested.
2.2 Taxes and Fees. Except for taxes based on Level 3's net income and ad
----------------
valorem, personal and real property taxes imposed on Level 3's property,
Customer shall be responsible for payment of all sales, use, gross receipts,
excise, access, bypass, franchise or other local, state and federal taxes, fees,
charges, or surcharges, however designated, imposed on or based upon the
provision, sale or use of the Services.
2.3 Regulatory and Legal Changes. In the event of any change in applicable
-------------------------------
law, regulation, decision, rule or order that materially increases the costs or
other terms of delivery of Service, Level 3 and Customer agree to negotiate
regarding the rates to be charged to Customer to reflect such increase in cost
and, in the event that the parties are unable to reach agreement respecting new
rates within thirty (30) days after Level 3's delivery of written notice
requesting renegotiation, then (a) Level 3 may pass such increased costs through
to Customer, and (b) Customer may terminate the affected Customer Order without
termination liability upon sixty (60) days' prior written notice.
2.4 Disputed Bills. In the event that Customer disputes any portion of a Level
---------------
3 bill, Customer must pay the undisputed portion of the bill and submit a
written claim for the disputed amount. All claims must be submitted to Level 3
within sixty (60) days of receipt of billing for those Services. Customer
acknowledges that it is able to and that it is reasonable to require Customer to
dispute bills within that time, and Customer therefore waives the right to
dispute charges not disputed within the time frame set forth above.
2.5 Credit Approval and Deposits. Customer shall provide Level 3 with credit
-----------------------------
information as requested, and delivery of Service is subject to credit approval.
Level 3 may require Customer to make a deposit (which will not exceed Customer's
estimated charges for two months' Service) as a condition to Level 3's
acceptance of any Customer Order, or as a condition to Level 3's continuation of
Service, which deposit shall be held by Level 3 as security for payment of
Customer's charges. At such time as the provision of Service to Customer is
terminated, the amount of the deposit will be credited to Customer's account and
any credit balance which may remain will be refunded.
2.6 Fraudulent Use of Services. Customer is responsible for all charges
----------------------------
Page 2 of 27
<PAGE>
attributable to Customer incurred respecting the Services, even if incurred as
the result of fraudulent or unauthorized use of the Services, unless Level 3 has
actual knowledge of the same and fails to notify Customer thereof. Level 3 may,
but is not obligated to, detect or report unauthorized or fraudulent use of
Services.
SECTION 3. DISCONTINUANCE OF CUSTOMER ORDERS
- --------------------------------------------
3.1 Discontinuance of Customer Order by Level 3. Level 3 may terminate any
----------------------------------------------
Customer Order and discontinue Service without liability:
A. If Customer fails to pay a past due balance for Services: (i) usage based
and billed in arrears, provided the same is not paid within three (3) days of
written notice thereof provided by Level 3; or (ii) flat rated and billed in
advance, provided the same is not paid within seven (7) days of written notice
thereof provided by Level 3;
B. If Customer violates any law, rule, regulation or policy of any government
authority having jurisdiction over the Services; if Customer makes a material
misrepresentation in any submission of information in a Customer Order or other
submission of information to Level 3; if Customer engages in any fraudulent use
of the Services; or if a court or other government authority having jurisdiction
over the Services prohibits Level 3 from furnishing the Services;
C. If Customer fails to cure its breach of any provision of these Terms and
Conditions or any Customer Order within thirty (30) days written notice thereof
provided by Level 3;
D. If Customer files bankruptcy, for reorganization, or fails to discharge an
involuntary petition therefore within sixty (60) days;
E. If Customer's use of the Services materially exceeds Customer's credit limit,
unless within fourteen (14) days written notice thereof by Level 3, Customer
provides adequate security for payment for the Services.
3.2 Effect of Discontinuance. Upon Level 3's discontinuance of Service to
--------------------------
Customer, Level 3 may, in addition to all other remedies that may be available
to Level 3 at law or in equity, assess and collect from Customer any applicable
termination charge.
3.3 Resumption of Service. If Service has been discontinued by Level 3 and
-----------------------
Customer requests that Service be restored, Level 3 shall have the sole and
absolute discretion to restore such Service. Nonrecurring charges, with the
exception of any charges for the build-out of Colocation Space already paid by
Customer, may apply to restoration of Service.
3.4 Discontinuance of Customer Order by Customer.
---------------------------------------------
A. Customer shall have the right to terminate and discontinue affected Service
- --
prior to the end of the agreed term with respect to which a Customer Order has
been executed respecting such Service without payment of any applicable
termination charge if: (i) such Service is Unavailable (as defined below) on two
or more separate occasions of more than eight (8) hours each in any thirty (30)
day period, and (ii) following written notice thereof from Customer to Level 3,
Level 3 has an Unavailability event of more than twelve (12) hours at any time
within the twelve (12) month period immediately following said notice. For
purposes of the foregoing, Unavailability shall mean the period of time
beginning when Customer reports an outage in affected Service to the Level 3
Customer Service and Support Organization (1-877-4LEVEL3) and shall end when the
Service is operative. Unavailability shall not apply to any outage which is
caused by Customer, Customer's end users or any third party, which results from
failure of power or equipment provided by Customer or others, which occurs or
continues during any period in which Level 3 is not given access to the Premises
or the Space, or which results from maintenance events. Customer may only
terminate Service which is affected by Unavailability events as set forth above,
and must exercise its right to terminate any affected Service under this
Section, in writing, no later than thirty (30) days after the Unavailability
event giving rise to a right of termination hereunder.
B. Subject to the termination charges set forth in these Terms and Conditions,
- --
Customer may terminate all or part of the Services upon thirty (30) days prior
written notice to: Attn: Contracts Management (Customer Agreements), Level 3
Communications, LLC, 1025 Eldorado Boulevard, Broomfield, CO 80021. A copy of
this customer notice should also be forwarded to: Attn: General Council, Level 3
Communications, LLC, 1025 Eldorado Boulevard, Broomfield, CO 80021.
SECTION 4. DELIVERY OF SERVICES
- --------------------------------
4.1 Level 3 Access to Premises and Space. Customer shall allow Level 3 access
-------------------------------------
to the Premises to the extent reasonably determined by Level 3 for the
Page 3 of 27
<PAGE>
installation, inspection and scheduled or emergency maintenance of Facilities
relating to the Service. Level 3 shall notify Customer two (2) business days in
advance of any regularly scheduled maintenance that will require access to the
Premises. Level 3 retains the right to access any Space for any legitimate
business purpose.
4.2 Level 3 Facilities. Level 3 will use reasonable efforts to provide and
-------------------
maintain the Facilities in good working order. Customer shall not and shall not
permit others to rearrange, disconnect, remove, attempt to repair, or otherwise
tamper with any of the Facilities. If the same occurs without first obtaining
Level 3's written approval, in addition to being a breach by Customer of
Customer's obligations hereunder, Customer shall (1) pay Level 3 the cost to
repair any damage to the Facilities caused thereby; and (2) be responsible for
the payment of service charges in the event that maintenance or inspection of
the Facilities is required as a result of Customer's breach of this Section. In
no event shall Level 3 be liable to Customer or any other person for
interruption of Service or for any other loss, cost or damage caused or related
to improper use or maintenance of the Facilities, unless the same is caused by
the negligence of Level 3, and then only to the extent of Section 5.2
4.3 Title and Power. Title to all Facilities (except as otherwise agreed)
----------------
shall remain with Level 3. The electric power consumed by such Facilities on the
Premises shall be provided by and maintained at the expense of Customer.
Electric power to the Space shall be provided by Level 3.
4.4 Customer-Provided Equipment. Level 3 may install certain Customer-provided
----------------------------
communications equipment upon installation of Service and the Facilities, but
unless otherwise agreed by Level 3 in writing, Level 3 shall not thereafter be
responsible for the operation or maintenance of any Customer-provided
communication equipment. Level 3 shall not be responsible for the transmission
or reception of signals by Customer-provided equipment or for the quality of, or
defects in, such transmission.
4.5 Removal of Facilities. Customer agrees to allow Level 3 to remove all
------------------------
Facilities from the Premises: A. after termination of the Service in connection
with which the Facilities were used; and B. for repair, replacement or otherwise
as Level 3 may determine is necessary, but Level 3 shall use reasonable efforts
to minimize disruptions to the Service caused thereby.
At the time of such removal, the Facilities shall be in the same condition as
when installed, normal wear and tear excepted. Customer shall reimburse Level 3
for the depreciated cost of any Facilities not in such condition.
4.6 Service Subject to Availability. The furnishing of Service is subject to
--------------------------------
the availability thereof, on a continuing basis, and is limited to the capacity
of Level 3 to provide the Service as well as the capacity which Level 3 may
obtain from other carriers to furnish Service from time to time as required at
the sole discretion of Level 3. Nothing in these Terms and Conditions shall be
construed to obligate Customer to submit, or Level 3 to accept, Customer Orders.
In the event Service becomes unavailable pursuant to this paragraph 4.6,
Customer shall have the rights set forth in Section 3.4 of these Terms and
Conditions.
SECTION 5. OBLIGATIONS AND LIABILITY LIMITATION
- ------------------------------------------------
5.1 Obligations of the Customer. Customer shall be responsible for:
-----------------------------
A. The payment of all charges applicable to the Service;
B. Damage or loss of the Facilities installed on the Premises or in the Space
(unless caused by the negligence or willful misconduct of the employees or
agents of Level 3);
C. Providing the level of power, heating and air conditioning necessary to
maintain the proper environment on the Premises for the provision of Service;
D. Providing a safe place to work and complying with all laws and regulations
regarding the working conditions on the Premises;
E. Granting Level 3 or its employees access to the Premises as set forth in
Section 4.1 of these Terms and Conditions; and
F. Keeping Level 3's Facilities located on Premises free and clear of any liens
or encumbrances.
5.2 Liability. Except as provided in Section 8.4, the liability of Level 3 for
----------
damages arising out of the furnishing of or the failure to furnish Service,
including but not limited to mistakes, omissions, interruptions, delays,
tortious conduct, representations, errors, or other defects, whether caused by
acts of commission or omission, shall be limited to the extension of credit
allowances or refunds due under any applicable Service Level Agreement. Except
Page 4 of 27
<PAGE>
as provided in Section 8.4, the extension of such credit allowances or refunds
shall be the sole remedy of Customer and the sole liability of Level 3.
5.3 No Special Damages. Notwithstanding any other provision hereof, neither
-------------------
party shall be liable for any indirect, incidental, special, consequential,
exemplary or punitive damages (including but not limited to damages for lost
profits or lost revenues), whether or not caused by the acts or omissions or
negligence of its employees or agents, and regardless of whether such party has
been informed of the possibility or likelihood of such damages.
5.4 Disclaimer of Warranties. LEVEL 3 MAKES NO WARRANTIES OR REPRESENTATIONS,
-------------------------
EXPRESS OR IMPLIED, EITHER IN FACT OR BY OPERATION OF LAW, STATUTORY OR
OTHERWISE, INCLUDING WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
USE, EXCEPT THOSE EXPRESSLY SET FORTH IN ANY APPLICABLE SERVICE LEVEL AGREEMENT.
SECTION 6. SOFTWARE TERMS
- --------------------------
6.1 License. If and to the extent that Customer requires the use of Licensed
--------
Software in order to use the Service supplied under any Customer Order, Customer
shall have a nonexclusive, nontransferable (except pursuant to paragraph 8.2
hereof) license to use such Licensed Software only and solely to the extent
required to permit delivery of the Service. Customer may not claim title to or
any ownership interest in any Licensed Software (or any derivations or
improvements thereto), and Customer shall execute any documentation reasonably
required by Level 3 to memorialize Level 3's existing and continued ownership of
the Licensed Software.
6.2 Restrictions. Customer agrees that it shall not:
-------------
A. copy the Licensed Software except for emergency backup purposes or as
permitted by the express written consent of Level 3;
B. reverse engineer, decompile or disassemble the Licensed Software;
C. sell, lease, license or sublicense the Licensed Software; or
D. create, write or develop any derivative software or any other software
program based on the Licensed Software.
SECTION 7. CONFIDENTIAL INFORMATION
- ------------------------------------
7.1 Disclosure and Use. Any Confidential Information disclosed by either party
-------------------
shall be kept by the receiving party in strict confidence and shall not disclose
such Confidential Information to any third party (except as authorized by these
Terms and Conditions) without the disclosing party's express written consent.
Each party agrees to treat all Confidential Information of the other party in
the same manner as it treats its own proprietary information, but in no case
will the degree of care be less than reasonable care.
7.2 Restricted Use. Each party agrees:
---------------
A. to use Confidential Information only for the purposes of performance of any
Customer Order or as otherwise expressly permitted by these Terms and
Conditions;
B. not to make copies of Confidential Information or any part thereof except for
purposes consistent with these Terms and Conditions; and
C. to reproduce and maintain on any copies of any Confidential Information such
proprietary legends or notices (whether of disclosing party or a third party) as
are contained in or on the original or as the disclosing party may otherwise
reasonably request.
7.3 Exceptions. Notwithstanding the foregoing, each party's confidentiality
-----------
obligations hereunder shall not apply to information which:
A. is already known to the receiving party;
B. becomes publicly available without fault of the receiving party;
C. is rightfully obtained by the receiving party from a third party without
restriction as to disclosure, or is approved for release by written
authorization of the disclosing party;
D. is developed independently by the receiving party without use of the
disclosing party's Confidential Information;
E. is required to be disclosed by law.
7.4 Publicity. This agreement grants no right to use any party's or its
----------
affiliates' trademarks, service marks or trade names or to otherwise refer to
the other party in any marketing, promotional or advertising materials or
activities. Neither party shall issue any publication or press release relating
to, or otherwise disclose the existence of, or the terms and conditions of any
contractual relationship between Level 3 and Customer, except as may be required
by law.
Page 5 of 27
<PAGE>
7.5 Remedies. Notwithstanding any other section of these Terms and Conditions,
---------
the non-breaching party shall be entitled to seek equitable relief to protect
its interests, including but not limited to preliminary and permanent injunctive
relief. Nothing stated herein shall be construed to limit any other remedies
available to the parties.
7.6 Survival. The obligations of confidentiality and limitation of use shall
---------
survive the termination of any applicable Customer Order.
SECTION 8. GENERAL TERMS
- -------------------------
8.1 Force Majeure. Neither party shall be liable, nor shall any credit
--------------
allowance or other remedy be extended, for any failure of performance or
equipment due to causes beyond such party's reasonable control, including but
not limited to: acts of God, fire, flood or other catastrophes; any law, order,
regulation, direction, action, or request of any governmental entity or agency,
or any civil or military authority; national emergencies, insurrections, riots,
wars; unavailability of rights-of-way or materials; or strikes, lock-outs, work
stoppages, or other labor difficulties. In the event any of the foregoing occur
and Level 3 is unable to deliver the Service for fourteen (14) consecutive days,
Customer shall not be obligated to pay Level 3 for the affected Service for so
long as Level 3 is unable to deliver them, provided, however, that the term of
the Customer Order respecting those Services shall be extended for a period of
time equal to the period of time for which Level 3 was unable to provide and
Customer was not required to pay for the affected Service.
8.2 Assignment or Transfer. Except with respect to a merger or sale of
------------------------
substantially all of Customer's assets, Customer may not transfer, sublease or
assign the use of Service without the express prior written consent of Level 3,
and then only when such transfer or assignment can be accomplished without
interruption of the use or location of Service. Level 3 will not unreasonably
withhold its consent. These Terms and Conditions shall apply to any transferees
or assignees. Customer shall remain liable for the payment of all charges due
under each Customer Order.
8.3 Notices. Notices hereunder shall be deemed properly given when delivered,
--------
if delivered in person, or when sent via facsimile, overnight courier,
electronic mail or when deposited with the U.S. Postal Service, (a) with respect
to Customer, the address listed on any Customer Order, or (b) with respect to
Level 3, to: Contracts Management, (Customer Agreements) Level 3 Communications,
LLC, 1025 Eldorado Boulevard, Broomfield CO 80021. Customer shall notify Level 3
of any changes to its addresses listed on any Customer Order.
8.4 Indemnification by Level 3. Level 3 shall indemnify, defend and hold
-----------------------------
Customer harmless from any claim, loss, damage, expense or liability (including
attorney's fees and court costs) (hereinafter "Claims") made against Customer
for property damage, infringement of third party proprietary rights or personal
injury caused by Level 3's negligence or willful misconduct.
8.5 Indemnification by Customer. Customer shall indemnify, defend and hold
----------------------------
Level 3 harmless from Claims (including Claims for infringement of third party
proprietary rights) (i) made against Level 3 by any end user of Customer in
connection with the delivery or consumption of Service, (ii) made against Level
3 arising out of any commission or negligent omission by Customer in connection
with the Service, or (iii) arising from Customer's negligence or willful
misconduct.
8.6 Application of Tariffs. Level 3 may elect or be required to file with the
-----------------------
appropriate regulatory agency tariffs respecting the delivery of certain
Service. In the event that such tariffs are filed respecting Service ordered by
Customer, then (to the extent such provisions are not inconsistent with the
terms of a Customer Order) the terms set forth in the applicable tariff shall
govern Level 3's delivery of, and Customer's consumption or use of, such
Service.
8.7 Contents of Communications Level 3 does not monitor and shall have no
---------------------------
liability or responsibility for the content of any communications transmitted
via the Service, and Customer shall hold Level 3 harmless from any and all
claims (including claims by governmental entities seeking to impose penal
sanctions) related to such content attributable to Customer or its agents,
employees or end users.
Page 6 of 27
<PAGE>
8.8 Entire Understanding These Terms and Conditions, including any Customer
--------------------
Orders executed hereunder, constitute the entire understanding of the parties
related to the subject matter hereof. In the event of any conflict between these
Terms and Conditions and the terms and conditions of any Customer Order, these
Terms and Conditions shall control. These Terms and Conditions shall be governed
and construed in accordance with the laws of the state of Colorado.
8.9 No Waiver. No failure by either party to enforce any rights hereunder
----------
shall constitute a waiver of such right(s).
8.10 Acceptable Use Policy. Customer's use of the Services shall at all times
-----------------------
comply with Level 3's then-current Acceptable Use Policy and Privacy Policy, as
amended by Level 3 from time to time and which are available through Level 3's
web site. Level 3 will notify Customer of complaints received by Level 3
regarding each incident of alleged violation of Level 3's Acceptable Use Policy
by Customer or third parties that have gained access to the Service through
Customer. Customer agrees that it will promptly investigate all such complaints
and take all necessary actions to remedy any actual violations of Level 3's
Acceptable Use Policy. Level 3 may identify to the complainant that customer, or
a third party that gained access to the Service through Customer, is
investigating the complaint and may provide the complainant with the necessary
information to contact Customer directly to resolve the complaint. Customer
shall identify a representative for the purposes of receiving such
communications. Level 3 reserves the right to install and use, or to have
customer install and use, any appropriate devices to prevent violations of its
Acceptable Use Policy, including devices designed to filter or terminate access
to the Services provided by Level 3.
Page 7 of 27
<PAGE>
ADDITIONAL TERMS AND CONDITIONS
FOR PRIVATE LINE SERVICE
The following additional terms and conditions are applicable where, pursuant to
a Customer Order, Customer orders metropolitan (local), city to city (within the
United States) and international (from the United States to another country)
private line, non-switchable circuits (the "Private Line Services").
1. Any state or federal tariffs applicable to the Private Line Services to be
delivered under any Customer Order are incorporated into the terms thereof.
Level 3's pricing to Customer for Private Line Services may, if required, be
subject to Public Utility Commission (PUC) or other regulatory approval.
2. The nonrecurring charges and monthly recurring rates for the Private Line
Services provided by Level 3 shall be set forth in each Customer Order.
3. The rates and other charges set forth in each Customer Order are established
in reliance on the term commitment made therein, and Customer shall pay the same
in accordance therewith. In the event that Customer terminates Services ordered
in any Customer Order which is accepted by Level 3 or in the event that the
delivery of Services is terminated due to a failure of Customer to satisfy the
requirements set forth in these Terms and Conditions prior to the end of the
agreed term, Customer shall (unless Customer has made a Revenue Commitment) pay
a termination charge equal to the percentage of the monthly recurring charges
for the terminated Private Line Services calculated as follows:
a. 100% of the monthly recurring charge that would have been incurred for
the Private Line Service for months 1-12 of the agreed term; plus
b. 75% of the monthly recurring charge that would have been incurred for the
Private Line Service for months 13-24 of the agreed term; plus
c. 50% of the monthly recurring charge that would have been incurred for the
Private Line Service for months 25 through the end of the agreed term.
In the event that a Revenue Commitment is made and is then being satisfied by
Customer, Customer may terminate, rearrange or reconfigure the Private Line
Services ordered under a Customer Order without payment of the termination
charge specified above; PROVIDED, HOWEVER, that Customer shall be responsible
for payment of Level 3's then-current standard nonrecurring charges applicable
to such termination, rearrangement or reconfiguration.
4. Level 3 makes the Service Level Agreements as attached respecting Private
Line Service.
Page 8 of 27
<PAGE>
- --------------------------------------------------------------------------------
Private Line SLA Page 1 of 3
- --------------------------------------------------------------------------------
Level 3 Private Line Services (PLS) are backed by the following Service Level
Agreement (SLA). If the Level(3) obligation is missed, the credit set forth
below will be issued to the Customer if requested, once verified by Level 3. The
total number of credits per month is limited to the Monthly Recurring Charge
(MRC) for the affected Service. To receive credit if these obligations have not
been met, the Customer must contact Level 3 Customer Service within five (5)
days of the end of the month for which credit is requested.
Level 3 provides a toll-free number connecting the Customer to Level 3 Customer
Service for all issues -including technical, billing, and product inquiries:
1-877-4LEVEL3 (1-877-453-8353).
Order Acceptance Definition
An order is accepted by Level 3 (for the purposes of this Installation Guarantee
only) as soon as the Order Entry Specialist receives the order in Customer
Implementation Management (CIM).
Individual Case Basis (ICB) Definition
Individual Case Basis (ICB) is defined as a Service where a standard service
interval is not defined. For ICB categories, Level 3 will provide a Firm Order
Commitment Date (FOC) for Services as soon as possible. The FOC date is
determined by a combination of Level 3 internal processes as well as the dates
supplied to Level 3 by Level 3 vendors (where applicable). These vendor-supplied
FOC dates vary by vendor, region, and city.
Changes to Existing Orders in Progress
The SLA implementation dates apply to intervals between original order date and
original due date. If the Customer requests a change to an order date during the
implementation of a service, the following effects will occur:
Changes to Orders in Progress
<TABLE>
<CAPTION>
Change Order Placed Charge Effect on Delivery
<S> <C> <C>
1st week of Order Process $250 SLA implementation clock will begin again once change is accepted
2nd Week of Order Process $250 SLA implementation clock will begin again once change is accepted
3rd Week of Order Process $250 SLA implementation clock will begin again once change is accepted
4th Week of Order Process $500 SLA implementation clock will begin again once change is accepted
25% of MRC for
3 Days Before Delivery each week of SLA implementation clock will begin again once change is accepted
requested delay
</TABLE>
Level 3 will accept one requested change of delivery date per circuit order.
Level 3 will begin billing the Service on the day that the Service is made
available to the Customer.
Page 9 of 27
<PAGE>
- --------------------------------------------------------------------------------
Private Line SLA Page 2 of 3
- --------------------------------------------------------------------------------
Installation Obligations
Level 3 guarantees installation of its PLS within the following time periods
beginning with Level 3's acceptance of a Customer Order (see definition of order
acceptance on page 1) following Level 3's approval of Customer's credit profile:
National and International PLS (Gateway Cities Only)
<TABLE>
<CAPTION>
LEVEL 3 OBLIGATION CREDIT
Service Standard Service Delivery Intervals By Product
(Business Days)*
DS-1, E-1 + DS-3 STM-1/OC-3/ OC-12
NPLS1 IPL2 NPLS1 IPL2 NPLS1 IPL2
<S> <C> <C> <C> <C> <C> <C> <C>
On-Net Gateway-to-Gateway,
100% Level 3 Fiber 20 20 20 20 20 20 One (1) day for
each day missed
Non-Level 3 Fiber Between (up to 4 days
Gateways or Off-Net Within SSA 40 40 60 60 ICB ICB total credit)
(Either End)
Outside SSA (50 miles) 40 ICB ICB ICB ICB ICB
(Either End)
</TABLE>
1 National Private Line Service
2 International Private Line Service
U.S. Metropolitan PLS
<TABLE>
<CAPTION>
LEVEL 3 OBLIGATION
Speed of Service On-Net Building Service Interval* Off-Net Building Service Interval* CREDIT
<S> <C> <C> <C>
E-1+ 20 business days N/A
DS-1 20 business days 40 business days
DS-3 20 business days 60 business days One (1) day for
STM-1 20 business days Individual case basis each day missed
OC-3 20 business days Individual case basis (up to 4 days
OC-12 20 business days Individual case basis total credit)
OC-48 Individual case basis Individual case basis
OC-192 Individual case basis Individual case basis
</TABLE>
*Service interval dates exclude any additional riser infrastructure within
a building required to reach the Customer suite (where this
infrastructure is not already in place).
+E-1 Off-Net Metro Private Line is not a stand-alone service in the U.S. In
the U.S., this Service is sold only in conjunction with an International
Private Line.
Page 10 of 27
<PAGE>
- --------------------------------------------------------------------------------
Private Line SLA Page 3 of 3
- --------------------------------------------------------------------------------
Availability Obligations
Level 3 makes the following additional guarantees respecting PLS:
Private Line Services Availability
<TABLE>
<CAPTION>
LEVEL 3 OBLIGATION CREDIT +
<S> <C>
99.99% Service Availability Guarantee*
Service Unavailability refers to a period during which there is a break in transmission, reported to and confirmed
by Level 3 Customer Service. The start of the break is signaled by the first of ten consecutive severely erred
seconds ("SESs"), as defined below, and the end is signaled by the first of ten consecutive non-SESs. An SES is a
second with a bit error ratio of greater than or equal to 1 in 1000. Service Unavailability does not include SESs
associated with maintenance events, Customer-caused SESs or SESs caused by companies other than Level 3. Customer
will receive credits, calculated monthly as an aggregate of all Service
Unavailability events, in accordance with the chart below:
Service unavailable 15 minutes no credit
Service unavailable 15 minutes-8 hours 3 hours credit+
Service unavailable 8-12 hours 12 hours credit+
Service unavailable 12-16 hours 18 hours credit+
Service unavailable 16-24 hours 24 hours credit+
+The total number of credits per month is limited to the Monthly Recurring
Charge (MRC) for the affected service.
Service Availability is calculated from the ingress of the Level 3 Network to
the egress of the Level 3 network. Where a Customer is served directly by the
Level 3 Metro networks (lit by Level 3 fiber) this parameter is extended to the
Customer building. Where we are dependant upon a third party for
localonnectivity to the backbone, the availability of 99.99% is applicable from
Level 3 Gateway to Level 3 Gateway. For circuits terminating in Germany, the
local loop will hold, and the availability target of 97.5% is applicable.
Please see note on Germany below. Local Loop shall mean the facilities from
Customer's Premises to the Level 3 Gateway.
*NOTE: If the Customer has signed a contract governed by German law, and/or
Private Line service is provisioned in Germany, the following Availability
Guarantee shall instead apply:
Local Loop Guarantee: 97.5% Annual Availability
Service Unavailability is calculated as the total number of outages a Customer
experiences during a calendar month. The maximum Service Unavailability time
may vary depending on the total number of days in the month. Example: in a
365-day year, the Service Unavailability maximum would be 219 hours. If Level 3
exceeds the maximum Service Unavailability time of 219 hours over the first 12
months of the Customer's contract, then Level 3 would be liable to pay the
Customer service credits for the Service Unavailability time exceeding 219
hours.
</TABLE>
Page 11 of 27
<PAGE>
ADDITIONAL TERMS AND CONDITIONS
FOR COLOCATION
The following additional terms and conditions are applicable where, pursuant to
a Customer Order, Customer orders the use of space within Level 3 Gateways to be
used for the purpose of colocating telecommunications equipment or equipment
used for connection to the internet (the "Space").
1. Customer is granted the right to occupy the Space identified in a Customer
Order. Customer shall be permitted reasonable access to the Space subject to any
and all rules, regulations and access requirements imposed by Level 3 governing
such access. Customer may submit multiple Customer Orders requesting use of
different Space, each of which shall be governed by the terms hereof.
2. Customer shall be permitted to use the Space only for placement and
maintenance of communications equipment. The nonrecurring and monthly recurring
charges for the Space and any Services ordered by Customer shall be set forth in
each Customer Order. Customer hereby agrees, within six (6) months of ordering
such Space, to use the Space for placement and maintenance of telecommunications
or internet access equipment. In the event Customer fails to fill said Space as
set forth herein, Level 3 has the right to reclaim the proportion of Space not
being used exclusively as indicated above, if the same is not cured within
forty-five (45) days' prior notice thereof to Customer. Customer agrees to
immediately vacate such recaptured Space and Level 3 shall reduce the Colocation
fees allocated to such recaptured Space. Customer further agrees that no refunds
shall be made to Customer regarding such recaptured Space.
3. Level 3 shall perform such janitorial services, environmental systems
maintenance, power plant maintenance and other actions as are reasonably
required to maintain the gateway in which the Space is located in a condition
which is suitable for the placement of telecommunications and internet access
equipment. Customer shall maintain the Space in an orderly and safe condition,
and shall return the Space to Level 3 at the conclusion of the term set forth in
the Customer Order in the same condition (reasonable wear and tear excepted) as
when such Space was delivered to Customer. EXCEPT AS EXPRESSLY STATED HEREIN OR
IN ANY CUSTOMER ORDER, THE SPACE SHALL BE DELIVERED AND ACCEPTED "AS IS" BY
CUSTOMER, AND NO REPRESENTATION HAS BEEN MADE BY LEVEL 3 AS TO THE FITNESS OF
THE SPACE FOR CUSTOMER'S INTENDED PURPOSE.
4. The term of use of the Space shall begin on the later to occur of the date
requested by Customer or the date that Level 3 completes the build-out of the
Space. Build out shall mean Level 3's construction and installation of the Space
for use by Customer. Customer's use of the Space beyond the initial term shall
be on a month-to-month basis, unless Customer and Level 3 have agreed in writing
to a renewal of the right to use such Space. Customer hereby agrees to pay for
the Space and any related Services for the term of this Agreement. The rates and
other charges set forth in each Customer Order are established in reliance on
the term commitment made therein. In the event that Customer terminates a
Customer Order for Space which is accepted by Level 3 or in the event that the
Customer Order is terminated due to a failure of Customer to satisfy the
requirements set forth herein or in the Customer Order prior to the end of the
agreed term, Customer shall pay a termination charge equal to the costs incurred
by Level 3 in returning the Space to a condition suitable for use by other
parties, plus the percentage of the monthly recurring fees for the terminated
Space calculated as follows:
a. 100% of the monthly recurring fees that would have been charged for
the Space for months 1-12 of the agreed term; plus
b. 75% of the monthly recurring fees that would have been charged for the
Space for months 13-24 of the agreed term; plus
c. 50% of the monthly recurring fees that would have been charged for
the Space for months 25 through the end of the agreed term.
In the event that a Revenue Commitment is made and is then being satisfied by
Customer, Customer may terminate the Space ordered pursuant to a Customer Order
without payment of the termination charge specified above; PROVIDED, HOWEVER,
that Customer shall be responsible for payment of Level 3's then-current
standard nonrecurring charges applicable to such termination.
5. Level 3 shall use reasonable efforts to complete the build-out and make the
Space available to Customer on or before the date requested by Customer. In the
event that Level 3 fails to complete the build-out within sixty (60) days of the
date requested by Customer, then Customer may terminate its rights to use such
Space and receive a refund of any fees paid for the use or build-out of such
Space.
6. Customer shall abide by any posted or otherwise communicated rules relating
to use of, access to, or security measures respecting the Space. Customer's use
Page 12 of 27
<PAGE>
of the Space will be immediately terminated in the event Customer or any of its
agents or employees is found in Level 3's Gateway with any firearms, drugs,
alcohol or is found engaging in any criminal activity, eavesdropping, foreign
intelligence, card selling or slamming. Persons found engaging in any such
activity or in possession of the aforementioned prohibited items will be
immediately escorted from the Gateway. In the event that unauthorized parties
gain access to the Space through access cards, keys or other access devices
provided to Customer, Customer shall be responsible for any damages incurred as
a result thereof. Customer shall be responsible for the cost of replacing any
security devices lost or stolen after delivery thereof to Customer. In addition,
Level 3 shall have the right to terminate Customer's use of the Space or the
Services in the event that: (a) Level 3's rights to use the facility within
which the Space is located terminates or expires for any reason; (b) Customer
has violated the terms hereof or of any Customer Order submitted hereunder; (c)
Customer makes any material alterations to the Space without first obtaining the
written consent of Level 3; (d) Customer allows personnel or contractors to
enter the Space who have not been approved by Level 3 in advance; or (e)
Customer violates any posted or otherwise communicated rules relating to use of
or access to the Space. With respect to items (b), (c), (d) and (e) immediately
above, unless the same interferes or has the potential to interfere with other
Level 3 Colocation customers, Level 3 shall provide Customer a written notice of
the foregoing and a 10-day opportunity to cure the same before terminating
Customer's rights to the Space.
7. Customer may sublease the Space under the following conditions: i) all
proposed sublessees must be approved, in writing, by Level 3 in Level 3's sole
discretion; ii) Customer hereby guarantees that all Sublessees shall abide by
all terms and conditions set forth between Customer and Level 3; iii) Customer
shall indemnify, defend and hold Level 3 harmless from all claims brought
against Level 3 arising from any act or omission of any subcontractor and iv)
any sublessee shall be considered Customer's agent and all of sublessees' acts
and omissions and usage of the Space or Services hereunder shall be attributable
to Customer for the purposes of these Terms and Conditions.
