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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
For the fiscal year ended December 31, 1997
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OR
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (NO FEE REQUIRED)
For the transition period from ______________ to ______________
Commission file number 0-23228
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PORTACOM WIRELESS, INC.
(Exact Name of Registrant as Specified In Its Charter)
Delaware 33-0650673
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
10061 Talbert Avenue, Suite 200
Fountain Valley, California 92708
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(Address of principal (Zip Code)
executive offices)
(714) 593-3234
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(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
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(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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) X YES NO
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(2) X YES NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
Except where otherwise specified, all dollar amounts referenced in this
document are denominated in United States dollars.
As of March 31, 1998, the aggregate market value of the Registrant's Common
Stock held by non-affiliates was $6,846,577 based upon the last sales price on
February 12, 1998 of ($0.80) on the Vancouver Stock Exchange. The shares of
Common Stock are also traded on the NASD Electronic Bulletin Board. See "ITEM 5.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS."
As of March 31, 1998, there were 13,576,970 shares of the Registrant's
Common Stock issued and outstanding.
Transitional Small Business Disclosure Format (check one):
(1) YES X NO
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DOCUMENTS INCORPORATED BY REFERENCE: NONE
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PART I
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FORWARD-LOOKING STATEMENTS
Information included in this Annual Report on Form 10-K may constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements made by PortaCom
Wireless, Inc. (formerly known as "Extreme Technologies, Inc." and
"International PCBX Systems, Inc." herein referred to alternatively as the
"Company" or the "Registrant") involve known and unknown risks, uncertainties,
and other factors which may cause actual results, performance or achievements of
the Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. From time
to time, information provided by the Company or statements made by its employees
may contain other forward-looking statements. Factors that could cause actual
results to differ materially from the forward-looking statements include, but
are not limited to: Bankruptcy Court actions or proceedings related to the
bankruptcy, risks associated with international operations, dependence on
licenses, governmental regulations, technological changes, intense competition,
dependence on management, the outcome of litigation to which the Company is a
party, and those described below under "Special Considerations." Given these
uncertainties, readers are cautioned not to place undue reliance on such
forward-looking statements. The Company disclaims any obligation to forward-
looking statements contained herein to reflect any change in management's
expectation with regard thereto or any change in events, conditions,
circumstances or assumptions underlying such statements.
ITEM 1. BUSINESS
GENERAL
PortaCom Wireless, Inc. has engaged in initial stage efforts to evaluate
the feasibility of, and attempt to secure, licensing opportunities and joint
venture arrangements for the operation of wireless telephone networks as well as
other state-of-the-art mobile radio communication systems and new telephone
technologies. Its corporate objective has been to become a leading independent
provider of wireless and wire line telecommunications services in selected
developing world markets.
The Company was formed as a British Columbia, Canada corporation in 1989.
On December 23, 1996, the Company reincorporated from British Columbia to
Wyoming pursuant to a procedure known as a "continuance", and on December 24,
1996, the Company merged with its wholly owned Delaware subsidiary and thereby
reincorporated into Delaware. The Delaware subsidiary had been formed in 1994
for the purpose of the merger, which had been postponed for business reasons.
During 1997, the Company conducted business operations both directly and through
one majority owned foreign subsidiary, American Cambodian Telecom, Ltd. ("ACT")
Subsequent to year end, the Company sold its equity interest in ACT. (See
"American Cambodian Telecom Ltd."). The Company also has four wholly owned U.S.
subsidiaries which did not operate
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during 1997 and which are not presently operating: PortaCom International, Ltd.
("PIL"), Extreme Telecom, Inc. ("Telecom"), PCBX Systems, Inc. ("PCBX"), and
Extreme Laboratories, Inc., formerly known as Spheric Audio Laboratories, Inc.
("Laboratories").
The Company holds a minority interest in Metromedia Asia Corporation
("MAC"), which is comprised of 2,000,000 shares of MAC common stock (presently
held in escrow) and warrants to purchase 4,000,000 shares of MAC common stock at
$4.00 per share. MAC is involved in the build-out of telecommunications
projects in China. See "Metromedia Asia Corporation."
Sale of Principal Asset and Related Financing
On November 25, 1997, the Company and VDC Corporation, Ltd. ("VDC") entered
into an asset purchase agreement (the "Prepetition Asset Purchase Agreement"),
whereby VDC agreed to buy and the Company agreed to sell its minority interest
in MAC to VDC in consideration of up to $700,000 and 5.3 million shares of the
common stock of VDC (the "Asset Sale"). The Prepetition Asset Purchase
Agreement expired by its terms as of March 1, 1998. However, as of February 16,
1998, the parties entered into an amendment to the Prepetition Asset Purchase
Agreement, which extended the date by which the transaction was to be
consummated to April 30, 1998 together with certain additional consideration.
In addition, funding was also provided to the Company by VDC pursuant to
that certain Loan Agreement, Security Agreement, and Pledge Agreement, each
dated November 10, 1997, and other documents, instruments, and notices,
including UCC Financing Statements, executed delivered or recorded in connection
therewith (collectively, the "Prepetition Loan Documents"), whereby VDC agreed
to extend credit and advance funds to the Company in an amount not to exceed
$700,000. The funds, together with all accrued interest, costs and other
charges constitute the Prepetition Indebtedness, which is secured by a lien
granted to VDC in and to the Company's interests in the MAC shares and warrants.
VDC perfected its interest in the MAC warrants by taking possession thereof.
The MAC shares remain in the possession of MAC, which holds such shares to
secure a contingent contractual indemnification obligation of the Company, which
expires on January 1, 1999 assuming certain conditions have been met.
Chapter 11 Reorganization
On March 23, 1998 (the "Petition Date"), the Company filed a voluntary
petition (the "Bankruptcy") for relief under Chapter 11 of the United States
Bankruptcy Code in the United States Bankruptcy Court, District of Delaware (the
"Bankruptcy Court"). The proceeding is being administered under the caption
"In re: PortaCom Wireless, Inc.", Case No. 98-661 (PJW), pursuant to an order of
the Bankruptcy Court. The following U.S. subsidiaries were not included in the
bankruptcy filings: PIL, Telecom, PCBX, and Laboratories. The petition requests
that the existing directors and officers of the Company be left in possession of
the Company's assets and responsible for the business of the Company.
In 1996, the Company generated revenues of approximately $9,000,000
(approximately $1,000,000 of which were cash revenues) pursuant to a Termination
Agreement between the
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Company and Asian American Telecommunications Corporation, the predecessor to
MAC. In 1997, the Company did not generate any revenues. Due to the lack of
capital resources, the Company's reduced its business activities such that
operations virtually ceased. At the same time, the Company faced increasing
pressure from trade creditors and litigation. See "Legal Proceedings."
During the three months ended December 31, 1997, the Company undertook an
informal settlement of its outstanding indebtedness. In certain instances, the
Company was able to extinguish indebtedness by securing claim releases from
creditors in consideration for discounted cash payments. In other instances,
the Company and its creditors or claimants have entered into agreements (the
"Prepetition Settlements") that provide for extinguishment of debt and a claim
release in consideration for a portion of the shares of VDC and/or cash that the
Company expects to receive in connection with the Asset Sale. The Company
believes the Prepetition Settlements are enforceable and will vigorously attempt
to enforce the Prepetition Settlements in the Bankruptcy, to the extent
necessary. As of the Petition Date, the informal settlement would have been
concluded but for a small number of significant creditors and claimants with
whom the Company had been unable to reach agreements.
Following the amendment to the Prepetition Asset Purchase Agreement, the
parties agreed that the transaction could not be consummated within the time
agreed upon. VDC's agreement to extend credit to the Company was intended to
provide the Company with liquidity through the consummation of the Asset Sale,
which was to occur prior to May 1, 1998. Facing a certain default under the
Prepetition Indebtedness to VDC along with the pressures of unresolved claims
and continuing litigation, the Company determined that the commencement of the
Bankruptcy was advisable to maximize the value of its assets for the benefit of
all creditors and equity security holders.
VDC has committed to fund the Company's operations on a secured basis
through the completion of the Asset Sale. Accordingly, the Company and VDC
entered into a certain Debtor In Possession Loan, Security, and Pledge
Agreement, under which VDC agreed to extend credit and advance funds to the
Company (the "DIP Financing").
As a result of the Bankruptcy, absent approval of the Bankruptcy Court, the
Company is prohibited from paying, and creditors are prohibited from attempting
to collect, claims or debts arising prior to the Petition Date. The
consummation of a plan of reorganization is the principal objective of the
Company's Bankruptcy. A plan of reorganization sets forth the means for
satisfying claims and interests in the Company, including the liabilities
subject to compromise. The consummation of a plan of reorganization for the
Company will require the requisite vote of impaired creditors and interest
holders under the Bankruptcy Code and confirmation of the plan by the Bankruptcy
Court.
The Company expects to propose a Chapter 11 plan of reorganization for
itself within the time allowed for such plan to be filed exclusively by the
Company. Although management expects to file a plan of reorganization in 1998,
which would contemplate emergence from the Bankruptcy in 1998, there can be no
assurance at this time that a plan of reorganization will be proposed by the
Company or approved or confirmed by the Bankruptcy Court, or that such plan will
be
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consummated. After the expiration of the exclusivity period, creditors of the
Company have the right to propose alternative plans of reorganization.
Notwithstanding the substantial assets of the Company which are expected to be
available following the asset sale for distribution on a pro rata basis to the
Company's equity security holders as part of any plan of reorganization,
substantial likelihood exists that, immediately following such distribution,
material dilution or elimination of the equity of existing shareholders may
occur.
During the Bankruptcy and subject to the approval of the Bankruptcy Court,
the Company intends to consummate the Asset Sale pursuant to Section 363 of the
Bankruptcy Code. The Company believes, based on the current value of the shares
of VDC's common stock, that it will receive substantial value in consideration
of the Asset Sale if consummated pursuant to that certain Post-Petition Asset
Purchase Agreement dated March 23, 1998 between the Company and VDC. The Post-
Petition Asset Purchase Agreement was amended by a stipulation entered by the
Bankruptcy Court on April 6, 1998 which provides for an escrow account in the
amount of $2,600,000 (minimum of $1,250,000 in cash) to be funded by VDC for the
benefit of holders of priority unsecured claims and general unsecured claims.
The number of VDC shares to be delivered to the escrow agent will be the
difference between the value of the 5,300,000 VDC shares and the cash escrow
delivered and indebtedness divided by the value of the VDC stock. The Company,
as of the date of this Annual Report, is soliciting higher and better offers for
the MAC shares and warrants, which may result in one or more bona fide offers
which are tendered in accordance with the court approved bidding procedures and
which are, in the opinion of management, both higher and better than the offer
of VDC. Whether the MAC shares and warrants are sold to VDC or some third
party, the proceeds from the sale will be used to fund the Company's plan of
reorganization.
Inactive Subsidiaries
PIL was formed in 1994 to evaluate the feasibility of, and attempt to
secure, licensing and joint venture arrangements for the operation of wireless
telephone networks, and other communication systems and technologies. As of
December 31, 1996, the operations of PIL had produced no revenues or definitive
licensing arrangements and management believed these operations would likely
continue to remain limited in scope until certain valuable licensing
arrangements or joint venture participation could be secured. During 1997,
management determined that the likelihood of PIL obtaining definitive licensing
arrangements had diminished substantially due to prolonged delays and apparent
lack of progress. Furthermore, the Company elected to discontinue funding of
the development activities of PIL until significant further progress became
evident. Accordingly, due to PIL's exhausted financial resources, there is
considerable doubt that any definitive licensing arrangements will be obtained
by PIL during 1998, or at all.
PCBX Systems developed and marketed a personal computer branch exchange
("PCBX") which permitted the operation of a full-featured telephone network
control system from a centrally located personal computer. The PCBX systems
offered by the Company featured the Company's proprietary integrated circuit
board which fit into a personal computer and allowed a number of fundamental and
advanced features to be programmed into a telephone system. The principal
advantages of the Company's PCBX systems over competing systems were believed by
management
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to include low cost per feature, significant flexibility and mobility, and
relative ease of programming, upgrading and maintenance.
Telecom entered into an agreement with Nitsuko America Corporation
("Nitsuko America") to distribute telecommunications products manufactured by
Nitsuko America which were not then being distributed otherwise in the United
States.
Laboratories developed and marketed a line of high quality audio speakers,
as well as a proprietary audio recording and playback technology known as
"SphericSound". "SphericSound" represented a form of audio recording and
playback that featured multi-dimensional imaging that created the realistic
sensation of directional sound movement emanating from stationary speakers.
Because of substantial losses, the associated costs of continued
development, the lack of profitability by competitors and the uncertainty of
marketing costs associated with commercializing both proprietary technologies
and other manufacturers' products, management decided in 1995 to discontinue the
development and marketing activities of PCBX, Telecom and Laboratories.
Funding of the Company's operations since inception has been provided by:
(i) revenues from the sale of PCBX products, and, to a significantly lesser
extent, the products of Telecom and Laboratories; (ii) proceeds from the sale of
securities pursuant to a series of private placement transactions; (iii)
completion of an initial public offering on the Vancouver Stock Exchange during
October 1992; and (iv) revenues generated in 1996 as a result of the AAT
transaction. See "Metromedia Asia Corporation."
Metromedia Asia Corporation
On May 28, 1996, the Company announced an agreement to acquire, in exchange
for shares of common stock of the Company, all of the outstanding shares of
Asian American Telecommunications Corporation ("AAT"), a Cayman Islands
telecommunications services developer which has focused its business activities
on developing PSTN and wireless telecommunications services in China. On July
18, 1996, the Company announced that the terms of the acquisition had been
adjusted to take into account a $25,000,000 financing by AAT. As management
continued to review the proposed transaction, including analysis and discussion
with legal, tax and financial advisors, it was recognized that the proposed
transaction required further modification in order to avoid potentially adverse
tax consequences to both the Company and its shareholders. On September 18,
1996, the Company announced that, due to significant tax and regulatory
considerations, it had elected to receive a direct ownership position in AAT
consisting of 2,000,000 common shares and warrants to acquire 4,000,000 common
shares of AAT at a price of $4.00 per share, plus an immediate payment of
$1,000,000 in cash from AAT to the Company. The 2,000,000 common shares of AAT
are to be held in escrow until January 1, 1999 in the event of any claims
arising out of the original proposed acquisition or the modification and
subsequent termination of that agreement, although as of the date of this
report, management is not aware of any claims or potential claims.
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On December 23, 1996 AAT agreed to enter into a Business Combination
Agreement with Metromedia Asia Corporation ("MAC") and Metromedia International
Telecommunications, Inc. ("MITI"). In connection with the Business Combination
Agreement, MAC consummated, on February 28, 1997, an exchange offer for all of
the outstanding shares and warrants of AAT (the "Exchange Offer"). The Company
agreed to exchange all of its shares and warrants pursuant to the terms of the
Exchange Offer. Under the terms of the Exchange Offer, each share of AAT common
stock was exchanged for one share of MAC regular common stock, and each warrant
to acquire AAT common stock at $4.00 per share was exchanged for a warrant to
acquire MAC common stock at $4.00 per share. The 2,000,000 common shares of MAC
will be held in escrow under the same terms and conditions as were applicable to
the AAT shares which were tendered in the Exchange Offer.
