UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): October 16, 2000
VDC COMMUNICATIONS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 001-14281 061524454
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(State or other (Commission File No.) (IRS Employer
jurisdiction of Identification No.)
incorporation)
75 Holly Hill Lane
Greenwich, Connecticut 06830
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(Address of principal executive office)
(203) 869-5100
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name or former address, if changed since last report.)
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Item 5. Other Events.
October 2000 Repricing of Stock Options
Competition for skilled engineers, sales personnel and other key
employees in the telecommunications industry is intense, and the use of stock
options for retention and motivation of such personnel is widespread in
high-technology industries. The Board of Directors believes that stock options
are a critical component of the compensation offered by VDC to promote long-term
retention of key employees, motivate high levels of performance and recognize
employee contributions to the success of VDC. The market price of the common
stock decreased from a high of $7.50 in July 1998 to a low of $0.1875 on October
16, 2000. In light of this substantial decline in market price, the Board of
Directors believed that the outstanding stock options were no longer an
effective tool to encourage employee retention or to motivate high levels of
performance. As a result, on October 16, 2000, the Board of Directors approved
an option repricing program under which options to acquire an aggregate of
2,529,000 shares of common stock at exercise prices between $3.50 and $0.75 per
share were repriced to reflect an exercise price of $0.1875 per share (or
$.20625 in the case of the Chief Executive Officer and his wife), the closing
market price of the common stock on October 16, 2000 as reported on the American
Stock Exchange ("AMEX"). These options will continue to vest under the original
terms of the option grant. Of the 2,529,000 options affected by the repricing
program, 1,345,000 are held by executive officers and members of the Board of
Directors.
In March 2000, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 44 "Accounting for Certain Transactions involving Stock
Compensation and 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. If the exercise price of
an option award is reduced, the award shall be accounted for as variable from
the date of the modification to the date the award is exercised, forfeited or
expires unexercised. The interpretation requires a charge to operations for the
difference between the quoted market value of VDC's common stock at the end of
each reporting period and the option price of unexercised, outstanding stock
options. The interpretation is effective July 1, 2000 but covers events that
occur after December 15, 1998. Thus, compensation expense may be recorded in the
future as a result of this repricing.
Exploration of Alternatives to Address Liquidity Concern
See the following press release, dated October 27, 2000, announcing the
exploration by VDC Communications, Inc. ("VDC") of various business and
strategic alternatives given its current liquidity position.
FOR IMMEDIATE RELEASE
Contact: Clay Moran
VDC Communications, Inc.
(203) 869-5100
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VDC COMMUNICATIONS EXPLORING
ALTERNATIVES TO ADDRESS LIQUIDITY CONCERN
Greenwich, CT: October 27, 2000. VDC Communications, Inc. (AMEX:"VDC")
announced today that it is actively exploring its business and strategic
alternatives given its current liquidity position. As part of its
fiscal-year-end June 30, 2000 audit, VDC's auditors raised the issue of VDC's
ability to continue as a "going concern". VDC's current cash position is
insufficient to either pay VDC's monthly operating expenses for more than the
next one month or support VDC's business plan for the longer term.
VDC has been diligently exploring its alternatives to address these
issues. VDC's Board of Directors has approved a private placement as described
below. However, as is also described below, the proposed investors have not yet
provided a definitive commitment for the transaction (nor can there be any
assurance that they will complete such transaction). VDC's Board of Directors
has approved a private placement of an aggregate of $650,000 of 8% convertible
senior debentures, which VDC expects would, to a limited extent, fund operating
losses. The debentures would mature three (3) years from the date of issuance,
accrue interest at the rate of 8% per annum payable upon maturity and be
prepayable, at VDC's discretion, at any time upon thirty (30) days written
notice. The principal amount of the debentures and all accrued interest would be
convertible in the investors' discretion. The debentures would be secured by a
first priority perfected security interest on substantially all of the assets of
VDC. The proposed investors include Frederick A. Moran, VDC's Chairman and Chief
Executive Officer, and affiliates of Mr. Moran and family trusts associated with
Mr. Moran, and one non-affiliated investor. Any debentures issued to Mr. Moran
and affiliates of Mr. Moran and family trusts associated with Mr. Moran would be
convertible at $0.1875 per share, so long as such amount is not less than the
closing market price of VDC's common stock on the date the transaction closes.