8. Level 3 reserves the right to change the location or configuration of the
Space, provided, however, that Level 3 shall not arbitrarily or discriminatorily
require such changes. Level 3 and Customer shall work in good faith to minimize
any disruption in Customer's services that may be caused by such changes in
location or configuration of the Space.
9. Prior to occupancy and during the term of use of any Space, Customer shall
procure and maintain the following minimum insurance coverage: (a) Workers'
Compensation in compliance with all applicable statutes of appropriate
jurisdiction. Employer's Liability with limits of $500,000 each accident; (b)
Commercial General Liability with combined single limits of $1,000,000 each
occurrence; and (c) "All Risk" Property insurance covering all of Customers
personal property located in the Space. Customer's Commercial General Liability
policy shall be endorsed to show Level 3 (and any underlying property owner, as
requested by Level 3) as an additional insured. All policies shall provide that
Customer's insurers waive all rights of subrogation against Level 3. Customer
shall furnish Level 3 with certificates of insurance demonstrating that Customer
has obtained the required insurance coverages prior to occupancy of the Space.
Such certificates shall contain a statement that the insurance coverage shall
not be materially changed or cancelled without at least thirty (30) days prior
written notice to Level 3. Customer shall require any contractor entering the
Space on its behalf to procure and maintain the same types, amounts and coverage
extensions as required of Customer above.
10. Customer may order and pay for Level 3 to perform certain limited ("Remote
Hands") maintenance services on Customer's equipment within the Space, which
shall be performed in accordance with Customer's directions. "Remote Hands"
maintenance services includes power cycling equipment. Level 3 shall in no event
be responsible for the repair, configuration or tuning of equipment, or for
installation of Customer's equipment (although Level 3 will provide reasonable
assistance to Customer in such installation).
11. Level 3 makes the Service Level Agreement as attached respecting Colocation
Services.
Page 13 of 27
<PAGE>
- --------------------------------------------------------------------------------
Colocation SLA page 1 of 3
- --------------------------------------------------------------------------------
Level 3 Colocation Services are backed by the following Service Level Agreement
(SLA). If the Level 3 obligation is missed, the credit set forth below will be
issued to the Customer if requested, once verified by Level 3. The total number
of credits per month is limited to the Monthly Recurring Charge (MRC) for the
affected service. To receive credit if these obligations have not been met, the
Customer must contact Level 3 Customer Service within fifteen (15) days of the
end of the month for which credit is requested.
Level 3 provides a toll-free number connecting the Customer to Level 3 Customer
Service for all issues -including technical, billing, and product inquiries:
1-877-4LEVEL3 (1-877-453-8353).
Order Acceptance Definition
An order is accepted by Level 3 (for the purposes of this Installation Guarantee
only) as soon as the Order Entry Specialist receives the order in Customer
Implementation Management (CIM).
Obligations and Credits
<TABLE>
<CAPTION>
Level 3 Obligation Credit
<S> <C>
Power Guarantee
Level 3 guarantees that AC and/or DC power will be available to the Customer's One (1) day for each
Colocation Space 100% of the time. instance
Should Level 3 fail to meet the Power Guarantee, Level 3, upon the Customer's
request, will credit the Customer's monthly invoice one (1) day for each
instance that power is not available to the Customer's Space, up to a maximum of
(1) instance per day.
- -----------------------------------------------------------------------------------------------------------------------
Hours of Operation Guarantee
Level 3 will guarantee that the Gateway will be open and available to the One (1) day for each
Customer twenty-four hours a day and seven days a week for unescorted access to instance
the Space and Customer work areas.
Should Level 3 fail to meet the Hours of Operation Guarantee for any one
instance, Level 3, upon the Customer's request, will credit the Customer's
monthly invoice one (1) day for each instance within a 24-hour period, up to a
maximum of seven (7) days per month.
</TABLE>
Page 14 of 27
<PAGE>
- --------------------------------------------------------------------------------
Colocation SLA page 2 of 3
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Level 3 Obligation Credit
<S> <C>
Remote Hands Response Time Guarantee* One (1) day for each
Level 3 will guarantee to respond to Remote Hands requests within these parameters: instance
o At the following Gateways, Level 3 will guarantee to have a technician
available within 15 minutes, on a 24 x 7 basis: Sunnyvale, San Francisco,
Los Angeles, Denver, Chicago, Dallas, New York City, and Washington D.C.
o At all other Gateways, Level 3 will guarantee to have a technician
available within 15 minutes during normal business hours (7 a.m. to 7
p.m.), Monday through Friday. Level 3 will guarantee to have a technician
available within 2 hours on weekends and holidays or after normal business
hours in these Gateways.
*NOTE: Basic Remote Hands service is offered on a 24 x 7 basis and is available
to provide support for supervised first-line maintenance situations. Supervised
first-line maintenance situations include fixes such as restarts, card swaps
(where cards are visible and accessible -- Level 3 will not open the outer case
of the equipment), re-boots of software (no reloads of hardware or software),
and simple testing.
Should Level 3 fail to meet the Remote Hands Response Time Guarantee for any one
instance, Level 3, upon the Customer's request, will credit the Customer's
monthly invoice one (1) day for each instance, up to a maximum of seven (7) days
per month.
- -----------------------------------------------------------------------------------------------------------------------
HVAC Guarantee One (1) day for each
Level 3 will guarantee to maintain -- over a 24-hour period at 100% load -- an instance
average temperature of 72 degrees Fahrenheit within the Space. However,
temperatures may temporarily fluctuate in the range of 68-78 degrees Fahrenheit,
and Level 3 does not guarantee temperatures inside cabinets or within private
suites.
Should Level 3 fail to meet the HVAC guarantee, Level 3, upon the Customer's
request, will credit the Customer's monthly invoice one (1) day for each
instance that the colocation temperature is outside the temperature range
outlined above, up to a maximum of (1) instance per day.
</TABLE>
Page 15 of 27
<PAGE>
- --------------------------------------------------------------------------------
Colocation SLA page 3 of 3
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Level(3) Obligation Credit
<S> <C>
Relative Humidity Guarantee One (1) day for each
Level 3 will guarantee to maintain -- over a 24-hour period at 100% load -- an instance
average relative humidity of 50% within theSpace. However, operating percentages
may temporarily fluctuate in the range of 47.5-52.5 percent, and Level 3 does
not guarantee humidity percentages within specific cabinets or private suites.
Should Level 3 fail to meet the Relative Humidity Guarantee, Level 3, upon the
Customer's request, will credit the Customer's monthly invoice one (1) day for
each instance that the colocation temperature is outside the temperature range
outlined above, up to a maximum of (1) instance per day.
- -----------------------------------------------------------------------------------------------------------------------
Security Guarantee One (1) day for each
Level 3 will guarantee that all card readers and palm scanners will be in instance
operation 100% of the time. Level 3 also guarantees that doors will not be
propped open without a Level 3 employee monitoring the door. In addition, Level
3 guarantees that in the event of a security breach, Level 3 will make
available, at the Customer's request, video surveillance tapes to be reviewed
with the supervision of a Level 3 employee. Level 3 will also guarantee that
access logs will be provided within 30 minutes of the Customer's request. Access
logs will either be e-mailed within 30 minutes or made available by hard copy at
the Level 3 Gateway within 30 minutes.
Should Level 3 fail to meet the Security Guarantee, Level 3, upon the Customer's
request, will credit the Customer's monthly invoice one (1) day for each
instance that the Security Guarantee is not met, up to a maximum of one (1)
instance per day.
- -----------------------------------------------------------------------------------------------------------------------
Cabinet Install Guarantee One (1) day for each
Level 3 guarantees that up to 15 cabinets, in an individual Level 3 Gateway, day an order is not
will be delivered within 20 business days beginning with Level 3's acceptance of completed beyond the
a Customer Order. 16-50 cabinet orders, within an individual Level 3 Gateway, installation
will be delivered within 40 business days beginning with Level 3's guarantee
acceptance of a Customer Order. Delivery times on 51 cabinets or more will be
determined on an individual case basis.
Private Suite Install Guarantee
Level 3 guarantees that up to a 5,000-square-foot private suite will be
delivered within 40 business days beginning with the Customer's signed approval
of the private suite drawings.
Should Level 3 fail to meet the Cabinet or Private Suite Installation Guarantee,
Level 3, upon the Customer's request, will credit the Customer's monthly invoice
one (1) day for each day beyond the installation guarantee. The Customer is
entitled to a one (1) day prorated credit for each day beyond the service
commitment.
</TABLE>
Page 16 of 27
<PAGE>
ADDITIONAL TERMS AND CONDITIONS FOR
DEDICATED INTERNET ACCESS AND RAPID ACCESS
The following additional terms and conditions are applicable where, pursuant to
a Customer Order, Customer orders Dedicated Internet Access and Rapid Access
(the "Internet Access Services").
1. Any state or federal tariffs applicable to the Internet Access Services to
be delivered under any Customer Order are incorporated into the terms thereof.
2. The nonrecurring charges and monthly recurring rates for the Internet Access
Services provided by Level 3 to Customer are set forth in each Customer Order.
3. The rates and other charges set forth in each Customer Order are established
in reliance on the term and/or volume commitment made therein, and Customer
agrees to pay the same. In the event that Customer terminates Internet Access
Services ordered in any Customer Order which is accepted by Level 3 or in the
event that the delivery of Internet Access Services is terminated due to a
failure of Customer to satisfy the requirements set forth herein or in the
Customer Order prior to the end of the agreed term, Customer shall (unless
Customer has made a Revenue Commitment) pay a termination charge equal to the
percentage of the monthly recurring charges for the terminated Internet Access
Services calculated as follows:
a. 100% of the monthly recurring harge that would have been incurred for
the Internet Access Service for months 1-12 of the agreed term; plus
b. 75% of the monthly recurring charge that would have been incurred for
the Internet Access Service for months 13-24 of the agreed term; plus
c. 50% of the monthly recurring charge that would have been incurred for
the Internet Access Service for months 25 through the end of the agreed term.
Customer may, in the event that a Revenue Commitment is made and is then being
satisfied by Customer, terminate, rearrange or reconfigure the Internet Access
Services ordered under a Customer Order without payment of the termination
charge specified above; PROVIDED, HOWEVER, that Customer shall be responsible
for payment of Level 3's then-current standard nonrecurring charges applicable
to such termination, rearrangement or reconfiguration.
4. Level 3 provides only access to the Internet; Level 3 does not operate or
control the information, services, opinions or other content of the Internet.
Customer agrees that it shall make no claim whatsoever against Level 3 relating
to the content of the Internet or respecting any information, product, service
or software ordered through or provided by virtue of the Internet.
5. If Customer orders Burstable Dedicated Internet Access Services pursuant to
a Customer Order, the Customer shall be permitted to make two (2) changes to its
Committed Data Rate each contract year, provided that such change be to a higher
Committed Data Rate.
6. Level 3 makes the following Service Level Agreements as attached respecting
Dedicated Internet Access and Rapid Access Service.
Page 17 of 27
<PAGE>
- --------------------------------------------------------------------------------
DIA & Rapid Access SLA page 1 of 3
- --------------------------------------------------------------------------------
Level 3 Dedicated Internet Access (DIA) and Rapid Access Services are backed by
the following Service Level Agreement (SLA). If the Level 3 obligation is
missed, the credit set forth below will be issued to the Customer if requested,
once verified by Level 3. The total number of credits per month is limited to
the Monthly Recurring Charge (MRC) for the affected service. To receive credit
if these obligations have not been met, the Customer must contact Level 3
Customer Service within five (5) days of the end of the month for which credit
is requested.
Level 3 provides a toll-free number connecting the Customer to Level 3 Customer
Service for all issues -including technical, billing, and product inquiries:
1-877-4LEVEL3 (1-877-453-8353).
Order Acceptance Definition
An order is accepted by Level 3 (for the purposes of this Installation Guarantee
only) as soon as the Order Entry Specialist receives the order in Customer
Implementation Management (CIM).
Obligations and Credits
<TABLE>
<CAPTION>
Level 3 Obligation Credit
<S> <C>
Installation Guarantee One (1) day for each day
Level 3 guarantees the following installation time frames in Level 3's standard missed (up to 4 days
service areas, beginning with Level 3's acceptance of a Customer Order. This total credit)
guarantee does not cover incorrect data on the Customer Order, a change in the
Customer Order, or a non-standard implementation. The maximum installation
credit is four (4) days.
o Ethernet port speeds of 10Mbps or 100Mbps terminating in Level 3 Colocation
Space: 10 business days or less for North America and Europe
o 64-1.920Kbps (DS-1/E-1) port speeds: 45 business days or less for North America
and Europe
o 3-45Mbps (DS-3/E-3) port speeds: 60 business days or less for North
America and Europe
o 155Mbps (OC-3), 622Mbps (OC-12), and 1000Mbps (GigE): Individual Case Basis (ICB)
o Customer Provided Access (CPA): 20 business days or less for North America for
circuits less than or equal to DS-3, after the CPA is delivered
</TABLE>
Page 18 of 27
<PAGE>
- --------------------------------------------------------------------------------
DIA & Rapid Access SLA page 2 of 3
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Level 3 Obligation Credit
<S> <C>
100% Service Availability Guarantee* One (1) day
Service Unavailability refers to any outage reported by the Customer within 48
hours of the outage and confirmed by Level 3 Customer Service. Service
Unavailability covers any outage associated with the Customer's access port to
the Level 3 Internet network, extending across the Level 3 Internet network, and
across the local access circuit if provisioned on the Level 3 metropolitan
network. Service Unavailability does not include outages associated with
scheduled maintenance events, Customer-caused outages or disruptions, the
performance of Internet networks controlled by other companies, or traffic
exchange points which are controlled by other companies.
We guarantee that for any outage lasting between 15 minutes and 24 hours within
the same 24-hour period, Customers will receive a 1-day credit.
*NOTE: If the Customer has signed a contract governed by German law, and/or DIA
service is provisioned in Germany, the following Availability Guarantees shall
instead apply:
Local Loop Guarantee: 97.5% Annual Availability
Service Unavailability is calculated as the total number of outages Customer
experiences during a calendar month. The maximum Service Unavailability time may
vary depending on the total number of days in the month. Example: in a 365-day
year, the Service Unavailability maximum would be 219 hours. If Level 3 exceeds
the maximum Service Unavailability time of 219 hours over the first 12 months of
the Customer's contract, then Level 3 would be liable to pay the Customer
service credits for the Service Unavailability time exceeding 219 hours.
Internet Network Guarantee: 99.9% Monthly Availability
Service Unavailability is calculated as the total number of outages a Customer
experiences during a calendar month. The maximum Service Unavailability may vary
depending on the total number of days in the month. Example: in a typical 30-day
month, the Service Unavailability maximum would be 44 minutes. If Level 3
exceeds the maximum Service Unavailability time of 44 minutes, then Level 3
would be liable to pay the Customer a service credit equal to time of total
Service Unavailability exceeding 44 minutes.
</TABLE>
Page 19 of 27
<PAGE>
- --------------------------------------------------------------------------------
DIA & Rapid Access SLA page 3 of 3
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Level 3 Obligation Credit
<S> <C>
Delay Guarantee One (1) day
Delay refers to the one-way average delay, over a calendar month, of traffic
between all major Level 3 Gateways on the Level 3 U.S. and European Internet
network. Delay does not apply to the Customer's local access circuit, transit or
peering connections, circuits to the traffic exchange points, maintenance
events, or to Customer-caused outages or disruptions. Customers may obtain delay
measurements directly from the Level 3 Web site at www.Level3.com.
o North American Network Delay Guarantee: 40 ms average one-way
o European Network Delay Guarantee: 30 ms average one-way
o London to New York Guarantee: 40 ms average one-way
</TABLE>
Page 20 of 27
<PAGE>
ADDITIONAL TERMS AND CONDITIONS FOR
MANAGED MODEM -- DEDICATED, QUICKSTART AND TRANSIT SERVICES
The following additional terms and conditions are applicable where, pursuant to
a Customer Order Customer orders services required to allow access to "Dedicated
Services," "Dedicated Service with QuickStart" and "Transit Services" as offered
by Level 3 (the "Managed Modem Services") ordered by Customer under any Customer
Order.
1. Any state or federal tariffs applicable to the Managed Modem Services to be
delivered under any Customer Order are incorporated into the terms thereof.
2. In the event Customer orders "Dedicated Service," end user traffic will be
routed through and aggregated in Level 3's facility, sent to the Customer's
Premises via a dedicated circuit, and then routed to its final destination by
Customer. In the event that Customer orders "Transit Services," End User traffic
will be routed to Level 3's facility and then routed to its final destination by
Level 3 via the Internet. Dedicated Service with "QuickStart" will initially be
provisioned to the Customer in the same fashion as Transit Services, until such
time as Level 3 has provisioned the dedicated circuit to send end user traffic
from Level 3's facility to the Customer's Premises. QuickStart will then be
migrated to standard Dedicated Service. Customers ordering Dedicated Services
will be required to make a portion of the Premises available to Level 3 for the
placement of equipment necessary to provide such Dedicated Services. For
Dedicated Service, all Customer Provided Equipment (CPE) as well as the private
line necessary to support this service will be ordered, installed and managed by
Level 3. Level 3 cannot and does not guarantee the availability of any port
ordered for installation greater than 90 days from the date of the order. Any
telephone numbers used in providing the Managed Modem Services shall be released
to Customer upon expiration or termination hereof to the extent that it is
technically feasible for Level 3 to port packet switched telephone numbers and
then only if Customer is in compliance with all of the terms contained herein
and in the General Terms and Conditions.
3. Section 1.1 of the General Terms and Conditions for Delivery of Service
notwithstanding, a Customer Order for Managed Modem Service shall be accepted by
Level 3 once Level 3 has provisioned and tested such ports. Customer's billing
respecting said ports shall commence once tested and found to be functioning
properly by Level 3 notwithstanding Customer's: i) refusal to accept the ports
or ii) Customer's refusal to acknowledge communications by Level 3 to Customer
respecting the ports. In the event Customer moves an installation date provided
by Level 3 more than ten (10) business days out from the original requested
date, Level 3 will begin billing for Managed Modem Service eleven (11) business
days after the initial requested installation date whether or not the Service is
installed.
4. The nonrecurring charges and monthly recurring rates for the Managed Modem
Services provided by Level 3 to Customer shall be set forth in each Customer
Order. Level 3 will dedicate the specified number of ports to Customer as
identified in each Customer Order.
Customer shall have the option to purchase twenty percent (20%) port overage
from Level 3 as described below. If ordered, Level 3 shall provision an
additional twenty percent (20%) of ports over the number of ports actually
ordered by Customer to accept Customer traffic in the event Customer's traffic
bursts and its usage exceeds the capacity of the ports actually ordered. In the
event Customer chooses not to purchase twenty percent (20%) port overage from
Level 3, if the Customer's traffic bursts as set forth above, Customer will get
a busy signal in the event its ordered capacity is exceeded. In the event that
Customer purchases 20% port overage, Customer will be responsible for additional
monthly charges to the extent it utilizes any additional capacity provided by
Level 3.
5. Customer must utilize all Managed Modem ports provisioned hereunder at no
less than fifty percent (50%) of the capacity of such port. Customer agrees to
allow Level 3 to monitor Customer's utilization of the ports provisioned herein.
In the event Customer is Under-Utilizing (as defined below) such ports, Level 3
retains the right to reclaim such ports after which Customer shall have no
further right to use the ports Under-Utilized. Termination liability shall apply
to any ports reclaimed pursuant to this paragraph.
For the purpose of this Section, "Under-Utilization" shall mean the use of less
than fifty percent (50%) of the capacity of any given port for any sixty (60)
day period as determined by Level 3. Under-Utilization shall not be applicable
to the first sixty (60) day period immediately following the provisioning of any
Managed Modem port.
6. The rates and other charges set forth in each Customer Order are established
in reliance on the term commitment made therein, and Customer agrees to pay the
same. In the event that Customer terminates Managed Modem Services ordered in
any Customer Order which is accepted by Level 3 or in the event that the
delivery of Managed Modem Services is terminated due to a failure of Customer to
Page 21 of 27
<PAGE>
satisfy the requirements set forth herein or in the Customer Order prior to the
end of the agreed term, Customer shall (unless Customer has made a Revenue
Commitment) pay a termination charge equal to the percentage of the monthly
recurring charges for the terminated Managed Modem Services calculated as
follows:
a. 100% of the monthly recurring charge that would have been incurred for
the Managed Modem Service for months 1-12 of the agreed term; plus
b. 75% of the monthly recurring charge that would have been incurred for
the Managed Modem Service for months 13-24 of the agreed term; plus
c. 50% of the monthly recurring charge that would have been incurred for
the Managed Modem Service for months 25 through the end of the agreed term.
Customer may, in the event that a Revenue Commitment is made and is then being
satisfied by Customer, terminate, rearrange or reconfigure the Managed Modem
Services ordered under a Customer Order without payment of the termination
charge specified above; PROVIDED, HOWEVER, that Customer shall be responsible
for payment of Level 3's then-current standard nonrecurring charges for such
termination, rearrangement or reconfiguration.
7. Level 3 provides only access to the Internet; Level 3 does not operate or
control the information, services, opinions or other content of the Internet.
Customer agrees that it shall make no claim whatsoever against Level 3 relating
to the content of the Internet or respecting any information, product, service
or software ordered through or provided by virtue of the Internet.
8. Level 3 makes the Service Level Agreement as attached respecting Managed
Modem Services.
Page 22 of 27
<PAGE>
- --------------------------------------------------------------------------------
Managed Modem SLA Page 1 of 1
- --------------------------------------------------------------------------------
Level 3 U.S. Managed Modem Services are backed by the following Service Level
Agreement (SLA). If the Level 3 obligation is missed, the credit set forth below
will be issued to the Customer if requested, once verified by Level 3. The total
number of credits per month is limited to the Monthly Recurring Charge (MRC) for
the affected service.
Level 3 provides a toll-free number connecting the Customer to Level 3 Customer
Service for all issues -including technical, billing, and product inquiries:
1-877-4LEVEL3 (1-877-453-8353).
Order Acceptance Definition
An order is accepted by Level 3 (for the purposes of this Installation Guarantee
only) as soon as the Order Entry Specialist receives the order in Customer
Implementation Management (CIM).
Obligations and Credits
<TABLE>
<CAPTION>
Level 3 Obligation Credit
<S> <C>
90% Call Success Rate (CSR) o Monthly Average CSR Credits
o CSR will be determined by Level 3 through its own internal will be given using the following
reporting procedures. The CSR will be calculated by having an schedule:
automated dialing device randomly dial into the Managed Modem network - 90% No Credit
over meet point billing trunks and calculate the number of IP sessions - 88-89.99% = 2.5% of MRC
established vs. the number of failures. The formula for calculation is - 85-87.99% = 5% of MRC
as follows: (# Successful Attempts / Total Attempts) - 80-84.99% = 7.5% of MRC
o The CSR will be calculated on a monthly basis. Credits will be - 79.99% = 10% of MRC
based on the Monthly Average CSR. In the event that the Customer - Note: 10% is the maximum credit
reports the missed SLA within 15 days of the of the last day of the per month.
previous month, the credits will be generated for the Customer and
reflected on the next invoice. o Catastrophic outage credit will
o Unsuccessful call attempts caused by outages associated with be determined using the following
maintenance events, Customer caused outages or disruptions, the calculation: ((MRC x # Ports
performance of Internet networks controlled by other companies, or Affected) / 30)
traffic exchange points which are controlled by other companies shall
not be included in the calculation of the monthly call success rate. NOTE: Credits cannot exceed Customer's
o In the event that Level 3 is unable to provide service for more total MRC.
than 15 consecutive minutes in a given day (a "Catastrophic Outage"),
a one- day credit will be given for the ports affected. The 15-minute NOTE: CSR SLAs not supported
consecutive outage will be measured from the time that Level 3 for ISDN.
Customer Service is contacted, a trouble ticket is established, and
the time the Service has been reestablished. No more than one daily
credit will be given regardless of the outage time. Catastrophic
Outages must be reported to Level 3 within 10 hours of occurrence to
receive credit.
</TABLE>
Page 23 of 27
<PAGE>
ADDITIONAL TERMS AND CONDITIONS FOR
IP CROSSROADS
The following additional terms and conditions are applicable where, pursuant to
a Customer Order, Customer orders IP CrossRoads Services.
1. Any state or federal tariffs applicable to the IP CrossRoads Services to be
delivered under any Customer Order are incorporated into the terms thereof.
2. The nonrecurring charges and monthly recurring rates for the IP CrossRoads
Services provided by Level 3 to Customer are set forth in each Customer Order.
3. The rates and other charges set forth in each Customer Order are established
in reliance on the term and/or volume commitment made therein, and Customer
agrees to pay the same. In the event that Customer terminates IP CrossRoads
Services ordered in any Customer Order which is accepted by Level 3 or in the
event that the delivery of IP CrossRoads Services is terminated due to a failure
of Customer to satisfy the requirements set forth herein or in the Customer
Order prior to the end of the agreed term, Customer shall (unless Customer has
made a Revenue Commitment) pay a termination charge equal to the percentage of
the monthly recurring charges for the terminated IP CrossRoads Services
calculated as follows:
a. 100% of the monthly recurring charge that would have been incurred for
the IP CrossRoads Service for months 1-12 of the agreed term; plus
b. 75% of the monthly recurring charge that would have been incurred for
the IP CrossRoads Service for months 13-24 of the agreed term; plus
c. 50% of the monthly recurring charge that would have been incurred for
the IP CrossRoads Service for months 25 through the end of the agreed term.
Customer may, in the event that a Revenue Commitment is made and is then being
satisfied by Customer, terminate, rearrange or reconfigure the IP CrossRoads
Services ordered under a Customer Order without payment of the termination
charge specified above; PROVIDED, HOWEVER, that Customer shall be responsible
for payment of Level 3's then-current standard nonrecurring charges applicable
to such termination, rearrangement or reconfiguration.
4. Level 3 provides only access to the Internet; Level 3 does not operate or
control the information, services, opinions or other content of the Internet.
Customer agrees that it shall make no claim whatsoever against Level 3 relating
to the content of the Internet or respecting any information, product, service
or software ordered through or provided by virtue of the Internet.
5. If Customer orders IP CrossRoads Services pursuant to a Customer Order, the
Customer shall be permitted to make two (2) changes to its Committed Data Rate
each contract year, provided that such change be to a higher Committed Data
Rate.
6. Level 3 reserves the right, but does not undertake the obligation, to
provide any Customer or potential customer bound by a Nondisclosure Agreement
access to a list of (i) Level 3's Customers which are connected to the IP
CrossRoads Intra-Gateway Exchange Network Platform; and/or (ii) Autonomous
Systems Internet Networks connected to the IP CrossRoads On-Net Transport
Network Platform. By this Agreement, Customer consents to such disclosures.
Level 3 makes no guarantee of any Customer's willingness to exchange Internet
traffic with any other customer. Level 3 will, however, use reasonable efforts
to arrange an introduction between customers or prospective customers bound by a
Nondisclosure Agreement to facilitate an agreement between them respecting the
exchange of Internet traffic.
Level 3 undertakes no obligations and accepts no liability for the
configuration, management, performance or any other issue relating to Customer's
routers or other customer provided equipment used for access to or the exchange
of traffic in connection with Level 3's IP CrossRoads Service.
7. Level 3 makes the Service Level Agreement as attached respecting IP
CrossRoads Service.
Page 24 of 27
<PAGE>
- --------------------------------------------------------------------------------
IP CrossRoads SLA Page 1 of 3
- --------------------------------------------------------------------------------
Level 3 IP CrossRoads Services are backed by the following Service Level
Agreement (SLA). If the Level 3 obligation is missed, the credit set forth below
will be issued to the Customer if requested, once verified by Level 3. The total
number of credits per month is limited to the Monthly Recurring Charge (MRC) for
the affected Service. To receive credit if these obligations have not been met,
the Customer must contact Level 3 Customer Service within five (5) days of the
end of the month for which credit is requested.
Level 3 provides a toll-free number connecting the Customer to Level 3 Customer
Service for all issues -including technical, billing, and product inquiries:
1-877-4LEVEL3 (1-877-453-8353).
Order Acceptance Definition
An order is accepted by Level 3 (for the purposes of this Installation Guarantee
only) as soon as the Order Entry Specialist receives the order in Customer
Implementation Management (CIM).
Obligations and Credits
<TABLE>
<CAPTION>
Level 3 Obligation Credit
<S> <C>
Installation Guarantee One (1) day for each day
Level 3 guarantees the following installation time frames in Level 3's standard missed (up to 4 days
service areas, beginning with Level 3's acceptance of a Customer Order. This total credit)
guarantee does not cover incorrect data on the Customer Order, a change in the
Customer Order, or a non-standard implementation. The maximum installation
credit is four (4) days.
o Ethernet port speeds of 10Mbps or 100Mbps terminating in Level 3 Colocation
Space: 10 business days or less for North America and Europe
o 64-1.920Kbps (DS-1/E-1) port speeds: 45 business days or less for North America
and Europe
o 3-45Mbps (DS-3/E-3) port speeds: 60 business days or less for North
America and Europe
o 155Mbps (OC-3), 622Mbps (OC-12), and 1000Mbps (GigE): Individual Case Basis (ICB)
o Customer Provided Access (CPA): 20 business days or less for North America for
circuits less than or equal to DS-3, after the CPA is delivered
</TABLE>
Page 25 of 27
<PAGE>
- --------------------------------------------------------------------------------
IP CrossRoads SLA Page 2 of 3
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Level 3 Obligation Credit
<S> <C>
100% Service Availability Guarantee* One (1) day
Service Unavailability refers to any outage reported by the Customer within 48
hours of the outage and confirmed by Level 3 Customer Service. Service
Unavailability covers any outage associated with the Customer's access port to
the Level 3 Internet network, extending across the Level 3 Internet network, and
across the local access circuit if provisioned on the Level 3 metropolitan
network. Service Unavailability does not include outages associated with
scheduled maintenance events, Customer-caused outages or disruptions, the
performance of Internet networks controlled by other companies, or traffic
exchange points which are controlled by other companies.
We guarantee that for any outage lasting between 15 minutes and 24 hours within
the same 24-hour period, Customers will receive a 1-day credit.
*NOTE: If the Customer has signed a contract governed by German law, and/or DIA
service is provisioned in Germany, the following Availability Guarantees shall
instead apply:
Local Loop Guarantee: 97.5% Annual Availability
Service Unavailability time is calculated as the total number of outages a
Customer experiences during a calendar month. The maximum Service Unavailability
may vary depending on the total number of days in the month. Example: in a
365-day year, the Service Unavailability maximum would be 219 hours. If Level 3
exceeds the maximum Service Unavailability time of 219 hours over the first 12
months of the Customer's contract, then Level 3 would be liable to pay the
Customer service credits for the Service Unavailability exceeding 219 hours.
Internet Network Guarantee: 99.9% Monthly Availability
Service Unavailability time is calculated as the total number of outages a
Customer experiences during a calendar month. The maximum Service Unavailability
may vary depending on the total number of days in the month. Example: in a
typical 30-day month, the Service Unavailability maximum would be 44 minutes. If
Level 3 exceeds the maximum Service Unavailability time of 44 minutes, thenLevel
3 would be liable to pay the Customer a service credit equal to time of total
Service Unavailability exceeding 44 minutes.
</TABLE>
Page 26 of 27
<PAGE>
- --------------------------------------------------------------------------------
IP CrossRoads SLA Page 3 of 3
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Level 3 Obligation Credit
<S> <C>
Delay Guarantee One (1) day
Delay refers to the one-way average delay, over a calendar month, of traffic
between all major Level 3 Gateways on the Level 3 U.S. and European Internet
network. Delay does not apply to the Customer's local access circuit, transit or
peering connections, circuits to the traffic exchange points, maintenance
events, or to Customer-caused outages or disruptions. Customers may obtain delay
measurements directly from the Level 3 Web site at www.Level3.com.
o North American Network Delay Guarantee: 40 ms average one-way
o European Network Delay Guarantee: 30 ms average one-way
o London to New York Guarantee: 40 ms average one-way
Page 27 of 27
</TABLE>
Document #
4/10/00 12:55 PM
Commercial Pilot
Agreement
TransNexus(R)
430 Tenth Street NW
Suite N204
Atlanta, GA 30318
USA
+1.404.872.4887
+1.404 872 9515 Fax
[email protected]
The information herein is the property of TransNexus, LLC. It is not to be
distributed by the recipient to third parties without prior written Permission
from TransNexus, LLC. Copyright 2000. All Rights reserved.
<PAGE>
http://www.transnexus.com
The information herein is the property of TransNexus, LLC. It is not to be
distributed by the recipient to third parties without prior written Permission
from TransNexus, LLC. Copyright 2000. All Rights reserved.
<PAGE>
TRANSNEXUS CLEARIPSM
COMMERCIAL PILOT AGREEMENT
BETWEEN
TRANSNEXUS L.L.C.
AND
THE COMPANY
This Commercial Pilot Agreement ("Agreement") is by and between TransNexus,
L.L.C. , a business entity organized as a Corporation under the laws of the
State of Georgia, with a registered address at 430 Tenth Street NW, Suite N204,
Atlanta, GA, 30318 USA, and VDC Telecommunications, Inc. (The Company),
incorporated in Delaware and located at address 75 Holly Hill Lane, Greenwich,
CT 06830.
The Solution. TransNexus is the owner of a Clearinghouse Solution identified as
"ClearIPSM". ClearIPSM is a complete turnkey solution for inter-IP domain
traffic authorization, billing, clearing and settlement. The ClearIPSM solution
provides a web user interface which is used for provisioning wholesale rate
plans for IP devices, enrolling IP devices in the clearinghouse network,
managing the credit status of IP devices in the clearinghouse network, managing
the status of clearinghouse customer service representatives, clearinghouse
customers and TransNexus customer service representatives. In addition,
ClearIPSM Service Points on the IP network provide real time authorization and
routing of IP traffic among the IP domains of clearinghouse customers. These
same service points also collect the resulting usage records of authorized IP
transactions and forward those records to the TransNexus operations center where
inter-IP domain usage records are reconciled, rated and settled among IP domain
operators using the clearinghouse service. As an Application Service Provider,
TransNexus operates the ClearIPSM Clearinghouse solution on behalf of our
customers.