American Cambodian Telecom, Ltd.
On December 26, 1996, the Company entered into a joint venture agreement
(the "Cambodian JVA") as the 86% managing partner of American Cambodian
Telecommunications Ltd. ("ACT"), a limited liability company which holds a
twenty-five (25) year renewable license to develop a mobile wireless system in
the Kingdom of Cambodia. ACT had agreed to buy back all of the outstanding
shares of its 14% joint venture partner, Khmer Sameky Telecom, Ltd., on or
before December 26, 1997. Pursuant to the Cambodian JVA, after December 26, 1997
the capital structure of ACT was to change such that the Company would retain a
75% interest in ACT and the Ministry of Posts and Telecommunications of Cambodia
would hold a 25% interest in ACT and would retain the right to purchase any new
ACT shares issued in order to maintain a 25% interest.
By December 26, 1997 and due to the failure to obtain funding, ACT
defaulted on its obligations under the Cambodian JVA and license in that it
failed to consummate the buy back agreement with respect to the shares of Khmer
Sameky Telecom, Ltd. and, as a result, failed to grant the 25% interest in ACT
to the Ministry of Posts and Telecommunications of Cambodia.
Based upon representations by ACT that the Cambodian JVA had been breached
and that an extension of time to remedy such breach had been vigorously pursued
but not obtained, it was determined at December 31, 1997 that the Company's
investment in ACT had experienced an other than temporary decline in value;
furthermore, the likelihood that the $345,454 in loans made by the Company to
ACT would be repaid had significantly decreased. Accordingly, the investment and
advances were written down to their estimated fair value of $-0-.
The Company has previously disclosed that it would require substantial
additional capital investment to pursue the development of its planned network
in Cambodia and has stated that failure to generate sufficient funds from the
issuance of additional debt or equity on favorable terms and conditions would
have a material adverse effect on the financial condition of the Company. Among
other things, management has attributed the failure to generate sufficient funds
for investment in ACT to the state of political and socioeconomic unrest which
developed during 1997 as a result of a military conflict which arose between the
two ruling parties of Cambodia's coalition government.
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On January 15, 1998, the Company executed a prepetition termination and
settlement agreement with a former officer of the Company. Pursuant to this
agreement, the Company agreed to transfer to this officer its equity interest in
ACT and any rights, privileges and interests which it had in the license owned
by ACT, in exchange for the officer's waiver and release of all claims he had
against the Company.
Microwave Communications Limited.
On May 9, 1997, the Company announced that it had signed, subject to
certain conditions, including regulatory approval, agreements in principal to
acquire a controlling interest in Microwave Communications Limited ("MCL"), a
paging telecommunications venture in the Republic of India (the "MCL
Transactions"). Due to the failure of the Company to secure financing
sufficient to consummate the MCL Transactions, the agreements expired pursuant
to their terms on July 15, 1997 and, while the Company vigorously pursued an
extension, such was not obtained.
INDUSTRY OVERVIEW
Demand For Communications Services in Developing Countries.
Many developing countries are experiencing rapid economic growth. Often,
the telecommunications services presently available in these countries are
inadequate to support current demand let alone such growth. To address the
latent demand for communications services and to promote economic growth,
governments in many developing countries have begun deregulating their
telecommunications industries and encouraging the formation of private
communications service providers. As a result, the Company believes there is a
substantial opportunity for privately owned companies to provide wire line and
wireless communications services in these countries.
While the Company believes that the cellular telephony industry is well
established in the developed world, the industry is still in its infancy in the
developing world. The Company believes that wireless cellular telephony has the
potential to grow rapidly in developing countries because of the poor quality of
the existing wireline service, the unsatisfied demand for basic telephone
service and the increasing requirements of users who want the convenience of
cellular telephones. In some countries the cellular telephone network provides
significantly improved access, in terms of call quality and service
establishment time, to the local and international wireline network compared
with the existing wireline service. In addition, developing countries are
expected to benefit both from better technology and lower equipment costs than
those experienced at comparable stages of market development in developed
countries.
Wireline networks involve extensive outside infrastructure in the form of
buried or overhead cable networks, while cellular telephone systems do not
require the same level of construction activities. For developing countries,
cellular telephone systems can represent a faster and more cost-effective method
of expanding telecommunications infrastructure than deployment of traditional
wireline networks.
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Role of Wireless Technologies.
A number of wireless technologies provide voice and data services that
address the communications needs of developing countries. These services include
cellular telephony, wireless local loop ("WLL") and paging. The Company
believes that existing and emerging wireless technologies generally compare
favorably to land-line technologies in terms of functions and service, yet
provide lower system deployment costs and the potential for more rapid
deployment.
Cellular Telephony (Mobile Telephony).
Cellular telephony systems are capable of providing high quality voice and
data communications to and from vehicle-mounted and hand-held radio terminals
(cell phones) and are capable of handling a great number of calls at any one
time. Cellular telephony technology is based upon spatial diversity, the
division of a given geographical area into a number of overlapping cells and the
simultaneous re-use of radio channels in non-contiguous cells within the system.
Each cell contains a low power transmitter-receiver as part of a base station
that communicates by radio signal with cellular terminals in that cell. Each
cell is interconnected by wire lines or microwave to a central switching point
or Mobile Switching Center ("MSC") that controls the routing of calls and which,
in turn, is connected to the public switched telephone network. It is the MSC
that allows cellular telephone users to move freely from cell to cell while
continuing their calls.
Cellular telephone systems generally offer subscribers the features offered
by the most up-to-date wireline telephone services. Most cellular telephone
systems are interconnected with the wireline telephone network. Cellular
telephone system operators therefore require an interconnect arrangement with
the local wireline telephone companies and the terms of such arrangements are
material to the economic viability of the system.
Currently, most cellular systems use analog technologies such as AMPS (U.S.
standard), TACS (UK/European standard) or NMT ( a European standard). In some
high density markets analog systems are reaching their capacity limits and are
being supplemented with new digital technologies that offer greater capacity
than analog systems.
Several digital cellular technologies have been developed in the last three
to five years. D-AMPS has been introduced as a digital upgrade for operators of
existing AMPS systems. In Europe, the digital Global System for Mobile
Communication ("GSM") standard has been developed and is widely available
throughout Europe and Asia. GSM provides approximately two to three times the
capacity of analog systems and has the additional benefit of enabling
international roaming due to its broad availability, system compatibility, and
universal terminal compatibility.
Another new digital technology, Code Division Multiple Access ("CDMA"), is
being introduced in the U.S. and several other major countries. CDMA provides
the highest capacity of any digital cellular technology at this point, with six
to ten times analog system capacity in a mobile environment. Its first
commercial deployment in Hong Kong has been successful, and has been deployed in
Personal Communications Services ("PCS") networks in the United States and
elsewhere.
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CDMA digital wireless technology provides a universal technology platform
for a wide range of services and applications, including digital cellular, PCS,
wireless local loop, mobile satellite systems, and other types of networks.
Because of its spread spectrum RF characteristic, CDMA is able to provide a mix
of higher data rates simultaneously with lower data rates than certain other
wireless technologies. CDMA also offers superior call and voice quality than
other wireless technologies.
The cellular telephone industry is typically characterized by high fixed
costs and low variable costs. Until technological limitations on total capacity
are approached, additional cellular system capacity can normally be added in
increments that closely match demand and at less than the proportionate cost of
the initial capacity. The industry has also seen declining equipment prices in
real terms. Once revenues exceed fixed costs, incremental revenues are expected
to yield a high incremental operating profit, giving cellular telephone system
operators an incentive to stimulate and satisfy demand for service in the
market. The amount of profit, if any, under such circumstances is dependent on,
among other things, prices and variable marketing costs, which, in turn, are
affected by the amount and extent of competition.
Wireless Local Loop.
WLL refers to a group of technologies designed to provide customer access
to the public switched telephone network using wireless radio technologies
rather than traditional wire or fiber optic lines. A WLL system typically
consists of a number of radio base stations (similar to cell sites used for
cellular telephone) covering the target market area, a switching center, and
fixed subscriber terminals on the subscriber's premises. On the fixed subscriber
terminal a standard telephone jack allows connection to standard telephone
equipment. In some systems portable handsets are available, providing the added
value of wide-area cordless telephone service to the subscriber.
The Company believes that WLL is an attractive technology for the rapid
expansion of telephone facilities in developing countries. The coverage in terms
of service area provided by a single base station can compare favorably with the
coverage of a single cellular base station. The use of digital technology
provides substantially greater capacity than analog alternatives which the
Company believes results in WLL being a cost-effective communications solution.
Several types of technology can be used to provide WLL, including CDMA
technology.
WLL networks provide subscribers with access to the standard land-line
telephone network through wireless transmission from land-line switch to the
telephone site in the home or business rather than through conventional land
lines. This is accomplished by placing small transceivers at the telephone site.
Functionally, WLL operates in the same way as a regular telephone, with the
added possibility of wide area "cordless telephone" use. WLL networks are
generally quicker to install and less expensive than deploying new land-line
systems.
Paging Technology
Paging is a method of wireless communication that uses an assigned radio
frequency to contact a subscriber virtually anywhere within a designated service
area. A subscriber carries a
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pager that receives messages by the broadcast of a one-way radio signal. To
send a message to a subscriber, a caller first dials an access code and the
subscribers designated pager number. The call is routed to an electronic paging
terminal which generates a signal that is sent to radio transmitters in the
services area. Depending upon the topography of the service area, the operation
radius of a radio transmitter typically ranges from 30 to 50 kilometers. The
transmitters broadcast a signal that is received by the pager, which alerts the
subscriber by a tone, vibration or flash that there is a message.
There are three basic types of paging services: numeric (digital display);
alphanumeric display, and tone only. Numeric paging services enable a caller,
using a touchtone telephone, to transmit to a subscriber a numeric message
consisting of a telephone number, an account number or coded information.
Numeric pagers have memory capability to store several numeric messages which
can be recalled by a subscriber when desired. Alphanumeric paging services
allow subscribers to receive and store messages consisting of both letters and
numbers. Alphanumeric pagers have sufficient memory to store between 500 and
5,000 characters. Advanced alphanumeric systems also permit the receiving page,
by using a low power transmitter installed in the pager to send a brief reply
back to the sending pager. Tone-only paging service notifies the subscriber
that a call has been received by making a beeping sound or producing a
vibration, but does not display numbers or messages.
BUSINESS STRATEGY
The Company, subject to consummation of a plan of reorganization, emergence
from the Bankruptcy and receipt of adequate financing, intends to become a
significant provider of wireless communications services in selected developing
countries, typically either through a joint venture with a local partner or as a
significant participant in a corporate local venture. In some cases, the
Company's local partners may have previously been granted telecommunications
licences. The Company typically, although not exclusively, will play an active
role in the development and management of its operating companies and
developmental stage projects, and the Company will attempt to negotiate
shareholder agreements that provide the Company with the right to approve key
decisions at the operating company or developmental stage project level. The
Company intends to operate mainly in developing markets, which it believes offer
long-term growth characteristics superior to those in more developed markets.
The economic growth in these markets is characterized by an expanding need for
telecommunications services.
SPECIAL CONSIDERATIONS
Early Stage of Development of Wireless Projects. The successful development and
commercialization of any early stage projects of the Company will depend on a
number of important financial, logistical, technical, marketing, legal and other
factors, the outcome of which cannot be predicted. The implementation of the
Company's projects will require significant amounts of financing to fund capital
expenditures, working capital requirements and other cash needs, including the
costs of obtaining additional licenses. In addition, there can be no assurance
that these projects will not encounter engineering, design or other operational
problems. There can be no assurance that
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the Company can successfully develop any of its planned developmental stage
projects or that any of these projects or any of its operating companies will
achieve commercial success.
Negative Operating Cash Flow; Dependence on Additional Financing; No Commitments
For Additional Financing. The Company has incurred net losses since its
inception and had an accumulated deficit of approximately $14 million as of
December 31, 1997 The Company anticipates that its net losses will increase
significantly in the foreseeable future, and there can be no assurance as to
whether or when the Company's operations will become profitable. The Company
used cash in operations and investing activities of approximately $1.4 million
in the year ended December 31, 1997, and expects such negative cash flows to
continue and possibly increase in the period immediately following its planned
emergence from the Bankruptcy. Because of such negative cash flow and negative
working capital and the capital intensive nature of the Company's business, the
Company will require continuing sources of outside debt and equity financing to
fund its working capital needs, investments and other cash requirements. In
addition, the Company intends to pursue aggressively additional opportunities
for wireless projects and anticipates that it will require additional sources of
financing in order to pursue those projects. However, the Company has no
commitments or arrangements for additional financing, and there can be no
assurance that any additional debt or equity financing will be available to the
Company on acceptable terms when required by the Company or at all. If adequate
sources of additional financing are not available, the Company will be forced to
delay, scale back or eliminate its projects or to liquidate any investments it
may acquire.
Joint Venture and Investment Arrangements. The Company intends to conduct its
business operations through joint ventures with local strategic partners and
through investments in local companies that have previously been granted
licenses. Its participation in each joint venture and investment will differ
from market to market and the Company may not have majority ownership interests
in some such joint ventures or investments. Even when the Company does have a
majority ownership interest, the Company's ability to withdraw funds, including
dividends, from its participation in, and to exercise management control over,
joint ventures and investments therein, will be dependent in some cases on
receiving the consent of the other participants, over which the Company may have
no control. While the precise terms of the arrangements will vary, the
Company's joint venture interests or investments may be adversely affected in
the event that disagreements develop with joint venture partners or majority
shareholders in a particular project.
Risks Inherent in Growth Strategy. The Company hopes to grow rapidly, subject
to the availability of additional financing, and is actively seeking and
evaluating new investment opportunities in foreign countries. This strategy
presents the risks inherent in assessing the value, strengths and weaknesses of
development opportunities, in evaluating the costs and uncertain returns of
building and expanding the facilities for operating systems and in integrating
and managing the operations of additional operating systems. The Company's
growth strategy will place significant demands on the Company's operational,
financial and marketing resources and on its management. Any failure to manage
the Company effectively could have a material adverse effect on the Company.
Technological Risk; Risk of Obsolescence. The Company expects that its
developmental stage projects will generally use new and emerging technologies.
Although many of the technologies to
<PAGE>
be used in the future by the Company have been developed by large international
telecommunications companies, most are expected to be advanced technologies
which have only recently been developed and commercially introduced. There can
be no assurance that any operating companies and or developmental stage projects
will not experience technical problems in the commercial deployment of these
technologies, particularly because they are being introduced in developing
countries. In addition, the technology used in wireless communications is
evolving rapidly and one or more of the technologies planned to be utilized by
the Company may be unpopular with its customers or may become obsolete, which in
either case would likely have a material adverse effect on the Company. There
can be no assurance that the Company will be able to keep pace with ongoing
technological changes in the wireless telecommunications industry.