Any debentures issued to the non-affiliated investor would be convertible at
$0.145 per share. VDC's use of any proceeds from the debentures would be
restricted to, among other things, advances to its subsidiaries to pay
operational expenses other than accounts payable outstanding as of the date of
issuance. A breach of this covenant would constitute an event of default under
the debentures and would, in the investors' discretion, result in the immediate
acceleration of VDC's obligation to repay the debentures. VDC would agree to
grant piggyback registration rights to the purchasers of the debentures to
include the shares issuable upon conversion of the debentures in a registration
statement filed by VDC.
As referenced above, the investors in this transaction have not agreed
to complete the financing at this date and are awaiting certain conditions prior
to making their final investment determination. One condition is that creditors
accept final payments in an amount that is a fraction of current payables. Due
to certain regulatory rules and requirements, another condition of the investors
is a closing market price of VDC of $0.1875 or below on the date of closing.
Even if these certain conditions are met, the investors have reserved the right
not to complete the transaction in their sole discretion.
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Other alternatives VDC is exploring include, but are not limited to:
significant cost cutting measures, which might impair VDC's ability to grow
revenues, debt or equity financing other than the approved transaction, the sale
of significant assets, and filing for bankruptcy protection. VDC has already
implemented certain cost cutting measures.
VDC is a facilities-based domestic and international telecommunications
company, providing domestic and international carrier services to retail and
wholesale customers. VDC has built a global network for the transmission of
telecommunications traffic through its New York City and Los Angeles gateway
sites. VDC has initiated the development of a global IP network to deliver toll
quality voice, facsimile and other value-added services to both complement and
transform its current network configuration.
Certain statements in this press release are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements made by VDC involve known and unknown
risks, uncertainties and other factors which may cause the actual results,
performance or achievements of VDC to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, but are not limited to:
uncertainty as to whether VDC will be able to operate profitably; uncertainty as
to whether VDC will be able to secure sufficient financing in order to fund its
operations; competitive and other market conditions that may adversely affect
the scope of VDC's operations; uncertainty as to whether the Internet will
continue to grow as a medium for voice and facsimile communications; risk
associated with the diversification of VDC's operations and the initiation of
new products; inherent regulatory, licensing and political risks associated with
VDC's operations; the dependence of VDC on certain key personnel; VDC's revenue
dependence on a few customers; VDC's network dependence on VDC's underlying
carriers; network failure or complications; dependence upon a limited number of
equipment vendors; VDC's ability to successfully integrate mergers and/or
acquisitions and potential mergers and/or acquisitions into VDC, including the
retention of certain key personnel; network capacity constraints; and other
risks as are described from time to time in the SEC reports filed by VDC,
including a Registration Statement on Form S-3 (No. 333-46694). Given these
uncertainties, readers are cautioned not to place undue reliance on such
forward-looking statements, which speak only as of the date made. VDC disclaims
any obligation to update any of the forward-looking statements contained herein
to reflect any change in VDC's expectation with regard thereto or any change in
events, conditions, circumstances or assumptions underlying such statements.
For further information, you may access VDC Communications, Inc.'s web
site at www.vdccorp.com, or call Clayton F. Moran, Chief Financial Officer and
Treasurer, at: Telephone: 203-869-5100; Fax: 203-552-0908.
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SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: October 27, 2000 VDC COMMUNICATIONS, INC.
By: /s/ Frederick A. Moran
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Frederick A. Moran
Chairman and Chief Executive Officer