Technical specifications. The following devices are currently certified by
TransNexus as being compliant with the Open Settlement Protocol and TransNexus
requirements. We expect that additional Cisco and Lucent VoIP devices will be
certified by TransNexus by the end of Q12000.
Cisco 2600 series
Cisco 3600 series
Cisco 5300 series
Lucent MVAM Platform
Proprietary property of TransNexus. You understand and agree that the ClearIPSM
Service contains valuable, confidential, trade secret information owned by
TransNexus, and you recognize the need for TransNexus to ensure trade secret
protection of this property.
Confidentiality agreement. In consideration for TransNexus agreeing to
facilitate this free 60-day trial of the ClearIPSM Service, THE COMPANY agrees
that any information related to the ClearIPSM Service shall be considered
confidential and proprietary. Accordingly, THE COMPANY agrees that it shall
treat our information as it would its own confidential and proprietary
information. THE COMPANY agrees that it will not duplicate, translate, modify,
copy, printout, disassemble, decompile or otherwise tamper with the ClearIPSM
Service. For purposes of this agreement, the information includes all
information related to the ClearIPSM Service, whether incorporated in a physical
medium or not, related to TransNexus' business operations, including (but not
limited to) inventions, products, services, personnel, methods of doing
business, research and development activities, know-how, customers, trade
secrets, commercial secrets, computer programs or finances (hereafter called
"the Information"), The information may include information which has been
submitted to TransNexus by third parties, and which TransNexus has been
authorized to disclose, subject to the security measures or confidentiality
agreements. In such cases, THE COMPANY accepts that this agreement shall be
deemed also for the benefit of such a party and fully binding upon THE COMPANY
with respect to such Information.
Return of property. At the termination of the trial, THE COMPANY agrees to
return all confidential information relating to ClearIPSM to TransNexus. The
trial may be extended by the mutual agreement of TransNexus and THE COMPANY or
<PAGE>
upon written notification to TransNexus by THE COMPANY of its intent to pursue
commercial operations with TransNexus within 60 (sixty) days for the end date of
the trial.
License. TransNexus is granting to THE COMPANY only a limited, non-exclusive,
nontransferable license to use the ClearIPSM Service for a period not to exceed
60 days. THE COMPANY acknowledges and agrees that THE COMPANY will not use the
ClearIPSM Service for any purpose that is illegal and it is responsible for all
taxes arising out of the ClearIPSM trial, except for TransNexus Corporate Income
Tax.
Termination. THE COMPANY may terminate this Agreement at any time prior to
expiration of the trial by returning all Confidential Information related to the
ClearIPSM Service to TransNexus. TransNexus may terminate this Agreement upon
notice to THE COMPANY. Upon termination, THE COMPANY agrees to immediately
return all Confidential Information related to the ClearIPSM Service to
TransNexus. Your obligations to treat TransNexus property as confidential, as
set forth above shall survive the termination of this Agreement for a period not
to exceed three years. If not earlier terminated, this Agreement shall terminate
automatically upon the end of the 60-day period and following your return of all
Information. Upon termination, THE COMPANY agrees to remove from THE COMPANY's
equipment or computers any files related to ClearIPSM.
Trial Implementation Plan. Upon acceptance of this Agreement, TransNexus will
submit a proposed Trial Implementation Plan defining the trial objectives, work
schedule and mandatory acceptance testing for completion of the ClearIPSM
Service trial. If THE COMPANY desires to make modifications to the proposed
Trail Implementation Plan, TransNexus requests that the modifications to the
Trial Implementation Plan be submitted to TransNexus within ten working days.
Once TransNexus and THE COMPANY have agreed on a Trial Implementation Plan, the
ClearIPSM Service trial will begin on the agreed upon date and will continue for
a period of up to 60 days.
Press release. In consideration for TransNexus permitting THE COMPANY the right
to use the ClearIPSM Service for the free 60-day trial, it is understood that
TransNexus has the right to announce the THE COMPANY's participation in the
trial to the general public by press release or in another manner. THE COMPANY
has the right to approve in writing any Press Release prior to issuance by
TransNexus, and THE COMPANY will not unreasonably withhold approval of release.
Limitation on Warranties. TransNexus represents and warrants only that it has
the requisite right and legal authority to grant the license and provide the
Service and the Confidential Information as contemplated by this Agreement.
TRANSNEXUS MAKES NO OTHER WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE
PRODUCT OR ANY OTHER CONFIDENTIAL INFORMATION. ALL OTHER WARRANTIES, WHETHER
EXPRESS OR IMPLIED, ARE HEREBY DISCLAIMED, INCLUDING, WITHOUT LIMITATION, THE
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
TRANSNEXUS'S SOLE LIABILITY FOR BREACH OF THE LIMITED REPRESENTATION AND
WARRANTY ABOVE, AND THE COMPANY's SOLE REMEDY FOR TRANSNEXUS'S BREACH OF THE
LIMITED REPRESENTATION AND WARRANTY ABOVE, SHALL BE THAT TRANSNEXUS SHALL
INDEMNIFY AND HOLD THE COMPANY HARMLESS FROM AND AGAINST ANY LOSS, SUIT, DAMAGE,
CLAIM OR DEFENSE ARISING OUT OF BREACH OF THE LIMITED REPRESENTATION AND
WARRANTY, INCLUDING REASONABLE ATTORNEYS' FEES.
Support. TransNexus will provide support via email to you at
[email protected], or via telephone 1 404 872 4887, ext. 230 from the hours
of 9:00 AM to 7:00 PM US EST.
No assignment. THE COMPANY may not assign this Agreement without the prior
written consent of TransNexus.
Final agreement. Other than the Confidentiality Agreement between the parties
dated January 28, 2000, this agreement terminates and supersedes all prior
understandings or agreements on the subject matter hereof. This agreement may be
modified only by a further writing that is duly executed by both parties.
IN WITNESS OF THIS, the Parties intending to be legally bound hereby, have
executed this Agreement as per the respective dates specified below:
<PAGE>
TRANSNEXUS, L.L.C. THE COMPANY
By: /s/ Jim Dalton By:/s/ Frederick A. Moran
------------------------------- ------------------------
Name: Jim Dalton Name: Frederick A. Moran
---------------------------- ---------------------
Title: CEO Title:Chairman & CEO
---------------------------- ---------------------
Date: 27 Mar 2000 Date: 3/27/00
----------------------------- ---------------------
2000-OP12
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 March 24, 2000, (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 slightly
more than 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 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.
(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
2
<PAGE>
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.
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: March 24, 2000
2. Number of Shares of Common Stock covered by the Option: 20,000
3. Exercise Price (slightly more than 110% of Fair Market Value of Common
Stock on the Grant Date): $3.79
4. The Option is vested in full as of the Grant Date.
4
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
<S> <C>
Clayton F. Moran 10,000
Charles W. Mulloy 10,000
Edwin B. Read 10,000
Peter Zagres 10,000
</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 March 24, 2000 (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 slightly
higher than 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.
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:
---------------------------
Frederick A. Moran
Chief Executive Officer
OPTIONEE:
------------------------------
3
<PAGE>
--------
Optionee
Schedule A
1. Grant Date: March 24, 2000
2. Number of Shares of Common Stock covered by the Option: 10,000
3. Exercise Price (slightly higher than 100% of Fair Market Value of
Common Stock on the Grant Date): $3.50
4. The Option is vested in full as of the Grant Date.
4
AGREEMENT
READ CAREFULLY BEFORE SIGNING / CONTAINS RELEASE OF CLAIMS
FOR AND IN CONSIDERATION OF the sum of One Hundred Fifty Thousand
Dollars ($150,000.00), the receipt of which is hereby acknowledged and other
good and valuable consideration, VDC COMMUNICATIONS, INC. ("VDC"), MASATEPE
COMMUNICATIONS, U.S.A, L.L.C. ("Lessee"), General Electric Capital Corporation,
acting through its unincorporated division Newbridge Financial Services,
("Lessor"), NEWBRIDGE NETWORKS CORPORATION ("Vendor"), and NEWBRIDGE NETWORKS
INC. ("Newbridge"), on behalf of themselves and their servants, officers,
directors, shareholders, members, managers, agents, attorneys, representatives,
subsidiaries, affiliates, divisions, units, parent corporations, predecessors,
successors, and assigns, hereby:
REMISE, RELEASE, AND FOREVER DISCHARGE each other, their servants,
officers, directors, shareholders, members, managers, agents, attorneys,
representatives, subsidiaries, affiliates, divisions, units, parent
corporations, predecessors, successors, assigns and all other persons, insurers,
firms and corporations whomsoever, of and from any and all actions, claims,
demands, and suits, known and unknown, which each of them now have or may
hereafter have against each other or the other individuals and entities
referenced in this paragraph arising out of, or in any way related to, Master
Lease Agreement No. 6785940 by and between Lessee (identified in said document
as "Masatepe Communications USA L.L.C.") and Lessor and all schedules and
exhibits thereto including, without limitation, Schedules 6785940-001 (sometimes
identified as "6785940.001"), 6785940-002 (sometimes identified as
"6785940.002") and 6785940-003 thereto (collectively, the "Lease"), the
equipment and associated items, software, and licenses referenced in the Lease,
including all additions, alterations, and modifications thereto (collectively,
the "Equipment"), services rendered in connection with the Equipment
(collectively, the "Services"), a Corporate Guaranty to the Lease executed by
VDC with VDC Corporation Ltd. referenced as Guarantor at the top of the
Corporate Guaranty (the "Guaranty"), or any Vendor, Lessor, or Newbridge service
agreement including, without limitation, any Talizman Network Support Services
Agreement and all invoices associated therewith (collectively, the "Service
Agreements"). Nothing contained in the foregoing release shall operate to
discharge any party of its obligations under this Agreement.
1
<PAGE>
As further consideration for this Agreement, the parties warrant that
no promise or agreement not herein expressed has been made to each other; that
in executing this Agreement, the parties are not relying upon any statement or
representation, other than those appearing in this Agreement, made by the other
party or parties hereby released or said party's or parties' agents, insurers or
servants concerning the nature, extent or duration of the damages, or concerning
any other thing or matter, but are relying solely upon their own judgment; that
the above mentioned sum and other consideration is received by the parties in
full settlement and satisfaction of all the aforesaid claims and demands
whatsoever; that each party is legally competent to execute this Agreement; and
that before signing and sealing this Agreement, the parties have fully informed
themselves of its contents and meaning and have executed it with full knowledge
thereof.
As further consideration for this Agreement, Vendor represents and
warrants that prior to the execution of this Agreement there were no agreements
between Vendor and either Lessee or VDC. As further consideration for this
Agreement, Vendor represents and warrants that, other than the obligations set
forth in this Agreement, there are no obligations or liabilities of Lessee or
VDC to Vendor that are not released by this Agreement. Vendor acknowledges that
Lessee and VDC are relying upon these representations in entering into this
Agreement.
As further consideration for this Agreement, Newbridge represents and
warrants that prior to the execution of this Agreement there were no agreements
between Newbridge and either Lessee or VDC. As further consideration for this
Agreement, Newbridge represents and warrants that, other than the obligations
set forth in this Agreement, there are no obligations or liabilities of Lessee
or VDC to Newbridge that are not released by this Agreement. Newbridge
acknowledges that Lessee and VDC are relying upon these representations in
entering into this Agreement.
As further consideration for this Agreement, Lessor represents and
warrants that prior to the execution of this Agreement, there were no agreements
between Newbridge Financial Services and either Lessee or VDC other than the
Lease and the Guaranty. As further consideration for this Agreement, Lessor
2
<PAGE>
represents and warrants that, other than the obligations set forth in this
Agreement, there are no obligations or liabilities of Lessee or VDC to Newbridge
Financial Services that are not released by this Agreement. As further
consideration for this Agreement, Lessor represents and warrants that it is
authorized to act on behalf of, and this Agreement is binding up, Newbridge
Financial Services. Lessor acknowledges that Lessee and VDC are relying upon
these representations in entering into this Agreement.
As further consideration of the aforesaid payment and the exchange of
other consideration referenced in this Agreement, Lessor, on behalf of itself
and its divisions and units, Vendor, and Newbridge hereby sell, transfer, convey
and assign to Lessee all of their rights, titles and interests in and to all of
the Equipment. Lessor, Vendor, and Newbridge shall execute and deliver or cause
to be executed and delivered such further instruments of conveyance, assignment
and transfer and take such further action as Lessee may reasonably request in
order more effectively to sell, assign, convey, transfer, reduce to possession
and record title to the Equipment. Lessor, Vendor, and Newbridge agree to
cooperate with Lessee in all reasonable respects to assure to Lessee the
continued title to and possession of the Equipment.
The parties understand that the payment of the aforesaid sum by Lessee
and the exchange of other consideration hereunder is in settlement of a disputed
claim, and that the said payment and exchange of consideration is not to be
construed as an admission of liability upon the part of the persons, firms,
insurers or corporations hereby released by whom liability is expressly denied.
This paragraph is not intended to limit or qualify any other paragraph
in this Agreement. This paragraph adds to and supplements the other paragraphs
in this Agreement. In further consideration of the consideration exchanged
hereunder, Lessor, Vendor, Newbridge, and their respective servants, officers,
directors, shareholders, members, managers, agents, attorneys, representatives,
subsidiaries, affiliates, divisions, units, parent corporations, predecessors,
successors, assigns are HEREBY AND FOREVER RELEASED AND DISCHARGED from any and
all liability to Lessee and VDC for any and all actions arising under or
pursuant to the Lease, the Equipment, the Services, the Guaranty or the Service
Agreements. Also, in further consideration of the aforesaid payment and the
3
<PAGE>
exchange of other consideration, Lessee, and its servants, officers, directors,
shareholders, members, managers, agents, attorneys, representatives,
subsidiaries, affiliates, divisions, units, parent corporations, predecessors,
successors, and assigns are HEREBY AND FOREVER RELEASED AND DISCHARGED from any
and all liability to Lessor, Vendor, and Newbridge for any and all actions
arising under or pursuant to the Lease, the Equipment, the Services, the
Guaranty, or the Service Agreements. In consideration of Thirty Dollars
($30.00), the receipt of which is hereby acknowledged, and in further
consideration of the consideration exchanged hereunder, VDC and its servants,
officers, directors, shareholders, members, managers, agents, attorneys,
representatives, subsidiaries, affiliates, divisions, units, parent
corporations, predecessors, successors, and assigns are HEREBY AND FOREVER
RELEASED AND DISCHARGED from any and all liability to Lessor, Vendor, and
Newbridge for any and all actions arising under or pursuant to the Lease, the
Equipment, the Services, the Guaranty, or the Service Agreements. Nothing
contained in the foregoing releases shall operate to discharge any party of its
obligations under this Agreement.
Lessor shall indemnify and hold harmless Lessee, VDC and their
respective servants, officers, directors, shareholders, members, managers,
agents, attorneys, representatives, subsidiaries, affiliates, divisions, units,
parent corporations, predecessors, successors, and assigns (collectively, the
"Masatepe Parties") from and against all damages, expenses, costs and attorneys'
fees which the Masatepe Parties may suffer or incur by reason of any breach of
this Agreement by the Lessor or the inaccuracy of any representation made by the
Lessor in this Agreement.
Vendor shall indemnify and hold harmless the Masatepe Parties from and
against all damages, expenses, costs and attorneys' fees which the Masatepe
Parties may suffer or incur by reason of any breach of this Agreement by the
Vendor or the inaccuracy of any representation made by the Vendor in this
Agreement.
Newbridge shall indemnify and hold harmless the Masatepe Parties from
and against all damages, expenses, costs and attorneys' fees which the Masatepe
Parties may suffer or incur by reason of any breach of this Agreement by
Newbridge or the inaccuracy of any representation made by Newbridge in this
Agreement.
4
<PAGE>
Lessee shall indemnify and hold harmless Lessor, Vendor, Newbridge, and
their respective servants, officers, directors, shareholders, members, managers,
agents, attorneys, representatives, subsidiaries, affiliates, divisions, units,
parent corporations, predecessors, successors, and assigns (collectively, the
"Newbridge Parties") from and against all damages, expenses, costs and
attorneys' fees which the Newbridge Parties may suffer or incur by reason of any
breach of this Agreement by Lessee or the inaccuracy of any representation made
by the Lessee in this Agreement.
VDC shall indemnify and hold harmless the Newbridge Parties from and
against all damages, expenses, costs and attorneys' fees which the Newbridge
Parties may suffer or incur by reason of any breach of this Agreement by VDC or
the inaccuracy of any representation made by VDC in this Agreement.
The invalidity or unenforceability of any term of this Agreement shall
not affect the validity or enforceability of this Agreement or any of its other
terms; in the event that any court determines that any provision of this
Agreement is invalid or unenforceable, as the case may be, then, and in either
such event, neither the enforceability nor the validity of said paragraph or
section as a whole shall be affected. Rather, the scope of said paragraph or
section shall be revised by the court as little as possible to make the
paragraph or section enforceable. If the court will not revise said paragraph or
section, then this Agreement shall be construed as though the invalid or
unenforceable term(s) were not included herein, unless the effect would be to
vitiate the parties' fundamental purposes of entering into this Agreement.
The undersigned understand, agree and warrant that this Agreement may
be pleaded as a complete bar and defense to any action or other proceedings
released by this Agreement. The undersigned further acknowledge that they have
on consideration hereunder read the contents of this Agreement and it will have
the effect of barring any future claims, demands, or causes of action released
by this Agreement, and it is with this understanding that the undersigned
execute this Agreement.
5
<PAGE>
MASATEPE COMMUNICATIONS, U.S.A., L.L.C.
By: VDC Communications, Inc., its
Managing Member
By: /s/Frederick A. Moran
--------------------------------------------
Frederick A. Moran
Chairman & CEO
VDC COMMUNICATIONS, INC.
By: /s/Frederick A. Moran
-------------------------------------------------
Frederick A. Moran
Chairman & CEO
GENERAL ELECTRIC CAPITAL CORPORATION,
(d/b/a Newbridge Financial Services)
By: /s/LW Middleton
-------------------------------------------------
Signature
LW Middleton
----------------------------------------------------
Print Name
Vice President TFS
----------------------------------------------------
Title
NEWBRIDGE NETWORKS CORPORATION
By: /s/D. McCarthy
-------------------------------------------------
Signature
D. McCarthy
----------------------------------------------------
Print Name
VP Finance and Treasurer
----------------------------------------------------
Title
6
<PAGE>
NEWBRIDGE NETWORKS INC.
By: /s/Peter Nadeau
-------------------------------------------------
Signature
Peter Nadeau
----------------------------------------------------
Print Name
Secretary
----------------------------------------------------
Title
7
<PAGE>
STATE OF CONNECTICUT)
COUNTY OF FAIRFIELD )
Before me, Jeanne Bauge O'Malley, a Notary Public of said County and
State, personally appeared Frederick A. Moran, with whom I am personally
acquainted (or proved to me on the basis of satisfactory evidence), and who,
upon oath, acknowledged self to be Chairman and CEO of VDC Communications, Inc.,
the Managing Member of MASATEPE COMMUNICATIONS U.S.A., L.L.C. the within named
bargainor, a limited liability company, and that as such executed the foregoing
instrument for the purposes therein contained.
Witness my hand and seal, at Office in Greenwich, this 10th
day of March, 2000.
/s/Jeanne Bauge O'Malley
----------------------------------------------
Notary Public
My Commission Expires: Apr. 30, 2004
-------------
STATE OF CONNECTICUT)
COUNTY OF FAIRFIELD )
Before me, Jeanne Bauge O'Malley, a Notary Public of said County and
State, personally appeared Frederick A. Moran, with whom I am personally
acquainted (or proved to me on the basis of satisfactory evidence), and who,
upon oath, acknowledged self to be Chairman and CEO of VDC Communications, Inc.,
the within named bargainor, a corporation, and that as such executed the
foregoing instrument for the purposes therein contained.
Witness my hand and seal, at Office in Greenwich, this 10th day of
March, 2000.
/s/Jeanne Bauge O'Malley
----------------------------------------------
Notary Public
My Commission Expires: Apr. 30, 2004
-------------
8
<PAGE>
STATE OF TENNESSEE )
COUNTY OF WILLIAMSON )
Before me, Margaret E. Danka, a Notary Public of said County and State,
personally appeared Lawrence W. Middleton with whom I am personally acquainted
(or proved to me on the basis of satisfactory evidence), and who, upon oath,
acknowledged self to be Vice President of TELECOM FINANCIAL SERVICES
Corporation, (d/b/a Newbridge Financial Services), the within named bargainor, a
corporation, and that he as such Vice President executed the foregoing
instrument for the purposes therein contained, by signing the name of the
corporation by himself as Vice President.
Witness my hand and seal, at Office in Nashville, this 8th day of
March, 2000.
/s/Margaret E. Danka
----------------------------------------------
Notary Public at Large Qualified in Davidson
County
My Commission Expires: 1/31/2004
---------
PROV OF ONTARIO )
CITY OF KANATA )
Before me, Michael Gill Stewart, a Notary Public of said County and
State, personally appeared Doug McCarthy with whom I am personally acquainted
(or proved to me on the basis of satisfactory evidence), and who, upon oath,
acknowledged self to be VP Finance and Treasurer of NEWBRIDGE NETWORKS
CORPORATION the within named bargainor, a corporation, and that as such he
executed the foregoing instrument for the purposes therein contained, by signing
the name of the corporation by himself as VP Finance and Treasurer.
9
<PAGE>
Witness my hand and seal, at Office in Kanata, this 6th day of March,
2000.
/s/Michael Gill Stewart
----------------------------------------------
Notary Public
My Commission Expires: n/a
---
PROV OF ONTARIO )
CITY OF KANATA )
Before me, Michael Gill Stewart, a Notary Public of said County and
State, personally appeared Peter Nadeau with whom I am personally acquainted (or
proved to me on the basis of satisfactory evidence), and who, upon oath,
acknowledged self to be Secretary of NEWBRIDGE NETWORKS INC. the within named
bargainor, a corporation, and that as such Peter Nadeau executed the foregoing
instrument for the purposes therein contained, by signing the name of the
corporation by himself as Secretary.
Witness my hand and seal, at Office in Kanata, this 6th day of March,
2000.
/s/Michael Gill Stewart
----------------------------------------------
Notary Public
My Commission Expires: n/a
---
10
VDC COMMUNICATIONS, INC.
--------------------------------------------------------------
Securities Purchase Agreement
--------------------------------------------------------------
Shares of Common Stock
at $2.00 per Share
--------------------------------------------------------------
April 26, 2000
<PAGE>
CONFIDENTIAL
- ------------
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement" or the "Securities
Purchase Agreement") is entered into as of the 26th day of April, 2000, by and
between VDC Communications, Inc., a Delaware corporation ("VDC" or the
"Company"), and the investor whose name appears at the end of this Agreement
("Purchaser" or "Subscriber").
R E C I T A L S:
----------------
The Company wishes to obtain additional working capital and the
Purchaser desires to provide such working capital to the Company through the
purchase of certain shares of the Company's common stock, $.0001 par value per
share (the "Common Stock"), being privately offered by the Company.
NOW, THEREFORE, in consideration of the premises hereof and the
agreements set forth herein below, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Sale and Purchase of Shares.
----------------------------
Subject to the terms and conditions hereof, the Company agrees
to issue and sell, and the Purchaser agrees to purchase that number of shares of
Common Stock (the "Shares") identified on the signature page hereof at a
purchase price of $2.00 per share. The total purchase price is set forth on the
signature page hereof (the "Purchase Price"). The Purchase Price is payable upon
subscription in cash, check or wire transfer. If paying by check, the check
should be made payable to "VDC Communications, Inc." and delivered to VDC
Communications, Inc. at 75 Holly Hill Lane, Greenwich, Connecticut, 06830.
No broker, investment banker or any other person will receive
from the Company any compensation as a broker, finder, adviser or in any other
capacity in connection with the purchase of the Shares hereunder.
2. Description of the Shares.
--------------------------
(a) Restricted Securities. The Shares shall be
"restricted securities" as that term is defined under Rule 144 of the Securities
Act of 1933, as amended (the "Act"), and may not be offered for sale or sold or
otherwise transferred in a transaction which would constitute a sale thereof
within the meaning of the Act unless (i) such security has been registered for
sale under the Act and registered or qualified under applicable state securities
laws relating to the offer and sale of securities; or (ii) exemptions from the
registration requirements of the Act and the registration or qualification
requirements of all such state securities laws are available and the Company
shall have received an opinion of counsel that the proposed sale or other
disposition of such securities may be effected without registration under the
Act and would not result in any violation of any applicable state securities
laws relating to the registration or qualification of securities for sale, such
counsel and such opinion to be satisfactory to the Company.
2
<PAGE>
(b) Voting Rights; Dividends. Holders of Common Stock of
the Company have equal rights to receive dividends when, as, and if declared by
the Board of Directors out of funds legally available therefor. Holders of
Common Stock of the Company have one vote for each share held of record and do
not have cumulative voting rights.
(c) Liquidation; Redemption. Holders of Common Stock of
the Company are entitled upon liquidation of the Company to share ratably in the
net assets available for distribution, subject to the rights, if any of holders
of any preferred stock of the Company then outstanding. Shares of Common Stock
of the Company are not redeemable and have no preemptive or similar rights. All
outstanding shares of Common Stock of the Company are fully paid and
nonassessable.
(d) Restriction Upon Resale. The Subscriber hereby agrees
that the Shares shall be subject to restrictions upon the transfer, sale,
encumbrance or other disposition of the Shares. See "Understanding of Investment
Risks" and "Registration Rights".
3. Shares Offered in a Private Placement Transaction.
--------------------------------------------------
The Shares offered by this Securities Purchase Agreement are
being offered as a non-public offering pursuant to Section 4(2) and Regulation D
of the Act ("Regulation D").
4. Binding Effect of Securities Purchase Agreement; The Closing.
-------------------------------------------------------------
This Securities Purchase Agreement shall not be binding on the
Company unless and until an authorized executive officer of the Company has
evidenced acceptance thereof by executing the signature page at the end hereof.
The Company may accept or reject this Securities Purchase Agreement in its sole
discretion if the Purchaser does not meet the suitability standards established
herein, or for any other reason. A closing (the "Closing") will occur
contemporaneously with the execution of this Agreement by all parties hereto.
5. Representations and Warranties of the Purchaser. The Purchaser
------------------------------------------------
represents and warrants to the Company as follows:
(a) Accredited Investor. The Purchaser has such knowledge
and experience in business and financial matters such that the Purchaser is
capable of evaluating the merits and risks of purchasing the Shares. The
Purchaser is either an "accredited investor" as that term is defined in Rule 501
of Regulation D of the Act or a "qualified institutional buyer" as that term is
defined in Rule 144A of the Act, and represents that he satisfies the
suitability standards identified in Section 10 hereof;
(b) Loss of Investment. The Purchaser('s) (i) overall
commitment to investments which are not readily marketable is not
disproportionate to his net worth; (ii) investment in the Company will not cause
3
<PAGE>
such overall commitment to become excessive; (iii) can afford to bear the loss
of his entire investment in the Company; and (iv) has adequate means of
providing for his current needs and personal contingencies and has no need for
liquidity in his investment in the Company;
(c) Special Suitability. The Purchaser satisfies any
special suitability or other applicable requirements of his state of residence
and/or the state in which the transaction by which the Shares are purchased
occurs;
(d) Investment Intent. The Purchaser hereby acknowledges
that the Purchaser has been advised that this offering has not been registered
with, or reviewed by, the Securities and Exchange Commission ("SEC") because
this offering is intended to be a non-public offering pursuant to Section 4(2)
and Regulation D of the Act. The Purchaser represents that the Purchaser's
Shares are being purchased for the Purchaser's own account and not on behalf of
any other person, for investment purposes only and not with a view towards
distribution or resale to others. The Purchaser agrees that the Purchaser will
not attempt to sell, transfer, assign, pledge or otherwise dispose of all or any
portion of the Shares unless they are registered under the Act or unless in the
opinion of counsel an exemption from such registration is available, such
counsel and such opinion to be satisfactory to the Company. The Purchaser
understands that the Shares have not been registered under the Act by reason of
a claimed exemption under the provisions of the Act which depends, in part, upon
the Purchaser's investment intention;
(e) State Securities Laws. The Purchaser understands that
no securities administrator of any state has made any finding or determination
relating to the fairness of this investment and that no securities administrator
of any state has recommended or endorsed, or will recommend or endorse, the
offering of the Shares;
(f) Authority; Power; No Conflict. The execution,
delivery and performance by the Purchaser of the Agreement are within the powers
of the Purchaser, have been duly authorized and will not constitute or result in
a breach or default under, or conflict with, any order, ruling or regulation of
any court or other tribunal or of any governmental commission or agency, or any
agreement or other undertaking, to which the Purchaser is a party or by which
the Purchaser is bound, and, if the Purchaser is not an individual, will not
violate any provision of the charter documents, Bylaws, indenture of trust,
operating agreement, or partnership agreement, as applicable, of the Purchaser.
The signatures of the Purchaser on the Agreement are genuine, and the signatory,
if the Purchaser is an individual, has legal competence and capacity to execute
the same, or, if the Purchaser is not an individual, the signatory has been duly
authorized to execute the same; and the Agreement constitutes the legal, valid
and binding obligations of the Purchaser, enforceable in accordance with its
terms;
(g) No General Solicitation. The Purchaser acknowledges
that no general solicitation or general advertising (including communications
published in any newspaper, magazine or other broadcast) has been received by
him and that no public solicitation or advertisement with respect to the
offering of the Shares has been made to him;
4
<PAGE>
(h) Advice of Tax and Legal Advisors. The Purchaser has
relied solely upon the advice of his own tax and legal advisors with respect to
the tax and other legal aspects of this investment;
(i) Broker Fees. The Purchaser is not aware that any
person, and has been advised that no person, will receive from the Company any
compensation as a broker, finder, adviser or in any other capacity in connection
with the purchase of the Shares;
(j) Access to Information. Purchaser has had access to
all material and relevant information concerning the Company, its management,
financial condition, capitalization, market information, properties and
prospects necessary to enable Purchaser to make an informed investment decision
with respect to its investment in the Shares. Purchaser has carefully read and
reviewed, and is familiar with and understands the contents thereof and hereof,
including, without limitation, the risk factors referenced in this Agreement.
See "Understanding of Investment Risks." Purchaser acknowledges that it has had
the opportunity to ask questions of and receive answers from, and to obtain
additional information from, representatives of the Company concerning the terms
and conditions of the acquisition of the Shares and the present and proposed
business and financial condition of the Company, and has had all such questions
answered to its satisfaction and has been supplied all information requested;
(k) Review of Reports. The Purchaser acknowledges that it
has been provided with an opportunity to review: (i) a copy of the Company's
Annual Report on Form 10-K for the year ended June 30, 1999; (ii) a copy of the
Company's Quarterly Reports on Form 10-Q for the quarters ended September 30,
1999 and December 31, 1999; (iii) a copy of the Company's Amendment Number 1 to
Registration Statement on Form S-1 (SEC File Number 333-80107); and (iv) all
other recent reports filed by the Company with the Securities and Exchange
Commission under the Securities Exchange Act of 1934 (collectively, the
"Reports").
(l) Understanding the Nature of Securities. The Purchaser
understands and acknowledges that:
(i) The Shares have not been registered under
the Act or any state securities laws and are being issued and sold in reliance
upon certain exemptions contained in the Act;
(ii) The Shares are "restricted securities" as
that term is defined in Rule 144 promulgated under the Act;
(iii) The Shares cannot be sold or transferred
without registration under the Act and applicable state securities laws, or
unless the Company receives an opinion of counsel reasonably acceptable to it
(as to both counsel and the opinion) that such registration is not necessary;
and
5
<PAGE>
(iv) The Shares and any certificates issued in
replacement therefor shall bear the following legend, in addition to any other
legend required by law or otherwise:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES MAY
NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
REGISTRATION, OR THE AVAILABILITY OF EXEMPTION FROM REGISTRATION,
UNDER THE ACT and any applicable state securities laws, BASED ON AN
OPINION LETTER OF COUNSEL SATISFACTORY TO THE COMPANY."
(m) Information Provided. The Purchaser has, on or before
the date of the Closing, been afforded the opportunity to review and is familiar
with the Reports and has based his decision to invest solely on the information
contained therein, and the information contained within this Agreement and the
associated exhibits and schedules, and has not been furnished with and is not
relying upon any other literature, prospectus or other information except as
included in the Reports or this Agreement.
6. Indemnification. The Purchaser shall indemnify and hold
----------------
harmless the Company and the Company's officers, directors and employees from
and against any and all loss, damage or liability (including attorneys' fees),
due to, or arising out of, a breach or inaccuracy of any representation or
warranty contained in Section 5.
7. Understanding of Investment Risks. Any investment in the
------------------------------------
Shares should not be made by a Purchaser who cannot afford the loss of his
entire Purchase Price. The Purchaser acknowledges that the Shares offered hereby
have not been approved or disapproved by the Securities and Exchange Commission,
or any state securities commissions, nor has the Securities and Exchange
Commission or any state securities commission passed upon the adequacy or
accuracy of this Securities Purchase Agreement or any exhibit hereto. Prior to
making an investment in the Shares, the Purchaser has fully considered, among
other things, the financial and other information set forth in the Reports as
well as the risk factors enumerated in the Company's Amendment Number 1 to
Registration Statement on Form S-1 (SEC File Number 333-80107), and acknowledges
that such information has been considered prior to making this investment
decision.