Risk of Modification or Loss of Licenses; Uncertainty as to the Availability,
Cost and Terms of Licenses; Restrictions on Licenses. The Company's ability to
obtain new licenses in the future is essential to the Company's operations.
However, these licenses are typically granted by governmental agencies in
developing countries, and there can be no assurance that these governmental
agencies will not seek to unilaterally limit, revoke or otherwise adversely
modify the terms of these licenses in the future, any of which could have a
material adverse effect on the Company, and the Company may have limited or no
legal recourse if any of these events were to occur. In addition, there can be
no assurance that renewals to these licenses will be granted or, if renewed,
that the renewal terms will not be substantially less favorable to the Company
than the original license terms, any of which could have a material adverse
effect on the Company. Likewise, there can be no assurance that the Company's
operating companies and developmental stage projects, if any, will obtain any or
all of the licenses necessary for their proposed operations.
Dependence on Partners. The Company will generally continue to depend on local
partners to obtain required licenses in all of its wireless projects. In
addition, in order to pursue larger scale projects, including certain WLL
projects, the Company is often dependent on strategic partners with resources
beyond those of the Company. In WLL projects, the Company may require the
participation of a larger telecommunications company possessing the substantial
capital and operating resources required to finance and deploy a WLL system. The
failure of the Company to identify and enter into relationships with strong
partners, or the failure of those partners to provide these resources, may have
a material adverse effect on the Company.
Construction Risks. The operating companies and developmental stage projects in
which the Company intends to invest typically will require substantial
construction of new wireless networks and additions to existing wireless
networks. Construction activity will require the operating companies and
developmental stage projects, if any, to obtain qualified subcontractors and
necessary equipment on a timely basis, the availability of which varies
significantly from country to country. Construction projects are subject to cost
overruns and delays not within the control of the operating company or the
developmental stage project or its subcontractors, such as those caused by acts
of governmental entities, financing delays and catastrophic occurrences. Delays
also can arise from design changes and material or equipment shortages or delays
in delivery. Accordingly, there can be no assurance that the operating companies
or developmental stage projects will be able to complete current or future
construction projects within the amount budgeted or within the time periods
projected, or at all. Failure to complete construction within the amount
budgeted or on a
<PAGE>
timely basis could jeopardize subscriber contracts, franchises or licenses and
could have a material adverse effect on the Company. In particular,
telecommunications licenses often are granted on the condition that network
construction be completed or commercial operations be commenced by a specified
date. Failure to comply with these deadlines could result in the loss or
revocation of the licenses.
Competition. Although the implementation of advanced wireless technologies is
in the early stages of deployment in most developing countries, the Company
believes that its business will become increasingly competitive, particularly as
businesses and foreign governments realize the market potential of these
wireless technologies. A number of large American, Japanese and European
companies, including U.S.-based regional Bell operating companies and large
international telecommunications companies, are actively engaged in programs to
develop and commercialize wireless technologies in developing countries. In many
cases, the Company will also compete against local land-line carriers, including
government-owned telephone companies. Most of these companies have substantially
greater financial and other resources, including research and development staffs
and technical and marketing capabilities than the Company. The Company
anticipates that there will be increasing competition for additional licenses
and increased competition to the extent such licenses are obtained by others.
Although the Company intends to employ relatively new technologies, there will
be a continuing competitive threat from even newer technologies which may render
the technologies employed by the Company obsolete.
Regulation. The wireless services of the Company's developmental stage
projects, if any, are subject to governmental regulation, which may change from
time to time. There can be no assurance that material and adverse changes in the
regulation of the Company's future operating companies or developmental stage
projects will not occur in the future. Such regulations can encompass foreign
ownership restrictions, service requirements, restrictions on interconnection of
wireless systems to government-owned or private telephone networks, subscriber
rate-setting, technology and construction requirements, among others. These
regulations may be difficult to comply with, particularly given demographic,
geographic or other issues in a particular market. Further, changes in the
regulatory framework may limit the ability to add subscribers to developing
systems. An operating company's or developmental stage project's failure to
comply with applicable governmental regulations or operating requirements could
result in the loss of licenses or otherwise could have a material adverse effect
on the Company.
Inflation; Currency Devaluations and Fluctuations. Many developing countries
have experienced substantial, and in some periods extremely high, rates of
inflation and resulting high interest rates for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have negative
effects on the economies and securities markets of certain developing countries
and could have an adverse effect on the operating companies and developmental
stage projects in those countries, including an adverse effect on their ability
to obtain financing. The value of the Company's investment in an operating
company or developmental stage project will be affected by the currency exchange
rate between the U.S. dollar and the applicable local currency. In general, the
Company does not hedge against foreign currency exchange rate risks. As a
result, the Company may experience economic loss with respect to its investments
and fluctuations in its results of operations solely as a result of currency
exchange rate fluctuations.
<PAGE>
Foreign Corrupt Practices Act. The Company is subject to the Foreign Corrupt
Practices Act ("FCPA"), which generally prohibits U.S. companies and their
intermediaries from bribing foreign officials for the purpose of obtaining or
keeping business or licenses or otherwise obtaining favorable treatment.
Although the Company has taken precautions to comply with the FCPA, there can be
no assurance that such precautions will protect the Company against liability
under the FCPA, particularly as a result of actions which may in the past have
been taken or which may be taken in the future by agents and other
intermediaries for whose actions the Company may be held liable under the FCPA.
In particular, the Company may be held responsible for actions taken by its
strategic or local partners even though such strategic or local partners are
themselves typically foreign companies which are not subject to the FCPA; and
the Company has no ability to control such strategic or local partners. Any
determination that the Company has violated the FCPA could have a material
adverse effect on the Company.
Possible Changes in Regulatory Agencies and Political Structure; Political
Instability. The Company intends to acquire interests in wireless telephone
licenses around the world, and will likely be subject to government regulation
in each market it enters. The governments of these countries are likely to
differ widely with respect to structure, constitution and stability, and some of
such countries may lack mature legal and regulatory systems. To the extent the
Company's operations depend on governmental approval and regulatory decisions,
the operations may be adversely affected by changes in the political structure
or government representatives in each of the markets in which the Company will
operate. No assurance can be given that factors such as these will not have a
material adverse effect on the Company's operations in particular countries.
Government actions in the future could have a significant adverse effect on
economic conditions in a developing country or may otherwise have a material
adverse effect on the Company and its operating companies and developmental
stage projects. Expropriation, confiscatory taxation, nationalization,
political, economic or social instability or other developments could materially
adversely affect the value of the Company's interests in operating companies and
developmental stage projects in particular developing countries. The Company
has been and may continue to be adversely affected by political or social unrest
or instability in foreign countries. Such unrest or instability resulting from
political, economic, social or other conditions in foreign countries has had and
could continue to have a material adverse effect on the Company.
The Company does not have political risk insurance in the countries in
which it currently conducts business. Moreover, applicable agreements relating
to the Company's interests in its operating companies are frequently governed by
foreign law. As a result, in the event of a dispute, it may be difficult for the
Company to enforce its rights. Accordingly, the Company may have little or no
recourse upon the occurrence of any of these developments or if any of its
partners seek to re-negotiate existing or future agreements. To the extent that
any of the operating companies seeks to make a dividend or other distribution to
the Company, or to the extent that the Company seeks to liquidate its investment
in an operating company or developmental stage project and repatriate monies
from a relevant country, local taxes, foreign exchange controls or other
restrictions may effectively prevent the transfer of funds to the Company or the
exchange of local currency for U.S. dollars.
<PAGE>
COMPETITION
Because the implementation of wireless technologies is at an early stage of
development in many developing countries, the Company believes there are
significant opportunities to form, develop and operate companies that deploy
these technologies. The Company believes its business will become increasingly
competitive, particularly as businesses and foreign governments realize the
market potential of wireless technologies. A number of large American, Japanese
and European companies, including regional Bell operating companies and major
international carriers, are actively engaged in programs to develop and
commercialize wireless technologies in developing countries. Most of these
companies have substantially greater financial and other resources, research and
development staffs and technical and marketing capabilities than the Company.
The Company's operating companies and developmental stage projects will
frequently compete against traditional land-line companies (i.e. local telephone
companies), cellular telephone companies and direct competitors using the same
wireless technologies as the operating companies. The Company's competitive
strategy depends on the service offered and the competitor. For example, the
Company's strategy is to form CDMA operating companies to compete against
cellular telephone service providers by offering greater functionality at lower
cost, particularly for business users, to compete against traditional land-line
carriers by offering better service, faster deployment and lower construction
costs and to compete against direct competitors, including those formed by large
American, Japanese and European companies, by relying on local partners to
obtain operating licenses and provide access to existing telecommunications
asset bases. There will, however, be increasing competition for licenses; and
there will be increased competition once licenses are obtained from both other
wireless operators and, in some cases, from government-owned telephone
companies. Although the Company intends to employ new technologies, there will
be a continuing competitive threat that even newer technologies will render the
wireless systems employed by certain operating companies obsolete. There is no
assurance that any of the Company's operating companies or developmental stage
projects, if any, will compete successfully in the marketplace.
PATENTS AND PROPRIETARY TECHNOLOGY
The Registrant has applied for, and subsequently elected to abandon
applications for, copyrights and patents on several of its products, and trade
names and trademarks related to discontinued lines of business which are no
longer material to the operations of the Registrant. The Registrant does not
have or use patents, trademarks, or proprietary technology in its current or
projected business operations.
EMPLOYEES
As of December 31, 1997, the Registrant employed three persons who were
each executive officers of the Registrant.
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
The Registrant's executive offices are located at 10061 Talbert Ave, Suite
#200, Fountain Valley, CA 92708. These facilities, which consist of a rented
office and telephone equipment, are occupied pursuant to a month to month
arrangement at a rental expense of $530 per month.
In the opinion of management as at December 31, 1997, the Registrant's
properties were adequately covered by insurance.
ITEM 3. LEGAL PROCEEDINGS
During 1997, one of the Company's vendors, JMS North America, Inc. ("JMS")
filed a Motion for Judgment with the Circuit Court of the County of Fairfax,
Commonwealth of Virginia, seeking $836,614 in allegedly due consulting fees,
finance charges and travel expenses. JMS further seeks $2,250,000 for alleged
breach of contract and $1,500,000 for alleged fraud. The Company has disputed
and intends to dispute in trial a material portion of the amounts billed and or
claimed by JMS for consulting fees, finance charges and travel expenses.
Additionally, the Company believes that the claims of JMS with respect to
alleged fraud and alleged breach of contract are without merit and will
vigorously contest them.
During 1997, J. Michael Christiansen ("Christiansen"), filed a Complaint
with the Superior Court of the State of California, seeking in excess of
$350,000 plus interest, costs and undetermined exemplary and punitive damages in
connection with the alleged breach by the Company of a Release and Settlement
Agreement dated October 2, 1996, pursuant to which the Company was to have
issued Christiansen 75,000 shares of the common stock of the Company. The
Company believes that the issuance of such shares to Christiansen has been
necessarily delayed pursuant to certain regulatory constraints, the removal of
which the Company has continued to seek without success. The Company is
presently attempting to engage legal counsel to review and opine on the merit of
Christiansen's claims and to vigorously pursue any and all defenses and
counterclaims determined to be available to the Company with respect to certain
of the allegations set forth by Christiansen and to certain past actions of
Christiansen.
On March 23, 1998, the Company filed a voluntary petition pursuant to
Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code").
Accordingly, pursuant to 11 U.S.C. (S) 362, the proceedings described above have
been automatically stayed. The Company intends to object to the claims of JMS
and Christiansen and to pursue its rights, remedies and defenses in the
bankruptcy case.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
PART II
-------
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
1. MARKET INFORMATION
------------------
The Registrant's common stock is currently listed on the Vancouver Stock
Exchange under the symbol "PCW". The Registrant's securities became publicly
traded by virtue of an initial public offering of 1,000,000 shares of the
Company's common stock completed on October 1, 1992. On October 5, 1993,
pursuant to an exemption of the Securities Exchange Act of 1934 (the "Exchange
Act") under Rule 12 g 3-2(b) promulgated under the Exchange Act, the Registrant
commenced trading of its common stock within the United States on the over-the-
counter market on the NASD Electric Bulletin Board ("EBB") under the symbol
"IPCBF." The Company subsequently waived its exemption and registered under the
Exchange Act. For the period of July 30, 1996 to December 31, 1996, the trading
symbol on the EBB was "PCWIF" and, since December 31, 1996, the trading symbol
on EBB has been "PCWR." The following table sets forth the high and low bid
prices of the Registrant's common stock as reported by the Vancouver Stock
Exchange daily trading summary for the Registrant's last two fiscal years for
the period ended December 31, 1997.
<TABLE>
<CAPTION>
VANCOUVER STOCK EXCHANGE
-------------------------------
(EXPRESSED IN CANADIAN DOLLARS)
Calendar Quarter High Low
- ---------------- ---- ---
<S> <C> <C>
First Quarter, 1996 $4.00 $1.30
Second Quarter, 1996 $8.40 $3.20
Third Quarter, 1996 $6.25 $3.80
Fourth Quarter, 1996 $4.25 $2.75
First Quarter, 1997 $5.30 $3.30
Second Quarter, 1997 $4.50 $3.01
Third Quarter, 1997 $3.15 $0.70
Fourth Quarter, 1997 $1.60 $0.75
</TABLE>
On February 13, 1998, trading of the Company's common stock was halted on
the Vancouver Stock Exchange due to the occurrence of a transaction subject to
the review and prior approval of the Vancouver Stock Exchange. On March 2, 1998,
the Vancouver Stock Exchange suspended the Company's common stock from trading
due to nonpayment of its annual fees.
<PAGE>
The following table sets forth the high and low bid prices as reported by
the EBB for each quarterly period for the Registrant's last two fiscal years for
the period ended December 31, 1997.
<TABLE>
<CAPTION>
UNITED STATES BULLETIN BOARD/(1)/
------------------------------------
(EXPRESSED IN UNITED STATES DOLLARS)
Calendar Quarter High Low
- ---------------- ---- ---
<S> <C> <C>
First Quarter, 1996 $2.95 $1.00
Second Quarter, 1996 $7.45 $2.42
Third Quarter, 1996 $4.50 $2.75
Fourth Quarter, 1996 $3.32 $2.34
First Quarter, 1997 $3.87 $2.25
Second Quarter, 1997 $3.12 $2.00
Third Quarter, 1997 $2.25 $0.50
Fourth Quarter, 1997 $1.09 $0.44
</TABLE>
(1) The table sets forth the high and low bid prices as reported by the EBB for
each quarterly period in 1996, and the high and low bid prices as reported
by the EBB for each quarterly period in 1997.
2. HOLDERS
-------
The number of record holders of the common stock as of December 31, 1997
was 109. The Registrant believes it has over 2,000 beneficial holders of its
common stock.
3. DIVIDENDS
---------
The Registrant has not paid any cash dividends on its common stock to date,
and does not anticipate or contemplate paying cash dividends in the foreseeable
future. It is the present intention of management to utilize all available
funds for the development of the Registrant's business. Furthermore, the
declaration and payment of any cash dividends will be subject to approval by the
Bankruptcy Court.
<PAGE>
4. RECENT SALES OF UNREGISTERED SECURITIES.
---------------------------------------
On January 27, 1997, the Company issued 26,862 shares of common stock to an
accredited individual in consideration for the conversion of a convertible
promissory note for $75,000.
On February 3, 1997, the Company issued 42,755 shares of common stock to
Morris Magid, an accredited individual, in consideration for loans which had
been made to the Company.
On February 7, 1997, the Company granted to certain employees options to
acquire an aggregate of 90,000 shares of common stock at an exercise price of
$3.61 per share.
On February 14, 1997, the Company issued 72,993 Units, each comprised of
one share of common stock and the one warrant to purchase shares of the
Company's common stock, for cash in a private placement for consideration of
$200,000.
On May 20, 1997, the Company issued 15,384 shares of common stock to an
accredited individual for cash in consideration for the exercise of a stock
purchase warrant for 29,999 shares of common stock.
On June 30, 1997, the Company issued 60,241 Units, each comprised of one
share of common stock and one warrant to purchase shares of the Company's Common
Stock, to an accredited investor for cash in a private placement for
consideration of $200,000.
The issuance of all such securities was exempt from registration under the
Securities Act of 1933 pursuant to Section 4(2) thereof and Regulation D
promulgated thereunder.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected historical financial information of the Company is
qualified by reference to and should be read in conjunction with the financial
statements and notes thereto included elsewhere herein. The selected financial
information set forth below for the fiscal year ended December 31, 1997 is
derived from the financial statements of the Company audited by Cogen Sklar LLP,
independent public accountants, which are included elsewhere herein. The
selected financial information set forth below for the fiscal year ended
December 31, 1996, the fiscal transition period ended December 31, 1995, and the
fiscal years ended March 31, 1995, and 1994 is derived from the financial
statements of the Company audited by KPMG, independent public accountants, which
are not included in this report.
<TABLE>
<CAPTION>
DECEMBER DECEMBER DECEMBER MARCH 31, MARCH 31,
31, 1997 31, 1996 (1) 31, 1995 (2) 1995 1994
--------------------------------------------------------------------
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AND WEIGHTED AVERAGE DATA)
<S> <C> <C> <C> <C> <C>
Net sales or operating -- 9,014 56 (212) 375
revenues
Income (loss) from (4,141) 4,732 (1,880) (7,145) (3,205)
continuing operations
Income (loss) from (0.32) 0.38 (0.20) (0.90) (0.48)
continuing operations per
share of common stock
Weighted average common 12,866 12,622 9,000 7,975 6,742
shares and equivalents (3)
Total assets 8,022 8,226 988 337 2,331
Long term obligations -- -- -- -- 1,037
</TABLE>
(1) Results for 1996 were significantly affected by the acquisition of cash and
common stock of MAC. See "Item 1.: Business; Business of PortaCom
Wireless, Inc."
(2) Nine month fiscal transition period ending December 31, 1995
(3) Expressed in thousands of common shares.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.
In 1995 the Company changed its fiscal year end from March 31 to December
31. Accordingly, the discussion set forth below includes a comparison of the
fiscal year ended December 31, 1996 to the nine month transition period ended
December 31, 1995 (the "Transition Period") and a comparison of the Transition
Period to the fiscal year ended March 31, 1995. Because the Company
discontinued its previous business in 1995, the Company does not believe such
presentation is meaningful, and, in addition, the Company believes that
historical results are not indicative of future results.
RESULTS OF OPERATIONS
- ---------------------
Fiscal Year Ended December 31, 1997 Compared with the Fiscal Year Ended December
- --------------------------------------------------------------------------------
31, 1996
- --------
For the year ended December 31, 1997, the Company had no revenues and
reported a net loss of ($4,099,619), or ($0.32) per share. This compares to net
income of $5,139,662, or $0.41 per share for 1996. Net income in 1996 was
solely and directly attributable to an agreement between the Company and AAT
pursuant to which the Company received $1,000,000 in cash in addition to common
stock (presently held in escrow) and warrants to purchase common stock at $4.00
per share valued at $8,000,000. There were no sales in 1997 due to the fact
that the Company did not acquire any operating business nor did its Cambodia
project become operational. In addition, its revenue-producing subsidiaries
(which were also generating significant net losses) were discontinued in 1995
and remained inactive through 1997. No sales are expected for 1998 and the
Company's near term operations, if any, are not expected to generate revenues in
the foreseeable future unless the Company earlier acquires one or more
controlling interests in businesses which produce ongoing revenue from
operations. No assurances can be given as to the consummation of any future
acquisitions of any such businesses.
Operating expenses decreased slightly in the year ended December 31, 1997
to $4,141,208 from $4,281,558 in the year ended December 31, 1996, a decrease of
$140,350. While the overall decrease in operating expenses is not material,
significant increases in certain expense categories from 1996 to 1997 did occur,
the most significant of which was in legal and accounting expense (discussed
below).
The decrease in operating expenses in 1997 occurred while the activities of
the Company were focused upon investigating and negotiating the MCL
Transactions, the Asset Sale, and related efforts to obtain financing, as well
as expenses incurred related to the planned deployment of ACT's wireless system
in Cambodia as compared with the general increases experienced in 1996 related
to the activities of the Company with respect to the proposed acquisition of
wireless interests in China, and to the other expenses discussed below. The
individual increases in certain operating expenses over 1996 were partially
offset by a decrease in placement fees related to capital raising activities to
$-0- (1996: $106,000), a significant decrease in interest, bank and financing
charges to $182,161 in 1997 from $627,234 reported in 1996 (a decrease of
$445,073), and a more significant
<PAGE>
decrease in write-down of promissory notes receivable and investment to $360,721
from $1,046,710 in 1996 (a decrease of $685,989).
During the year ended December 31, 1997, legal and accounting expenses rose
to $1,267,109 from $727,882 recorded in 1996 (an increase of $539,227). This
increase was primarily related to the terminated MCL Transactions, the Asset
Sale and related transactions, due diligence work performed with respect to
prospective transactions that were not consummated, the activities of ACT, as
well as to the extensive preparation, review and revision of disclosure
incorporated into the Company's public filings and other related disclosure
documents.
Travel and entertainment expenses increased in the year ended December 31,
1997 to $544,961 from the $273,726 recorded in 1996 (an increase of $271,235).
This increase was related to the deployment of ACT's wireless system in
Cambodia, and to the terminated MCL Transactions.
During the year ended December 31, 1997, consulting fees rose to $849,309
from $619,292 recorded in 1996 (an increase of $230,017). This increase was
primarily related to engineering consulting services charged with respect to the
deployment of ACT's wireless system in Cambodia.
Fiscal Year Ended December 31, 1996 Compared with the Nine Month Fiscal
- -----------------------------------------------------------------------
Transition Period Ended December 31, 1995 (the "Transition Period")
- -------------------------------------------------------------------
For the fiscal year ended December 31, 1996, the Company reported net
income of $5,139,662 with sales of $10,000 and other income of $9,003,943
compared to a loss in the Transition Period of $1,334,480 on sales of $143,652
and no other income. Expressed in terms of earnings (loss) per share of common
stock, results from operations for 1996 as compared with those for the
Transition Period were $0.41 per share and ($0.14) per share, respectively.
Other income is directly and solely attributable to an agreement between
the Company and AAT pursuant to which the Company received $1,000,000 in cash,
common stock (presently held in escrow) valued at $8,000,000 and 4,000,000
warrants to purchase common stock at $4.00 per share. Although the possibility
exists that the Company could enter into one or more similar transactions in
1997, no assurances can be given to this effect. Accordingly, the improvement
in the Company's financial condition resulting from the AAT transaction may not
be, and should not be construed to be, indicative of future results.
The reported decrease in net sales was due to the fact that the Company's
revenue-producing subsidiaries (which were also generating significant net
losses) were discontinued in 1995 and remained inactive throughout 1996.
Additionally, the Company's revenue-producing activities from ongoing
operations, with the exception of those directly related to the AAT agreement,
remained limited in scope throughout 1996. Sales are expected to remain at
substantially the same level for the current year and the Company's operations
are not expected to generate revenues until 1998.
All of the 1996 sales were attributable to consulting activities of the
Company, whereas substantially all of the sales in the Transition Period were
attributable to the Company's PCBX
<PAGE>
systems and related products, with Telecom and Laboratories accounting for a
nominal portion of Transition Period Sales.
Cost of sales fell in 1996 to $-0- from $87,391 in the Transition Period.
This decline in cost of sales was primarily due to the Company's current
business development activities not including the manufacture or resale of
equipment as was the case in the Transition Period. Furthermore, the cost of
sales for 1996 is not comparable to that of prior periods due to the closure of
the Company's revenue producing subsidiaries in August 1995.
Operating expenses increased in 1996 to $4,281,558 from $1,936,665 in the
Transition Period, an increase of $2,344,893. Of this increase, the most
significant factor was a write down of promissory notes receivable and
investment related to PIL and PWC.
The increases in operating expenses were primarily related to the increase
in activities of the Company with respect to the acquisitions and proposed
acquisitions of wireless telecommunications interests in China, Cambodia, and
Vietnam as compared with a general reduction in these expense categories
throughout the Transition Period as a direct result of downsizing related to the
closure of the Company's revenue producing subsidiaries in August 1995.
During the fiscal year ended December 31, 1996, interest and bank charges
rose to $627,234 from $73,394 recorded in the Transition Period. This $553,840
increase was primarily related to interest accrued on the $2,417,000 in
convertible promissory notes.
Additional factors included increases in legal and accounting, consulting
fees, general and administrative, and travel expenses. Legal and accounting
expenses increased to $727,882 from $273,665 (an increase of $454,217).
Consulting expenses increased to $619,292 from $327,132 (an increase of
$292,160). General and administrative expenses increased to $306,950 from
$114,526 (an increase of $192,424). These increases were partially offset by
decreases in depreciation, bad debt, rent, wages and benefits, advertising and
promotion, and research and development expenses. The Company's operating
expenses as a percentage of sales in 1996 are not comparable to the prior period
due to the closure of the Company's revenue-producing subsidiaries in August
1995.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
During 1997, the Company's cash and cash equivalents decreased by $99,205.
Although the Company generated $1,274,368 from financing activities, the
Company's operations utilized net cash of $1,373,573. These activities
contributed to a net working capital deficit as of December 31, 1997 of
$3,553,421, which is up $2,867,563 from $685,858 at December 31, 1996.
The Company has incurred cumulative losses from inception through December
31, 1997 of $13,879,846 and has not achieved revenues sufficient to offset
direct expenses and corporate overhead.
Since inception, a substantial portion of the Company's operating capital
has been provided through financing activities which have included an initial
public offering, a series of private
<PAGE>
placements of common stock, unsecured debt financing, and more recently, secured
debt financing. During 1997, the Company sold 469,707 shares of common stock and
190,388 common stock purchase warrants in private placement transactions, upon
the exercise of outstanding warrants, and upon the conversion of convertible
promissory notes. Although no assurances can be given, it is expected that,
upon emergence from the Bankruptcy, the Company will be required to obtain
financing through offerings of securities in order for the Company to continue
as a going concern. Furthermore, the resumption by the Company of activities
associated with pursuing new opportunities would necessitate an immediate
continuing material increase in general office overhead and other costs such as
general and administrative, legal and accounting, and travel and entertainment.
Failure to obtain sufficient financing will have a material adverse effect upon
the reorganized Company.
Between December 19, 1995 and December 11, 1996, the Company arranged,
subject to regulatory approval, private placements of convertible promissory
notes having an aggregate principal amount of $2,417,000. As of December 31,
1996, convertible notes aggregating $2,267,000 were converted into common stock.
As of December 31, 1997, the remaining convertible notes aggregating $150,000
had also been converted to common stock. As of December 31, 1997, accrued
interest on the convertible promissory notes aggregating $188,003 was payable by
the Company. In addition, the Company has offered to issue, subject to the
removal of the Company from the jurisdiction of both the Vancouver Stock
Exchange and the British Columbia Securities Commission, 115,296 "bonus"
warrants to purchase shares of the Company's common stock, exercisable at $2.70,
expiring between December 31, 1999 and February 14, 2000. In the opinion of
management, the likelihood can be considered to be remote that the conditions
under which the "bonus" warrants may be issued will ever arise.
As of December 31, 1997, the Company had 625,000 options and 473,134
warrants outstanding which, upon exercise, would yield to the Company additional
proceeds in excess of approximately $2.9 million. The exercise of existing
options or warrants is impossible to predict with any certainty. Accordingly,
management can render no assurances that any material funds will be realized
upon the exercise of such options or warrants, or whether such will be exercised
at all.
Rental expense accounts for approximately $550 of fixed expenses on a
monthly basis. Personnel costs, which could increase substantially during 1998
should the Company emerge from the Bankruptcy during 1998, presently account for
less than $7,500 of fixed expenses on a monthly basis. Additional variable
expenses, such as consulting fees, legal and accounting, travel and
entertainment, utilities and miscellaneous equipment purchases (or rentals) are
expected to account for between approximately $30,000 and $50,000 per month.
Management does not believe that in 1998 the Company's operations, if any,
will generate sufficient cash flow to finance its working capital and any
capital expenditure requirements. The Company will remain dependent on
management's ability to obtain additional debt and equity financing (including
from the DIP Financing facility). The Company has been able to secure financing
in the past through loans from certain stockholders, although management has no
reason to believe that similar arrangements will be available in the future.
While the Company will continue to seek both debt and equity financing, there
can be no assurance that any such financing
<PAGE>
will be available on terms acceptable to the Company or at all. Without such
additional sources of financing, the Company will not be able to continue as a
going concern once it emerges from the Bankruptcy.
The political systems of the countries in which the Company may seek to
establish joint venture operations are in many cases emerging from legacies of
totalitarianism or civil unrest. In addition, many of the economies are weak,
volatile and reliant on foreign assistance. Free market reforms undertaken by
some of these countries face uncertain success and may lead to further economic
instability. These factors may adversely affect the Company's future business
activities and results of operations. The laws, rules and regulations
applicable to the Company's activities in developing countries are generally
new, subject to change and incomplete. There can be no assurance that local
laws, rules and regulations will become stable or complete in the future, or
that changes thereto will not materially adversely affect the operations of the
Company. All of the Company's joint venture operations are expected to be
outside the United States. As a result, such operations are exposed to currency
fluctuations and the need to comply with a variety of foreign laws, including
laws that control currency exchanges and currency repatriation. The Company
does not hedge its foreign currency risks. There can be no assurance that the
Company's future operations will not be adversely affected by such factors.