8. Registration Rights. The Company shall advise the Purchaser
--------------------
by written notice prior to the filing of a registration statement under the
Securities Act (excluding registration on Forms S-8, S-4, or any successor forms
thereto), covering securities of the Company to be offered and sold (whether by
the Company or any stockholder thereof) and shall, upon the request of the
Purchaser given at least five (5) business days prior to the filing of such
registration statement, include in any such registration statement such
information as may be required to permit an offering of the Shares. The
Purchaser shall promptly furnish such information as may be reasonably requested
by the Company in order to include such Shares in the registration statement.
6
<PAGE>
Notwithstanding the foregoing, the Company may withdraw any registration
statement referred to in this section without thereby incurring liability to the
holders of the Shares.
With regard to the above registration rights, the Company shall pay for
all registration and filing fees, printing expenses, fees and disbursements of
counsel and independent public accountants for the Company, "blue sky" fees,
fees of the National Association of Securities Dealers, Inc. fees and expenses
of listing shares of the Shares on any securities exchange or automated
quotation system on which the Company's shares are listed and fees of transfer
agents and registrars. With regard to the above registration rights, the
Purchaser shall be responsible for all underwriting discounts and selling
commissions applicable to the sale of Shares and all accountable or
non-accountable expenses paid to any underwriter in respect of the sale of
Shares.
The Company's obligation to register the Shares extends only to the
inclusion of the Shares in a registration statement which covers the public
resale thereof. In all events, the Company shall have no obligation: (i) to
assist or cooperate in the offering or disposition of such Shares; (ii) to
obtain a commitment from an underwriter relative to the sale of such Shares; or
(iii) to include such Shares within an underwritten offering of the Company. The
Company shall assume no responsibility for the manner of sale, timing of sale,
or sales price relating to the resale of the Shares.
9. Representations and Warranties of the Company. The Company hereby
-----------------------------------------------
represents and warrants to Purchaser as follows:
(a) Organization and Standing of the Company. The Company
is a duly organized and validly existing corporation in good standing under the
laws of the State of Delaware with adequate power and authority to conduct the
business in which it is now engaged and has the corporate power and authority to
enter into this Agreement, and is duly qualified and licensed to do business as
a foreign corporation in such other jurisdictions as is necessary to enable it
to carry on its business, except where failure to do so would not have a
material adverse effect on its business;
(b) Corporate Power and Authority. The execution and
delivery of this Agreement and the transactions contemplated hereby have been
duly authorized by the Board of Directors of the Company. No other corporate act
or proceeding on the part of the Company is necessary to authorize this
Agreement. When duly executed and delivered by the parties hereto, this
Agreement will constitute a valid and legally binding obligation of the Company
enforceable against it in accordance with its terms, except as such
enforceability may be limited by (i) bankruptcy, insolvency, moratorium,
reorganization or other similar laws and legal and equitable principles limiting
or affecting the rights of creditors generally; and/or (ii) general principles
of equity, regardless of whether considered in a proceeding in equity or at law.
10. IMPORTANT CONSIDERATIONS: SUITABILITY STANDARDS - WHO SHOULD
--------------------------------------------------------------
INVEST.
- -------
7
<PAGE>
INVESTMENT IN THE SHARES INVOLVES A HIGH DEGREE OF RISK AND IS
SUITABLE ONLY FOR PERSONS OF SUBSTANTIAL FINANCIAL RESOURCES WHO HAVE NO NEED
FOR LIQUIDITY IN THEIR INVESTMENT.
A substantial number of state securities commissions have
established investor suitability standards for the marketing within their
respective jurisdictions of restricted securities. Some have also established
minimum dollar levels for purchases in their states. The reasons for these
standards appear to be, among others, the relative lack of liquidity of
securities of such programs as compared with other securities investments.
Investment in the Shares involves a high degree of risk and is suitable only for
persons of substantial financial means who have no need for liquidity in their
investments.
The Company has adopted as a general investor suitability
standard the requirement that each Subscriber for Shares represents in writing
that the Subscriber: (a) is acquiring the Shares for investment and not with a
view to resale or distribution; (b) can bear the economic risk of losing his
entire investment; (c) his overall commitment to investments which are not
readily marketable is not disproportionate to his net worth, and an investment
in the Shares will not cause such overall commitment to become excessive; (d)
has adequate means of providing for his current needs and personal contingencies
and has no need for liquidity in this investment in the Shares; (e) has
evaluated all the risks of investment in the Company; and (f) has such knowledge
and experience in financial and business matters as to be capable of evaluating
the merits and risks of investing in the Company or is relying on his own
purchaser representative in making an investment decision.
In addition, all of the Subscribers for Shares must be: (1)
extremely sophisticated investors with substantial net worth and experience in
making investments of this nature; and (2) "accredited investors," as defined in
Rule 501 of Regulation D under the Act, by meeting any of the following
conditions:
(i) he or she has an individual income in excess of
$200,000 in each of the two most recent years or joint income with his or her
spouse in excess of $300,000 in each of those years, and he or she reasonably
expects an income in excess of the aforesaid levels in the current year, or
(ii) he or she has an individual net worth, or a joint
net worth with his or her spouse, at the time of his or her purchase, in excess
of $1,000,000 (net worth for these purposes includes homes, home furnishings and
automobiles), or
(iii) he or she otherwise satisfies the Company that he or
she is an accredited investor, as defined in Rule 501 under the Act.
Other categories of investors included within the definition
of accredited investor include the following: certain institutional investors,
including certain banks, whether acting in their individual or fiduciary
capacities; certain insurance companies; federally registered investment
companies; business development companies (as defined under the Investment
8
<PAGE>
Company Act of 1940); Small Business Investment Companies licensed by the Small
Business Administration; certain employee benefit plans; private business
development companies (as defined in the Investment Advisers Act of 1940); tax
exempt organizations (as defined in Section 501(c)(3) of the Internal Revenue
Code) with total assets in excess of $5,000,000; entities in which all the
equity owners are accredited investors; and certain affiliates of the Company.
A partnership Subscriber, which satisfies the requirements set
forth in clauses (a) through (f) above shall satisfy the suitability standards
if it is an accredited investor by reason of clause (iii) above, or if all of
its partners are accredited investors. A corporate subscriber, which satisfies
the requirements set forth in clauses (a) through (f) above shall satisfy the
investor suitability standards if it is an accredited investor by reason of
clause (iii) above, or if all of its shareholders are accredited investors.
Corporate subscribers must have net worth of at least three (3) times the amount
of their investment in the Shares.
The suitability standards referred to above represent minimum
suitability requirements for prospective purchasers and the satisfaction of such
standards by a prospective purchaser does not necessarily mean that the Shares
are a suitable investment for such purchaser. The Company may, in circumstances
it deems appropriate, modify such requirements. The Company may also reject
subscriptions for whatever reasons, in its sole discretion, it deems
appropriate.
Securities Purchase Agreements may not necessarily be accepted
in the order in which received. Purchasers who are residents of certain states
may be required to meet certain additional suitability standards.
THE ACCEPTANCE OF A SUBSCRIPTION FOR SHARES BY THE COMPANY
DOES NOT CONSTITUTE A DETERMINATION BY THE COMPANY THAT AN INVESTMENT IN THE
SHARES IS SUITABLE FOR A PROSPECTIVE INVESTOR. THE FINAL DETERMINATION OF THE
SUITABILITY OF INVESTMENT IN THE SHARES MUST BE MADE BY THE PROSPECTIVE INVESTOR
AND HIS OR HER ADVISERS.
11. State Law Considerations.
-------------------------
(a) For Residents of All States.
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR
OWN EXAMINATION OF THE ISSUER'S SECURITIES AND THE TERMS OF THE OFFERING,
INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN
RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY
AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE
ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
9
<PAGE>
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE
SECURITIES ACT, AND THE APPLICABLE STATES SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY WILL BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD
OF TIME.
THE INVESTOR MUST RELY ON THE INVESTOR'S OWN EXAMINATION OF THE PERSON
OR ENTITY CREATING THE SECURITIES AND THE TERMS OF THE OFFERING, INCLUDING THE
MERITS AND RISKS INVOLVED, IN MAKING AN INVESTMENT DECISION ON THESE SECURITIES.
12. Notices. All notices, consents, waivers, and other
--------
communications under this Agreement must be in writing and will be deemed to
have been duly given when (a) delivered by hand (with written confirmation of
receipt), (b) sent by facsimile (with written confirmation of receipt), provided
that a copy is mailed by certified mail, return receipt requested (provided that
facsimile notice shall be deemed received on the next business day if received
after 5:00 p.m. Eastern Standard Time), or (c) on the next business day, if sent
by a nationally recognized overnight delivery service, in each case to the
appropriate addresses and facsimile numbers set forth below (or to such other
addresses and facsimile numbers as a party may designate by notice to the other
parties):
If to the Company:
VDC Communications, Inc.
75 Holly Hill Lane
Greenwich, CT 06830
Attention: Frederick A. Moran
Chairman & C.E.O.
Facsimile: (203) 552-0908
with a copy to:
VDC Communications, Inc.
75 Holly Hill Lane
Greenwich, CT 06830
Attention: Louis D. Frost, Esq.
VDC Corporate Counsel
Facsimile: (203) 552-0908
10
<PAGE>
If to Purchaser:
to the address set forth at the end of this Agreement or to
such other addresses as may be specified in accordance herewith from time to
time.
13. Survival of Representations and Warranties. Representations
---------------------------------------------
and warranties contained herein shall survive the execution and delivery of this
Agreement.
14. Parties in Interest. All the terms and provisions of this
--------------------
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective successors and permitted assigns of the parties hereto,
provided that this Agreement and the interests herein may not be assigned by
either party without the express written consent of the other party.
15. Governing Law. This Agreement shall be governed by and
--------------
construed in accordance with the laws of the State of Connecticut without regard
to the principles of conflict of laws.
16. Arbitration. All controversies arising out of or related to
------------
this Agreement shall be determined by binding arbitration applying the laws of
the State of Connecticut. Any arbitration between the parties shall be conducted
at the Company's offices in Greenwich, Connecticut, or at such other location
designated by the Company, before the American Arbitration Association (the
"AAA"). The decision of the arbitrator(s) shall be final and binding upon the
parties and judgment may be obtained thereon by either party in a court of
competent jurisdiction. Each party shall bear the cost of preparing and
presenting its own case. The cost of the arbitration, including the fees and
expenses of the arbitrator(s), shall be shared equally by the parties hereto
unless the award otherwise provides. Nothing in this section will prevent either
party from resorting to judicial proceedings if interim injunctive relief under
the laws of the State of Connecticut from a court is necessary to prevent
serious and irreparable injury to one of the parties, and the parties hereto
agree that the state courts in Stamford, Connecticut and the United States
District Court in the District of Connecticut in Bridgeport, Connecticut shall
have exclusive subject matter and in personam jurisdiction over the parties for
purposes of obtaining interim injunctive relief.
17. Sections and Other Headings. The section and other headings
------------------------------
contained in this Agreement are for the convenience of reference only, and do
not constitute part of this Agreement or otherwise affect any of the provisions
hereof.
18. Pronouns. Whenever the context of this Agreement may require,
---------
any pronoun will include the corresponding masculine, feminine and neuter form,
and the singular form of nouns and pronouns will include the plural.
19. Counterpart Signatures. This Agreement may be executed in
------------------------
multiple counterparts each of which shall be an original but all of which
together shall constitute one and the same instrument. This Agreement may also
be executed and delivered by exchange of facsimile copies showing the signatures
11
<PAGE>
of the parties, and those signatures need not be affixed to the same copy. The
facsimile copies showing the signatures of the parties will constitute
originally signed copies of the Agreement requiring no further execution.
20. Severability. If any provision of this Agreement shall be
-------------
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction.
21. Entire Agreement; Amendments. This Agreement and the
---------------------------------
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Purchaser
make any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than by
an instrument in writing signed by the party to be charged with enforcement.
22. Construction. This Agreement and any related instruments will
-------------
not be construed more strictly against one party then against the other by
virtue of the fact that drafts may have been prepared by counsel for one of the
parties, it being recognized that this Agreement and any related instruments are
the product of negotiations between the parties and that both parties have
contributed to the final preparation of this Agreement and all related
instruments.
23. Agreement Read and Understood. Both parties hereto acknowledge
------------------------------
that they have had an opportunity to consult with an attorney, and such other
experts or consultants as they deem necessary or prudent, regarding this
Agreement and that they, or their designated agents, have read and understand
this Agreement.
24. United States Dollars. All dollar amounts stated herein refer
----------------------
to and are payable solely in United States Dollars.
IN WITNESS WHEREOF, intending to be legally bound, the parties hereto
have caused this Agreement to be signed.
Purchaser: Frederick A. Moran and
Joan Moran, joint tenants
540,000 Shares/$1,080,000.00
- ----------------------------
Number and dollar amount /s/ Frederick A. Moran
of Shares purchased - ----------------------------------------
Purchase Price Frederick A. Moran
/s/ Joan Moran
----------------------------------------
Joan Moran
12
<PAGE>
Address/Residence of Purchaser:
25 Doubling Road
----------------------------------------
Greenwich, CT 06830
----------------------------------------
Social Security No.:
--------------------
Frederick A. Moran
--------------------
Joan Moran
Accredited Investor Certification
---------------------------------
(Place initials on the appropriate
line(s))
(i) I am a natural person who had individual
- ----- income of more than $200,000 in each of the most recent two
years or joint income with my spouse in excess of $300,000
in each of the most recent two years and reasonably expect
to reach that same income level for the current year
("income", for purposes hereof, should be computed as
follows: individual adjusted gross income, as reported (or
to be reported) on a federal income tax return, increased by
(1) any deduction of long-term capital gains under Section
1202 of the Internal Revenue Code of 1986 (the "Code"), (2)
any deduction for depletion under Section 611 et seq. of the
Code, (3) any exclusion for interest under Section 103 of
the Code and (4) any losses of a partnership as reported on
Schedule E of Form 1040); or
(ii) I am a natural person whose individual net
- ----- worth (i.e., total assets in excess of total liabilities),
or joint net worth with my spouse, will at the time of
purchase of the Shares be in excess of $1,000,000; or
(iii) The Purchaser is an investor satisfying the
- ----- requirements of Section 501(a)(1), (2) or (3) of Regulation
D promulgated under the Securities Act, which includes but
is not limited to, a self-directed employee benefit plan
where investment decisions are made solely by persons who
are "accredited investors" as otherwise defined in
Regulation D; or
(iv) The Purchaser is a "qualified institutional
- ----- buyer" as that term is defined in Rule 144A of the
Securities Act; or
(v) The Purchaser is a trust, which trust has
- ----- total assets in excess of $5,000,000, which is not formed
for the specific purpose of acquiring the Shares offered
hereby and whose purchase is directed by a sophisticated
person as described in Rule 506(b)(ii) of Regulation D and
who has such knowledge and experience in financial and
business matters that he is capable of evaluating the risks
and merits of an investment in the Shares; or
13
<PAGE>
(vi) I am a director or executive officer of the
- ----- Company; or
(vii) The Purchaser is an entity (other than a
- ----- trust) in which all of the equity owners meet the requirements
of at least one of the above subparagraphs.
Agreed and Accepted by
VDC COMMUNICATIONS, INC.
By: /s/ Frederick A. Moran
----------------------------
Frederick A. Moran
Chairman & C.E.O.
Dated: April 26, 2000
-------------------------
14
PROMISSORY NOTE
---------------
$200,000 April 20, 2000
Passaic, New Jersey
FOR VALUE RECEIVED, the undersigned RARE TELEPHONY, INC. (f/k/a WASHOE
TECHNOLOGY CORPORATION) AND CASH BACK REBATES LD.COM, INC. a Nevada and Delaware
corporation, respectively ("Maker"), promise to pay to the order of VDC
Communications, Inc., a Delaware corporation ("Holder"), which term shall
include any subsequent holder of this Note, at 75 Holly Hill Lane, Greenwich, CT
06830 (or at such other place as Holder shall designate in writing) in lawful
money of the United States of America, the aggregate principal sum of Two
Hundred Thousand Dollars ($200,000), with interest thereon at the rate (the
"Interest Rate") described below.
1. Interest Rate. The Interest Rate shall be zero percent (0%) per
--------------
annum.
2. Outstanding Principal Balance. All references to the "Outstanding
-------------------------------
Principal Balance" shall mean the amount of Two Hundred Thousand
Dollars ($200,000), less any principal repaid.
3. Payments. This note shall be payable in full on October 20, 2000
---------
(the "Maturity Date") when the entire Outstanding Principal
Balance, and any accrued but unpaid interest, shall be due and
payable.
4. Application of Payments. All payments on this Note shall be
--------------------------
applied first to the payment of accrued and unpaid interest, and
then to the reduction of the Outstanding Principal Balance.
5. Prepayment Right. Maker shall have the right to prepay at any
------------------
time, in whole or in part, the Outstanding Principal Balance of
this Note, without premium or penalty.
6. Accelerated Maturity. Notwithstanding anything in this Note to the
---------------------
contrary and irrespective of the Maturity Date, the entire
Outstanding Principal Balance and accrued interest shall become
immediately due and payable upon the earliest to occur of the
following (the "Accelerated Maturity Date"): (a) the sale of all
or substantially all of the assets of the Maker or the common
stock of the Maker to a third party; or (b) the issuance of the
securities of Maker on the public market.
7. Modifications. From time to time, without affecting the obligation
--------------
of Maker to pay the Outstanding Principal Balance or to observe
the covenants of Maker contained herein, and without giving notice
to or obtaining the consent of Maker, Holder may, at the option of
Holder, extend the time for payment of the Outstanding Principal
1
<PAGE>
Balance or any part thereof, reduce the payments hereunder,
release any person liable hereunder, accept a renewal or extension
of this Note, join in any extension or subordination agreement,
release any security given herefor, take or release security, or
agree in writing with Maker to modify the Interest Rate or any
other provision of this Note.
8. Events of Default. Time is of the essence hereof. Upon the
--------------------
occurrence of any of the following events (the "Events of
Default"), payment of the entire Outstanding Principal Balance and
accrued interest of this Note shall, at the option of the Holder,
be accelerated and shall be immediately due and payable without
notice or demand:
(a) Failure of Maker to pay the Outstanding Principal Balance and
accrued interest in full on the Maturity Date or the
Accelerated Maturity Date; or
(b) All or the majority of the value of the assets of Maker is
seized or levied upon by writ of attachment, garnishment,
execution or otherwise, and such seizure or levy is not
released within thirty (30) calendar days thereafter; or
(c) Maker executes a general assignment for the benefit of its
creditors, convenes any meeting of its creditors, becomes
insolvent, admits in writings its insolvency or inability to
pay its debts, or is unable to pay or is generally not paying
its debts as they become due; or
(d) A receiver, trustee, custodian or agent is appointed to take
possession of all or any substantial portion of Maker's
assets; or
(e) Any case or proceeding is voluntarily commenced by Maker
under any provision of the federal Bankruptcy Code or any
other federal or state law relating to debtor rehabilitation,
insolvency, bankruptcy, liquidation or reorganization, or any
such case or proceeding is involuntarily commenced against
Maker and not dismissed within thirty (30) calendar days
thereafter; or
(f) Any representation made by Maker in this Note or in any of
the other documents delivered in connection therewith, shall
have been untrue or incorrect in any material respect when
made.
9. Default Rate. In the event that Maker fails to pay the Outstanding
-------------
Principal Balance and all accrued interest in full on the Maturity
Date or the Accelerated Maturity Date, the amount past due
(including any acceleration of the Outstanding Principal Balance),
and unpaid shall bear interest at an annual rate equal to the
lesser of (i) fifteen percent (15%), or (ii) the maximum amount
permitted by law (the "Default Rate"), computed from the date on
which said amount was due and payable until paid. The charging or
collecting of interest at the Default Rate shall not limit any of
Holder's other rights or remedies under this Note.
2
<PAGE>
10. Governing Law. Maker, and each endorser and cosigner of this Note,
--------------
acknowledges and agrees that this Note is made and is intended to
be paid and performed in the State of New Jersey and the
provisions hereof will be construed in accordance with the laws of
the State of New Jersey and, to the extent that federal law may
preempt the applicability of state laws, federal law. Maker, and
each endorser and cosigner of this Note further agree that upon
the occurrence of an Event of Default, this Note may be enforced
in any court of competent jurisdiction in the State of New Jersey,
and they do hereby submit to the jurisdiction of such courts
regardless of their residence.
11. Remedies Cumulative: Waiver. The remedies of Holder as provided
------------------------------
herein shall be cumulative and concurrent, and may be pursued
singularly, successively or together, in the sole discretion of
Holder, and may be exercised as often as occasion therefor shall
arise. No act of omission or commission of Holder, including
specifically any failure to exercise any right, remedy or
recourse, shall be deemed to be a waiver or release of the same;
such waiver or release to be affected only through a written
document executed by Holder and then only to the extent
specifically recited therein. Without limiting the generality of
the preceding sentence, acceptance by Holder of any payment with
knowledge of the occurrence of an Event of Default by Maker shall
not be deemed a waiver of such Event of Default, and acceptance
by Holder of any payment in an amount less than the amount then
due hereunder shall be an acceptance on account only and shall
not in any way affect the existence of an Event of Default
hereunder. A waiver or release with reference to any one event
shall not be construed as continuing, as a bar to, or as a waiver
or release of, any subsequent right, remedy or recourse as to a
subsequent event.
12. No Usury Intended. All agreements between Maker and Holder are
-------------------
expressly limited so that in no contingency or event whatsoever,
whether by reason of: error of fact or law; payment, prepayment
or advancement of the proceeds hereof; acceleration of maturity
of the Outstanding Principal Balance, or otherwise, shall the
amount paid or agreed to be paid to Holder hereof for the use,
forbearance or retention of the money to be advanced hereunder,
including any charges collected or made in connection with the
indebtedness evidenced by this Note which may be treated as
interest under applicable law, if any, exceed the maximum legal
limit (if any such limit is applicable) under United States
federal law or state law (to the extent not preempted by federal
law, if any), now or hereafter governing the interest payable in
connection with such agreements. If, from any circumstances
whatsoever, fulfillment of any provision hereof at the time
performance of such provision shall be due shall involve
transcending the limit of validity (if any) prescribed by law
which a court of competent jurisdiction may deem applicable
hereto, then ipso facto, the obligation to be fulfilled shall be
reduced to the limit of such validity, and if from any
3
<PAGE>
circumstances, Holder shall ever receive as interest an amount
which would exceed the maximum legal limit (if any such limit is
applicable), such amount which would be excessive interest shall
be applied to the reduction of the Outstanding Principal Balance
due hereunder and not to the payment of interest or, if
necessary, rebated to Maker. This provision shall control every
other provision of all agreements between Maker and Holder.
13. Guaranty. The payment of this Note is guaranteed by Guaranty
---------
Agreements of even date executed by Peter J. Salzano and Network
Consulting Group, Inc. Peter J. Salzano's Guaranty Agreement is
secured by a security agreement and certain property described
therein. Network Consulting Group, Inc.'s Guaranty Agreement is
secured by two security agreements and certain property described
therein.
14. Purpose of Loan. Maker certifies that the loan evidenced by this
----------------
Note is obtained for business or commercial purposes and that the
proceeds thereof shall not be used for personal, family,
household, or agricultural purposes.
15. Miscellaneous Provisions.
-------------------------
(a) Maker, and each endorser and cosigner of this Note expressly
grants to Holder the right to release or to agree not to sue
any other person, or to suspend the right to enforce this
Note against such other person or to otherwise discharge
such person; and Maker, and each endorser and cosigner
agrees that the exercise of such rights by Holder will have
no effect on this liability of any other person, primarily
or secondarily liable hereunder. Maker, and each endorser
and cosigner of this Note waives, to the fullest extent
permitted by law, demand for payment, presentment for
payment, protest, notice of protest, notice of dishonor,
notice of nonpayment, notice of acceleration of maturity,
diligence in taking any action to collect sums owing
hereunder, any duty or obligation of Holder to effect,
protect, perfect, retain or enforce any security for the
payment of this Note or to proceed against any collateral
before otherwise enforcing this Note, and the right to plead
as a defense to the payment hereof any statute of
limitations.
(b) This Note and each payment of principal and interest
hereunder shall be paid when due without deduction or setoff
of any kind or nature whatsoever.
(c) Maker agrees to reimburse Holder for all costs, including,
without limitation, reasonable attorneys' fees (including an
allocable portion of in-house counsel fees), incurred to
collect this Note if this Note is not paid when due,
including, but not limited to, attorneys' fees (including an
4
<PAGE>
allocable portion of in-house counsel fees) incurred in
connection with any bankruptcy proceedings instituted by or
against Maker (including relief from stay litigation).
(d) If any provision hereof is for any reason and to any extent,
invalid or unenforceable, then neither the remainder of the
document in which such provision is contained, nor the
application of the provision to other persons, entities or
circumstances shall be affected thereby, but instead shall be
enforceable to the maximum extent permitted by law.
(e) This Note shall be a joint and several obligation of Maker,
and of all endorsers and cosigners hereof and shall be
binding upon them and their respective heirs, personal
representatives, successors and assigns.
(f) This Note may not be modified or amended orally, but only by
a modification or amendment in writing signed by Holder and
Maker.
(g) When the context and construction so require, all words used
in the singular herein shall be deemed to have been used in
the plural and the masculine shall include the feminine and
neuter and vice versa. The word "person" as used herein shall
include any individual, company, firm, association,
partnership, corporation, trust or other legal entity of any
kind whatsoever.
(h) The headings of the paragraphs and sections of this Note are
for convenience or reference only, are not to be considered a
part hereof and shall not limit or otherwise affect any of
the terms hereof.
(i) In the event that at any time any payment received by Holder
hereunder shall be deemed by final order of a court of
competent jurisdiction to have been a voidable preference or
fraudulent conveyance under the bankruptcy or insolvency laws
of the United States, or shall otherwise be deemed to be due
to any party other than Holder, then, in any such event, the
obligation to make such payment shall survive any
cancellation of this Note and/or return thereof to Maker and
shall not be discharged or satisfied by any prior payment
thereof and/or cancellation of this Note, but shall remain a
valid and binding obligation enforceable in accordance with
the terms and provisions hereof, and the amount of such
payment shall bear interest at the Default Rate from the
date of such final order until repaid hereunder.
5
<PAGE>
IN WITNESS WHEREOF Maker has executed this Promissory Note as of the
day and year first above written.
"Maker"
Rare Telephony, Inc. (f/k/a Washoe
Technology Corporation)
By: /s/ Thomas J. Vrabel
---------------------------------
Thomas J. Vrabel, President
Cash Back Rebates LD.com, Inc.
By: /s/ Thomas J. Vrabel
---------------------------------
Thomas J. Vrabel, President
6
<PAGE>
State of New Jersey
County of Passaic
Before me, the undersigned, personally appeared Thomas J. Vrabel, known to me
(or satisfactorily proven) to be the person who executed the within instrument
on behalf of Rare Telephony, Inc. (f/k/a Washoe Technology Corporation) and
acknowledged that he executed the same for the purposes therein contained. In
witness whereof, I hereunto set my hand.
/s/ Debra Santa Lucia
------------------------------------
(Notary Public)
Dated: 4/20/00
------------------------------
State of New Jersey
County of Passaic
Before me, the undersigned, personally appeared Thomas J. Vrabel, known to me
(or satisfactorily proven) to be the person who executed the within instrument
on behalf of Cash Back Rebates LD.com, Inc. and acknowledged that he executed
the same for the purposes therein contained. In witness whereof, I hereunto set
my hand.
/s/ Debra Santa Lucia
------------------------------------
(Notary Public)
Dated: 4/20/00
------------------------------------
7
GUARANTY AGREEMENT
------------------
THIS GUARANTY AGREEMENT ("Guaranty Agreement") is made and entered into
this 20th day of April, 2000 by Network Consulting Group, Inc. ("Guarantor"), in
favor of VDC Communications, Inc. ("Lender").
WITNESSETH:
-----------
WHEREAS, concurrently herewith, Rare Telephony, Inc. (f/k/a Washoe
Technology Corporation) and Cash Back Rebates LD.com, Inc. Nevada and Delaware
corporations respectively ("Borrower"), have executed a certain Promissory Note
in favor of Lender in the stated principal amount of Two Hundred Thousand
Dollars ($200,000) (the "Note"); and
WHEREAS, to induce Lender to lend the Two Hundred Thousand Dollars
($200,000) to Borrower, Guarantor has agreed to guarantee the Note which
Guaranty is collaterally secured by certain property which is referenced in a
security agreement by and between Guarantor and Lender;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby covenant and agree as follows:
1. Guarantor irrevocably and unconditionally, fully guarantees to Lender
the full and prompt payment of the indebtedness evidenced by the Note (the
"Indebtedness") at the times and according to the terms expressed.
Guarantor agrees that if all or any part of the Indebtedness is not paid
according to the tenor thereof, Guarantor shall, upon demand of Lender, pay the
Indebtedness in like manner as if the Indebtedness constituted the direct and
primary obligation of Guarantor as provided for herein. Guarantor's liability
hereunder shall be IN THE FULL AMOUNT of the Indebtedness.
2. This Guaranty Agreement is irrevocable and shall remain in full force
and effect continuously from the date hereof to and until the date on which the
Indebtedness is paid in full, whereupon this Guaranty Agreement shall
automatically terminate ("Termination Date").
3. Guarantor grants to Lender, in Lender's sole and absolute discretion and
without notice to Guarantor, the power and authority to deal in any lawful
manner with the Indebtedness and, without limiting the generality of the
foregoing, the power and authority from time to time:
1
<PAGE>
(a) To change, amend or modify the Note or any other documents relating
thereto in a non-material way (collectively, the "Loan Documents");
(b) To discharge or release any person liable under the Loan Documents;
(c) To take and hold security for the payment of the Indebtedness
and/or the performance of the other obligations guaranteed herein, and to
exchange, enforce, subordinate, waive or release any such security;
(d) To foreclose any security for the Indebtedness, and to direct the
order or manner of sale of any such security as Lender in Lender's sole and
absolute discretion may determine;
(e) To grant any extensions of time, renewals or other indulgences,
forbearance, waivers or releases to Borrower or any other person liable under
the Loan Documents.
(f) To accept or make compositions or other alignments or file or
refrain from filing a claim in any bankruptcy proceedings of Borrower or any
other person liable under the Loan Documents;
(g) To credit payments on the Indebtedness in such manner and in such
order of priority as Lender may determine in lender's sole and absolute
discretion; and
(h) To otherwise deal with Borrower or any other guarantor or person
related to the Indebtedness or any security as Lender may determine in Lender's
sole and absolute discretion.
Without limiting the generality of the foregoing, Guarantor WAIVES any and
all rights, benefits and defenses under law which may provide that a surety is
exonerated if a creditor, without the consent of the surety, alters the original
obligation of the principal in any respect, or if the creditor in any way
imperils or suspends the creditor's rights against the principal.
The liability of Guarantor shall not be terminated, affected, impaired or
reduced in any way by any action taken by Lender under the foregoing provisions
or any other provision hereof or by any delay, failure or refusal of Lender to
exercise any right or remedy Lender may have against Borrower or any other
person, including other guarantors, if any, liable for all or any part of the
Indebtedness hereby guaranteed.
4. If at any time all or any part of any payment made by Guarantor or
received by Lender from Guarantor under or with respect to this Guaranty
2
<PAGE>
Agreement is avoided or recovered directly or indirectly from Lender as a
preference, fraudulent transfer, or otherwise, then Guarantor's obligations
hereunder shall, to the extent of the payment avoided or recovered, be deemed to
have continued in existence, notwithstanding such previous payment made by
Guarantor or receipt of payment by Lender, and Guarantor's obligations hereunder
shall continue to be effective or be reinstated, as the case may be, as to such
payment, all as though such previous payment by Guarantor had never been made,
irrespective of the payment in full of the Indebtedness.
5. To the fullest extent permitted by law, Guarantor hereby WAIVES the
following rights, defenses and benefits:
a. The defense of the statute of limitations in any action hereunder or
in any action for the collection of the Indebtedness or the performance of any
other obligation hereby guaranteed;
b. Any defense that may arise by reason of the incapacity, lack of
authority, death or disability of any other person or persons or the failure of
Lender to file or enforce a claim against the estate (in administration,
bankruptcy or any other proceeding) of any other person or persons
c. Except as otherwise provided herein, diligence and all demands,
presentment for payment, notice of nonpayment, protest, notice of protest and
all other notices of any kind, including, without limiting the generality of the
foregoing, notice of the existence, creation or incurring of any new or
additional obligation or of any action or nonaction on the part of Borrower,
Lender, any endorser or creditor of Borrower or of Guarantor or on the part of
any other person whomsoever under this or any other instrument in connection
with any Indebtedness or evidence of Indebtedness held by Lender or in
connection with the Indebtedness hereby guaranteed;
d. Any duty or obligation on Lender's part to perfect, protect, retain
or enforce any security for the payment of the Indebtedness or the performance
of any of the other obligations guaranteed herein;
e. Any duty on the part of Lender to disclose to Guarantor any facts
Lender may now or hereafter know about Borrower, regardless of whether Lender
has reason to believe that any such facts materially increase the risk beyond
that which Guarantor intends to assume or has reason to believe that such facts
are unknown to Guarantor or has a reasonable opportunity to communicate such
facts to Guarantor, it being understood and agreed that Guarantor is fully
responsible for being and keeping informed of the financial condition of
3
<PAGE>
Borrower and of any and all circumstances bearing on the risk that liability may
be incurred by Guarantor hereunder; and
f. Any and all rights, benefits and defenses under law available to
guarantors or sureties, including without limitations, any such rights, benefits
or defenses which would otherwise require Lender to proceed against Borrower or
any other person, or to proceed against or exhaust any security held by Lender
at any time, or to first apply any security of Borrower to the discharge of the
Indebtedness, or to pursue any other remedy in Lender's power before proceeding
against Guarantor hereunder.