Investment in ACT
Although the Company held an 86% interest in ACT at December 31, 1997, at
such date it was determined that this investment had experienced an other than
temporary decline in value and a significantly decreased likelihood that the
$345,454 in loans would be repaid. Accordingly, the investment and advances were
written down to their estimated fair value of $-0-. In addition, ACT advised the
Company that equipment aggregating $61,221 was found to be missing and presumed
stolen during the political coup that occurred in Cambodia in 1997 and that, as
of December 31, 1997, ACT had breached the terms of its joint venture contract,
raising substantial doubt as to the recoverability of the $200,000 deposit which
ACT had paid to the Ministry of Posts and Telecommunications in Cambodia earlier
in the year. Accordingly, these assets have been written off, and a loss of
$360,721 has been charged to operations in 1997. ACT was sold in January 1998 as
part of the consideration for a prepetition termination and settlement agreement
with a former officer to whom the Company owed unpaid wages and expenses.
Bonus Shares and Warrants
In connection with the issuance of certain short-term debt by the Company
in January 1995 and May 1996, the Company has offered to issue, subject to
regulatory approval, 85,590 "bonus" shares of common stock and 166,667 common
stock purchase warrants, exercisable at $3.30, expiring one year after issuance.
During 1996, regulatory approval was received for the issuance of 25,833 of
these shares which were then issued by the Company. During 1997, regulatory
approval was received for the issuance of 42,757 of these share which were then
issued by the Company. As of December 31, 1997, the issuance of the remaining
17,000 shares and 166,667 warrants continued to be subject to regulatory
approval. In the opinion of management, the
<PAGE>
likelihood can be considered to be remote that the conditions under which the
remaining shares and warrants may be issued will ever arise.
EFFECTS OF INFLATION
- --------------------
The Company does not expect inflation to materially affect its results of
operations. However, it is expected that operating costs and the cost of capital
equipment to be acquired in the future may be subject to general economic and
inflationary pressures.
ITEM 8. FINANCIAL STATEMENTS
The consolidated financial statements and schedules required to be filed
under this item are presented on the following pages. The Company does not
believe that issued, but not yet effective, accounting standards will materially
impact its financial position or results of operations upon adoption.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders
PortaCom Wireless, Inc.
We have audited the accompanying consolidated balance sheet of PortaCom
Wireless, Inc. (a Delaware corporation) and Subsidiaries as of December 31, 1997
and the related consolidated statements of operations, stockholders' equity and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of PortaCom Wireless,
Inc. and Subsidiaries as of December 31, 1997 and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that PortaCom Wireless, Inc. will continue as a going concern. As discussed in
Note 1 to the consolidated financial statements, the company has had recurring
losses from operations and had a working capital deficit of approximately
$3,553,000 at December 31, 1997. In addition, on March 23, 1998, the company
filed a voluntary petition for reorganization under Chapter 11 of the U.S.
Bankruptcy Code. These matters raise substantial doubt about the company's
ability to continue as a going concern. Management's plans in regard to these
matters are also discussed in Note 1. As a result of the reorganization
proceedings, the company may sell or otherwise realize assets and liquidate or
settle liabilities for amounts other than those reflected in the consolidated
financial statements. Further, the confirmation of a plan of reorganization
could materially change the amounts currently recorded in the consolidated
financial statements. The consolidated financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
COGEN SKLAR LLP
Bala Cynwyd, Pennsylvania
April 10, 1998
<PAGE>
AUDITORS' REPORT TO THE SHAREHOLDERS
We have audited the consolidated balance sheets of PortaCom Wireless, Inc. as at
December 31, 1996 and 1995 and the consolidated statements of operations,
stockholders' equity (deficiency) and cash flows for the year ended December 31,
1996, the nine month period ended December 31, 1995 and the year ended March 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in Canada. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material mis-
statement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 1996
and 1995 and the results of their operations and the changes in their cash flows
for the year ended December 31, 1996, the nine month period ended December 31,
1995 and the year ended March 31, 1995 in accordance with generally accepted
accounting principles in the United States.
KPMG
Chartered Accountants
Vancouver, Canada
January 15, 1997
COMMENTS BY AUDITOR FOR U.S. READERS ON CANADA-U.S. REPORTING DIFFERENCE
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
the Company's ability to continue as a going concern, such as those described in
note 1 to the consolidated financial statements. Our report to shareholders
dated January 15, 1997 is expressed in accordance with Canadian reporting
standards which do not permit a reference to such events and conditions in the
auditors' report when these are adequately disclosed in the financial
statements.
KPMG
Chartered Accountants
Vancouver, Canada
January 15, 1997
<PAGE>
PORTACOM WIRELESS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
------------- -------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 15,070 $ 114,275
INVESTMENTS 8,000,000 8,099,500
EQUIPMENT, Net 6,181 12,427
OTHER ASSETS 520 -
------------ -----------
TOTAL ASSETS $ 8,021,771 $ 8,226,202
============ ===========
CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 3,209,001 $ 650,133
Notes payable 359,490 150,000
------------ -----------
TOTAL CURRENT LIABILITIES 3,568,491 800,133
------------ -----------
STOCKHOLDERS' EQUITY
Common stock, $.001 par value, 100,000,000 shares authorized;
13,576,970 and 13,118,181 shares issued and outstanding 13,576 13,118
Preferred stock, $.001 par value, 5,000,000 shares authorized;
no shares issued - -
Additional paid-in capital 18,319,550 17,193,178
Accumulated deficit (13,879,846) (9,780,227)
------------ -----------
TOTAL STOCKHOLDERS' EQUITY 4,453,280 7,426,069
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,021,771 $ 8,226,202
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
PORTACOM WIRELESS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended Nine Months
----------------------------- Ended
December 31, December 31, December 31,
1997 1996 1995
------------- ------------- -----------
<S> <C> <C> <C>
SALES, Net $ - $ 10,000 $ 143,652
COST OF GOODS SOLD - - 87,391
----------- ----------- -----------
- 10,000 56,261
----------- ----------- -----------
OPERATING EXPENSES
Advertising and promotion 2,625 3,545 60,820
Bad debts - 2,513 80,628
Consulting fees 849,309 619,292 327,132
Depreciation 4,664 2,127 143,786
General and administrative 345,140 306,950 114,526
Interest, bank charges and financing charges 182,161 627,234 73,394
Legal and accounting 1,267,109 727,882 273,665
Management fees 97,569 86,013 49,436
Placement fees - 106,000 -
Rent 52,050 40,371 141,568
Research and development - 4,530 60,437
Travel 544,961 273,726 97,948
Wages and benefits 434,899 434,665 513,325
Write-down of promissory notes receivable and
investment 360,721 1,046,710 -
----------- ----------- -----------
4,141,208 4,281,558 1,936,665
----------- ----------- -----------
LOSS FROM OPERATIONS (4,141,208) (4,271,558) (1,880,404)
OTHER INCOME 595 9,003,943 -
----------- ----------- -----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (4,140,613) 4,732,385 (1,880,404)
GAIN ON SETTLEMENT OF DEBT 40,994 407,277 545,924
----------- ----------- -----------
NET INCOME (LOSS) FOR THE PERIOD $(4,099,619) $ 5,139,662 $(1,334,480)
=========== =========== ===========
Income (loss) before extraordinary item $ (0.32) $ 0.38 $ (0.20)
Extraordinary item - 0.03 0.06
----------- ----------- -----------
NET INCOME (LOSS) $ (0.32) $ 0.41 $ (0.14)
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
STOCK OUTSTANDING 12,865,535 12,621,945 8,999,863
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
PORTACOM WIRELESS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
Additional
Common Paid-In Accumulated
Stock Capital Deficit
------- ----------- ------------
<S> <C> <C> <C>
BALANCE, MARCH 31, 1995 - After giving retroactive
effect to change in authorized common stock $15,215 $10,070,455 $(13,585,409)
NINE MONTHS ENDED DECEMBER 31, 1995
Common stock issued
For cash 1,025 1,229,806 -
On settlement of debt 1,256 2,511,864 -
NET LOSS FOR THE PERIOD - - (1,334,480)
------- ----------- ------------
BALANCE, DECEMBER 31, 1995 17,496 13,812,125 (14,919,889)
YEAR ENDED DECEMBER 31, 1996
Common stock issued
For cash 299 552,847 -
On settlement of liabilities 176 306,353 -
On conversion of promissory notes 1,097 2,265,903 -
Common stock cancelled (5,950) 5,950 -
Value ascribed to warrants - 250,000 -
NET INCOME FOR THE YEAR - - 5,139,662
------- ----------- ------------
BALANCE, DECEMBER 31, 1996 13,118 17,193,178 (9,780,227)
YEAR ENDED DECEMBER 31, 1997
Common stock issued
For cash 413 914,465 -
On conversion of promissory notes 56 149,944 -
As consideration for loans 43 169,259 -
Adjustment to reclassify shares to be issued
on settlement of debt (54) (107,296) -
NET LOSS FOR THE YEAR - - (4,099,619)
------- ----------- ------------
BALANCE, DECEMBER 31, 1997 $13,576 $18,319,550 $(13,879,846)
======= =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
PORTACOM WIRELESS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended Nine Months
----------------------------- Ended
December 31, December 31, December 31,
1997 1996 1995
--------- ------------- ------------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income (loss) for the period $(4,099,619) $ 5,139,662 $(1,334,480)
Adjustments to reconcile net income (loss) to net cash
used in operating activities
Depreciation 4,664 2,127 143,786
Fair value of investments received on settlement - (8,000,000)
Write-down of promissory notes receivable and
investment 99,500 1,046,710 -
Loss on disposition of equipment 1,582 - -
Share capital issuable in settlement of financing
charges 169,302 328,399 -
(Increase) decrease in assets
Accounts and promissory notes receivable - (199,527) (782,060)
Inventory - - 58,852
Prepaid expenses - - 6,680
Other assets (520) - -
Increase (decrease) in accounts payable and accrued
liabilities
2,451,518 (228,852) 1,405,889
----------- ----------- -----------
Net cash used in operating activities (1,373,573) (1,911,481) (501,333)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Equipment, net - (14,554) 13,792
Investments - (124,500) -
----------- ----------- -----------
Net cash provided by (used in) investing activities - (139,054) 13,792
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issue of common stock for cash 914,878 553,145 1,230,830
Bridge financing - 2,500,000 -
Repayment of bridge financing - (2,500,000) -
Convertible promissory notes - 1,817,000 600,000
Repayment of promissory note payable - - (37,500)
Loans payable 359,490 (371,000) (1,213,508)
----------- ----------- -----------
Net cash provided by financing activities 1,274,368 1,999,145 579,822
----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (99,205) (51,390) 92,281
CASH AND CASH EQUIVALENTS - BEGINNING OF
PERIOD 114,275 165,665 73,384
----------- ----------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 15,070 $ 114,275 $ 165,665
=========== =========== ===========
SUPPLEMENTARY INFORMATION
Interest paid $ - $ 25,000 $ -
============ =========== ===========
Income taxes paid $ - $ - $ -
============ ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
PORTACOM WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 1 - FUTURE OPERATIONS
PortaCom Wireless, Inc. (the "company") was incorporated on July 7, 1989 under
the Company Act (British Columbia) and was inactive until April 1990. Effective
December 24, 1996, the company emigrated its corporate charter from British
Columbia to Delaware, which resulted in the retroactive restatement of the
company's authorized common and preferred stock.
The company's current business is focused upon concluding an asset sale
transaction with VDC Corporation (the "VDC transaction") for the sale of the
company's interest in Metromedia Asia Corporation ("MAC"), which is active in
the build-out of telecommunications in China, pursuant to a reorganization of
its affairs under Chapter 11 of the Bankruptcy Code in the United States
Bankruptcy Court for the District of Delaware.
Due to the inability to obtain sufficient financing, the company, in the current
period, found it necessary to abandon the pursuit of business ventures as a
developer, financier and operator of companies providing cellular, wireless and
PSTN telecommunications services in selected developing world markets. The
company had intended to make investments primarily in wireless, cellular, PSTN
and long distance networks in order to provide coverage and high-quality service
in selected emerging markets. The company's principal interests were focused on
these technologies in Cambodia and other emerging markets which represent a
single industry segment.
The company entered into a joint venture on December 26, 1996 as the managing
partner of American Cambodian Telecom Ltd. ("ACT") a limited liability company
which holds a twenty-five year renewable license to develop a mobile wireless
system in the Kingdom of Cambodia (the "License"). ACT has advised the company
that, on December 26, 1997, ACT breached certain terms of its Joint Venture
agreement which ACT believes has rendered the License null and is void. The
breach by ACT resulted indirectly from the company's inability to obtain
financing for ACT due to the coup which occurred in mid-1997 and the significant
ongoing political and civil unrest. The company also holds 2,000,000 shares of
MAC common stock and warrants to purchase an additional 4,000,000 common shares
of MAC. The MAC warrants are currently pledged to VDC as collateral for loans
which are being used to meet general working capital requirements and to
conclude debt settlements with creditors and claimants. The MAC shares are
pledged to MAC to secure a contingent contractual indemnity obligation.
At December 31, 1997 the company had a working capital deficiency of $3,553,421.
At the date of these consolidated financial statements, the company has not
generated cash flow from recurring operating activities and it is considered
unlikely that it will ever generate such a cash flow. In addition, the
company's largest recorded asset is restricted until January 1, 1999.
Accordingly, there is substantial doubt as to the nature and extent of the
company's future obligations.
At the close of business on March 23, 1998 (the "Petition Date"), PortaCom
Wireless, Inc. filed a petition for reorganization under Chapter 11 of the
Bankruptcy Code in the United States Bankruptcy Court for the District of
Delaware.
After a long period of negotiation, the Company was unable to reach out-of-court
settlements with all of its creditors. Accordingly, a bankruptcy petition was
filed in order to obtain an opportunity to reorganize and begin implementing the
company's strategies while working to restructure its indebtedness.
The company expects to reorganize its affairs under the protection of Chapter 11
and to propose a plan of reorganization for itself. Although management expects
to file a plan of reorganization in 1998, which would contemplate emergence in
1998, there can be no assurance at this time that a plan of reorganization will
be proposed by the company or approved or confirmed by the Bankruptcy Court or
that such plan will be consummated. After the expiration of the company's
exclusivity period for such filing, creditors of the company have the right to
propose alternative plans of reorganization. Any plan of reorganization, among
other things, is likely to result in material dilution or elimination of the
equity of existing shareholders.
<PAGE>
PORTACOM WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 1 - FUTURE OPERATIONS (Continued)
As a result of the Chapter 11 filing, absent approval of the Bankruptcy Court,
the company is prohibited from paying, and creditors are prohibited from
attempting to collect, claims or debts arising pre-petition. The consummation
of a plan of reorganization is the principal objective of the company's Chapter
11 case. A plan of reorganization sets forth the means for satisfying claims
and interests in the company, including the liabilities subject to compromise.
The consummation of a plan of reorganization for the company will require the
requisite vote of impaired creditors and stockholders under the Bankruptcy Code
and confirmation of the plan by the Bankruptcy Court.