6. Guarantor agrees that Guarantor shall have no right of subrogation,
reimbursement, exoneration, contribution, indemnity, or similar right as against
Borrower which would result in Guarantor being deemed a creditor of Borrower
under the Federal Bankruptcy Code or any other law or for any other purpose; and
Guarantor further WAIVES any and all rights, benefits and defenses under law,
which may provide that a surety is entitled to the benefit of every security for
the performance of the principal obligation held by the creditor.
7. With or without notice to Guarantor and without affecting in any way
Guarantor's obligation or liability hereunder for payment of the Indebtedness,
Lender, in Lender's sole and absolute discretion, at any time and from time to
time, and in such manner and upon such terms as Lender deems fit, may:
a. Apply any or all payments or recoveries from Borrower or from all
other guarantor or endorser under any other instrument or realized from any
security, in such manner and order of priority as lender may determine in
Lender's sole and absolute discretion, to any Indebtedness of Borrower to
Lender, whether or not such Indebtedness is guaranteed hereby or is otherwise
secured or is due at the time of such application; or
b. Refund to Borrower any payment received by Lender upon the
Indebtedness hereby guaranteed.
8. All rights, powers and remedies of Lender hereunder shall be cumulative
and not alternative and such rights, powers and remedies shall be in addition to
all rights, powers and remedies given to lender under the Loan Documents
(including any other guarantees of the Indebtedness) or otherwise by law.
9. The liability of Guarantor under this Guaranty Agreement shall be an
absolute, direct, immediate and unconditional guarantee of payment and not of
collection. The Indebtedness of Guarantor hereunder are independent of the
Indebtedness of Borrower and are not conditioned on contingent upon the
genuineness, validity, regularity or enforceability of any of the Loan
Documents. In the event of any default hereunder, a separate action or actions
4
<PAGE>
may be brought and prosecuted against Guarantor, whether or not Borrower is
joined therein or a separate action or actions are brought against Borrower.
Lender may enforce Lender's rights under the Guaranty Agreement without first
exercising any other remedy or right that Lender may have or seeking to obtain
payment or performance from Borrower, any other person (including any other
guarantor) or from any collateral which Lender may hold as security for the
Indebtedness. Lender may maintain successive actions for other defaults.
Lender's rights hereunder shall not be exhausted by the exercise of any of
Lender's rights or remedies or by any such action or by any number of successive
actions. Guarantor WAIVES any and all rights, benefits and defenses under law
which may generally provide that a guarantor or surety is not liable if for
certain reasons there is no liability upon the part of the principal or if the
principal ceases to become liable or which may generally provide that the
Indebtedness of a guarantor or surety must not be larger nor more burdensome
than that of the principal.
10. Notwithstanding the fact that Borrower may be a corporation, a joint
venture or a partnership, Lender is not to be concerned to see or inquire into
the powers of Borrower, its directors, officers, joint ventures, partners,
associates or other agents acting or purporting to act on its behalf, and
Guarantor expressly waives any defense to the enforcement of this Guaranty
Agreement to the effect that the transaction between Borrower and Lender is in
excess of the powers of the Borrower, or shall be in any way irregular,
defective or informal. Guarantor's liability hereunder shall not be affected by
changes in the name of the entity or the constituent members of the entity which
constitutes Borrower.
11. It is expressly understood that the obligations of Guarantor hereunder
are an additional and cumulative benefit given to Lender for Lender's security.
12. No action based on this Guaranty Agreement shall be instituted until
written demand for payment or performance, as appropriate, has been made upon
Guarantor (a) upon delivery of such demand in person to Guarantor, or (b) on the
next business day following deposit of an envelope containing such demand with
an overnight courier service (such as United Parcel Service) for delivery to
Guarantor at the address set forth next to Guarantor's signature hereon, or (c)
on the second business day following deposit of an envelope containing such
demand in the United States mail, postage prepaid, certified mail,
return-receipt requested, addressed to Guarantor as described above. Guarantor
may change Guarantor's address for such notices by giving notice of the change
of address to Lender in the manner provided herein. All payments hereunder shall
be made in lawful money of the United States of America. No delay in making
demand on Guarantor for satisfaction of Guarantor's liabilities hereunder shall
prejudice Lender's right to enforce such satisfaction.
5
<PAGE>
13. Guarantor shall pay to Lender, upon written demand, all reasonable
attorneys' fees (including an allocable portion of in-house counsel fees) and
all costs and other expenses which Lender expends or incurs in enforcing this
Guaranty Agreement against Guarantor whether or not suit is filed, including,
without limitation, all reasonable attorneys' fees (including an allocable
portion of in-house counsel fees), costs and expenses incurred by Lender in
connection with any insolvency, bankruptcy, reorganization, arrangement or other
similar proceedings involving Borrower or Guarantor which in any way affect the
exercise by Lender of Lender's rights and remedies hereunder. Until paid to
Lender, such attorneys' fees (including an allocable portion of in-house counsel
fees), costs and expenses shall bear interest at the highest rate of interest
allowable by law.
14. Should any one or more provisions of this Guaranty Agreement be
determined to be illegal or unenforceable, all other provisions nevertheless
shall be effective.
15. No provision of this Guaranty Agreement or right of Lender hereunder
can be waived nor shall Guarantor be released from any of Guarantor's
obligations hereunder except by a writing duly executed by Lender, or unless
this Guaranty Agreement terminates pursuant to its terms as set forth herein.
This Guaranty Agreement may not be modified, amended, revised, changed or varied
in any way whatsoever except by the express terms of a writing duly executed by
Lender and Guarantor.
16. When the context and construction so requires, all words used in the
singular herein shall be deemed to have been used in the plural, and the
masculine shall include the feminine and neuter, and vice versa. The word
"person" as used herein shall include any individual, company, firm,
association, partnership, corporation, trust or other legal entity of any kind
whatsoever. The word "Borrower" as used herein includes Borrower acting on
behalf of itself or any estate created by the commencement of a case under the
Federal Bankruptcy Code or any other insolvency, bankruptcy, reorganization or
liquidation proceeding, or by any trustee under the Federal Bankruptcy Code,
liquidator, sequestrator, and receiver of Borrower and Borrower's property or
similar person duly appointed pursuant to any laws generally governing any
insolvency, bankruptcy, reorganization, liquidation, receivership or like
proceeding. If more than one person has signed this Guaranty Agreement as
Guarantor, it shall be the joint and several obligation of each of them. The
words "Loan Documents" as used herein include any modifications, extensions,
renewals, or replacements thereof. All references to statutes herein shall
include any modifications, amendments, substitutions or replacements thereof.
17. In the event that all or any part of the Indebtedness is assigned by
Lender, this Guaranty Agreement shall automatically be assigned therewith in
whole or in part, as applicable, without the need of any express assignment and,
6
<PAGE>
when so assigned, Guarantor shall be bound as above to the assignee(s) without
in any manner affecting Guarantor's liability hereunder for any part of the
Indebtedness retained by Lender.
18. Guarantor agrees, within seven (7) calendar days after request from
Lender, to deliver to Lender a statement certifying that this Guaranty Agreement
is in full force and effect, and that no defense of offset exists to Guarantor's
obligations under the Guaranty Agreement (or stating any facts to the contrary).
19. This Guaranty Agreement shall inure to the benefit of and bind the
heirs, legal representatives, administrators, executors, successors, and assigns
of Lender and of Guarantor.
20. Guarantor hereby agrees that:
a. The execution and delivery to Lender of this Guaranty Agreement of
the accrual of a claim hereunder in favor of Lender shall be deemed to have
caused an event to occur in the State of New Jersey, bringing Guarantor within
the jurisdiction of the state and federal courts in the State of New Jersey, and
Guarantor further hereby agrees to and, as a separate and independent covenant,
does hereby submit to the jurisdiction of the state and federal courts in the
State of New Jersey; and
b. This Guaranty Agreement is made in the State of New Jersey and the
provisions hereof shall be construed and enforced in accordance with the laws of
the State of New Jersey (irrespective of its conflicts of laws rules) and, to
the extent that federal law may preempt the applicability of state laws, federal
law.
21. Except as provided in any other written agreement at any time hereafter
in force between Lender and Guarantor, this Guaranty Agreement shall constitute
the entire agreement of Guarantor with Lender with respect to the subject matter
hereof and no representation, understanding, promise or condition concerning the
subject matter hereof shall be binding upon Lender unless expressed herein.
22. Notwithstanding anything in this Guaranty Agreement to the contrary, it
is agreed that this is a fully "collateralized" guaranty.
THE UNDERSIGNED GUARANTOR ACKNOWLEDGES THAT IT WAS AFFORDED THE OPPORTUNITY
TO READ THIS DOCUMENT CAREFULLY AND TO REVIEW IT WITH AN ATTORNEY OF ITS CHOICE
BEFORE SIGNING IT. THE UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ AND
UNDERSTOOD THE MEANING AND EFFECT OF THIS DOCUMENT, INCLUDING BUT NOT LIMITED TO
ALL WAIVERS CONTAINED HEREIN, BEFORE SIGNING IT.
7
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Guaranty Agreement as of
the day and year first above written.
ATTEST: "GUARANTOR"
NETWORK CONSULTING GROUP, INC.
/s/ Debra A. Santa Lucia
- ------------------------
Signature By: /s/ Peter J. Salzano
---------------------------------
Peter J. Salzano
President
Debra A. Santa Lucia Address:
- ------------------------ 74 Jesse Court
Print Name Montville, NJ 07045
ATTEST: "LENDER"
VDC COMMUNICATIONS, INC.
/s/ Louis D. Frost By: /s/ Frederick A. Moran
- ------------------------ ---------------------------------
Signature Frederick A. Moran
Chief Executive Officer
Louis D. Frost Address:
- ------------------------ 75 Holly Hill Lane
Print Name Greenwich, CT 06830
8
PERSONAL GUARANTY AGREEMENT
---------------------------
THIS GUARANTY AGREEMENT ("Guaranty Agreement") is made and entered into
this 20th day of April, 2000 by Peter J. Salzano ("Guarantor"), in favor of VDC
Communications, Inc. ("Lender").
WITNESSETH:
-----------
WHEREAS, concurrently herewith, Rare Telephony, Inc. (f/k/a Washoe
Technology Corporation) and Cash Back Rebates LD.com, Inc. Nevada and Delaware
corporations respectively ("Borrower"), have executed a certain Promissory Note
in favor of Lender in the stated principal amount of Two Hundred Thousand
Dollars ($200,000) (the "Note"); and
WHEREAS, to induce Lender to lend the Two Hundred Thousand Dollars
($200,000) to Borrower, Guarantor has agreed to guarantee the Note which
Guaranty is collaterally secured by certain property which is referenced in a
security agreement by and between Guarantor and Lender;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby covenant and agree as follows:
1. Guarantor irrevocably and unconditionally, fully guarantees to Lender
the full and prompt payment of the indebtedness evidenced by the Note (the
"Indebtedness") at the times and according to the terms expressed.
Guarantor agrees that if all or any part of the Indebtedness is not paid
according to the tenor thereof, Guarantor shall, upon demand of Lender, pay the
Indebtedness in like manner as if the Indebtedness constituted the direct and
primary obligation of Guarantor as provided for herein. Guarantor's personal
liability hereunder shall be IN THE FULL AMOUNT of the Indebtedness.
2. This Guaranty Agreement is irrevocable and shall remain in full force
and effect continuously from the date hereof to and until the date on which the
Indebtedness is paid in full, whereupon this Guaranty Agreement shall
automatically terminate ("Termination Date").
3. Guarantor grants to Lender, in Lender's sole and absolute discretion and
without notice to Guarantor, the power and authority to deal in any lawful
manner with the Indebtedness and, without limiting the generality of the
foregoing, the power and authority from time to time:
1
<PAGE>
(a) To change, amend or modify the Note or any other documents relating
thereto in a non-material way (collectively, the "Loan Documents");
(b) To discharge or release any person liable under the Loan Documents;
(c) To take and hold security for the payment of the Indebtedness
and/or the performance of the other obligations guaranteed herein, and to
exchange, enforce, subordinate, waive or release any such security;
(d) To foreclose any security for the Indebtedness, and to direct the
order or manner of sale of any such security as Lender in Lender's sole and
absolute discretion may determine;
(e) To grant any extensions of time, renewals or other indulgences,
forbearance, waivers or releases to Borrower or any other person liable under
the Loan Documents.
(f) To accept or make compositions or other alignments or file or
refrain from filing a claim in any bankruptcy proceedings of Borrower or any
other person liable under the Loan Documents;
(g) To credit payments on the Indebtedness in such manner and in such
order of priority as Lender may determine in lender's sole and absolute
discretion; and
(h) To otherwise deal with Borrower or any other guarantor or person
related to the Indebtedness or any security as Lender may determine in Lender's
sole and absolute discretion.
Without limiting the generality of the foregoing, Guarantor WAIVES any and
all rights, benefits and defenses under law which may provide that a surety is
exonerated if a creditor, without the consent of the surety, alters the original
obligation of the principal in any respect, or if the creditor in any way
imperils or suspends the creditor's rights against the principal.
The liability of Guarantor shall not be terminated, affected, impaired or
reduced in any way by any action taken by Lender under the foregoing provisions
or any other provision hereof or by any delay, failure or refusal of Lender to
exercise any right or remedy Lender may have against Borrower or any other
person, including other guarantors, if any, liable for all or any part of the
Indebtedness hereby guaranteed.
4. If at any time all or any part of any payment made by Guarantor or
received by Lender from Guarantor under or with respect to this Guaranty
Agreement is avoided or recovered directly or indirectly from Lender as a
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<PAGE>
preference, fraudulent transfer, or otherwise, then Guarantor's obligations
hereunder shall, to the extent of the payment avoided or recovered, be deemed to
have continued in existence, notwithstanding such previous payment made by
Guarantor or receipt of payment by Lender, and Guarantor's obligations hereunder
shall continue to be effective or be reinstated, as the case may be, as to such
payment, all as though such previous payment by Guarantor had never been made,
irrespective of the payment in full of the Indebtedness.
5. To the fullest extent permitted by law, Guarantor hereby WAIVES the
following rights, defenses and benefits:
a. The defense of the statute of limitations in any action hereunder or
in any action for the collection of the Indebtedness or the performance of any
other obligation hereby guaranteed;
b. Any defense that may arise by reason of the incapacity, lack of
authority, death or disability of any other person or persons or the failure of
Lender to file or enforce a claim against the estate (in administration,
bankruptcy or any other proceeding) of any other person or persons
c. Except as otherwise provided herein, diligence and all demands,
presentment for payment, notice of nonpayment, protest, notice of protest and
all other notices of any kind, including, without limiting the generality of the
foregoing, notice of the existence, creation or incurring of any new or
additional obligation or of any action or nonaction on the part of Borrower,
Lender, any endorser or creditor of Borrower or of Guarantor or on the part of
any other person whomsoever under this or any other instrument in connection
with any Indebtedness or evidence of Indebtedness held by Lender or in
connection with the Indebtedness hereby guaranteed;
d. Any duty or obligation on Lender's part to perfect, protect, retain
or enforce any security for the payment of the Indebtedness or the performance
of any of the other obligations guaranteed herein;
e. Any duty on the part of Lender to disclose to Guarantor any facts
Lender may now or hereafter know about Borrower, regardless of whether Lender
has reason to believe that any such facts materially increase the risk beyond
that which Guarantor intends to assume or has reason to believe that such facts
are unknown to Guarantor or has a reasonable opportunity to communicate such
facts to Guarantor, it being understood and agreed that Guarantor is fully
responsible for being and keeping informed of the financial condition of
3
<PAGE>
Borrower and of any and all circumstances bearing on the risk that liability may
be incurred by Guarantor hereunder; and
f. Any and all rights, benefits and defenses under law available to
guarantors or sureties, including without limitations, any such rights, benefits
or defenses which would otherwise require Lender to proceed against Borrower or
any other person, or to proceed against or exhaust any security held by Lender
at any time, or to first apply any security of Borrower to the discharge of the
Indebtedness, or to pursue any other remedy in Lender's power before proceeding
against Guarantor hereunder.
6. Guarantor agrees that Guarantor shall have no right of subrogation,
reimbursement, exoneration, contribution, indemnity, or similar right as against
Borrower which would result in Guarantor being deemed a creditor of Borrower
under the Federal Bankruptcy Code or any other law or for any other purpose; and
Guarantor further WAIVES any and all rights, benefits and defenses under law,
which may provide that a surety is entitled to the benefit of every security for
the performance of the principal obligation held by the creditor.
7. With or without notice to Guarantor and without affecting in any way
Guarantor's obligation or liability hereunder for payment of the Indebtedness,
Lender, in Lender's sole and absolute discretion, at any time and from time to
time, and in such manner and upon such terms as Lender deems fit, may:
a. Apply any or all payments or recoveries from Borrower or from all other
guarantor or endorser under any other instrument or realized from any security,
in such manner and order of priority as lender may determine in Lender's sole
and absolute discretion, to any Indebtedness of Borrower to Lender, whether or
not such Indebtedness is guaranteed hereby or is otherwise secured or is due at
the time of such application; or
b. Refund to Borrower any payment received by Lender upon the Indebtedness
hereby guaranteed.
8. All rights, powers and remedies of Lender hereunder shall be cumulative
and not alternative and such rights, powers and remedies shall be in addition to
all rights, powers and remedies given to lender under the Loan Documents
(including any other guarantees of the Indebtedness) or otherwise by law.
9. The liability of Guarantor under this Guaranty Agreement shall be an
absolute, direct, immediate and unconditional guarantee of payment and not of
collection. The Indebtedness of Guarantor hereunder are independent of the
Indebtedness of Borrower and are not conditioned on contingent upon the
genuineness, validity, regularity or enforceability of any of the Loan
Documents. In the event of any default hereunder, a separate action or actions
4
<PAGE>
may be brought and prosecuted against Guarantor, whether or not Borrower is
joined therein or a separate action or actions are brought against Borrower.
Lender may enforce Lender's rights under the Guaranty Agreement without first
exercising any other remedy or right that Lender may have or seeking to obtain
payment or performance from Borrower, any other person (including any other
guarantor) or from any collateral which Lender may hold as security for the
Indebtedness. Lender may maintain successive actions for other defaults.
Lender's rights hereunder shall not be exhausted by the exercise of any of
Lender's rights or remedies or by any such action or by any number of successive
actions. Guarantor WAIVES any and all rights, benefits and defenses under law
which may generally provide that a guarantor or surety is not liable if for
certain reasons there is no liability upon the part of the principal or if the
principal ceases to become liable or which may generally provide that the
Indebtedness of a guarantor or surety must not be larger nor more burdensome
than that of the principal.
10. Notwithstanding the fact that Borrower may be a corporation, a joint
venture or a partnership, Lender is not to be concerned to see or inquire into
the powers of Borrower, its directors, officers, joint ventures, partners,
associates or other agents acting or purporting to act on its behalf, and
Guarantor expressly waives any defense to the enforcement of this Guaranty
Agreement to the effect that the transaction between Borrower and Lender is in
excess of the powers of the Borrower, or shall be in any way irregular,
defective or informal. Guarantor's liability hereunder shall not be affected by
changes in the name of the entity or the constituent members of the entity which
constitutes Borrower.
11. It is expressly understood that the obligations of Guarantor hereunder
are an additional and cumulative benefit given to Lender for Lender's security.
12. No action based on this Guaranty Agreement shall be instituted until
written demand for payment or performance, as appropriate, has been made upon
Guarantor (a) upon delivery of such demand in person to Guarantor, or (b) on the
next business day following deposit of an envelope containing such demand with
an overnight courier service (such as United Parcel Service) for delivery to
Guarantor at the address set forth next to Guarantor's signature hereon, or (c)
on the second business day following deposit of an envelope containing such
demand in the United States mail, postage prepaid, certified mail,
return-receipt requested, addressed to Guarantor as described above. Guarantor
may change Guarantor's address for such notices by giving notice of the change
of address to Lender in the manner provided herein. All payments hereunder shall
be made in lawful money of the United States of America. No delay in making
demand on Guarantor for satisfaction of Guarantor's liabilities hereunder shall
prejudice Lender's right to enforce such satisfaction.
5
<PAGE>
13. Guarantor shall pay to Lender, upon written demand, all reasonable
attorneys' fees (including an allocable portion of in-house counsel fees) and
all costs and other expenses which Lender expends or incurs in enforcing this
Guaranty Agreement against Guarantor whether or not suit is filed, including,
without limitation, all reasonable attorneys' fees (including an allocable
portion of in-house counsel fees), costs and expenses incurred by Lender in
connection with any insolvency, bankruptcy, reorganization, arrangement or other
similar proceedings involving Borrower or Guarantor which in any way affect the
exercise by Lender of Lender's rights and remedies hereunder. Until paid to
Lender, such attorneys' fees (including an allocable portion of in-house counsel
fees), costs and expenses shall bear interest at the highest rate of interest
allowable by law.
14. Should any one or more provisions of this Guaranty Agreement be
determined to be illegal or unenforceable, all other provisions nevertheless
shall be effective.
15. No provision of this Guaranty Agreement or right of Lender hereunder
can be waived nor shall Guarantor be released from any of Guarantor's
obligations hereunder except by a writing duly executed by Lender, or unless
this Guaranty Agreement terminates pursuant to its terms as set forth herein.
This Guaranty Agreement may not be modified, amended, revised, changed or varied
in any way whatsoever except by the express terms of a writing duly executed by
Lender and Guarantor.
16. When the context and construction so requires, all words used in the
singular herein shall be deemed to have been used in the plural, and the
masculine shall include the feminine and neuter, and vice versa. The word
"person" as used herein shall include any individual, company, firm,
association, partnership, corporation, trust or other legal entity of any kind
whatsoever. The word "Borrower" as used herein includes Borrower acting on
behalf of itself or any estate created by the commencement of a case under the
Federal Bankruptcy Code or any other insolvency, bankruptcy, reorganization or
liquidation proceeding, or by any trustee under the Federal Bankruptcy Code,
liquidator, sequestrator, and receiver of Borrower and Borrower's property or
similar person duly appointed pursuant to any laws generally governing any
insolvency, bankruptcy, reorganization, liquidation, receivership or like
proceeding. If more than one person has signed this Guaranty Agreement as
Guarantor, it shall be the joint and several obligation of each of them. The
words "Loan Documents" as used herein include any modifications, extensions,
renewals, or replacements thereof. All references to statutes herein shall
include any modifications, amendments, substitutions or replacements thereof.
17. In the event that all or any part of the Indebtedness is assigned by
Lender, this Guaranty Agreement shall automatically be assigned therewith in
whole or in part, as applicable, without the need of any express assignment and,
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<PAGE>
when so assigned, Guarantor shall be bound as above to the assignee(s) without
in any manner affecting Guarantor's liability hereunder for any part of the
Indebtedness retained by Lender.
18. Guarantor agrees, within seven (7) calendar days after request from
Lender, to deliver to Lender a statement certifying that this Guaranty Agreement
is in full force and effect, and that no defense of offset exists to Guarantor's
obligations under the Guaranty Agreement (or stating any facts to the contrary).
19. This Guaranty Agreement shall inure to the benefit of and bind the
heirs, legal representatives, administrators, executors, successors, and assigns
of Lender and of Guarantor.
20. Guarantor hereby agrees that:
a. The execution and delivery to Lender of this Guaranty Agreement of
the accrual of a claim hereunder in favor of Lender shall be deemed to have
caused an event to occur in the State of New Jersey, bringing Guarantor within
the jurisdiction of the state and federal courts in the State of New Jersey, and
Guarantor further hereby agrees to and, as a separate and independent covenant,
does hereby submit to the jurisdiction of the state and federal courts in the
State of New Jersey; and
b. This Guaranty Agreement is made in the State of New Jersey and the
provisions hereof shall be construed and enforced in accordance with the laws of
the State of New Jersey (irrespective of its conflicts of laws rules) and, to
the extent that federal law may preempt the applicability of state laws, federal
law.
21. Except as provided in any other written agreement at any time hereafter
in force between Lender and Guarantor, this Guaranty Agreement shall constitute
the entire agreement of Guarantor with Lender with respect to the subject matter
hereof and no representation, understanding, promise or condition concerning the
subject matter hereof shall be binding upon Lender unless expressed herein.
22. Notwithstanding anything in this Guaranty Agreement to the contrary, it
is agreed that this is a fully "collateralized" guaranty.
THE UNDERSIGNED GUARANTOR ACKNOWLEDGES THAT HE WAS AFFORDED THE OPPORTUNITY
TO READ THIS DOCUMENT CAREFULLY AND TO REVIEW IT WITH AN ATTORNEY OF HIS CHOICE
BEFORE SIGNING IT. THE UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ AND
UNDERSTOOD THE MEANING AND EFFECT OF THIS DOCUMENT, INCLUDING BUT NOT LIMITED TO
ALL WAIVERS CONTAINED HEREIN, BEFORE SIGNING IT.
7
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Guaranty Agreement as of
the day and year first above written.
WITNESS: "GUARANTOR"
/s/ Debra A. Santa Lucia /s/ Peter J. Salzano
- ------------------------ ------------------------------------
Signature Peter J. Salzano
Debra A. Santa Lucia Address:
- -------------------- 74 Jesse Court
Print Name Montville, NJ 07045
ATTEST "LENDER"
VDC COMMUNICATIONS, INC.
/s/ Louis D. Frost By: /s/ Frederick A. Moran
- -------------------- ---------------------------------
Signature Frederick A. Moran
Chief Executive Officer
Louis D. Frost Address:
- -------------------- 75 Holly Hill Lane
Print Name Greenwich, CT 06830
8
SECURITY AGREEMENT
------------------
THIS SECURITY AGREEMENT ("Agreement") is made and entered into this 20th
day of April, 2000, by and between VDC Communications, Inc., a Delaware
corporation ("Secured Party"), and Network Consulting Group, Inc., ("Pledgor").
RECITALS
--------
A. Concurrently herewith, Rare Telephony, Inc. (f/k/a/ Washoe Technology
Corporation) and Cash Back Rebates LD.com, Inc. ("Borrower") have executed a
certain Promissory Note (the "Note") in the stated principal amount of Two
Hundred Thousand Dollars ($200,000) in favor of the Secured Party.
B. Also concurrently herewith, Pledgor has executed in favor of Secured
Party a certain Guaranty Agreement (the "Guaranty") pursuant to which Pledgor
has guaranteed the indebtedness of Borrower, to Secured Party under the Note.
C. The indebtedness of Pledgor to the Secured Party under the Guaranty is
hereinafter collectively referred to as the "Indebtedness".
D. It is the purpose and intent of the parties hereto to secure the payment
by Pledgor to Secured Party of the Indebtedness by a pledge of certain
collateral, according to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and conditions set forth herein, the parties agree as follows:
1. Pledgor hereby grants to Secured Party a security interest in and to
6,250 shares of the common stock of Rare Telephony, Inc. (f/k/a/ Washoe
Technology Corporation) evidenced by Share Certificate No. 8 ("Collateral") and
does hereby deliver to and deposit the Collateral with Secured Party, together
with a stock power duly executed in blank.
During the term hereof, and subject to the provisions of this Agreement,
Secured Party shall hold and retain the Collateral for the purpose of perfecting
the security interest herein granted to Secured Party, and for the purpose of
carrying out the provisions of this Agreement.
2. The Collateral shall secure the payment of the Indebtedness.
3. Pledgor warrants that Pledgor is the sole lawful owner of the Collateral
and that there is no lien or charge against, or encumbrance or security interest
in, or adverse claim to, the Collateral, or any portion thereof, other than the
1
<PAGE>
security interest created pursuant to this Agreement. So long as there is any
Indebtedness whatsoever owing to Secured Party, Pledgor agrees to keep the
Collateral free and clear of any and all liens, encumbrances, security interests
(other than the security interest of Secured Party), adverse claims or
interests.
4. As long as Pledgor is not in default hereunder, any and all cash
dividends or other property (but not stock dividends) which may be received by
Secured Party during the term of this Agreement which derives from the
Collateral shall be remitted to Pledgor, and Pledgor shall retain all voting
rights associated with the Collateral. Any cash dividends or other property
received with respect to the Collateral after the occurrence of a default
hereunder shall be delivered to and held by Secured Party as additional
Collateral, and after the occurrence of such default Secured Party shall have
all voting rights associated with the Collateral.
5. Pledgor shall be in default under this Agreement upon the happening of
any of the following events:
(a) Pledgor fails to pay any portion of the Indebtedness when due;
(b) Borrower commits a default under the Note or Pledgor commits a
default under the Guaranty;
(c) Pledgor fails to perform any other agreement or covenant under
this Agreement within any applicable notice and/or "grace" periods specified
herein, provided that if no notice or grace period is herein specified, Pledgor
shall have ten (10) calendar days after notice thereof has been given within
which to cure any such default;
(d) All or a majority of the value of the Collateral or the assets
of Borrower is seized or levied upon by writ of attachment, garnishment,
execution or otherwise, and such seizure or levy is not released within thirty
(30) calendar days thereafter;
(e) Either Pledgor or Borrower executes a general assignment for
the benefit of its creditors, convenes any meeting of its creditors, becomes
insolvent, admits in writing its insolvency or inability to pay its debts, or is
unable to pay or is generally not paying its debts as they become due;
(f) A receiver, trustee, custodian or agent is appointed to take
possession of all or any portion of the Collateral or all or any substantial
potion of Pledgor's or Borrower's assets;
2
<PAGE>
(g) Any case or proceeding is voluntarily commenced by Pledgor or
Borrower under any provision of the federal Bankruptcy Code or any other federal
or state law relating to debtor rehabilitation, insolvency, bankruptcy,
liquidation, or reorganization, or any such case or proceeding is involuntarily
commenced against Pledgor or Borrower and not dismissed within thirty (30)
calendar days thereafter;
(h) Any representation made by Pledgor in this Agreement or in any
of the other documents delivered in connection therewith, shall have been untrue
or incorrect in any material respect when made.
Upon such default, Secured Party may, at its option, declare all
Indebtedness to be immediately due and payable. Additionally, Secured Party
shall have the rights and remedies set forth in Paragraph 6 below.
6. Should Pledgor default under this Agreement, Secured Party shall have
all rights and remedies afforded a secured party under the Uniform Commercial
Code of New Jersey and may, in connection therewith, also:
(a) Sell, lease, or otherwise dispose of the Collateral at public
or private sale, in one or more sales, as a unit or in parcels, at wholesale or
retail, and at such time and place and on such terms as Secured Party may
determine. Secured Party may be the purchaser or any or all of the Collateral at
any public or private sale. If, at any time when Secured Party shall determine
to exercise its right to sell all or any part of the Collateral and such
Collateral, or the part thereof to be sold, it has been advised by legal counsel
that the Collateral is subject to the Securities Act of 1933 as amended or any
state securities laws, Secured Party in its sole and absolute discretion, is
hereby expressly authorized to sell such Collateral, or any part thereof,
subject to obtaining all required regulatory approvals, by private sale in such
manner and under such circumstances as Secured Party may deem necessary or
advisable in order that such sale may be effected legally without registration
or qualification under applicable securities laws. Without limiting the
generality of the foregoing, Secured Party, in it sole and absolute discretion,
may approach and negotiate with a restricted number of potential purchasers to
effect such sale or restrict such sale to a purchaser or purchaser who will
represent and agree that such purchaser or purchasers are purchasing for his or
their own account, for investment only, and not with a view of the distribution
or sale of such Collateral or any part thereof. Any such sale shall be deemed to
be a sale made in a commercially reasonable manner within the meaning of the
Uniform Commercial Code of the State of New Jersey and Pledgor hereby consents
and agrees that Secured Party shall incur no responsibility or liability for
selling all or any part of the Collateral at a price which is not unreasonably
low, notwithstanding the possibility that a higher price might be realized if
3
<PAGE>
the sale were public. Any public sale of any or all of the Collateral may be
postponed from time to time by public announcement at the time and place last
scheduled for the sale. Without limiting the generality of this Section 6, it
shall conclusively be deemed to be commercially reasonable for Secured Party to
direct any prospective purchaser of any or all of the Collateral to Pledgor to
ascertain all information concerning the status of Borrower. Securing Party's
disposition of any or all of the Collateral in any manner which differs from the
procedures specified in this Section 6 shall not be deemed to be commercially
unreasonable; or
(b) Propose to accept the Collateral after giving notice of such
proposal to Pledgor and to any other person with a security interest in the
Collateral in accordance with the Uniform Commercial Code of New Jersey, or any
applicable successor statute. Such acceptance shall discharge the obligation of
Pledgor and the Corporation with respect to the Indebtedness, provided that
neither Pledgor nor any other person with a security interest in the Collateral
objects in writing to such a proposal within twenty one (21) calendar days after
receipt of such notice.
The proceeds of any sale, lease or other disposition of the Collateral
shall be applied in the manner and priority set forth in the Uniform Commercial
Code of New Jersey, or any applicable successor statute.
7. Pledgor unconditionally agrees upon demand to pay to the Secured Party
the amount of any and all reasonable and necessary out-of-pocket costs, expenses
and disbursements, including fees and expenses of its counsel, which the Secured
Party may incur in connection with (i) the administration of this Agreement,
(ii) the custody, preservation, use or operation of, or the sale of, collection
from, or other realization upon, the Collateral, (iii) the exercise or
enforcement of any of the rights of the Secured Party hereunder or (iv) the
failure by Pledgor to perform or observe any of the provisions hereof. Pledgor
unconditionally agrees to indemnify the Secured Party from and against any and
all claims, losses and liabilities arising out of or resulting from this
Agreement (including enforcement of this Agreement), except claims, losses or
liabilities resulting from the gross negligence or willful misconduct of the
Secured Party.
8. Pledgor waives any right to require the Secured Party to:
(a) Proceed against any person;
(b) Proceed against or exhaust any collateral; or
(c) Pursue any other remedy in Secured Party's power.
4
<PAGE>
Pledgor further authorizes the Secured Party, without notice or demand and
without affecting its liability hereunder or on the Indebtedness, from time to
time to:
(d) Amend or modify the terms of the Note or the Guaranty with
Pledgor's consent, including, but not limited to, any such amendment or
modification which affects the Indebtedness.