The accompanying consolidated financial statements have been prepared assuming
the company will continue to operate as a going concern which requires the
realization of assets and settlement of liabilities in the ordinary course of
business. However, as a result of the Chapter 11 filing and circumstances
relating to this event, including the company's losses from operations, such
realization of assets and liquidation of liabilities is subject to significant
uncertainty. While under the protection of Chapter 11, the company may sell or
otherwise dispose of assets, and liquidate or settle liabilities, for amounts
other than those reflected in the financial statements. Further, a plan of
reorganization could materially change the amounts reported in the financial
statements, which do not give effect to all adjustments of the carrying value of
assets or liabilities that might be necessary as a consequence of a plan of
reorganization.
The appropriateness of using the going concern basis is dependent upon, among
other things, confirmation of a plan of reorganization, future profitable
operations, the ability to comply with the terms of the Debtor In Possession
loan facility and the ability to generate sufficient cash from operations and
financing arrangements to meet its obligations.
NOTE 2 - CHANGE IN FISCAL YEAR
In 1995, the company changed the date on which its fiscal year ends from March
31 to December 31, 1995. Accordingly, results of operations and cash flows for
the transition period, which ended December 31, 1995, cover a nine-month period.
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
- ---------------------
These consolidated financial statements are prepared in accordance with
generally accepted accounting principles in the United States. Prior to 1996,
as a company incorporated in Canada, it reported to its shareholders based on
Canadian accounting principles. Due to the emigration to Delaware, the
company is now required to file regulatory reports under United States
accounting principles. The change from Canadian to United States generally
accepted accounting principles did not impact reported amounts for total assets,
stockholders' equity (deficiency) or net income (loss) for either the 1996 or
prior reporting periods. Under Canadian accounting principles, earnings (loss)
per share would be calculated including escrowed shares as indicated in the
heading "Net Income (Loss) Per Share".
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of the company and
its wholly-owned and majority-owned subsidiaries from the dates of acquisition
or formation. The company's wholly owned subsidiaries are: PortaCom
International, Ltd., PCBX Systems, Inc., Extreme Laboratories, Inc. and Extreme
Telecom, Inc. The company also held an 86% interest in ACT which was disposed of
in January, 1998. All significant intercompany transactions have been
eliminated in consolidation. Other investments are accounted for at cost.
<PAGE>
PORTACOM WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period. With
respect to the company's operations, these estimates primarily relate to the
underlying value of investments which will only be determinable based upon
future events. Management has applied its judgment to the information available
to the date of issuance of these consolidated financial statements in making
such judgment. Actual results could differ from those estimates.
Cash Equivalents
- ----------------
The company considers all short-term securities purchased with a maturity of
three months or less to be cash equivalents.
Depreciation
- ------------
The cost of equipment is depreciated over the estimated useful lives of the
related assets. Depreciation is computed using the straight-line method.
Income Taxes
- ------------
The company accounts for its income taxes under SFAS No. 109, "Accounting for
Income Taxes", which requires recognition of deferred tax liabilities and assets
for the estimated future tax effects of events that have been recognized in the
financial statements or income tax returns. Under this method, deferred tax
liabilities and assets are determined based on differences between the financial
accounting and income tax bases of assets and liabilities, and the use of
carryforwards, if any, using enacted tax rates in effect for the years in which
the differences and carryforwards are expected to reverse and be utilized.
Net Income (Loss) Per Share
- ---------------------------
Effective year ended December 31, 1997, the company implemented SFAS No. 128,
"Earnings Per Share". This statement establishes standards for computing and
presenting EPS, replacing the presentation of currently required primary EPS
with a presentation of Basic EPS. For entities with complex capital structures,
the statement requires the dual presentation of both Basic EPS and Diluted EPS
on the face of the statement of operations. Under this new standard, Basic EPS
is computed based on weighted average shares outstanding and excludes any
potential dilution; Diluted EPS reflects potential dilution from the exercise or
conversion of securities into common stock and is similar to the currently
required fully diluted EPS. SFAS 128 is effective for financial statements
issued for periods ending after December 15, 1997, including interim periods,
and earlier application is not permitted. Adoption of SFAS 128 is not expected
to have a material effect on the company's loss per share.
Prior year amounts for net income (loss) per common share were recomputed in
accordance with SFAS No. 128; however, such recomputed amounts were unchanged
from those previously reported.
Basic earnings (loss) per share includes the weighted average number of common
shares outstanding during the year, which number of shares exclude the escrowed
shares that are contingently returnable to the company's treasury. If the
escrowed shares become issuable, net income (loss) per share will be
retroactively restated. Diluted earnings (loss) per share include the weighted
average number of shares outstanding and dilutive potential common shares, such
as convertible notes, warrants and options. Assumed conversion of the
convertible notes, warrants and options would be either immaterial or
antidilutive, therefore basic and diluted earnings (loss) per share are the
same.
<PAGE>
PORTACOM WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
Potentially dilutive shares not included in computation of diluted earnings per
share:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Antidilutive
Options (incremental shares) - shares 304,250 shares 106,110 shares
Warrants (incremental shares) - 274,844 -
Convertible promissory notes - 18,750 402,685
--------- --------- ---------
- 597,844 508,795
--------- --------- ---------
Exercise price in excess of average
market price
Options 625,000 353,750 225,000
Warrants 473,134 171,882 483,457
--------- --------- ---------
1,098,134 525,632 708,457
--------- --------- ---------
1,098,134 shares 1,123,476 shares 1,217,252 shares
========= ========= =========
</TABLE>
Revenue Recognition
- -------------------
The company recognizes revenue when the customer accepts delivery of the product
and there is reasonable assurance as to the collectibility of any receivables.
Accounting for Stock-Based Compensation
- ---------------------------------------
Compensation costs attributable to stock option and similar plans are recognized
based on any difference between the quoted market price of the stock on the date
of the grant over the amount the employee is required to pay to acquire the
stock (the intrinsic value method under Accounting Principles Board Opinion 25).
Such amount, if any, is accrued over the related vesting period, as appropriate.
Effective January 1, 1996, the company implemented SFAS No. 123, "Accounting for
Stock-Based Compensation." The Statement encourages employers to account for
stock compensation awards based on their fair value on their date of grant.
Entities may choose not to apply the new accounting method but instead, disclose
in the notes to the financial statements the pro forma effects on net income and
earnings per share as if the new method had been applied. The company has
adopted the disclosure-only approach of the Standard.
Recently Issued Accounting Pronouncements
- -----------------------------------------
During June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". This statement establishes standards for reporting and display of
comprehensive income and its components. The reporting and display requirements
of SFAS No. 130 are effective for fiscal years beginning after December 15,
1997. The company presently intends to comply with this statement for its year
ended December 31, 1998.
During June 1997, the FASB issued SFAS No. 131, "Disclosures About Segment of an
Enterprise and Related Information". This statement establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and related disclosures about products
and services, geographic areas and major customers. The reporting and disclosure
requirements of SFAS No. 131 are effective for periods beginning after December
15, 1997. The company presently intends to comply with this statement for its
year ended December 31, 1998.
<PAGE>
PORTACOM WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 4 - PROMISSORY NOTES RECEIVABLE
At December 31, 1995, promissory notes receivable bore interest at 10% per
annum, were unsecured and without specific dates for repayment. The promissory
notes receivable were due from entities which are related to the company through
common directors and management. All amounts were written off in 1996 as they
were determined to be uncollectible.
NOTE 5 - INVESTMENTS
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Metromedia Asia Corporation $8,000,000 $8,000,000
American Cambodian Telecom Ltd., a joint venture, 86% interest - 99,500
---------- ----------
$8,000,000 $8,099,500
========== ==========
</TABLE>
On May 28, 1996, the company announced that it had entered into a contract to
acquire all of the outstanding shares of Asian American Telecommunications
Corporation ("AAT"), an unrelated Los Angeles-based telecommunications service
developer. By an agreement made as of September 11, 1996, AAT and the company
agreed to terminate all rights and obligations of either party under the
proposed business combination. As consideration for this termination, AAT
issued to the company 2,000,000 restricted common shares and warrants to acquire
4,000,000 common shares of AAT for a period of three years at a price of $4.00
per share. The company paid no cash consideration for the shares or warrants.
The company's investment is recorded at the estimated fair value of the assets
received in excess of the consideration payable to exercise the warrants. This
fair value was established by reference to capital stock issuances made by AAT
for cash consideration. In addition, AAT paid the company non-refundable cash
consideration of $1,000,000 as part of this termination agreement.
The receipt of cash and common stock pursuant to the termination agreement was
recorded as income in the consolidated statement of operations for the year
ended December 31, 1996.
The 2,000,000 common shares have been pledged by the company to AAT until
January 1, 1999 pursuant to the company's indemnification obligations under the
termination agreement. These indemnification obligations provide that the
company grants to AAT a first priority lien on the common shares against any
costs or losses arising to AAT, or specified related parties, arising from
certain claims or potential claims related to the original proposed acquisition
or the termination agreement. At the date of these consolidated financial
statements, no claims under this indemnification agreement have arisen and the
likelihood of such is considered to be remote.
In February, 1997, the company agreed to exchange its shares and warrants of AAT
for equivalent shares and warrants of MAC in connection with a business
combination between AAT and MAC and a related exchange offer by MAC. As of the
date of this report, and based on representations by MAC, these shares represent
a minimal interest in MAC.
On October 8, 1997, the company signed a letter of intent with VDC Corporation,
Ltd. ("VDC") to sell its interest in MAC to VDC for 5.3 million shares of VDC
common stock and up to $700,000 in cash. On November 10, 1997, the company and
VDC executed three agreements (specifically, a Loan Agreement, a Pledge
Agreement, and a Security Agreement hereinafter referred to collectively as the
"Pre-Petition Loan Agreements") pursuant to which the company granted VDC a
perfected first priority lien upon, and security interest in, its shares and
warrants of MAC to the extent that VDC provides loans to the company or effects
payments authorized by the company on its behalf to its creditors. On November
19, 1997, the company and VDC executed a definitive agreement with respect to
the asset purchase which was subject to shareholder consent, the completion
of due diligence, regulatory approvals and filings and other necessary
conditions, including resolving a majority of the company's current debts and
obligations. There is no assurance that the transaction will be consummated in
accordance with the terms set forth in the letter of intent or the definitive
agreements, or at all.
<PAGE>
PORTACOM WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 5 - INVESTMENTS (Continued)
During the Bankruptcy and subject to the approval of the Bankruptcy Court, the
Company intends to consummate the Asset Sale pursuant to Section 363 of the
Bankruptcy Code. The Company believes, based on the current value of the shares
of the VDC's common stock, that it will receive substantial value in
consideration of the Asset Sale if consummated pursuant to that certain
Post-Petition Asset Purchase Agreement dated March 23, 1998 between the Company
and VDC. The Post-Petition Asset Purchase Agreement was amended by a stipulation
entered by the Bankruptcy Court on April 6, 1998 which provides for an escrow
account in the form of $2,600,000 (minimum of $1,250,000 in cash) to be funded
by VDC for the benefit of holders of priority unsecured claims and general
unsecured claims. The number of VDC shares to be delivered to the escrow agent
will be the difference between the value of the 5,300,000 VDC shares and the
cash escrow delivered and indebtedness divided by the value of the VDC stock.
The Company, as of the date of this Annual Report, is soliciting higher and
better offers for the MAC shares and warrants, which may result in one or more
bona fide offers which are tendered in accordance with the court approved
bidding procedures and which are, in the opinion of management, both higher and
better than the offer of VDC. Whether the MAC shares and warrants are sold to
VDC or some third party, the proceeds from the sale will be used to fund the
Company's plan of reorganization. The Postpetition Asset Purchase Agreement
provides that, if VDC is not the successful bidder with respect to the purchase
of all of the MAC shares and warrants (including a determination that a
competing bidder is the successful bidder), then the Company is required to pay
a break-up fee equal to $1,000,000 (the "Break-Up Fee") to VDC. The Company is
required to pay the Break-Up Fee in consideration of VDC's efforts and expenses
incurred in connection with the Postpetition Asset Purchase Agreement and the
DIP Financing.
Management believes that there has been no impairment in the carrying value of
its $8,000,000 investment in MAC and further believes that the fair market value
of this investment exceeds its carrying value based on the anticipated value of
the VDC stock to be received in exchange for its investment in MAC, which is
dependent upon the successful auction by VDC and approval by the Bankruptcy
Court.
On December 26, 1996, the company acquired an 86% non-controlling ownership
interest in American Cambodian Telecom Ltd. ("ACT"), a to be formed entity
pursuant to a Joint Venture agreement with another party under the consent of
the Ministry of Posts and Telecommunications in Cambodia ("MPT"). ACT was
inactive to December 31, 1996.
Under the Joint Venture agreement, the company was required to contribute
capital to ACT of at least 50 million Cambodian Riel (approximately $20,000).
In addition, the company was required to provide to the MPT a refundable deposit
of $200,000 within 45 business days of December 31, 1996. As of December 31,
1996 no capital or deposit had been contributed. Accordingly, the company's
investment in ACT was accounted for at cost in 1996. During 1997, ACT's assets,
liabilities and results of operations have been included in the consolidated
statements of the company.
The company reviews the underlying value of all investments on an ongoing basis
and provides for declines in value that are other than temporary as they are
identified. Any impairments are charged to earnings and a new cost basis for
the security is established. During 1997, the company initiated a plan to
dispose of its equity interest in ACT. The sale of such interest was completed
on January 15, 1998. In connection with the plan of disposal, the company
determined that the fair value of ACT's organizational costs aggregating $99,500
had declined to $-0-. In addition, ACT advised the company that equipment
aggregating $61,221 was found to be missing and presumed stolen during the
political coup that occurred in Cambodia in 1997 and that, as of December 26,
1997, ACT had breached the terms of its joint venture contract, raising
substantial doubt as to the recoverability of the $200,000 deposit which ACT had
paid to the MPT earlier in the year. Accordingly, these assets have been
written off, and a loss of $360,721 has been charged to operations in 1997. ACT
was sold in January 1998 as part of the consideration for a prepetition
termination and settlement agreement with a former officer to whom the company
owed unpaid wages and expenses.
NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Included in accounts payable and accrued liabilities at December 31, 1997 is
$225,575 in accrued salaries payable and $418,687 in consulting fees and
unreimbursed expenses and unreimbursed expenses payable to related parties.
Management fees due to a director (formerly an officer) of the company
previously included in accrued liabilities ceased to accrue as of October 31,
1995. This liability was settled for common stock in the nine month period
ended December 31, 1995.
Prior to the bankruptcy, the company had undertaken an informal plan to
settle its outstanding indebtedness. Between November 1997 and December 1997,
certain vendors whose claims against the company comprised an aggregate of
$56,094 of accounts payable agreed to accept $15,100 in full satisfaction of the
company's outstanding indebtedness to them, $15,100 of which had been paid by
the company as of December 31, 1997. The company intends to obtain settlements
of substantially all of its remaining indebtedness, although no assurances can
be given as to whether additional settlements will be obtainable on terms
favorable to the company, or at all.
Included in accounts payable and accrued liabilities at December 31, 1997 was
$203,214 in accrued interest payable on promissory notes.
<PAGE>
PORTACOM WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 7 - NOTES PAYABLE
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Convertible promissory notes $ - $150,000
Unsecured note payable 276,585 -
Secured notes payable to VDC Corporation, Ltd. 82,905 -
-------- --------
$359,490 $150,000
======== ========
</TABLE>
Convertible Promissory Notes
- ----------------------------
Between December 19, 1995 and December 11, 1996, the company arranged, private
placements of convertible promissory notes having an aggregate principal amount
of $2,417,000. The promissory notes were due and payable after two years which
ranged to December 1998, or after six months upon demand of the holder, and bore
interest at 10% per annum with interest payable upon maturity or conversion.
The promissory notes were convertible at the holders' option into shares of
common stock of the company at conversion prices ranging from $1.49 to $3.25 per
share. Pursuant to the debt subscription agreements, the company also agreed to
issue to the investors non-transferable warrants to purchase up to an aggregate
of 461,203 shares of common stock of the company for a period of two years at a
price equal to the conversion price of the notes. The conversion and warrant
exercise prices were based on the market price of the company's common stock at
the date of the offering.
As of December 31, 1996, convertible notes aggregating $2,267,000 were converted
to common stock. As of March, 1997, the remaining convertible notes aggregating
$150,000 had also been converted to common stock. As of December 31, 1997,
accrued interest on the convertible promissory notes aggregating $182,753 was
payable by the company. In addition, the company has offered to issue, subject
to the removal of the company from the jurisdiction of both the Vancouver Stock
Exchange and the British Columbia Securities Commission, 115,296 "bonus"
warrants to purchase shares of the company's common stock, exercisable at $2.70,
expiring between December 31, 1999 and February 14, 2000. The likelihood that
the conditions under which the bonus warrants may be issued will ever arise is
considered remote.
Unsecured Notes Payable
- -----------------------
During 1997, the company borrowed an aggregate of $90,000 from Rozel
International Holdings Ltd., issuing promissory notes therefor, which bear
interest at a rate of ten percent per annum. The promissory notes became due
and payable between October 29, 1997 and November 28, 1997 and remain unpaid as
of the date of this report. In addition, the company borrowed $186,585 from
Banque SCS Alliance, issuing a demand promissory note therefor, bearing
interest at a rate of ten percent per annum.
VDC Corporation, Ltd.
- ---------------------
During 1997, the company entered into agreements to borrow up to $700,000 from
VDC, the collateral securing the aggregate amount of such borrowings being a
first priority lien on and security interest in the company's MAC warrants and a
junior lien on, and security interest in, the company's MAC shares. The unpaid
principal balance, together with all accrued and unpaid interest on the unpaid
principal balance, which accrues at a rate of ten percent per annum, is payable
in full upon the earlier to occur of: (i) the date the VDC transaction has been
terminated by either the company or VDC; (ii) the date of closing of the VDC
transaction; or (iii) May 10, 1998. As of December 31, 1997, $82,905 had been
advanced by VDC under the terms of the loan agreements.
Bridge Financing
- ----------------
During 1996, the company completed a Bridge Financing to raise $2,500,000 to
provide interim financing pending the completion of a private placement of the
convertible promissory notes described above. The Bridge Financing was due on
demand after 30 days and bore interest at 12% per annum. In addition, 166,667
warrants were issuable to the lenders.
In the year ended December 31, 1996, the warrants were recorded at their
estimated fair value of $250,000 with a corresponding reduction in the recorded
value of the Notes. This resulted in deemed interest expense of $250,000, which
was included in interest expense in the consolidated statement of operations for
the year ended December 31, 1996 as all of the Notes were repaid. As of
December 31, 1997, the issuance of the 166,667 warrants continued to be subject
to the removal of the company from jurisdictions of both the Vancouver Stock
Exchange and the British Columbia Securities Commission, the likelihood of which
is considered remote.
<PAGE>
PORTACOM WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 8 - COMMON STOCK
Issued common stock:
- --------------------
<TABLE>
<CAPTION>
Number Per Share Total
of Shares Consideration Consideration
----------- ------------- --------------
<S> <C> <C> <C>
Balance, March 31, 1995 15,214,818 - 10,085,670
Issue for cash:
Free-trading shares 204,878 1.36 277,490
On exercise of stock options 820,267 1.16 953,340
Issued on settlement of debt 1,256,559 2.00 2,513,121
---------- ---- ----------
Balance, December 31, 1995 17,496,522 - 13,829,621
Canceled (5,950,000) - -
Issued for cash:
Free-trading shares 97,500 1.11 108,225
On exercise of warrants 97,878 2.98 291,500
On exercise of stock options 103,050 1.49 153,420
Issued as consideration for
Loans payable 25,833 3.03 78,400
Settlement of debt 96,560 1.25 120,780
Convertible promissory notes 1,097,163 2.07 2,267,000
Fair value of warrants issuable in consideration
for bridge financing - - 250,000
To be issued on settlement of debt 53,675 2.00 107,350
---------- ---- ----------
Balance December 31, 1996 13,118,181 - 17,206,296
Issued for cash:
On private placement 190,388 3.03 577,750
On exercise of warrants 223,457 1.51 337,128
Issued as consideration for:
Loans payable 42,757 3.96 169,302
Convertible promissory notes 55,862 2.69 150,000
Adjustment to reclassify shares to be issued on
settlement of debt (53,675) 2.00 (107,350)
---------- ---- ----------
Balance December 31, 1997 13,576,970 - 18,333,126
========== ==== ==========
</TABLE>
Upon emigration to Delaware (Note 1), the company's authorized common stock was
changed from 94,050,000 common shares without par value to 100,000,000 shares of
capital stock with a par value of $0.001 per share.
<PAGE>
PORTACOM WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 8 - COMMON STOCK (Continued)
Performance Shares
- ------------------
Included in the issued and outstanding common stock are 600,000 shares which are
subject to an escrow agreement. These shares are releasable from escrow on
satisfaction of certain predetermined tests set out by regulatory authorities
related to the generation of positive cash flow from operations. Shares not
released from escrow by September 9, 2002 will be cancelled. Pursuant to the
escrow agreement, holders of the shares may exercise all voting rights attached
thereto except on a resolution to cancel any of the shares, and have waived
their rights to receive dividends or to participate in the assets and property
of the company on a winding up or dissolution of the company. Upon release of
the shares from escrow, compensation expense will be recorded. The likelihood
of the release of these shares from escrow is remote.
In October 1995, certain shareholders agreed to surrender their 5,950,000
escrowed shares which were then held under the escrow arrangement. In
consideration therefor, the company offered to issue 314,762 shares of common
stock at a deemed price of $2.00 per share. Although the escrowed shares have
been irrevocably cancelled by the company during 1996, the issuance of the
314,762 shares continues to be subject to the removal of the company from the
jurisdiction of both the Vancouver Stock Exchange and the British Columbia
Securities Commission. The likelihood that the company will be removed from the
jurisdiction of both the Vancouver Stock Exchange and the British Columbia
Securities Commission is remote.
Option changes for the period April 1, 1995 to December 31, 1997 were as
follows:
<TABLE>
<S> <C>
Outstanding and exercisable as of March 31, 1995 1,244,000
Granted at C$1.90 per share 75,000
Granted at C$2.09 per share 400,000
Granted at C$2.41 per share 150,000
Exercised at C$1.25 per share (461,767)
Exercised at C$2.09 per share (358,500)
Canceled (431,300)
---------
Outstanding and exercisable as of December 31, 1995 617,433
Granted at U$3.80 90,000
Granted at U$3.00 472,899
Granted at U$2.68 290,000
Exercised at C$1.25 (16,800)
Exercised at C$1.90 (75,000)
Exercised at U$3.00 (11,250)
Canceled (231,099)
---------
Outstanding and exercisable as of December 31, 1996 1,136,183
Granted at U$3.61 per share 90,000
Canceled (125,000)
Expired (476,183)
---------
Outstanding and exercisable as of December 31, 1997 625,000
=========
</TABLE>
<PAGE>
PORTACOM WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 8 - COMMON STOCK (Continued)
Stock options are issued at the average market price per share for the ten
trading days prior to the date of issuance. Accordingly, no compensation cost
has been recognized for options granted. Had compensation cost for the
company's stock options for 1997 and 1996 grants been determined consistent with
FASB No. 123, the company's net income (loss) and income (loss) per share would
have been adjusted to the proforma amounts indicated below:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31 December 31,
1997 1996
------------- ------------
<S> <C> <C>
Net income (loss):
As reported $(4,099,619) $5,139,662
Proforma (4,191,613) 4,289,482
Net income (loss) per share:
As reported $ (0.32) $ 0.41
Proforma (0.33) 0.34
</TABLE>
The fair value of each warrant and option grant is estimated on the date of
grant using the Black-Scholes option pricing model with the following weighted
average assumptions used for grants in 1997: dividend yield of 0%; expected
volatility of 0%; risk free interest rate of 5.5%; and expected lives of 1 to 5
years.
Warrants
- --------
On February 14, 1997, the company, in connection with a private placement,
issued warrants to purchase 72,993 shares of common stock at $2.74 per share if
exercised by January 28, 1998 and $3.15 if exercised thereafter to January 28,
1999. As of December 31, 1997, none of these warrants had been exercised.
On June 12, 1997, the company in connection with private placements, issued
warrants to purchase a total of 57,154 shares of common stock at $3.11 per share
if exercised by February 19, 1998 and $3.58 if exercised thereafter to February
20, 1999. As of December 31, 1997, none of these warrants had been exercised.
On June 30, 1997, the company, in connection with a private placement, issued
warrants to purchase a total of 60,241 shares of common stock at $3.32 per share
if exercised by February 10, 1998 and $3.82 if exercised thereafter to February
11, 1999. As of December 31, 1997, none of these warrants had been exercised.
During the year ended December 31, 1996, the company issued warrants to purchase
97,500 shares of common stock at $1.11 per share if exercised by November 1996
and $1.28 if exercised thereafter to November 1997. Of these warrants, 30,000
were exercised during 1997 and the remainder of the warrants expired. In
addition, the company issued 461,203 warrants attached to convertible promissory
notes at prices ranging from $1.49 to $3.25 per share if exercised by dates
ranging from December 19, 1997 to May 7, 1998. During 1997, 161,073 of these
warrants were exercised at $1.49 per share, and 15,384 were exercised at $1.95
per share. In addition, the company has offered to issue, subject to the removal
of the company from the jurisdiction of both the Vancouver Stock Exchange and
the British Columbia Securities Commission, 115,296 "bonus" warrants to purchase
shares of the company's common stock, exercisable at $2.70, expiring between
December 31, 1999 and February 14, 2000.
The company has, in prior periods, issued warrants to purchase up to 204,878
shares of its common stock at prices between $1.28 and $1.47 per share. Of these
warrants, 37,878 were exercised during 1996, 17,000 were exercised during 1997,
and the remaining 150,000 expired during 1997.
In addition, pursuant to the Bridge Financing (Note 7), 166,667 share purchase
warrants exercisable at U$3.30 per share to May 31, 1997 are issuable. The
warrants have been recorded at their estimated fair value of $250,000. At
December 31, 1997, no warrants have been exercised.
<PAGE>
PORTACOM WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 8 - COMMON STOCK (Continued)
Shares to be Issued for Loans
- -----------------------------
In connection with the issuance of certain short-term debt by the company in
January 1995 and May 1996, the company offered to issue, subject to regulatory
approval, 85,590 shares of common stock and 166,667 share purchase warrants,
exercisable at $3.30 per share until May 31, 1997. During 1996, regulatory
approval was received for the issuance of 25,833 of these shares which were then
issued by the company. During 1997, regulatory approval was received for the
issuance of 42,757 of these shares which were then issued by the company. At
December 31, 1997, the issuance of the remaining 17,000 shares and 166,667
warrants continued to be subject to receipt of regulatory approval. The
likelihood of receipt of regulatory approval is remote.
In connection with the issuance of certain short-term debt by the company in
February, 1997, the company had offered to issue, subject to the removal of the
company from the jurisdiction of both the Vancouver Stock Exchange and the
British Columbia Securities Commission, 120,000 "bonus" warrants to purchase
shares of the company's common stock, exercisable at $2.75, expiring on February
19, 1999. The likelihood of removal of the company from the jurisdiction of
both the Vancouver Stock Exchange and the British Columbia Securities Commission
is remote.
NOTE 9 - CONTINGENT LIABILITIES
During 1997, one of the company's vendors, JMS North America, Inc. ("JMS") filed
a Motion for Judgement with the Circuit Court of the County of Fairfax,
Commonwealth of Virginia, seeking $836,614 in consulting fees, finance charges
and travel expenses. JMS further seeks $2,250,000 for breach of contract and
$1,500,000 for alleged fraud. The company has disputed and intends to dispute at
trial a material portion of the amounts billed and or claimed by JMS for
consulting fees, finance charges and travel expenses. Additionally, the company
believes that the claims of JMS with respect to fraud and breach of contract are
without merit and will vigorously contest them.
During 1997, J. Michael Christiansen ("Christiansen"), filed a Complaint with
the Superior Court of the State of California, seeking in excess of $350,000
plus interest, costs and undetermined exemplary and punitive damages in
connection with the breach by the company of a Release and Settlement Agreement
dated October 2, 1996, pursuant to which the company was to have issued
Christiansen 75,000 shares of the common stock of the company. The company
believes that the issuance of such shares to Christiansen has been necessarily
delayed pursuant to certain regulatory constraints, the removal of which the
company has continued to seek without success. The company is presently
attempting to engage legal counsel to review and opine on the merit of
Christiansen's claims and to vigorously pursue any and all defenses and
counterclaims determined to be available to the company with respect to certain
of the allegations set forth by Christiansen and to certain past actions of
Christiansen.
On March 23, 1998, the company filed a voluntary petition pursuant to Chapter 11
of Title 11 of the United States Code (the "Bankruptcy Code"). Accordingly,
pursuant to 11 U.S.C. (S) 362 the proceedings described above have been
automatically stayed. The company intends to object to the claims of JMS and
Christiansen and to pursue its rights, remedies and defenses in the bankruptcy
case.
NOTE 10 - INCOME TAXES
There is no income tax benefit for operating losses for years ended December 31,
1997 and 1996 due to the following:
Current tax benefit - the operating losses cannot be carried back to
earlier years.
Deferred tax benefit - the deferred tax assets were offset by a valuation
allowance. Management believes that a valuation allowance is considered
necessary since it is more likely than not that the deferred tax asset will
not be realized through future taxable income.