(e) Take and hold security, other than the Collateral herein described,
for the payment of the Indebtedness or any part thereof, and exchange, enforce,
waive, and release the Collateral herein described or any part thereof or any
such other security.
(f) Apply such Collateral or other security and direct the order or
manner of sale thereof as Secured Party in its discretion may determine.
9. In the event that any additional shares of capital stock of Borrower are
issued to or acquired by Pledgor during the term of this Agreement, such
additional shares shall be considered additional Collateral subject to this
Agreement, and Pledgor shall immediately deliver stock certificates evidencing
such additional shares of capital stock and duly executed stock powers to
Secured Party.
10. Neither the acceptance of any partial or delinquent payment by Secured
Party nor Secured Party's failure to exercise any of its rights or remedies on
default by Pledgor shall be a waiver of the default, a modification of this
Agreement or Pledgor's obligations under this Agreement, or a waiver of any
subsequent default by Pledgor.
11. All notices are required or permitted to be given pursuant to this
Agreement shall be in writing, and shall be delivered either personally, by
overnight delivery service or by U.S. certified or registered mail, postage
prepaid, return-receipt requested and addressed to the parties at their
respective addresses as the appear below their signatures hereon. Notices may
also be given by facsimile transmission to the facsimile telephone numbers which
appear below the parties' respective signatures hereon, provided that either (a)
receipt of the facsimile transmission is acknowledged in writing by the
receiving party, which may also be by a facsimile transmission is acknowledged
in writing by the receiving party, which may also be by facsimile transmission,
or (b) the transmitting party obtains a written confirmation from its own
facsimile machine showing that the entire transmission was transmitted to the
receiving party. The parties may also change their addresses or facsimile
5
<PAGE>
telephone numbers for notice by giving notice of such change in accordance with
this section. Notices sent by overnight delivery service shall be deemed
received on the business day following the date of deposit with the delivery
service. Mailed notices shall be deemed received upon the earlier of the date of
delivery shown on the return-receipt, or the second business day after the date
of mailing. Notices sent by facsimile transmission shall be deemed served on the
date of transmission, provided that all such notices are sent during regular
business hours, otherwise on the next business day.
12. Time is hereby expressly declared to be of the essence of this
Agreement.
13. This Agreement and each of its provisions shall be binding on the
heirs, executors, administrators, successors, and assigns of each of the parties
hereto.
14. This Agreement is made and entered into and shall be interpreted in
accordance with the laws of the State of New Jersey. Any action concerning this
Agreement shall be commenced in a court of competent jurisdiction in the State
of New Jersey.
15. Upon payment in full of the portion of Indebtedness evidenced by the
Note, this Agreement shall terminate and be of no further force or effect. Upon
receipt of satisfactory proof from both parties in writing that such portion of
the Indebtedness has been paid in full, Secured Party shall immediately deliver
to Pledgor the Collateral and the stock powers.
16. Secured Party shall not be responsible for any damage of loss to the
Collateral, or any part thereof, arising from an act of God, flood, fire, or any
other cause beyond the reasonable control of Secured Party.
17. Upon the request of Secured Party, from time to time, Pledgor agrees to
execute, acknowledge and deliver, or cause to be executed, acknowledged and
delivered, all such additional instruments, and agrees to perform any and all
acts reasonably required to carry into effect the provisions and intent of this
Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first above written.
WITNESS: "PLEDGOR"
/s/ Debra A. Santa Lucia /s/ Peter J. Salzano
- ------------------------ --------------------
Signature
6
<PAGE>
Peter J. Salzano /s/ Peter J. Salzano 74 Jesse Court
- ------------------------------------- Montville, NJ 07045
Print Name Facsimile No. 973-822-8520
-------------
ATTEST: "SECURED PARTY"
/s/ Louis D. Frost VDC COMMUNICATIONS, INC.
- ------------------
Signature
By: /s/ Frederick A. Moran
-------------------------
Louis D. Frost Frederick A. Moran
- -------------- Chief Executive Officer
Print Name
75 Holly Hill Lane
Greenwich, CT 06830
Facsimile No. (203) 552-0908
7
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is dated April 20, 2000 and is made between
Network Consulting Group, Inc. ("Grantor") and VDC Communications, Inc.
("Secured Party").
WITNESSETH THAT:
WHEREAS, concurrently herewith, Rare Telephony, Inc. (f/k/a/ Washoe
Technology Corporation) and Cash Back Rebates LD.com, Inc. ("Borrower") have
executed a certain Promissory Note (the "Note") in the stated principal amount
of Two Hundred Thousand Dollars ($200,000) in favor of the Secured Party.
WHEREAS, also concurrently herewith, Grantor has executed in favor of
Secured Party a certain Guaranty Agreement (the "Guaranty") pursuant to which
Grantor has guaranteed the indebtedness of Borrower, to Secured Party under the
Note.
WHEREAS, It is the purpose and intent of the parties hereto to secure
the Grantor's guaranty to Secured Party by offering certain security according
to the terms and conditions set forth herein.
NOW, THEREFORE, intending to be legally bound hereby and for value
received, the parties hereto covenant and agree as follows:
1. Definitions. In addition to the words and terms defined
------------
elsewhere in this Security Agreement, the following words and terms shall have
the following meanings, respectively, unless the context otherwise clearly
requires:
(a) "Code" shall mean the Uniform Commercial Code of
each state as enacted and in effect on the date hereof in each applicable
jurisdiction, and as the same may subsequently be amended from time to time.
(b) "Collateral" shall mean, all of Grantor's right,
title and interest in, to and under the following described property, whether
now owned or hereafter acquired (words and terms defined in the Code shall have
the same meanings when used herein):
(A) Any and all accounts, accounts receivable, reimbursements,
notes, contracts, contract rights, chattel paper, cash, checks, drafts,
documents, instruments, all right of Grantor; all deposit accounts of Grantor,
including, without limitation, security deposit accounts of Grantor's customers,
all funds held therein and all certificates and instruments, if any, from time
to time representing or evidencing such deposit accounts;
(B) Any and all customer lists, all documents containing the
names, addresses, telephone numbers, and other information regarding Grantor's
<PAGE>
customers, subscribers, tapes, programs, printouts, disks, and other material
and documents relating to the recording, billing or analyzing of any of the
foregoing, and any other right to payment;
(C) Any and all contract and lease rights, including network
contracts, customer contracts and letters of authorization authorizing the
furnishing by Grantor of services, and billing and collection contracts, whether
evidenced by a document or otherwise; in each case with respect to all of the
foregoing only to the extent that the grant by Grantor of a security interest
pursuant to this Agreement in its right, title and interest in such contract or
document is not prohibited by the terms of such contract or document without the
consent of any other party thereto and would not give any other party to such
contract or document the right to terminate its obligations thereunder (it being
understood that the foregoing shall not be deemed to obligate Grantor to obtain
any such consents);
(D) Any and all accounts, customer bases, goodwill or accounts
receivable arising from services rendered by Grantor to an end user prior to the
sale, assignment, or transfer of such account (collectively, the "End User
Accounts") to any company; and rights in and to any of the receivables, debts,
and other amounts payable to Grantor by and other company, and all cash and
non-cash proceeds of the foregoing;
(E) Any and all of Grantor's right, title and interest, whether
now owned or hereafter acquired, in and to all equipment in all of its forms,
wherever located, now or hereafter existing, all fixtures and all parts thereof
and all accessions thereto (any and all such equipment, fixtures, parts and
accessions being the "Equipment");
(F) Any and all of Grantor's right, title and interest, whether
now owner or hereafter acquired, in and to all inventory in all of its forms,
wherever located, now or hereafter existing (including but not limited to, (i)
all raw materials and work in process therefore, finished goods thereof and
materials used or consumer in the manufacture or production thereof, (ii) goods
in which Grantor has an interest in all or a joint or other interest or right of
any kind (including, without limitation, goods in which Grantor has an interest
or right as consignee) and (iii) goods that are returned to or repossessed by
Grantor), and all accessions thereto and products thereof and documents
therefore (any and all such inventory, accessions, products and documents being
the "Inventory"),
(G) Any and all records and documents relating to any and all of
the foregoing including, without limitation, records of accounts whether in the
form of writing, microfilm, microfiche, tape or electronic media;
(H) Any and all general intangibles, as defined in the Uniform
Commercial Code, and including, without limitation, (i) all leases under which
Grantor now or in the future leases and or obtains a right to occupy or use real
2
<PAGE>
or personal property, (ii) all of Grantor's other contract rights, whenever
acquired, (iii) customer lists, causes in action, claims (including claims for
indemnification), books, records, patents and patent applications, copyrights
and copyrights applications, trademarks, trade names, tradestyles, trademark
applications, blueprints, drawings, designs and plans, trade secrets, methods,
processes, contract, licenses, license agreements, formulae, tax and any other
types of refunds, deposits, returned and unearned insurance premiums, rights and
claims under insurance policies, and computer information, software, records and
data, whenever acquired, and (iv) all licenses, permits and approvals of third
parties or governmental authorities necessary for, or used in the operation,
maintenance, use of occupancy of, Grantor's businesses or properties, wherever
located and whenever acquired (any or all of the foregoing being referred to as
"General Intangibles"); and
(I) All products and proceeds (cash and non-cash) of all of the
foregoing, including, without limitation, all interest, dividends, cash, drafts,
rights to receive payment in money or kind, instruments and other property from
time to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of then existing Collateral; and increases accessions,
renewals, replacements and substitutions of all of the foregoing, and, to the
extent not otherwise included, all (i) payments under insurance (whether or not
the Secured Party is the loss payee thereof), or any indemnity, warranty or
guaranty, payable by reason of loss or damage to or otherwise with respect to
any of the foregoing Collateral and (ii) cash.
(c) "Secured Indebtedness" shall mean (i) all
obligations, whether of principal, interest, fees, expenses or otherwise, of
Grantor to Secured Party, whether now existing or hereafter incurred, under the
Note or this document as any of the same may from time to time be amended,
modified or supplemented, together with any and all extensions, renewals,
refinancings or refundings thereof in whole or in part by the Secured Party,
(ii) all out-of-pocket costs, expenses and disbursements, including reasonable
attorneys' fees and legal expenses, incurred by the Secured Party in the
collection of any of the obligations referred to in subclause 1(c)(i) above; and
(iii) any advances made, subsequent to an Event of Default, by the Secured
Party, for the reasonable maintenance, preservation, protection or enforcement
of, or realization upon, the Collateral, including advances for taxes and the
like and reasonable expenses incurred to sell or otherwise realize on, or
prepare for sale or other realization on, any of the Collateral.
2. Assignment and Grant of Security Interests. As security for
---------------------------------------------
the due and punctual payment and performance of the Secured Indebtedness in
full, Grantor hereby agrees that the Secured Party shall have, and Grantor
hereby grants to and creates in favor of the Secured Party, for the benefit of
the Secured Party, to secure all of the Secured Indebtedness, a continuing first
priority security interest (or, alternatively, as high a priority security
3
<PAGE>
interest as is permitted by law) in and to Grantor's Collateral. Without
limiting the generality of Section 4 below, Grantor further agrees that with
respect to each item of Collateral as to which (i) the creation of valid and
enforceable security interests is not governed exclusively by the Code or (ii)
the perfection of valid and enforceable security interests therein under the
Code cannot be accomplished by the Secured Party taking possession thereof or by
the filing in appropriate locations of appropriate Code financing statements
executed by the Grantor, Grantor will at its expense execute and deliver to the
Secured Party such documents, agreements, notices, assignments and instruments
and take such further actions as may be reasonably requested by the Secured
Party from time to time for the purpose of creating a valid and perfected first
priority lien (or, alternatively, as high a priority security interest as is
permitted by law) on such item, enforceable against the Grantor and all third
parties to secure the Secured Indebtedness.
3. Representations and Warranties. Grantor represents, warrants
-------------------------------
and covenants to the Secured Party that:
(a) Grantor is the legal and beneficial owner and holder
of the Collateral and Grantor has and will continue to have good and marketable
title to the Collateral which Grantor purports to own or which is reflected as
owned in its books and records.
(b) The Grantor has received value from the Secured Party
for Grantor's grant of security interests hereunder and, except for the security
interests granted to and created in favor of the Secured Party hereunder, all of
the Collateral is and will continue to be free and clear of all liens, except
any lien possessed by the Secured Party (the "Permitted Lien").
(c) Grantor has full power to enter into, execute,
deliver and carry out this Security Agreement and to perform its obligations
hereunder and all such actions have been duly authorized by all necessary
proceedings on its part. This Security Agreement has been duly and validly
executed and delivered by Grantor. This Security Agreement constitutes the
legal, valid and binding obligations of Grantor, enforceable against it in
accordance with its terms, except to the extent that enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the enforceability of creditors' rights generally or limiting the
right of specific performance.
(d) Neither the execution and delivery of this Security
Agreement nor compliance with the terms and provisions hereof (i) will conflict
with or result in any breach of the terms and conditions of the articles of
incorporation, bylaws or equivalent documents of Grantor or of any law or any
material agreement or instrument to which Grantor is a party or by which it is
bound or to which it is subject, (ii) will constitute a default under any of the
documents referred to in clause 3(d)(i) above or (iii) will result in the
4
<PAGE>
creation or enforcement of any lien (other than the Permitted Lien) whatsoever
upon any Collateral (now or hereafter acquired) of Grantor.
4. Further Assurances. Grantor will, from time to time, at its
-------------------
expense, faithfully preserve and protect the Secured Party's security interests
in the Collateral as continuing first priority perfected security interests (or,
alternatively, as high a priority security interest as is permitted by law), and
will do all such other acts and things and will, upon request therefor by the
Secured Party, execute, deliver, file and record all such other documents and
instruments, including financing statements, security agreements, pledges,
assignments, documents and powers of attorney with respect to the Collateral,
and pay all filing fees and taxes related thereto as the Secured Party in its
reasonable discretion may deem necessary or advisable from time to time in order
to preserve, perfect or protect any security interest granted or purported to be
granted hereby or to enable the Secured Party to exercise and enforce its rights
and remedies hereunder with respect to any of the Collateral. Without limiting
the generality of the foregoing, to the extent Article 9 of the Code does not
govern the creation and/or perfection of the security interests intended to be
created hereunder, Grantor agrees to execute and deliver such further documents
and instruments and do such further acts as the Secured Party may from time to
time require.
5. Covenants. Grantor covenants and agrees that, (a) it will not
----------
sell, assign or otherwise dispose of any portion of the Collateral; (b) it will
obtain and maintain sole and exclusive possession of its Collateral; (c) it will
keep materially accurate and complete books and records concerning the
Collateral (d) it will promptly furnish to the Secured Party such information
and documents relating to the Collateral as the Secured Party may reasonably
request in order to confirm the status of the Secured Party's security interests
in such Collateral; (e) it will not take or omit to take any actions, the taking
or the omission of which might result in a material adverse alteration or
impairment of the Collateral or in a violation of this Security Agreement; and
(f) it will execute and deliver to the Secured Party and record such supplements
to this Security Agreement and additional assignments as the Secured Party
reasonably may request to evidence and confirm the security interests herein
contained.
6. Preservation of Security Interests. Grantor assumes full
----------------------------------------
responsibility for taking and hereby agrees to take any and all necessary steps
to preserve and defend the Secured Party's right, title and security interests
in and to the Collateral against the claims and demands of all persons. The
Secured Party shall be deemed to have exercised reasonable care in the custody
and preservation of the Collateral in the Secured Party's possession if, prior
to the existence of an Event of Default, the Secured Party takes such action for
that purpose as such Grantor shall reasonably request in writing, provided that
such requested action will not, in the judgment of the Secured Party, impair the
security interests in the Collateral created hereby or the Secured Party's
rights in, or the value of, such Collateral, and provided further that such
5
<PAGE>
written request is received by the Secured Party in sufficient time to permit
the Secured Party to take the requested action.
7. Secured Party's Rights with Respect to the Collateral. At
----------------------------------------------------------
any time and from time to time, whether or not an Event of Default shall have
occurred, and without notice to or consent of the Grantor, the Secured Party
may, at its option, do any or all of the following: (a) do anything which the
Grantor is required but fails to do hereunder, and in particular the Secured
Party may, if the Grantor fails to do so, (i) insure or take any reasonable
steps to protect the Collateral, (ii) pay any or all taxes, levies, expenses and
costs arising with respect to the Collateral, or (iii) pay any or all premiums
payable on any policy of insurance required to be obtained or maintained
hereunder, and add any amounts paid under this Section 7 to the principal amount
of the Note, and other liabilities of Grantor secured by this Security
Agreement; (b) inspect the Collateral at any reasonable time; and (c) pay any
amounts the Secured Party reasonably elects to pay or advance hereunder on
account of insurance, taxes or other costs, fees or charges arising in
connection with the Collateral, either directly to the payee(s) of such cost,
fee or charge, directly to the Grantor, or to such payee(s) and Grantor,
jointly.
8. Remedies on Default. If there shall have occurred and be
----------------------
continuing an Event of Default under the terms of the Note, then the Secured
Party shall have such rights and remedies with respect to the Collateral or any
part thereof and the proceeds thereof as are provided by the Code and such other
rights and remedies with respect thereto which it may have at law or in equity
or under this Security Agreement, including to the extent not inconsistent with
the provisions of the Code or any other applicable law, the right to take over
and collect the Collateral which consists of amounts owing to Grantor to the
extent not prohibited by applicable law. To this end, the Secured Party shall
have the right to (a) transfer all or any part of any of the Collateral into the
Secured Party's name or into the name of its nominee or nominees and thereafter
receive all cash, stock and other dividends or distributions paid or payable in
respect thereof, and otherwise act with respect thereto as the absolute owner
thereof; (b) notify the obligors on any of the Collateral, whether accounts or
otherwise, to make payment thereon directly to the Secured Party, whether or not
the Grantor was theretofore making collections thereon; (c) take control of and
manage the Collateral; (d) apply to the payment of the Secured Indebtedness,
whether it be due and payable or not, any moneys, including cash dividends and
income from the Collateral, now or hereafter in the hands of the Secured Party,
on deposit or otherwise, belonging to Grantor, in accordance with Section 9
hereof; (e) endorse the name of the Grantor upon any checks or other evidences
of payment or any document or instrument that may come into the possession of
the Secured Party as proceeds of or relating to such Grantor's Collateral; (f)
demand, sue for, collect, compromise and give acquittances for the Collateral;
(g) prosecute, defend or compromise any action, claim or proceeding with respect
to the Collateral; and (h) take such other action as the Secured Party may deem
appropriate, including extending or modifying the terms of payment of the
6
<PAGE>
debtors of Grantor. In addition, upon the occurrence of an Event of Default,
Grantor, at the request of the Secured Party, shall assemble all or any portion
of the Grantor's Collateral at such locations as the Secured Party shall
designate which are reasonably convenient to Grantor, and the Secured Party may
sell, assign, give an option or options to purchase or otherwise dispose of all
or any part of the Collateral at any public or private sale at such place or
places and at such time or times and upon such terms, whether for cash or on
credit, and in such manner, as the Secured Party may determine, and apply the
proceeds so received in accordance with Section 9 hereof. Written notice of sale
mailed by certified mail, return receipt requested, to the Grantor, at least ten
(10) calendar days prior to such sale shall be deemed reasonable notice.
In the event of a breach by Grantor in the performance of any
of the terms of this Security Agreement, the Secured Party may demand specific
performance of this Security Agreement and seek injunctive relief and may
exercise any other remedy, available at law or in equity, it being recognized
that the remedies of the Secured Party at law may not fully compensate the
Secured Party for the damages it may suffer in the event of a breach hereof.
9. Application of Proceeds. The proceeds of the Collateral shall
------------------------
be applied to Secured Indebtedness. Grantor shall be liable for any deficiency
if the proceeds of any sale, assignment, giving of an option or options to
purchase or other disposition of the Collateral is insufficient to pay all
amounts to which the Secured Party is entitled.
10. Attorneys-in-Fact. After an Event of Default the Grantor
------------------
hereby irrevocably appoints the Secured Party, its officers, employees and
agents, or any of them, as attorneys-in-fact, with full power of substitution,
for Grantor for the purpose of carrying out the provisions of this Security
Agreement and taking any action and executing, delivering, filing and recording
any instruments which the Secured Party may deem necessary or advisable to
accomplish the purposes hereof, which power of attorney being given for security
is coupled with an interest and irrevocable. The Grantor hereby ratifies and
confirms and agrees to ratify and confirm all action taken by the Secured Party,
its officers, employees or agents pursuant to the foregoing power of attorney.
11. Indemnity and Expenses.
-----------------------
(a) The Grantor unconditionally agrees to indemnify the
Secured Party from and against any and all claims, losses and liabilities
arising out of or resulting from this Security Agreement (including enforcement
of this Security Agreement), except claims, losses or liabilities resulting from
the gross negligence or willful misconduct of the Secured Party.
(b) The Grantor unconditionally agrees upon demand to pay
to the Secured Party the amount of any and all reasonable and necessary
out-of-pocket costs, expenses and disbursements, including fees and expenses of
7
<PAGE>
its counsel, which the Secured Party may incur in connection with (i) the
administration of this Security Agreement, (ii) the custody, preservation, use
or operation of, or the sale of, collection from, or other realization upon, the
Collateral, (iii) the exercise or enforcement of any of the rights of the
Secured Party hereunder or (iv) the failure by the Grantor to perform or observe
any of the provisions hereof.
12. Security Interest Absolute; Waiver of Notices. All rights of
-----------------------------------------------
the Secured Party hereunder, all security interests hereunder, and all
obligations of the Grantor hereunder shall be absolute and unconditional,
irrespective of: (a) any lack of validity the Note or any of the other documents
delivered in connection therewith ("Other Documents"); (b) any change in the
time, manner or place or payment of, or in any other term of, all or any of the
Secured Indebtedness or any other amendment or waiver of or any consent to any
departure from the Note or any of the Other Documents; (c) any exchange, release
or non-perfection of any other Collateral; or (d) any other circumstance which
might otherwise constitute a defense available to, or a discharge of, any
Grantor or any third party mortgagors, pledgors or grantors of security
interests. Grantor waives any and all notice with respect to acceptance by the
Secured Party of this Security Agreement, the provisions of the Note or any of
the Other Documents or any other note, instrument or agreement relating to the
Secured Indebtedness, and any default in connection with the Secured
Indebtedness. Grantor waives any presentment, demand, notice of dishonor or
nonpayment, protest, notice of protest and any other notice of any kind in
connection with the Secured Indebtedness.
13. Termination. Upon payment in full of the Secured Indebtedness
------------
and termination of the Note, this Security Agreement shall terminate and be of
no further force and effect, and the Secured Party, at the Grantor's expense,
shall thereupon promptly return to Grantor the Collateral and such other
documents delivered by Grantor hereunder as may then be in the Secured Party's
possession. Upon any such termination, the Secured Party will, at the Grantor's
expense, execute and deliver to the Grantor such documents as that Grantor shall
reasonably request to evidence such termination.
14. Modifications, Amendments and Waivers. Any and all agreements
--------------------------------------
amending or changing any provision of this Security Agreement or the rights of
any of the Secured Party or the Grantor, and any and all waivers or consents to
Events of Default or other departures from the due performance of the Grantor
hereunder shall be made only pursuant to the provisions of the Note.
15. No Implied Waivers; Cumulative Remedies. No course of dealing
----------------------------------------
and no failure or delay on the part of the Secured Party in exercising any
right, remedy, power or privilege hereunder shall operate as a waiver thereof or
of any other right, remedy, power or privilege of the Secured Party hereunder;
and no single or partial exercise of any such right, remedy, power or privilege
shall preclude any other or further exercise thereof or the exercise of any
other right, remedy, power or privilege. The rights and remedies of the Secured
8
<PAGE>
Party under this Security Agreement are cumulative and not exclusive of any
rights or remedies which it may otherwise have.
16. Notices. Unless otherwise provided in this Agreement, all
--------
notices are required or permitted to be given pursuant to this Agreement shall
be in writing, and shall be delivered either personally, by overnight delivery
service or by U.S. certified or registered mail, postage prepaid, return-receipt
requested and addressed to the parties at their respective addresses as the
appear below their signatures hereon. Notices may also be given by facsimile
transmission to the facsimile telephone numbers which appear below the parties'
respective signatures hereon, provided that either (a) receipt of the facsimile
transmission is acknowledged in writing by the receiving party, which may also
be by a facsimile transmission is acknowledged in writing by the receiving
party, which may also be by facsimile transmission, or (b) the transmitting
party obtains a written confirmation from its own facsimile machine showing that
the entire transmission was transmitted to the receiving party. The parties may
also change their addresses or facsimile telephone numbers for notice by giving
notice of such change in accordance with this section. Notices sent by overnight
delivery service shall be deemed received on the business day following the date
of deposit with the delivery service. Mailed notices shall be deemed received
upon the earlier of the date of delivery shown on the return-receipt, or the
second business day after the date of mailing. Notices sent by facsimile
transmission shall be deemed served on the date of transmission, provided that
all such notices are sent during regular business hours, otherwise on the next
business day.
17. Severability.
-------------
(a) Grantor agrees that the provisions of this Security
Agreement are severable, and in an action or proceeding involving any state or
federal bankruptcy, insolvency or other law affecting the rights of creditors
generally:
(i) if any clause or provision shall be held
invalid or unenforceable in whole or in part in any jurisdiction, then such
invalidity or unenforceability shall affect only such clause or provision, or
part thereof, in such jurisdiction and shall not in any manner affect such
clause or provision in any other jurisdiction, or any other clause or provision
in this Agreement in any jurisdiction;
(ii) if this Security Agreement would be held or
determined to be void, invalid or unenforceable on account of the amount of the
aggregate liability of Grantor under this Security Agreement, then,
notwithstanding any other provision of this Security Agreement to the contrary,
the aggregate amount of such liability shall, without any further action by the
Secured Party, Grantor or any other person, be automatically limited and reduced
to the highest amount which is valid and enforceable as determined in such
action or proceeding.
9
<PAGE>
(iii) If the grant of any security interest
hereunder by Grantor is held or determined to be void, invalid or unenforceable,
in whole or in part, such holding or determination shall not impair or affect
the validity and enforceability of any clause or provision not so held to be
void, invalid or unenforceable.
18. Governing Law. This Security Agreement shall be deemed to
---------------
be a contract under the laws of New Jersey and for all purposes shall be
governed by and construed in accordance with such internal laws, without
reference to its conflicts of law principles, except as required by mandatory
provisions of law and except to the extent that the validity or perfection of
security interests hereunder, or remedies hereunder with respect to the
Collateral, is governed by the laws of a jurisdiction other than the law of New
Jersey.
19. Successors and Assigns. This Security Agreement shall be
-------------------------
freely assignable and transferable by the Secured Party in connection with the
assignment or transfer of the Secured Indebtedness; provided, however, the
duties and obligations of the Grantor may not be delegated or transferred by the
Grantor, without the written consent of the Secured Party. The rights and
privileges of the Secured Party shall inure to their benefit and the benefit of
its respective successors and assigns and the duties and obligations of the
Grantor shall bind the Grantor and its respective successors and assigns.
20. Counterparts. This Security Agreement may be executed in any
-------------
number of counterparts and by the different parties hereto on separate
counterparts, each of which, when so executed and delivered, shall be deemed an
original, but all such counterparts shall constitute but one and the same
instrument.
21. Consent to Jurisdiction; Waiver of Jury Trial. The Grantor
-------------------------------------------------
hereby irrevocably consents to the exclusive jurisdiction of the courts of New
Jersey and waives personal service of any and all process upon it and consents
that all such service of process be made by certified or registered mail
directed to the Grantor at the addresses set forth below and service so made
shall be deemed to be completed upon actual receipt thereof. The Grantor waives
any objection to jurisdiction and venue of any action instituted against it as
provided herein and agrees not to assert any defense based on lack of
jurisdiction or venue, AND THE SECURED PARTY WAIVES TRIAL BY JURY IN ANY ACTION,
SUIT, PROCEEDING OR COUNTERCLAIM WITH RESPECT TO THIS SECURITY AGREEMENT TO THE
FULL EXTENT PERMITTED BY LAW.
22. Interpretation. No rule of construction requiring
---------------
interpretation against the drafting party shall apply to the interpretation of
this Agreement. Additionally, nothwithstanding any other term in this Agreement,
this Agreement is meant to augment and supplement the rights and benefits
conferred upon Secured Party in other security agreements executed by Grantor
10
<PAGE>
for the benefit of the Secured Party and shall not be interpreted to the
contrary.
WITNESS the due execution hereof as of the day and year first above
written.
ATTEST: "GRANTOR"
/s/ Debra Santa Lucia NETWORK CONSULTING GROUP, INC.
- ---------------------
Signature
By: /s/ Peter J. Salzano President
---------------------------------
Debra Santa Lucia Peter J. Salzano
- ----------------- President
Print Name
101 Route 46E
Pine Brook, NJ 07058
Facsimile No. (973) 882-8520
-----------------------
ATTEST: "SECURED PARTY"
/s/ Louis D. Frost VDC COMMUNICATIONS, INC.
- ------------------
Signature
By: /s/ Frederick A. Moran
---------------------------------
Louis D. Frost Frederick A. Moran
- -------------- Chief Executive Officer
Print Name
75 Holly Hill Lane
Greenwich, CT 06830
Facsimile No. (203) 552-0908
-----------------------
11
SECURITY AGREEMENT
------------------
THIS SECURITY AGREEMENT ("Agreement") is made and entered into this 20th
day of April, 2000, by and between VDC Communications, Inc., a Delaware
corporation ("Secured Party"), and Peter J. Salzano, ("Pledgor").
RECITALS
--------
A. Concurrently herewith, Rare Telephony, Inc. (f/k/a/ Washoe Technology
Corporation) and Cash Back Rebates LD.com, Inc. ("Borrower") have executed a
certain Promissory Note (the "Note") in the stated principal amount of Two
Hundred Thousand Dollars ($200,000) in favor of the Secured Party.
B. Also concurrently herewith, Pledgor has executed in favor of Secured
Party a certain Guaranty Agreement (the "Guaranty") pursuant to which Pledgor
has guaranteed the indebtedness of Borrower, to Secured Party under the Note.
C. The indebtedness of Pledgor to the Secured Party under the Guaranty is
hereinafter collectively referred to as the "Indebtedness".
D. It is the purpose and intent of the parties hereto to secure the
payment by Pledgor to Secured Party of the Indebtedness by a pledge of certain
collateral, according to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and conditions set forth herein, the parties agree as follows:
1. Pledgor hereby grants to Secured Party a security interest in and to
2,500 shares of the common stock of Rare Telephony, Inc. (f/k/a/ Washoe
Technology Corporation) evidenced by Share Certificate No. 3 ("Collateral") and
does hereby deliver to and deposit the Collateral with Secured Party, together
with a stock power duly executed in blank.
During the term hereof, and subject to the provisions of this Agreement,
Secured Party shall hold and retain the Collateral for the purpose of perfecting
the security interest herein granted to Secured Party, and for the purpose of
carrying out the provisions of this Agreement.
2. The Collateral shall secure the payment of the Indebtedness.
3. Pledgor warrants that Pledgor is the sole lawful owner of the
Collateral and that there is no lien or charge against, or encumbrance or
security interest in, or adverse claim to, the Collateral, or any portion
thereof, other than the
1
<PAGE>
security interest created pursuant to this Agreement. So long as there is any
Indebtedness whatsoever owing to Secured Party, Pledgor agrees to keep the
Collateral free and clear of any and all liens, encumbrances, security interests
(other than the security interest of Secured Party), adverse claims or
interests.
4. As long as Pledgor is not in default hereunder, any and all cash
dividends or other property (but not stock dividends) which may be received by
Secured Party during the term of this Agreement which derives from the
Collateral shall be remitted to Pledgor, and Pledgor shall retain all voting
rights associated with the Collateral. Any cash dividends or other property
received with respect to the Collateral after the occurrence of a default
hereunder shall be delivered to and held by Secured Party as additional
Collateral, and after the occurrence of such default Secured Party shall have
all voting rights associated with the Collateral.
5. Pledgor shall be in default under this Agreement upon the happening of
any of the following events:
(a) Pledgor fails to pay any portion of the Indebtedness when due;
(b) Borrower commits a default under the Note or Pledgor commits a
default under the Guaranty.
(c) Pledgor fails to perform any other agreement or covenant under this
Agreement within any applicable notice and/or "grace" periods specified herein,
provided that if no notice or grace period is herein specified, Pledgor shall
have ten (10) calendar days after notice thereof has been given within which to
cure any such default;
(d) All or a majority of the value of the Collateral or the assets of
Borrower is seized or levied upon by writ of attachment, garnishment, execution
or otherwise, and such seizure or levy is not released within thirty (30)
calendar days thereafter;
(e) Either Pledgor or Borrower executes a general assignment for the
benefit of his creditors, convenes any meeting of its creditors, becomes
insolvent, admits in writing his insolvency or inability to pay his debts, or is
unable to pay or is generally not paying his debts as they become due;
(f) A receiver, trustee, custodian or agent is appointed to take
possession of all or any portion of the Collateral or all or any substantial
potion of Pledgor's or Borrower's assets;
2
<PAGE>
(g) Any case or proceeding is voluntarily commenced by Pledgor or
Borrower under any provision of the federal Bankruptcy Code or any other federal
or state law relating to debtor rehabilitation, insolvency, bankruptcy,
liquidation, or reorganization, or any such case or proceeding is involuntarily
commenced against Pledgor or Borrower and not dismissed within thirty (30)
calendar days thereafter;
(h) Any representation made by Pledgor in this Agreement or in any of
the other documents delivered in connection therewith, shall have been untrue or
incorrect in any material respect when made.
Upon such default, Secured Party may, at its option, declare all
Indebtedness to be immediately due and payable. Additionally, Secured Party
shall have the rights and remedies set forth in Paragraph 6 below.
6. Should Pledgor default under this Agreement, Secured Party shall have
all rights and remedies afforded a secured party under the Uniform Commercial
Code of New Jersey and may, in connection therewith, also:
(a) Sell, lease, or otherwise dispose of the Collateral at public or
private sale, in one or more sales, as a unit or in parcels, at wholesale or
retail, and at such time and place and on such terms as Secured Party may
determine. Secured Party may be the purchaser or any or all of the Collateral at
any public or private sale. If, at any time when Secured Party shall determine
to exercise its right to sell all or any part of the Collateral and such
Collateral, or the part thereof to be sold, it has been advised by legal counsel
that the Collateral is subject to the Securities Act of 1933 as amended or any
state securities laws, Secured Party in its sole and absolute discretion, is
hereby expressly authorized to sell such Collateral, or any part thereof,
subject to obtaining all require regulatory approvals, by private sale in such
manner and under such circumstances as Secured Party may deem necessary or
advisable in order that such sale may be effected legally without registration
or qualification under applicable securities laws. Without limiting the
generality of the foregoing, Secured Party, in it sole and absolute discretion,
may approach and negotiate with a restricted number of potential purchasers to
effect such sale or restrict such sale to a purchaser or purchaser who will
represent and agree that such purchaser or purchasers are purchasing for his or
their own account, for investment only, and not with a view of the distribution
or sale of such Collateral or any part thereof. Any such sale shall be deemed to
be a sale made in a commercially reasonable manner within the meaning of the
Uniform Commercial Code of the State of New Jersey and Pledgor hereby consents
and agrees that Secured Party shall incur no responsibility or liability for
selling all or any part of the Collateral at a price which is not unreasonably
low, notwithstanding the possibility that a higher price might be realized if
3
<PAGE>
the sale were public. Any public sale of any or all of the Collateral may be
postponed from time to time by public announcement at the time and place last
scheduled for the sale. Without limiting the generality of this Section 6, it
shall conclusively be deemed to be commercially reasonable for Secured Party to
direct any prospective purchaser of any or all of the Collateral to Pledgor to
ascertain all information concerning the status of Borrower. Securing Party's
disposition of any or all of the Collateral in any manner which differs from the
procedures specified in this Section 6 shall not be deemed to be commercially
unreasonable; or
(b) Propose to accept the Collateral after giving notice of such proposal to
Pledgor and to any other person with a security interest in the Collateral in
accordance with the Uniform Commercial Code of New Jersey, or any applicable
successor statute. Such acceptance shall discharge the obligation of Pledgor and
the Corporation with respect to the Indebtedness, provided that neither Pledgor
nor any other person with a security interest in the Collateral objects in
writing to such a proposal within twenty one (21) calendar days after receipt of
such notice.
The proceeds of any sale, lease or other disposition of the Collateral
shall be applied in the manner and priority set forth in the Uniform Commercial
Code of New Jersey, or any applicable successor statute.
7. Pledgor unconditionally agrees upon demand to pay to the Secured Party
the amount of any and all reasonable and necessary out-of-pocket costs, expenses
and disbursements, including fees and expenses of its counsel, which the Secured
Party may incur in connection with (i) the administration of this Agreement,
(ii) the custody, preservation, use or operation of, or the sale of, collection
from, or other realization upon, the Collateral, (iii) the exercise or
enforcement of any of the rights of the Secured Party hereunder or (iv) the
failure by Pledgor to perform or observe any of the provisions hereof. Pledgor
unconditionally agrees to indemnify the Secured Party from and against any and
all claims, losses and liabilities arising out of or resulting from this
Agreement (including enforcement of this Agreement), except claims, losses or
liabilities resulting from the gross negligence or willful misconduct of the
Secured Party.
8. Pledgor waives any right to require the Secured Party to:
(a) Proceed against any person;
(b) Proceed against or exhaust any collateral; or
(c) Pursue any other remedy in Secured Party's power.
4
<PAGE>
Pledgor further authorizes the Secured Party, without notice or demand and
without affecting its liability hereunder or on the Indebtedness, from time to
time to:
(d) Amend or modify the terms of the Note or the Guaranty with
Pledgor's consent, including, but not limited to, any such amendment or
modification which affects the Indebtedness.
(e) Take and hold security, other than the Collateral herein described,
for the payment of the Indebtedness or any part thereof, and exchange, enforce,
waive, and release the Collateral herein described or any part thereof or any
such other security.
(f) Apply such Collateral or other security and direct the order or
manner of sale thereof as Secured Party in its discretion may determine.
9. In the event that any additional shares of capital stock of Borrower
are issued to or acquired by Pledgor during the term of this Agreement, such
additional shares shall be considered additional Collateral subject to this
Agreement, and Pledgor shall immediately deliver stock certificates evidencing
such additional shares of capital stock and duly executed stock powers to
Secured Party.
10. Neither the acceptance of any partial or delinquent payment by Secured
Party nor Secured Party's failure to exercise any of its rights or remedies on
default by Pledgor shall be a waiver of the default, a modification of this
Agreement or Pledgor's obligations under this Agreement, or a waiver of any
subsequent default by Pledgor.
11. All notices are required or permitted to be given pursuant to this
Agreement shall be in writing, and shall be delivered either personally, by
overnight delivery service or by U.S. certified or registered mail, postage
prepaid, return-receipt requested and addressed to the parties at their
respective addresses as the appear below their signatures hereon. Notices may
also be given by facsimile transmission to the facsimile telephone numbers which
appear below the parties' respective signatures hereon, provided that either (a)
receipt of the facsimile transmission is acknowledged in writing by the
receiving party, which may also be by a facsimile transmission is acknowledged
in writing by the receiving party, which may also be by facsimile transmission,
or (b) the transmitting party obtains a written confirmation from its own
facsimile machine showing that the entire transmission was transmitted to the
receiving party. The parties may also change their addresses or facsimile
5
<PAGE>
telephone numbers for notice by giving notice of such change in accordance with
this section. Notices sent by overnight delivery service shall be deemed
received on the business day following the date of deposit with the delivery
service. Mailed notices shall be deemed received upon the earlier of the date of
delivery shown on the return-receipt, or the second business day after the date
of mailing. Notices sent by facsimile transmission shall be deemed served on the
date of transmission, provided that all such notices are sent during regular
business hours, otherwise on the next business day.
12. Time is hereby expressly declared to be of the essence of this
Agreement.
13. This Agreement and each of its provisions shall be binding on the
heirs, executors, administrators, successors, and assigns of each of the parties
hereto.
14. This Agreement is made and entered into and shall be interpreted in
accordance with the laws of the State of New Jersey. Any action concerning this
Agreement shall be commenced in a court of competent jurisdiction in the State
of New Jersey.
15. Upon payment in full of the portion of Indebtedness evidenced by the
Note, this Agreement shall terminate and be of no further force or effect. Upon
receipt of satisfactory proof from both parties in writing that such portion of
the Indebtedness has been paid in full, Secured Party shall immediately deliver
to Pledgor the Collateral and the stock powers.
16. Secured Party shall not be responsible for any damage of loss to the
Collateral, or any part thereof, arising from an act of God, flood, fire, or any
other cause beyond the reasonable control of Secured Party.
17. Upon the request of Secured Party, from time to time, Pledgor agrees to
execute, acknowledge and deliver, or cause to be executed, acknowledged and
delivered, all such additional instruments, and agrees to perform any and all
acts reasonably required to carry into effect the provisions and intent of this
Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first above written.
WITNESS: "PLEDGOR"
/s/ Debra Santa Lucia /s/ Peter J. Salzano
- --------------------- --------------------
Signature Peter J. Salzano
6
<PAGE>
Peter J. Salzano /s/ Peter J. Salzano 74 Jesse Court
- ------------------------------------- Montville, NJ 07045
Print Name Facsimile No. (973) 882-8520
-----------------------
ATTEST: "SECURED PARTY"
/s/ Louis D. Frost VDC COMMUNICATIONS, INC.
- ------------------
Signature
By: /s/ Frederick A. Moran
---------------------------------
Louis D. Frost Frederick A. Moran
- ------------------ Chief Executive Officer
Print Name
75 Holly Hill Lane
Greenwich, CT 06830
Facsimile No. (203) 552-0908
---------------
7
AGREEMENT
---------
THIS AGREEMENT (the "Agreement"), is made and entered into as of
April 20, 2000 by and among VDC Communications, Inc., a Delaware corporation
("Lender") and RARE TELEPHONY, INC. (f/k/a WASHOE TECHNOLOGY CORPORATION)
("Rare") AND CASH BACK REBATES LD.COM, INC. ("Cash Back") a Nevada and Delaware
corporation, respectively (Rare and Cash Back collectively referred to as the
"Borrower").
W I T N E S S E T H:
--------------------
WHEREAS, Borrower wishes Lender to lend Borrower funds; and
WHEREAS, as a strict condition precedent to Lender lending said funds
to Borrower, Lender is requiring the execution of this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements, promises
and covenants set forth herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and intending to be
legally bound, the parties do hereby agree as follows:
ARTICLE I
LOAN FUNDS
1.1 The Lender shall lend TWO HUNDRED THOUSAND DOLLARS AND NO/100
($200,000.00) to Borrower on the terms and conditions set forth in the
Promissory Note attached hereto as Exhibit "A" (the "Loan").
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF RARE AND CASH BACK
Rare and Cash Back hereby each represent and warrant that:
2.1 It is duly organized or duly formed, validly existing, and in
good standing under the laws of the jurisdiction of its incorporation or
formation and has the corporate or company power and authority to own its
property and carry on its business as owned and carried on at the date hereof
and as contemplated hereby. It is duly licensed or qualified to do business and
in good standing in each of the jurisdictions in which the failure to be so
licensed or qualified would have a material adverse effect on its financial
1
<PAGE>
condition or its ability to perform its obligations hereunder. It has the
individual, corporate, or company power and authority to execute and deliver
this Agreement and to perform its obligations hereunder and, if it is a
corporation or partnership, the execution, delivery, and performance of this
Agreement has been duly authorized by all necessary corporate or partnership
action. This Agreement constitutes its legal, valid, and binding obligation.
2.2 Neither the execution, delivery, and performance of this
Agreement nor the consummation by it of the transactions contemplated hereby (i)
will conflict with, violate, or result in a breach of any of the terms,
conditions, or provisions of any law, regulation, order, writ, injunction,
decree, determination, or award of any court, any governmental department,
board, agency, or instrumentality, domestic or foreign, or any arbitrator,
applicable to it or any of its wholly owned subsidiaries, (ii) will conflict
with, violate, result in a breach of, or constitute a default under any of the
terms, conditions, or provisions of the articles of incorporation, bylaws, or
company agreement of it or any of its wholly owned subsidiaries if it is a
corporation or company, or of any material agreement or instrument to which it
or any of its wholly owned subsidiaries is a party or by which it or any of its
wholly owned subsidiaries is or may be bound or to which any of its material
properties or assets is subject, (iii) will conflict with, violate, result in a
breach of, constitute a default under (whether with notice or lapse of time or
both), accelerate or permit the acceleration of the performance required by,
give to others any material interests or rights, or require any consent,
authorization, or approval under any indenture, mortgage, lease agreement, or
instrument to which it or any of its wholly owned subsidiaries is a party or by
which it or any of its wholly owned subsidiaries is or may be bound, or (iv)
will result in the creation or imposition of any lien upon any of the material
properties or assets of it or any of its wholly owned subsidiaries.
2.3 It is not in violation of any applicable law, or of any order,
writ, injunction or decree of any court or any governmental authority. It has
all the licenses, permits, consents, approvals and rights necessary to operate
its business.
2.4 In deciding to enter into this Agreement, it has not relied on
any statements, representations, promises or undertaking or inducements except
as set forth in this Agreement.
2.5 To the best of its knowledge (said knowledge to include the
knowledge of its agents and employees) if Rare and the Lender consummate the
transaction evidenced by the letter of intent (the "Letter") attached hereto as
Exhibit "B" (the "Transaction"):
2
<PAGE>
(a) The creditors of Borrower shall forgive approximately
$570,000 in debt, so that at the closing of the Transaction, the Borrower shall
not have more than $300,000 in outstanding indebtedness; and
(b) Network Consulting Services, Inc. shall continue to pay
on all equipment leases outstanding as of the date of this Agreement for
equipment used by Borrower in its business (the "Equipment") throughout the term
of said leases and, at the end of said leases, assuming Borrower has paid either
the $1 or FMV end of lease payment, shall ensure that title to the Equipment
passes to the Borrower.
2.6 As of April 19, 2000, Rare and Cash Back have not individually
or jointly executed promissory notes or similar instruments resulting in
outstanding indebtedness in excess of $870,000.
ARTICLE III
BREAK UP FEE
3.1 In consideration of Lender's willingness to make the Loan to
Borrower and Lender's willingness to forego interest on principal amount of the
Loan (other than default interest) and in full recognition that Lender would not
make the Loan to Borrower without the agreement contained in this paragraph,
Rare and Cash Back agree that if Rare does not consummate the Transaction with
Lender on the terms set forth in the Letter (as the same may be modified as
mutually agreed by Rare and Lender) after Lender has completed its due diligence
on the Transaction and received board approval for a transaction on
substantially the terms set forth in the Letter within 3 months of said board
approval, then (to compensate Lender for the loss of a benefit of the bargain
(and not as a penalty)) Rare and Cash Back shall immediately upon demand from
Lender jointly and severally pay to Lender a sum of TWO MILLION DOLLARS
($2,000,000) in cash or cash equivalent (the "Fee"). The parties agree, in this
regard, that the Fee is reasonable and the damages associated with failure to
consummate the Transaction are difficult to estimate.
ARTICLE IV
MISCELLANEOUS
4.1 The parties shall, at their own costs and expense and without
further consideration, execute and deliver such further documents and
3
<PAGE>
instruments and shall take such other actions as may be reasonably required or
appropriate to carry out the intent and purposes of this Agreement.
4.2 This Agreement shall be in all respects governed by the laws
of the State of New Jersey in the United States of America.
4.3 By signing this agreement, the parties hereto agree and
acknowledge that they have read this Agreement, understand it, and sign it of
their own free will.
4.4 All notices, consents, waivers, and other communications under
this Agreement must be in writing and will be deemed to have been duly given
when (a) delivered by hand (with written confirmation of receipt), (b) sent by
telecopier (with written confirmation of receipt), provided that a copy is
mailed by registered mail, return receipt requested, or (c) when received by the
addressee, if sent by an overnight delivery service.
4.5 The captions or headings of the paragraphs or other
subdivision hereof are inserted only as a matter of convenience or for reference
and shall have no effect on the meaning of the provisions hereof.
4.6 The invalidity or unenforceability of any term of this
Agreement shall not affect the validity or enforeceability of this Agreement or
any of its other terms; in the event that any court or arbitrator determines
that any provision of this Agreement is invalid or unenforceable, as the case
may be, then, and in either such event, neither the enforceability nor the
validity of said paragraph or section as a whole shall be affected. Rather, the
scope of said paragraph or section shall be revised by the court or arbitrator
as little as possible to make the paragraph or section enforceable. If the court
or arbitrator will not revise said paragraph or section, then this Agreement
shall be construed as though the invalid or unenforceable term(s) were not
included herein.
4.7 The recitals to this Agreement shall be deemed a part of this
Agreement.
4.8 No rule of construction requiring interpretation against the
drafting party shall apply to the interpretation of this Agreement.
4.9 Unless otherwise specified, all money references in this
Agreement and all Exhibits thereto are in United States currency.
4.10 Time is of the essence of this Agreement.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
ATTEST: "RARE"
RARE TELEPHONY, INC.
/s/ Debra A. Santa Lucia
- ------------------------
Signature By: /s/ Thomas J. Vrabel
----------------------------------
Thomas J. Vrabel
Debra A. Santa Lucia President
- ------------------------
Print Name
ATTEST: "CASH BACK"
CASH BACK REBATES LD.COM, INC.
/s/ Debra A. Santa Lucia
- ------------------------
Signature By: /s/ Thomas J. Vrabel
----------------------------------
Thomas J. Vrabel
Debra A. Santa Lucia President
- ------------------------
Print Name
ATTEST: "LENDER"
VDC COMMUNICATIONS, INC
/s/ Louis D. Frost
- ------------------------
Signature By: /s/ Frederick A. Moran
----------------------------------
Louis D. Frost Frederick A. Moran
- ------------------------ Chief Executive Officer
Print Name
5
VDC COMMUNICATIONS, INC.
75 HOLLY HILL LANE
GREENWICH, CONNECTICUT 06830
- --------------------------------------------------------------------------------
TEL: 203-869-5100 FREDERICK A. MORAN
FAX: 203-552-0908 CHAIRMAN & C.E.O.
HTTP://www.vdccorp.com SM
April 7, 2000
CONFIDENTIAL & NON-PUBLIC
VIA FACSIMILE NO. (973) 779-7903
- --------------------------------
Mr. Thomas J. Vrabel
President
Rare Telephony, Inc. (formerly known as Washoe Technology Corp.)
657 Main Avenue, Suite 301
P.O. Box 9101
Passaic, NJ 07055-9101
Dear Tom:
On behalf of VDC Communications, Inc. ("VDC"), I hereby propose that VDC acquire
Rare Telephony, Inc. ("RTI") including Cash Back Rebates LD.com, Inc., Free dot
Calling.com, Inc. and its other subsidiaries/affiliates in a tax free
share-for-share acquisition, whereby upon execution of the transaction, VDC will
compensate RTI's shareholders with a total of 1,632,653 VDC common shares for
one hundred percent ownership of RTI, its subsidiaries and affiliates.
Additional terms of the transaction follow:
RTI's shareholders would retain ownership of their VDC shares for at least three
full years following the closing (i.e., they would be subject to a contractual
lock-up). All RTI executives who VDC chooses to do so would sign employment
agreements, which would contain non-compete agreements, and remain with RTI for
at least three full years, receiving the same salary and compensation package
currently paid to them by RTI, unless VDC should decide in its sole discretion
to increase their salaries. To the extent said executives breach their
employment agreements or fail to serve as employees for three years, they would
forfeit a portion of their shares on a sliding scale basis as follows: 50%
during the first one year period following the closing, 33.3% during the second
one year period following the closing, 20% during the third one year period
following the closing.
The shares will vest and can be sold by their owner in accordance with the
following schedule: one third after one full year following the closing, an
additional one third after two full years following the closing, an additional
one third after three full years following the closing. For executives whose
<PAGE>
Mr. Thomas J. Vrabel
April 7, 2000
Page 2
employment has terminated or who have violated their employment agreement prior
to the end of the three year period, the above vesting and right to sell
schedule will apply to their unforfeited shares considered as if they never
owned the forfeited shares. Other RTI employees and significant employees of its
subsidiaries and affiliates that VDC chooses not to employ will sign non-compete
agreements lasting for at least one year. Peter Salzano ("P.S."), currently a
consultant to RTI, would continue to function in that capacity for at least
three full years, receiving the same compensation package paid him to date by
RTI. P.S. would sign a non-compete agreement that would last for at least three
years. In addition, he would provide VDC with an exclusive irrevocable license
to utilize his patent pending technology which Free dot Calling.com plans to
employ in its business. In return, VDC would pay P.S. $100,000 upon VDC, RTI or
any other VDC affiliates or subsidiaries obtaining two hundred fifty thousand
(250,000) customers through the employment of the patent pending technology, and
if at any time thereafter through the use of this technology the above entities
have in excess of five hundred thousand (500,000) then current and active
customers, VDC would pay to P.S. 25(cent) for each paid customer bill relating
to a particular month if the average paid customer bill exceeds $25.00 for that
month, 20(cent) for each paid customer bill relating to a particular month if
the average paid customer bill is $20.00 or more for that month but is not more
than $25.00, 15(cent) for each paid customer bill relating to a particular month
if the average paid customer bill is $15.00 or more for that month, but is not
more than $20, 10(cent) for each paid customer bill relating to a particular
month if the average paid customer bill is $10.00 or more for that month, but is
not more than $15.00, 5(cent) per bill if the average paid customer bill
relating to a particular month is $5.00 or more for that month, but is not more
than $10.00, and zero if the average customer bill relating to a particular
month is less than $5.00 for that month. These payments would be calculated at
the end of each calendar month and paid within 15 days thereafter, either in
cash or VDC common stock, whichever P.S. chooses at the time, provided however
P.S. will be entitled to no more than one stock distribution every 6 months. If
the above mentioned pending patent is denied by the U.S. government's patent
office, the terms herein will remain unaltered.
RTI, its affiliates and subsidiaries, will reduce their existing debt to a total
of no more than $300,000, $200,000 of which shall bear an interest rate of 15%
and $100,000 of which shall bear an interest rate of 8%. The term of the debt
will be three years. Should VDC or RTI chose to repay the debt prior to the
existing payment schedule, they will have the right to do so without incurring
any prepayment penalty.
Once VDC has completed the acquisition of RTI, it is anticipated that VDC may
need to fund RTI up to $200,000 per month for up to five months as RTI
establishes its customer base. In the first two months of this period, RTI could
need modestly more than $200,000, while in the latter three months, it should
require substantially less than $200,000. In addition, within 60 days following
the closing, RTI will hire a web site developer to build a robust web site for
Free dot Calling.com to build a web site capable of handling up to 1,000,000
inquiries per month. VDC will provide up to $250,000 to fund this undertaking.
If and when this undertaking has seven hundred and fifty thousand ($750,000) or
more paying customers, VDC will invest an additional $250,000 to improve the
capability of the business' web site and other equipment to handle additional
customers so long as the business has generated reasonable profitability.
<PAGE>
Mr. Thomas J. Vrabel
April 7, 2000
Page 3
VDC must complete its due diligence of RTI by Wednesday, April 19, 2000. At that
point, if VDC decides the investigation has produced satisfactory results, the
parties will seek to complete
the necessary documentation and close the transaction as soon as possible and
RTI may request and VDC shall provide a bridge loan of up to $200,000 with an 8%
interest rate. This loan will be fully collateralized and personally guaranteed
by the executives of RTI, its affiliates and subsidiaries and repaid within six
months should the parties fail to close the transaction. If the transaction is
completed, this funding will constitute the first payment of the first five
months funding discussed in the prior paragraph.
This offer is conditional upon VDC's completing a due diligence investigation of
RTI resulting in satisfactory findings in VDC's sole discretion, the approval of
VDC's Board of Directors, and the execution of formal documents satisfactory to
VDC's counsel.
To compensate VDC for the substantial expenditures of time, effort, and expense
to be undertaken by VDC in connection with its due diligence, RTI, on behalf of
itself and its officers, directors and affiliates agrees that it shall not
between the date of this letter and the conclusion of VDC's due diligence, enter
into or conduct any discussions with any other prospective purchaser relating to
the stock or assets that are the subject of this letter.
Finally, RTI, on behalf of its officers, directors, and affiliates, agrees to
keep the terms of this letter and all discussions to date strictly confidential.
The terms of this letter supersede all prior letters, discussions, arrangements
and understandings relating to the subject matter hereof.
If you are in agreement to these terms, please so signify by affixing your
signature where indicated below.
Very truly yours,
/s/ Frederick A. Moran
----------------------
Frederick A. Moran
Chairman & C.E.O.
FAM/lg
Accepted and agreed to as of
the 7 day of April, 2000
---
Rare Telephony, Inc. (formerly known as Washoe Technology Corp.)
Cash Back Rebates LD.com Inc.
Free dot Calling.com, Inc.
By: /s/ Thomas J. Vrabel
--------------------------
Thomas J. Vrabel
President
PROMISSORY NOTE
---------------
$100,000
May 4, 2000
Passaic, New Jersey
FOR VALUE RECEIVED, the undersigned RARE TELEPHONY, INC. (f/k/a WASHOE
TECHNOLOGY CORPORATION) AND CASH BACK REBATES LD.COM, INC. a Nevada and Delaware
corporation, respectively ("Maker"), promise to pay to the order of VDC
Communications, Inc., a Delaware corporation ("Holder"), which term shall
include any subsequent holder of this Note, at 75 Holly Hill Lane, Greenwich, CT
06830 (or at such other place as Holder shall designate in writing) in lawful
money of the United States of America, the aggregate principal sum of One
Hundred Thousand Dollars ($100,000), with interest thereon at the rate (the
"Interest Rate") described below.
1. Interest Rate. The Interest Rate shall be zero percent (0%) per
--------------
annum.
2. Outstanding Principal Balance. All references to the "Outstanding
-------------------------------
Principal Balance" shall mean the amount of One Hundred Thousand
Dollars ($100,000), less any principal repaid.
3. Payments. This note shall be payable in full on October 20, 2000
---------
(the "Maturity Date") when the entire Outstanding Principal
Balance, and any accrued but unpaid interest, shall be due and
payable.
4. Application of Payments. All payments on this Note shall be
--------------------------
applied first to the payment of accrued and unpaid interest, and
then to the reduction of the Outstanding Principal Balance.
5. Prepayment Right. Maker shall have the right to prepay at any
------------------
time, in whole or in part, the Outstanding Principal Balance of
this Note, without premium or penalty.
6. Accelerated Maturity. Notwithstanding anything in this Note to the
---------------------
contrary and irrespective of the Maturity Date, the entire
Outstanding Principal Balance and accrued interest shall become
immediately due and payable upon the earliest to occur of the
following (the "Accelerated Maturity Date"): (a) the sale of all
or substantially all of the assets of the Maker or the common
stock of the Maker to a third party; or (b) the issuance of the
securities of Maker on the public market.
7. Modifications. From time to time, without affecting the obligation
--------------
of Maker to pay the Outstanding Principal Balance or to observe
the covenants of Maker contained herein, and without giving notice
to or obtaining the consent of Maker, Holder may, at the option of
Holder, extend the time for payment of the Outstanding Principal
Balance or any part thereof, reduce the payments hereunder,
1
<PAGE>
release any person liable hereunder, accept a renewal or extension
of this Note, join in any extension or subordination agreement,
release any security given herefor, take or release security, or
agree in writing with Maker to modify the Interest Rate or any
other provision of this Note.
8. Events of Default. Time is of the essence hereof. Upon the
--------------------
occurrence of any of the following events (the "Events of
Default"), payment of the entire Outstanding Principal Balance and
accrued interest of this Note shall, at the option of the Holder,
be accelerated and shall be immediately due and payable without
notice or demand:
(a) Failure of Maker to pay the Outstanding Principal Balance
and accrued interest in full on the Maturity Date or the
Accelerated Maturity Date; or
(b) All or the majority of the value of the assets of Maker is
seized or levied upon by writ of attachment, garnishment,
execution or otherwise, and such seizure or levy is not
released within thirty (30) calendar days thereafter; or
(c) Maker executes a general assignment for the benefit of its
creditors, convenes any meeting of its creditors, becomes
insolvent, admits in writings its insolvency or inability
to pay its debts, or is unable to pay or is generally not
paying its debts as they become due; or
(d) A receiver, trustee, custodian or agent is appointed to
take possession of all or any substantial portion of
Maker's assets; or
(e) Any case or proceeding is voluntarily commenced by Maker
under any provision of the federal Bankruptcy Code or any
other federal or state law relating to debtor
rehabilitation, insolvency, bankruptcy, liquidation or
reorganization, or any such case or proceeding is
involuntarily commenced against Maker and not dismissed
within thirty (30) calendar days thereafter; or
(f) Any representation made by Maker in this Note or in any of
the other documents delivered in connection therewith,
shall have been untrue or incorrect in any material
respect when made.
9. Default Rate. In the event that Maker fails to pay the Outstanding
-------------
Principal Balance and all accrued interest in full on the Maturity
Date or the Accelerated Maturity Date, the amount past due
(including any acceleration of the Outstanding Principal Balance),
and unpaid shall bear interest at an annual rate equal to the
lesser of (i) fifteen percent (15%), or (ii) the maximum amount
permitted by law (the "Default Rate"), computed from the date on
which said amount was due and payable until paid. The charging or
collecting of interest at the Default Rate shall not limit any of
Holder's other rights or remedies under this Note.
10. Governing Law. Maker, and each endorser and cosigner of this Note,
--------------
acknowledges and agrees that this Note is made and is intended to
be paid and performed in the State of New Jersey and the
2
<PAGE>
provisions hereof will be construed in accordance with the laws of
the State of New Jersey and, to the extent that federal law may
preempt the applicability of state laws, federal law. Maker, and
each endorser and cosigner of this Note further agree that upon
the occurrence of an Event of Default, this Note may be enforced
in any court of competent jurisdiction in the State of New Jersey,
and they do hereby submit to the jurisdiction of such courts
regardless of their residence.
11. Remedies Cumulative: Waiver. The remedies of Holder as provided
------------------------------
herein shall be cumulative and concurrent, and may be pursued
singularly, successively or together, in the sole discretion of
Holder, and may be exercised as often as occasion therefor shall
arise. No act of omission or commission of Holder, including
specifically any failure to exercise any right, remedy or
recourse, shall be deemed to be a waiver or release of the same;
such waiver or release to be affected only through a written
document executed by Holder and then only to the extent
specifically recited therein. Without limiting the generality of
the preceding sentence, acceptance by Holder of any payment with
knowledge of the occurrence of an Event of Default by Maker shall
not be deemed a waiver of such Event of Default, and acceptance
by Holder of any payment in an amount less than the amount then
due hereunder shall be an acceptance on account only and shall
not in any way affect the existence of an Event of Default
hereunder. A waiver or release with reference to any one event
shall not be construed as continuing, as a bar to, or as a waiver
or release of, any subsequent right, remedy or recourse as to a
subsequent event.
12. No Usury Intended. All agreements between Maker and Holder are
-------------------
expressly limited so that in no contingency or event whatsoever,
whether by reason of: error of fact or law; payment, prepayment
or advancement of the proceeds hereof; acceleration of maturity
of the Outstanding Principal Balance, or otherwise, shall the
amount paid or agreed to be paid to Holder hereof for the use,
forbearance or retention of the money to be advanced hereunder,
including any charges collected or made in connection with the
indebtedness evidenced by this Note which may be treated as
interest under applicable law, if any, exceed the maximum legal
limit (if any such limit is applicable) under United States
federal law or state law (to the extent not preempted by federal
law, if any), now or hereafter governing the interest payable in
connection with such agreements. If, from any circumstances
whatsoever, fulfillment of any provision hereof at the time
performance of such provision shall be due shall involve
transcending the limit of validity (if any) prescribed by law
which a court of competent jurisdiction may deem applicable
hereto, then ipso facto, the obligation to be fulfilled shall be
reduced to the limit of such validity, and if from any
circumstances, Holder shall ever receive as interest an amount
which would exceed the maximum legal limit (if any such limit is
applicable), such amount which would be excessive interest shall
be applied to the reduction of the Outstanding Principal Balance
due hereunder and not to the payment of interest or, if
necessary, rebated to Maker. This provision shall control every
other provision of all agreements between Maker and Holder.
3
<PAGE>
13. Guaranty. The payment of this Note is guaranteed by Guaranty
---------
Agreements of even date executed by Peter J. Salzano and Network
Consulting Group, Inc.
14. Purpose of Loan. Maker certifies that the loan evidenced by this
----------------
Note is obtained for business or commercial purposes and that the
proceeds thereof shall not be used for personal, family,
household, or agricultural purposes.
15. Miscellaneous Provisions.
-------------------------
(a) Maker, and each endorser and cosigner of this Note expressly
grants to Holder the right to release or to agree not to sue
any other person, or to suspend the right to enforce this Note
against such other person or to otherwise discharge such
person; and Maker, and each endorser and cosigner agrees that
the exercise of such rights by Holder will have no effect on
this liability of any other person, primarily or secondarily
liable hereunder. Maker, and each endorser and cosigner of
this Note waives, to the fullest extent permitted by law,
demand for payment, presentment for payment, protest, notice
of protest, notice of dishonor, notice of nonpayment, notice
of acceleration of maturity, diligence in taking any action to
collect sums owing hereunder, any duty or obligation of Holder
to effect, protect, perfect, retain or enforce any security
for the payment of this Note or to proceed against any
collateral before otherwise enforcing this Note, and the right
to plead as a defense to the payment hereof any statute of
limitations.
(b) This Note and each payment of principal and interest hereunder
shall be paid when due without deduction or setoff of any kind
or nature whatsoever.
(c) Maker agrees to reimburse Holder for all costs, including,
without limitation, reasonable attorneys' fees (including an
allocable portion of in-house counsel fees), incurred to
collect this Note if this Note is not paid when due,
including, but not limited to, attorneys' fees (including an
allocable portion of in-house counsel fees) incurred in
connection with any bankruptcy proceedings instituted by or
against Maker (including relief from stay litigation).
(d) If any provision hereof is for any reason and to any extent,
invalid or unenforceable, then neither the remainder of the
document in which such provision is contained, nor the
application of the provision to other persons, entities or
circumstances shall be affected thereby, but instead shall be
enforceable to the maximum extent permitted by law.
(e) This Note shall be a joint and several obligation of Maker,
and of all endorsers and cosigners hereof and shall be binding
upon them and their respective heirs, personal
representatives, successors and assigns.
4
<PAGE>
(f) This Note may not be modified or amended orally, but only by a
modification or amendment in writing signed by Holder and
Maker.
(g) When the context and construction so require, all words used
in the singular herein shall be deemed to have been used in
the plural and the masculine shall include the feminine and
neuter and vice versa. The word "person" as used herein shall
include any individual, company, firm, association,
partnership, corporation, trust or other legal entity of any
kind whatsoever.
(h) The headings of the paragraphs and sections of this Note are
for convenience or reference only, are not to be considered a
part hereof and shall not limit or otherwise affect any of the
terms hereof.
(i) In the event that at any time any payment received by Holder
hereunder shall be deemed by final order of a court of
competent jurisdiction to have been a voidable preference or
fraudulent conveyance under the bankruptcy or insolvency laws
of the United States, or shall otherwise be deemed to be due
to any party other than Holder, then, in any such event, the
obligation to make such payment shall survive any cancellation
of this Note and/or return thereof to Maker and shall not be
discharged or satisfied by any prior payment thereof and/or
cancellation of this Note, but shall remain a valid and
binding obligation enforceable in accordance with the terms
and provisions hereof, and the amount of such payment shall
bear interest at the Default Rate from the date of such final
order until repaid hereunder.
IN WITNESS WHEREOF Maker has executed this Promissory Note as of the
day and year first above written.
"Maker"
Rare Telephony, Inc. (f/k/a Washoe
Technology Corporation)
By /s/ Thomas J. Vrabel
----------------------------------
Thomas J. Vrabel, President
Cash Back Rebates LD.com, Inc.
By: /s/ Thomas J. Vrabel
----------------------------------
Thomas J. Vrabel, President
5
<PAGE>
State of New Jersey
County of Passaic
Before me, the undersigned, personally appeared Thomas J. Vrabel, known to me
(or satisfactorily proven) to be the person who executed the within instrument
on behalf of Rare Telephony, Inc. (f/k/a Washoe Technology Corporation) and
acknowledged that he executed the same for the purposes therein contained. In
witness whereof, I hereunto set my hand.
/s/ Debra A. Caporale
------------------------------------
(Notary Public)
Dated: 5/4/00
------------------------------
State of New Jersey
County of Passaic
Before me, the undersigned, personally appeared Thomas J. Vrabel, known to me
(or satisfactorily proven) to be the person who executed the within instrument
on behalf of Cash Back Rebates LD.com, Inc. and acknowledged that he executed
the same for the purposes therein contained. In witness whereof, I hereunto set
my hand.
/s/ Debra A. Caporale
------------------------------------
(Notary Public)
Dated: 5/4/00
------------------------------
6
GUARANTY AGREEMENT
------------------
THIS GUARANTY AGREEMENT ("Guaranty Agreement") is made and entered into
this 4th day of May, 2000 by Network Consulting Group, Inc. ("Guarantor"), in
favor of VDC Communications, Inc. ("Lender").
WITNESSETH:
-----------
WHEREAS, concurrently herewith, Rare Telephony, Inc. (f/k/a Washoe
Technology Corporation) and Cash Back Rebates LD.com, Inc. Nevada and Delaware
corporations respectively ("Borrower"), have executed a certain Promissory Note
in favor of Lender in the stated principal amount of One Hundred Thousand
Dollars ($100,000) (the "Note"); and
WHEREAS, to induce Lender to lend the One Hundred Thousand Dollars
($100,000) to Borrower, Guarantor has agreed to guarantee the Note;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby covenant and agree as follows:
1. Guarantor irrevocably and unconditionally, fully guarantees to Lender
the full and prompt payment of the indebtedness evidenced by the Note (the
"Indebtedness") at the times and according to the terms expressed.
Guarantor agrees that if all or any part of the Indebtedness is not paid
according to the tenor thereof, Guarantor shall, upon demand of Lender, pay the
Indebtedness in like manner as if the Indebtedness constituted the direct and
primary obligation of Guarantor as provided for herein. Guarantor's liability
hereunder shall be IN THE FULL AMOUNT of the Indebtedness.
2. This Guaranty Agreement is irrevocable and shall remain in full force
and effect continuously from the date hereof to and until the date on which the
Indebtedness is paid in full, whereupon this Guaranty Agreement shall
automatically terminate ("Termination Date").
3. Guarantor grants to Lender, in Lender's sole and absolute discretion
and without notice to Guarantor, the power and authority to deal in any lawful
manner with the Indebtedness and, without limiting the generality of the
foregoing, the power and authority from time to time:
1
<PAGE>
(a) To change, amend or modify the Note or any other documents relating
thereto in a non-material way (collectively, the "Loan Documents");
(b) To discharge or release any person liable under the Loan Documents;
(c) To take and hold security for the payment of the Indebtedness
and/or the performance of the other obligations guaranteed herein, and to
exchange, enforce, subordinate, waive or release any such security;
(d) To foreclose any security for the Indebtedness, and to direct the
order or manner of sale of any such security as Lender in Lender's sole and
absolute discretion may determine;
(e) To grant any extensions of time, renewals or other indulgences,
forbearance, waivers or releases to Borrower or any other person liable under
the Loan Documents.
(f) To accept or make compositions or other alignments or file or
refrain from filing a claim in any bankruptcy proceedings of Borrower or any
other person liable under the Loan Documents;
(g) To credit payments on the Indebtedness in such manner and in such
order of priority as Lender may determine in lender's sole and absolute
discretion; and
(h) To otherwise deal with Borrower or any other guarantor or person
related to the Indebtedness or any security as Lender may determine in Lender's
sole and absolute discretion.
Without limiting the generality of the foregoing, Guarantor WAIVES any and
all rights, benefits and defenses under law which may provide that a surety is
exonerated if a creditor, without the consent of the surety, alters the original
obligation of the principal in any respect, or if the creditor in any way
imperils or suspends the creditor's rights against the principal.
The liability of Guarantor shall not be terminated, affected, impaired or
reduced in any way by any action taken by Lender under the foregoing provisions
or any other provision hereof or by any delay, failure or refusal of Lender to
exercise any right or remedy Lender may have against Borrower or any other
person, including other guarantors, if any, liable for all or any part of the
Indebtedness hereby guaranteed.
4. If at any time all or any part of any payment made by Guarantor or
received by Lender from Guarantor under or with respect to this Guaranty
Agreement is avoided or recovered directly or indirectly from Lender as a
2
<PAGE>
preference, fraudulent transfer, or otherwise, then Guarantor's obligations
hereunder shall, to the extent of the payment avoided or recovered, be deemed to
have continued in existence, notwithstanding such previous payment made by
Guarantor or receipt of payment by Lender, and Guarantor's obligations hereunder
shall continue to be effective or be reinstated, as the case may be, as to such
payment, all as though such previous payment by Guarantor had never been made,
irrespective of the payment in full of the Indebtedness.
5. To the fullest extent permitted by law, Guarantor hereby WAIVES the
following rights, defenses and benefits:
a. The defense of the statute of limitations in any action hereunder or
in any action for the collection of the Indebtedness or the performance of any
other obligation hereby guaranteed;
b. Any defense that may arise by reason of the incapacity, lack of
authority, death or disability of any other person or persons or the failure of
Lender to file or enforce a claim against the estate (in administration,
bankruptcy or any other proceeding) of any other person or persons
c. Except as otherwise provided herein, diligence and all demands,
presentment for payment, notice of nonpayment, protest, notice of protest and
all other notices of any kind, including, without limiting the generality of the
foregoing, notice of the existence, creation or incurring of any new or
additional obligation or of any action or nonaction on the part of Borrower,
Lender, any endorser or creditor of Borrower or of Guarantor or on the part of
any other person whomsoever under this or any other instrument in connection
with any Indebtedness or evidence of Indebtedness held by Lender or in
connection with the Indebtedness hereby guaranteed;
d. Any duty or obligation on Lender's part to perfect, protect, retain
or enforce any security for the payment of the Indebtedness or the performance
of any of the other obligations guaranteed herein;
e. Any duty on the part of Lender to disclose to Guarantor any facts
Lender may now or hereafter know about Borrower, regardless of whether Lender
has reason to believe that any such facts materially increase the risk beyond
that which Guarantor intends to assume or has reason to believe that such facts
are unknown to Guarantor or has a reasonable opportunity to communicate such
facts to Guarantor, it being understood and agreed that Guarantor is fully
responsible for being and keeping informed of the financial condition of
Borrower and of any and all circumstances bearing on the risk that liability may
be incurred by Guarantor hereunder; and
3
<PAGE>
f. Any and all rights, benefits and defenses under law available to
guarantors or sureties, including without limitations, any such rights, benefits
or defenses which would otherwise require Lender to proceed against Borrower or
any other person, or to proceed against or exhaust any security held by Lender
at any time, or to first apply any security of Borrower to the discharge of the
Indebtedness, or to pursue any other remedy in Lender's power before proceeding
against Guarantor hereunder.
6. Guarantor agrees that Guarantor shall have no right of subrogation,
reimbursement, exoneration, contribution, indemnity, or similar right as against
Borrower which would result in Guarantor being deemed a creditor of Borrower
under the Federal Bankruptcy Code or any other law or for any other purpose; and
Guarantor further WAIVES any and all rights, benefits and defenses under law,
which may provide that a surety is entitled to the benefit of every security for
the performance of the principal obligation held by the creditor.
7. With or without notice to Guarantor and without affecting in any way
Guarantor's obligation or liability hereunder for payment of the Indebtedness,
Lender, in Lender's sole and absolute discretion, at any time and from time to
time, and in such manner and upon such terms as Lender deems fit, may:
a. Apply any or all payments or recoveries from Borrower or from all other
guarantors or endorsers under any other instrument or realized from any
security, in such manner and order of priority as lender may determine in
Lender's sole and absolute discretion, to any Indebtedness of Borrower to
Lender, whether or not such Indebtedness is guaranteed hereby or is otherwise
secured or is due at the time of such application; or
b. Refund to Borrower any payment received by Lender upon the Indebtedness
hereby guaranteed.
8. All rights, powers and remedies of Lender hereunder shall be cumulative
and not alternative and such rights, powers and remedies shall be in addition to
all rights, powers and remedies given to lender under the Loan Documents
(including any other guarantees of the Indebtedness) or otherwise by law.
9. The liability of Guarantor under this Guaranty Agreement shall be an
absolute, direct, immediate and unconditional guarantee of payment and not of
collection. The Indebtedness of Guarantor hereunder is independent of the
Indebtedness of Borrower and is not conditioned on contingent upon the
genuineness, validity, regularity or enforceability of any of the Loan
Documents. In the event of any default hereunder, a separate action or actions
may be brought and prosecuted against Guarantor, whether or not Borrower is
joined therein or a separate action or actions are brought against Borrower.
4
<PAGE>
Lender may enforce Lender's rights under the Guaranty Agreement without first
exercising any other remedy or right that Lender may have or seeking to obtain
payment or performance from Borrower, any other person (including any other
guarantor) or from any collateral which Lender may hold as security for the
Indebtedness. Lender may maintain successive actions for other defaults.
Lender's rights hereunder shall not be exhausted by the exercise of any of
Lender's rights or remedies or by any such action or by any number of successive
actions. Guarantor WAIVES any and all rights, benefits and defenses under law
which may generally provide that a guarantor or surety is not liable if for
certain reasons there is no liability upon the part of the principal or if the
principal ceases to become liable or which may generally provide that the
Indebtedness of a guarantor or surety must not be larger nor more burdensome
than that of the principal.
10. Notwithstanding the fact that Borrower may be a corporation, a joint
venture or a partnership, Lender is not to be concerned to see or inquire into
the powers of Borrower, its directors, officers, joint ventures, partners,
associates or other agents acting or purporting to act on its behalf, and
Guarantor expressly waives any defense to the enforcement of this Guaranty
Agreement to the effect that the transaction between Borrower and Lender is in
excess of the powers of the Borrower, or shall be in any way irregular,
defective or informal. Guarantor's liability hereunder shall not be affected by
changes in the name of the entity or the constituent members of the entity which
constitutes Borrower.
11. It is expressly understood that the obligations of Guarantor hereunder
are an additional and cumulative benefit given to Lender for Lender's security.
12. No action based on this Guaranty Agreement shall be instituted until
written demand for payment or performance, as appropriate, has been made upon
Guarantor (a) upon delivery of such demand in person to Guarantor, or (b) on the
next business day following deposit of an envelope containing such demand with
an overnight courier service (such as United Parcel Service) for delivery to
Guarantor at the address set forth next to Guarantor's signature hereon, or (c)
on the second business day following deposit of an envelope containing such
demand in the United States mail, postage prepaid, certified mail,
return-receipt requested, addressed to Guarantor as described above. Guarantor
may change Guarantor's address for such notices by giving notice of the change
of address to Lender in the manner provided herein. All payments hereunder shall
be made in lawful money of the United States of America. No delay in making
demand on Guarantor for satisfaction of Guarantor's liabilities hereunder shall
prejudice Lender's right to enforce such satisfaction.
13. Guarantor shall pay to Lender, upon written demand, all reasonable
attorneys' fees (including an allocable portion of in-house counsel fees) and
all costs and other expenses which Lender expends or incurs in enforcing this
5
<PAGE>
Guaranty Agreement against Guarantor whether or not suit is filed, including,
without limitation, all reasonable attorneys' fees (including an allocable
portion of in-house counsel fees), costs and expenses incurred by Lender in
connection with any insolvency, bankruptcy, reorganization, arrangement or other
similar proceedings involving Borrower or Guarantor which in any way affect the
exercise by Lender of Lender's rights and remedies hereunder. Until paid to
Lender, such attorneys' fees (including an allocable portion of in-house counsel
fees), costs and expenses shall bear interest at the highest rate of interest
allowable by law.
14. Should any one or more provisions of this Guaranty Agreement be
determined to be illegal or unenforceable, all other provisions nevertheless
shall be effective.
15. No provision of this Guaranty Agreement or right of Lender hereunder
can be waived nor shall Guarantor be released from any of Guarantor's
obligations hereunder except by a writing duly executed by Lender, or unless
this Guaranty Agreement terminates pursuant to its terms as set forth herein.
This Guaranty Agreement may not be modified, amended, revised, changed or varied
in any way whatsoever except by the express terms of a writing duly executed by
Lender and Guarantor.
16. When the context and construction so requires, all words used in the
singular herein shall be deemed to have been used in the plural, and the
masculine shall include the feminine and neuter, and vice versa. The word
"person" as used herein shall include any individual, company, firm,
association, partnership, corporation, trust or other legal entity of any kind
whatsoever. The word "Borrower" as used herein includes Borrower acting on
behalf of itself or any estate created by the commencement of a case under the
Federal Bankruptcy Code or any other insolvency, bankruptcy, reorganization or
liquidation proceeding, or by any trustee under the Federal Bankruptcy Code,
liquidator, sequestrator, and receiver of Borrower and Borrower's property or
similar person duly appointed pursuant to any laws generally governing any
insolvency, bankruptcy, reorganization, liquidation, receivership or like
proceeding. If more than one person has signed this Guaranty Agreement as
Guarantor, it shall be the joint and several obligation of each of them. The
words "Loan Documents" as used herein include any modifications, extensions,
renewals, or replacements thereof. All references to statutes herein shall
include any modifications, amendments, substitutions or replacements thereof.
17. In the event that all or any part of the Indebtedness is assigned by
Lender, this Guaranty Agreement shall automatically be assigned therewith in
whole or in part, as applicable, without the need of any express assignment and,
when so assigned, Guarantor shall be bound as above to the assignee(s) without
in any manner affecting Guarantor's liability hereunder for any part of the
Indebtedness retained by Lender.
6
<PAGE>
18. Guarantor agrees, within seven (7) calendar days after request from
Lender, to deliver to Lender a statement certifying that this Guaranty Agreement
is in full force and effect, and that no defense of offset exists to Guarantor's
obligations under the Guaranty Agreement (or stating any facts to the contrary).
19. This Guaranty Agreement shall inure to the benefit of and bind the
heirs, legal representatives, administrators, executors, successors, and assigns
of Lender and of Guarantor.
20. Guarantor hereby agrees that:
a. The execution and delivery to Lender of this Guaranty Agreement of
the accrual of a claim hereunder in favor of Lender shall be deemed to have
caused an event to occur in the State of New Jersey, bringing Guarantor within
the jurisdiction of the state and federal courts in the State of New Jersey, and
Guarantor further hereby agrees to and, as a separate and independent covenant,
does hereby submit to the jurisdiction of the state and federal courts in the
State of New Jersey; and
b. This Guaranty Agreement is made in the State of New Jersey and the
provisions hereof shall be construed and enforced in accordance with the laws of
the State of New Jersey (irrespective of its conflicts of laws rules) and, to
the extent that federal law may preempt the applicability of state laws, federal
law.
21. Except as provided in any other written agreement at any time hereafter
in force between Lender and Guarantor, this Guaranty Agreement shall constitute
the entire agreement of Guarantor with Lender with respect to the subject matter
hereof and no representation, understanding, promise or condition concerning the
subject matter hereof shall be binding upon Lender unless expressed herein.
THE UNDERSIGNED GUARANTOR ACKNOWLEDGES THAT IT WAS AFFORDED THE OPPORTUNITY
TO READ THIS DOCUMENT CAREFULLY AND TO REVIEW IT WITH AN ATTORNEY OF ITS CHOICE
BEFORE SIGNING IT. THE UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ AND
UNDERSTOOD THE MEANING AND EFFECT OF THIS DOCUMENT, INCLUDING BUT NOT LIMITED TO
ALL WAIVERS CONTAINED HEREIN, BEFORE SIGNING IT.
IN WITNESS WHEREOF, the parties have executed this Guaranty Agreement as of
the day and year first above written.
7
<PAGE>
ATTEST: "GUARANTOR"
NETWORK CONSULTING GROUP, INC.
/s/ Debra A. Santa Lucia
- ------------------------
Signature By: /s/ Peter J. Salzano
---------------------------------
Peter J. Salzano
President
Debra A. Santa Lucia Address:
- --------------------
Print Name 74 Jesse Court
Montville, NJ 07045
ATTEST: "LENDER"
VDC COMMUNICATIONS, INC.
/s/ Louis D. Frost By: /s/ Frederick A. Moran
- ------------------------ ---------------------------------
Signature Frederick A. Moran
Chief Executive Officer
Louis D. Frost Address:
- ------------------------ 75 Holly Hill Lane
Print Name Greenwich, CT 06830
8
PERSONAL GUARANTY AGREEMENT
---------------------------
THIS GUARANTY AGREEMENT ("Guaranty Agreement") is made and entered into
this 4th day of May, 2000 by Peter J. Salzano ("Guarantor"), in favor of VDC
Communications, Inc. ("Lender").
WITNESSETH:
-----------
WHEREAS, concurrently herewith, Rare Telephony, Inc. (f/k/a Washoe
Technology Corporation) and Cash Back Rebates LD.com, Inc. Nevada and Delaware
corporations respectively ("Borrower"), have executed a certain Promissory Note
in favor of Lender in the stated principal amount of One Hundred Thousand
Dollars ($100,000) (the "Note"); and
WHEREAS, to induce Lender to lend the One Hundred Thousand Dollars
($100,000) to Borrower, Guarantor has agreed to guarantee the Note;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby covenant and agree as follows:
1. Guarantor irrevocably and unconditionally, fully guarantees to Lender
the full and prompt payment of the indebtedness evidenced by the Note (the
"Indebtedness") at the times and according to the terms expressed.
Guarantor agrees that if all or any part of the Indebtedness is not paid
according to the tenor thereof, Guarantor shall, upon demand of Lender, pay the
Indebtedness in like manner as if the Indebtedness constituted the direct and
primary obligation of Guarantor as provided for herein. Guarantor's personal
liability hereunder shall be IN THE FULL AMOUNT of the Indebtedness.
2. This Guaranty Agreement is irrevocable and shall remain in full force
and effect continuously from the date hereof to and until the date on which the
Indebtedness is paid in full, whereupon this Guaranty Agreement shall
automatically terminate ("Termination Date").
3. Guarantor grants to Lender, in Lender's sole and absolute discretion
and without notice to Guarantor, the power and authority to deal in any lawful
manner with the Indebtedness and, without limiting the generality of the
foregoing, the power and authority from time to time:
1
<PAGE>
(a) To change, amend or modify the Note or any other documents relating
thereto in a non-material way (collectively, the "Loan Documents");
(b) To discharge or release any person liable under the Loan Documents;
(c) To take and hold security for the payment of the Indebtedness
and/or the performance of the other obligations guaranteed herein, and to
exchange, enforce, subordinate, waive or release any such security;
(d) To foreclose any security for the Indebtedness, and to direct the
order or manner of sale of any such security as Lender in Lender's sole and
absolute discretion may determine;
(e) To grant any extensions of time, renewals or other indulgences,
forbearance, waivers or releases to Borrower or any other person liable under
the Loan Documents.
(f) To accept or make compositions or other alignments or file or
refrain from filing a claim in any bankruptcy proceedings of Borrower or any
other person liable under the Loan Documents;
(g) To credit payments on the Indebtedness in such manner and in such
order of priority as Lender may determine in lender's sole and absolute
discretion; and
(h) To otherwise deal with Borrower or any other guarantor or person
related to the Indebtedness or any security as Lender may determine in Lender's
sole and absolute discretion.
Without limiting the generality of the foregoing, Guarantor WAIVES any and
all rights, benefits and defenses under law which may provide that a surety is
exonerated if a creditor, without the consent of the surety, alters the original
obligation of the principal in any respect, or if the creditor in any way
imperils or suspends the creditor's rights against the principal.
The liability of Guarantor shall not be terminated, affected, impaired or
reduced in any way by any action taken by Lender under the foregoing provisions
or any other provision hereof or by any delay, failure or refusal of Lender to
exercise any right or remedy Lender may have against Borrower or any other
person, including other guarantors, if any, liable for all or any part of the
Indebtedness hereby guaranteed.
4. If at any time all or any part of any payment made by Guarantor or
received by Lender from Guarantor under or with respect to this Guaranty
Agreement is avoided or recovered directly or indirectly from Lender as a
preference, fraudulent transfer, or otherwise, then Guarantor's obligations
2
<PAGE>
hereunder shall, to the extent of the payment avoided or recovered, be deemed to
have continued in existence, notwithstanding such previous payment made by
Guarantor or receipt of payment by Lender, and Guarantor's obligations hereunder
shall continue to be effective or be reinstated, as the case may be, as to such
payment, all as though such previous payment by Guarantor had never been made,
irrespective of the payment in full of the Indebtedness.
5. To the fullest extent permitted by law, Guarantor hereby WAIVES the
following rights, defenses and benefits:
a. The defense of the statute of limitations in any action hereunder
or in any action for the collection of the Indebtedness or the performance of
any other obligation hereby guaranteed;
b. Any defense that may arise by reason of the incapacity, lack of
authority, death or disability of any other person or persons or the failure of
Lender to file or enforce a claim against the estate (in administration,
bankruptcy or any other proceeding) of any other person or persons
c. Except as otherwise provided herein, diligence and all demands,
presentment for payment, notice of nonpayment, protest, notice of protest and
all other notices of any kind, including, without limiting the generality of the
foregoing, notice of the existence, creation or incurring of any new or
additional obligation or of any action or nonaction on the part of Borrower,
Lender, any endorser or creditor of Borrower or of Guarantor or on the part of
any other person whomsoever under this or any other instrument in connection
with any Indebtedness or evidence of Indebtedness held by Lender or in
connection with the Indebtedness hereby guaranteed;
d. Any duty or obligation on Lender's part to perfect, protect, retain
or enforce any security for the payment of the Indebtedness or the performance
of any of the other obligations guaranteed herein;
e. Any duty on the part of Lender to disclose to Guarantor any facts
Lender may now or hereafter know about Borrower, regardless of whether Lender
has reason to believe that any such facts materially increase the risk beyond
that which Guarantor intends to assume or has reason to believe that such facts
are unknown to Guarantor or has a reasonable opportunity to communicate such
facts to Guarantor, it being understood and agreed that Guarantor is fully
responsible for being and keeping informed of the financial condition of
3
<PAGE>
Borrower and of any and all circumstances bearing on the risk that liability may
be incurred by Guarantor hereunder; and
f. Any and all rights, benefits and defenses under law available to
guarantors or sureties, including without limitations, any such rights, benefits
or defenses which would otherwise require Lender to proceed against Borrower or
any other person, or to proceed against or exhaust any security held by Lender
at any time, or to first apply any security of Borrower to the discharge of the
Indebtedness, or to pursue any other remedy in Lender's power before proceeding
against Guarantor hereunder.
6. Guarantor agrees that Guarantor shall have no right of subrogation,
reimbursement, exoneration, contribution, indemnity, or similar right as against
Borrower which would result in Guarantor being deemed a creditor of Borrower
under the Federal Bankruptcy Code or any other law or for any other purpose; and
Guarantor further WAIVES any and all rights, benefits and defenses under law,
which may provide that a surety is entitled to the benefit of every security for
the performance of the principal obligation held by the creditor.
7. With or without notice to Guarantor and without affecting in any way
Guarantor's obligation or liability hereunder for payment of the Indebtedness,
Lender, in Lender's sole and absolute discretion, at any time and from time to
time, and in such manner and upon such terms as Lender deems fit, may:
a. Apply any or all payments or recoveries from Borrower or from all other
guarantors or endorsers under any other instrument or realized from any
security, in such manner and order of priority as lender may determine in
Lender's sole and absolute discretion, to any Indebtedness of Borrower to
Lender, whether or not such Indebtedness is guaranteed hereby or is otherwise
secured or is due at the time of such application; or
b. Refund to Borrower any payment received by Lender upon the Indebtedness
hereby guaranteed.
8. All rights, powers and remedies of Lender hereunder shall be cumulative
and not alternative and such rights, powers and remedies shall be in addition to
all rights, powers and remedies given to lender under the Loan Documents
(including any other guarantees of the Indebtedness) or otherwise by law.
9. The liability of Guarantor under this Guaranty Agreement shall be an
absolute, direct, immediate and unconditional guarantee of payment and not of
collection. The Indebtedness of Guarantor hereunder is independent of the
Indebtedness of Borrower and is not conditioned on contingent upon the
genuineness, validity, regularity or enforceability of any of the Loan
Documents. In the event of any default hereunder, a separate action or actions
4
<PAGE>
may be brought and prosecuted against Guarantor, whether or not Borrower is
joined therein or a separate action or actions are brought against Borrower.
Lender may enforce Lender's rights under the Guaranty Agreement without first
exercising any other remedy or right that Lender may have or seeking to obtain
payment or performance from Borrower, any other person (including any other
guarantor) or from any collateral which Lender may hold as security for the
Indebtedness. Lender may maintain successive actions for other defaults.
Lender's rights hereunder shall not be exhausted by the exercise of any of
Lender's rights or remedies or by any such action or by any number of successive
actions. Guarantor WAIVES any and all rights, benefits and defenses under law
which may generally provide that a guarantor or surety is not liable if for
certain reasons there is no liability upon the part of the principal or if the
principal ceases to become liable or which may generally provide that the
Indebtedness of a guarantor or surety must not be larger nor more burdensome
than that of the principal.
10. Notwithstanding the fact that Borrower may be a corporation, a joint
venture or a partnership, Lender is not to be concerned to see or inquire into
the powers of Borrower, its directors, officers, joint ventures, partners,
associates or other agents acting or purporting to act on its behalf, and
Guarantor expressly waives any defense to the enforcement of this Guaranty
Agreement to the effect that the transaction between Borrower and Lender is in
excess of the powers of the Borrower, or shall be in any way irregular,
defective or informal. Guarantor's liability hereunder shall not be affected by
changes in the name of the entity or the constituent members of the entity which
constitutes Borrower.
11. It is expressly understood that the obligations of Guarantor hereunder
are an additional and cumulative benefit given to Lender for Lender's security.
12. No action based on this Guaranty Agreement shall be instituted until
written demand for payment or performance, as appropriate, has been made upon
Guarantor (a) upon delivery of such demand in person to Guarantor, or (b) on the
next business day following deposit of an envelope containing such demand with
an overnight courier service (such as United Parcel Service) for delivery to
Guarantor at the address set forth next to Guarantor's signature hereon, or (c)
on the second business day following deposit of an envelope containing such
demand in the United States mail, postage prepaid, certified mail,
return-receipt requested, addressed to Guarantor as described above. Guarantor
may change Guarantor's address for such notices by giving notice of the change
of address to Lender in the manner provided herein. All payments hereunder shall
be made in lawful money of the United States of America. No delay in making
demand on Guarantor for satisfaction of Guarantor's liabilities hereunder shall
prejudice Lender's right to enforce such satisfaction.
5
<PAGE>
13. Guarantor shall pay to Lender, upon written demand, all reasonable
attorneys' fees (including an allocable portion of in-house counsel fees) and
all costs and other expenses which Lender expends or incurs in enforcing this
Guaranty Agreement against Guarantor whether or not suit is filed, including,
without limitation, all reasonable attorneys' fees (including an allocable
portion of in-house counsel fees), costs and expenses incurred by Lender in
connection with any insolvency, bankruptcy, reorganization, arrangement or other
similar proceedings involving Borrower or Guarantor which in any way affect the
exercise by Lender of Lender's rights and remedies hereunder. Until paid to
Lender, such attorneys' fees (including an allocable portion of in-house counsel
fees), costs and expenses shall bear interest at the highest rate of interest
allowable by law.
14. Should any one or more provisions of this Guaranty Agreement be
determined to be illegal or unenforceable, all other provisions nevertheless
shall be effective.
15. No provision of this Guaranty Agreement or right of Lender hereunder
can be waived nor shall Guarantor be released from any of Guarantor's
obligations hereunder except by a writing duly executed by Lender, or unless
this Guaranty Agreement terminates pursuant to its terms as set forth herein.
This Guaranty Agreement may not be modified, amended, revised, changed or varied
in any way whatsoever except by the express terms of a writing duly executed by
Lender and Guarantor.
16. When the context and construction so requires, all words used in the
singular herein shall be deemed to have been used in the plural, and the
masculine shall include the feminine and neuter, and vice versa. The word
"person" as used herein shall include any individual, company, firm,
association, partnership, corporation, trust or other legal entity of any kind
whatsoever. The word "Borrower" as used herein includes Borrower acting on
behalf of itself or any estate created by the commencement of a case under the
Federal Bankruptcy Code or any other insolvency, bankruptcy, reorganization or
liquidation proceeding, or by any trustee under the Federal Bankruptcy Code,
liquidator, sequestrator, and receiver of Borrower and Borrower's property or
similar person duly appointed pursuant to any laws generally governing any
insolvency, bankruptcy, reorganization, liquidation, receivership or like
proceeding. If more than one person has signed this Guaranty Agreement as
Guarantor, it shall be the joint and several obligation of each of them. The
words "Loan Documents" as used herein include any modifications, extensions,
renewals, or replacements thereof. All references to statutes herein shall
include any modifications, amendments, substitutions or replacements thereof.
17. In the event that all or any part of the Indebtedness is assigned by
Lender, this Guaranty Agreement shall automatically be assigned therewith in
whole or in part, as applicable, without the need of any express assignment and,
6
<PAGE>
when so assigned, Guarantor shall be bound as above to the assignee(s) without
in any manner affecting Guarantor's liability hereunder for any part of the
Indebtedness retained by Lender.
18. Guarantor agrees, within seven (7) calendar days after request from
Lender, to deliver to Lender a statement certifying that this Guaranty Agreement
is in full force and effect, and that no defense of offset exists to Guarantor's
obligations under the Guaranty Agreement (or stating any facts to the contrary).
19. This Guaranty Agreement shall inure to the benefit of and bind the
heirs, legal representatives, administrators, executors, successors, and assigns
of Lender and of Guarantor.
20. Guarantor hereby agrees that:
a. The execution and delivery to Lender of this Guaranty Agreement of
the accrual of a claim hereunder in favor of Lender shall be deemed to have
caused an event to occur in the State of New Jersey, bringing Guarantor within
the jurisdiction of the state and federal courts in the State of New Jersey, and
Guarantor further hereby agrees to and, as a separate and independent covenant,
does hereby submit to the jurisdiction of the state and federal courts in the
State of New Jersey; and
b. This Guaranty Agreement is made in the State of New Jersey and the
provisions hereof shall be construed and enforced in accordance with the laws of
the State of New Jersey (irrespective of its conflicts of laws rules) and, to
the extent that federal law may preempt the applicability of state laws, federal
law.
21. Except as provided in any other written agreement at any time hereafter
in force between Lender and Guarantor, this Guaranty Agreement shall constitute
the entire agreement of Guarantor with Lender with respect to the subject matter
hereof and no representation, understanding, promise or condition concerning the
subject matter hereof shall be binding upon Lender unless expressed herein.
THE UNDERSIGNED GUARANTOR ACKNOWLEDGES THAT HE WAS AFFORDED THE OPPORTUNITY
TO READ THIS DOCUMENT CAREFULLY AND TO REVIEW IT WITH AN ATTORNEY OF HIS CHOICE
BEFORE SIGNING IT. THE UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ AND
UNDERSTOOD THE MEANING AND EFFECT OF THIS DOCUMENT, INCLUDING BUT NOT LIMITED TO
ALL WAIVERS CONTAINED HEREIN, BEFORE SIGNING IT.
IN WITNESS WHEREOF, the parties have executed this Guaranty Agreement as of
the day and year first above written.
7
<PAGE>
WITNESS: "GUARANTOR"
/s/ Debra A. Santa Lucia /s/ Peter J. Salzano
- ------------------------ ------------------------------------
Signature Peter J. Salzano
Debra A. Santa Lucia Address:
- ------------------------ 74 Jesse Court
Print Name Montville, NJ 07045
ATTEST "LENDER"
VDC COMMUNICATIONS, INC.
/s/ Louis D. Frost By: /s/ Frederick A. Moran
- ------------------------ ---------------------------------
Signature Frederick A. Moran
Chief Executive Officer
Louis D. Frost Address:
- ------------------------ 75 Holly Hill Lane
Print Name Greenwich, CT 06830
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains Summary Financial information extracted from the
financial statements for the three months ended March 31, 2000 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> MAR-31-2000
<CASH> 1,399
<SECURITIES> 148
<RECEIVABLES> 850
<ALLOWANCES> 250
<INVENTORY> 0
<CURRENT-ASSETS> 2,278
<PP&E> 5,004
<DEPRECIATION> 1,307
<TOTAL-ASSETS> 8,715
<CURRENT-LIABILITIES> 2,480
<BONDS> 728
0
0
<COMMON> 2
<OTHER-SE> 5,681
<TOTAL-LIABILITY-AND-EQUITY> 8,715
<SALES> 2,066
<TOTAL-REVENUES> 2,066
<CGS> 1,970
<TOTAL-COSTS> 1,970
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (11)
<INTEREST-EXPENSE> 113
<INCOME-PRETAX> (313)
<INCOME-TAX> 0
<INCOME-CONTINUING> (372)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (313)
<EPS-BASIC> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