<PAGE>
PORTACOM WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 10 - INCOME TAXES (Continued)
The components of the net deferred tax assets (liabilities) are as follows:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Net operating loss carryforwards $ 6,200,000 $ 3,600,000
Valuation allowance (6,200,000) (3,600,000)
----------- -----------
$ - $ -
=========== ===========
</TABLE>
The use of net operating loss carryforwards for United States income tax
purposes is limited when there has been a substantial change in ownership (as
defined) during a three year period. In this event, the use of net operating
losses each year would be restricted to the value of the Company on the date of
such change multiplied by the federal long-term rate ("annual limitation");
unused annual limitations may then be carried forward without this limitation.
At December 31, 1997, the Company had net operating loss carryforwards of
approximately $15.6 million for U.S. income tax purposes, which if not used will
expire during the years 2011 through 2012.
NOTE 11 - RELATED PARTY TRANSACTIONS
Related party transactions not disclosed elsewhere in these consolidated
financial statements include:
(a) Accounts payable at December 31, 1997 includes approximately $418,687
(December 31, 1996 - $24,000) owing to related parties.
(b) Management and consulting fees have predominantly been charged by related
parties.
(c) Included in bad debts expense for the year ended December 31, 1997 is $-0-
(year ended December 31, 1996 - $-0-; period ended December 31, 1995 -
$21,386) recorded as provisions against employee loans.
(d) The company has reimbursed expenses incurred by directors and officers on
its behalf during the periods presented.
(e) In addition to amounts included in compensation paid to the Chief
Executive Officer, expenses of approximately $189,000 are included in
various other accounts for the year ended December 31, 1997 (year ended
December 31, 1996 - $50,000 and nine months ended December 31, 1995
- $-0-).
NOTE 12 - CONSOLIDATED STATEMENTS OF CASH FLOWS
During the periods presented the company has entered into non-cash financing and
investing transactions which are not disclosed in the consolidated statements of
cash flows. For each of the periods presented these are as follows:
(a) In the year ended December 31, 1997, the company issued common stock as
consideration for financing costs on loans payable, on conversion of
promissory notes, all in the amounts as set out in Note 7;
(b) In the year ended December 31, 1996, the company issued common stock as
consideration for financing costs on loans payable, in settlement of debt,
on conversion of promissory notes, all in the amounts as set out in Note
8; and
(c) In the nine months ended December 31, 1995, the company issued 1,256,559
common stock having an assigned value of $2,513,121 in settlement of
indebtedness in an equivalent amount.
<PAGE>
PORTACOM WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 13 - CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the company to significant
concentrations of credit risk consist primarily of cash equivalents. The
company maintains cash equivalents with various financial institutions. These
financial institutions are located in Canada and the United States. The
company's policy is to limit the exposure at any one financial institution and
to invest solely in highly liquid investments that are readily convertible to
contracted amounts of cash.
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On February 4, 1998, KPMG, the Company's former independent accountants,
informed the Company that they would be unable to perform the annual audit of
the Company's financial statements for the fiscal year ended December 31, 1997.
In prior years, KPMG had conducted its audit of the Company out of KPMG's
Vancouver, British Columbia office. In December 1996, the Company emigrated from
Canada and became domiciled in the State of Delaware. Accordingly, KPMG
informed the Company that KPMG could not conduct the audit from KPMG's Vancouver
office. As a result, the Company engaged a new firm of independent
accountants. On February 11, 1998, the Company, with the approval of its board
of directors, engaged the accounting firm of Cogen Sklar LLP of Bala Cynwyd,
Pennsylvania to be the Company's independent accountants and to conduct the 1997
audit. Prior to this retention of Cogen Sklar LLP by the Company, the Company
did not consult with Cogen Sklar LLP regarding any financial or accounting
matters.
During the past two fiscal years and the period up to and including the
date of this report, there were no disagreements between the Company and KPMG on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure. During the same period, there were
no "reportable events", as that term is defined in Item 304(a)(1)(v) of
Regulation S-K. KPMG's reports on the Company's financial statements for the
fiscal years ended December 31, 1996 and December 31, 1995 do not contain
adverse, qualified or disclaiming opinions. However, the report for the fiscal
year ended December 31, 1996 does contain the following statement:
In the United States, reporting standards for auditors require the addition
of an explanatory paragraph (following the opinion paragraph) when the
financial statements are affected by conditions and events that cast
substantial doubt on the Company's ability to continue as a going concern,
such as those described in note 1 to the consolidated financial statements.
Our report to the shareholders dated January 15, 1997 is expressed in
accordance with Canadian reporting standards which do not permit a
reference to such events and conditions in the auditors' report when these
are adequately disclosed in the financial statements.
Note 1 to such financial statements contains the following statement:
At December 31, 1996, the Company had a working capital deficiency of
$685,858. At the date of these consolidated financial statements, the
Company has not generated cash flow from recurring operating activities and
it is uncertain when it will commence to generate such a cash flow. In
addition, the Company's largest recorded asset is restricted until January
1, 1999 (note 5(a)). Accordingly, there can be considered to be doubt as
to the nature and extent of the Company's future operations.
<PAGE>
PART III
--------
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS
- --------------------------------------------------
The following table identifies all of the current directors and executive
officers of the Registrant and its subsidiaries. Directors serve until the next
annual meeting or until their successors are elected and qualified. Officers
serve at the discretion of the Board of Directors.
NAME AGE POSITION
- ---- --- --------
Thomas P. Madden 39 Vice President, Investor Relations and
Director.
Michael A. Richard 29 President, Chief Executive Officer, Vice
President, Accounting and Director.
Steven B. Rosner 47 Director.
THOMAS P. MADDEN
----------------
Mr. Madden has been a Director of the Registrant since March 8, 1998, and
Vice President-Investor Relations of the Registrant since September 1995. Since
February 1992, Mr. Madden served as an Investor Relations Consultant as
President of Madden Consulting.
MICHAEL A. RICHARD
------------------
Mr. Richard has been a Director of the Registrant since March 8, 1998, the
Chief Executive Officer of the Registrant since March 10, 1998, the Vice
President, Accounting of the Registrant since October 1996 and has been with the
Company since 1991, serving as its Controller (1995 to 1996) and as an
Accounting Manager for PCBX, Telecom and PIL (1991 to 1995). He has also served
as Treasurer (1994 to present), Secretary (1996 to present) and as a Director of
PIL (1996 to present).
STEVEN B. ROSNER
----------------
Mr. Rosner has been a director of the Registrant since March 8, 1998. Mr.
Rosner is the sole
<PAGE>
shareholder of SLD Capital Corporation, which specializes in providing
consulting and investment banking services. Previously, Mr. Rosner served as
President of Centaur Financial Corporation, an investment banking firm, from
1984 to 1996. He also serves as a director of Tradewinds, Inc., Informatix,
Inc. and netValue, Inc. Mr. Rosner was also a director and President of Pacific
Rim Entertainment from December 1996 to December 1997.
During the last five years, except with respect to the voluntary petition
filed by the Company pursuant to Chapter 11 of the Bankruptcy Code, none of the
Company's executive officers, directors, promoters or control persons has (i)
had any bankruptcy petition filed by or against any business of which such
person was a general partner or executive officer either at the time of the
bankruptcy or within two years prior to that time; (ii) been convicted in a
criminal proceeding or been subject to a pending criminal proceeding (excluding
traffic violations and other minor offenses); (iii) been subject to any order,
judgment, or decree, not subsequently reversed, suspended or vacated, of any
court of competent jurisdiction, permanently or temporarily enjoining, barring,
suspending or otherwise limiting his involvement in any type of business,
securities, commodities or banking activities; or (iv) been found by a court of
competent jurisdiction (in a civil action), the Commission, or the Commodity
Futures Trading Commission to have violated a federal or state securities or
commodities law, which judgment has not been reversed, suspended, or vacated.
SECTION 16(a) REPORTS
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and any persons who own more than 10% of a
registered class of the Company's equity securities to file with the Securities
and Exchange Commission reports of ownership and changes in ownership of Common
Stock and other equity securities of the Company. Officers, directors and
greater than 10% shareholders are required by Securities and Exchange Commission
regulation to furnish the Company with copies of all Section 16(a) forms they
file. Mr. MacLellan did not timely file with the SEC Forms 4, Statement of
Changes in Beneficial Ownership, with respect to his purchases of common stock
of the Company on February 24 and 25, 1997 and March 24, 1997. The Forms 4 with
respect to such transactions were due no later than March 10, 1997 and April 10,
1997, respectively. Thomas Scichili, who was an officer during 1997, did not
timely file with the SEC Form 4 with respect to an issuance by the Company of
warrants to purchase shares of the Company's common stock to Lake Forest
Partners, Ltd. (of which he is a general partner) pursuant to a private
placement transaction. In addition, Thomas Scichili did not timely file with
the SEC Form 4 with respect to an issuance by the Company of options to purchase
shares of the Company's common stock. The Forms 4 with respect to both such
transactions were due no later than March 10, 1997. Morris Magid, who was an
officer during 1997, did not timely file with the SEC Form 4 with respect to his
receipt from the Company of shares of its common stock pursuant to a loan bonus
agreement. In addition, Mr. Magid did not timely file with the SEC Form 4 with
respect to the sale by the Magid Family Trust of certain of its shares of the
Company's common stock which were beneficially owned by Mr. Magid. The Forms 4
with respect to both such transactions were due no later than March 10, 1997 and
September 10, 1997, respectively. Each of the above transactions was reported on
an SEC Form 5 which was timely filed. The Company intends to revise its program
to enhance compliance by directors and officers with future 16(a) reporting
obligations.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table discloses, for the fiscal years ended December 31,
1997, 1996 and 1995, individual compensation information relating to the
Company's Chief Executive Officers serving during the period. No other
executive officers earned more than $100,000.
Summary Compensation Table
<TABLE>
<CAPTION>
===================================================================================================================
Annual Compensation Long-Term Compensation
------------------- ----------------------
====================================
Awards Payouts
- -------------------------------------------------------------------------------------------------------------------
Name and Other Securities All Other
Principal Annual Restricted Underlying Compen-
Position of Fiscal Compen- Stock Options/ LTIP sation ($)
Executive Year or Salary Bonus sation Awards SARS Payouts
Officer Transition ($) ($) ($) ($) (#) ($)
Period
Ending
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Douglas C. Dec 31,
MacLellan, 1997 192,000 25,000 nil nil nil nil nil
President and
CEO of the Dec 31,
Registrant (1) 1996 168,000 nil 30,000 nil 200,000 nil nil
Dec 31,
1995 28,000 nil nil nil nil nil nil
===================================================================================================================
</TABLE>
(1) Mr. MacLellan served as Chief Executive Officer from November 1995 to
March 1998.
The terms and conditions of the employment contracts or arrangements with
the above mentioned executive officer are as follows:
No grants or repricing of stock options or other stock appreciation
rights were made during 1997. Accordingly, there is no Options/SAR Grants
Table set out in this Annual Report.
No LTIP has been instituted by the Company and none are proposed at
this time. Accordingly, there is no LTIP Awards Table set out in this
Annual Report.
No pension plans or retirement benefit plans have been instituted by
the Company and none are proposed at this time. Accordingly, there is no
Pension Plan Table set out in this Annual Report.
<PAGE>
The Company currently has no Compensation Committee. During 1997, the
Company had a Compensation Committee comprised of Messrs. Keith Hay, Stephen
Leahy and Stephen Stephens, who were directors of the Company during 1997 who
had each resigned prior to the date of this report. The directors of the
Company and its Compensation Committee have never set any specific policies for
determining compensation of executive officers. Rather, the Company has
historically determined executive compensation based on salaries paid to
comparable executives in similar companies. Although the Company has no
contractual bonus arrangements, bonuses are granted at the discretion of
management. It is expected that the directors will form a new Compensation
Committee during 1998 to formulate more detailed policies with respect to
officer compensation.
In January 1997, the Registrant entered into an employment agreement with
Douglas C. MacLellan, which provided for his employment as its President and
Chief Executive Officer on a month to month basis, and, subject to the approval
of the Vancouver Stock Exchange, payment of a base salary of $192,000 per annum
plus reimbursement of expenses. Additionally, in the event it is permissible to
do so without receiving approval of the Vancouver Stock Exchange, Mr. MacLellan
was to be paid compensation equivalent to four month's salary in the event that
his employment was terminated by the Company. In November 1995, the Registrant
had entered into a verbal employment agreement with Mr. MacLellan whereby he was
employed under similar terms to those in the January, 1997 agreement except that
the base salary to be paid was $168,000 per annum and there was no provision for
additional compensation upon termination. Effective March 10, 1998, Mr.
MacLellan resigned his director and officer positions with the Registrant and
his employment agreement with the Registrant was terminated.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES TABLE
The following table shows information regarding the exercise of stock
options during 1997 by the named executive officers and the number and value of
any unexercised stock options held by them as of December 31, 1997:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Number of
securities Value of
underlying unexercised in-
unexercised the-money
options/SARs at options/SARs at
fiscal year end fiscal year end
(#) ($)
Name Shares Value ------------------------------------
acquired on Realized Exercisable/ Exercisable/
exercise (#) ($) unexercisable unexercisable
(a) (b) (c) (d) (e)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Douglas MacLellan 0 0 200,000/0 -0-(1)
- -------------------------------------------------------------------------------------
</TABLE>
<PAGE>
(1) The value of the options is calculated based upon the market price of
the Company's Common Stock as of December 31, 1997 of $0.70 (C$0.98)
per share, as reported by the Vancouver Stock Exchange.
DIRECTORS FEES
The Company does not pay independent directors who attend a regularly
scheduled or special meeting of its Board of Directors. None of the directors
of the Company were compensated by the Company or its subsidiaries during the
most recently completed financial year for their services in their capacity as
directors. Messrs. Keith Hay and Stephen Stephens, who were directors during
1997, each charged consulting fees of $2,500 per month for their services as
consultants or experts independent of their attendance at meetings of the
Company's Board of Directors. Furthermore, Mr. Stephen Leahy, who was also a
director during 1997, owns 50% of Mustang Management Ltd., which charged
approximately $50,000 for management and administrative services during 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended December 31, 1997, Messrs. Hay, Leahy and
Stephens, all of whom were also directors of the Company during 1997, were the
members of the Company's compensation committee. Mr. Leahy was also the
Secretary of the Company.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of April 13, 1998, information with
respect to the beneficial ownership (as calculated pursuant to Rule 13d-3(d)(1)
promulgated under the Exchange Act) of Common Stock owned by (i) all persons
which the Registrant has reason to believe may be deemed the beneficial owners
of more than 5% of the Registrant's outstanding Common Stock (ii) each director
of the Registrant, (iii) the Named Executive Officer, and (iv) all directors and
executive officers of the Registrant as a group. As of April 13, 1998, an
aggregate of 13,576,970 shares of Common Stock were issued and outstanding. For
purposes of computing the percentages under this table, it is assumed that all
options and warrants to acquire Common Stock which have been issued to the
directors, executive officers and holders of more than 5% of the Common Stock
and are fully vested or will become fully vested within 60 days of the date of
this Annual Report have been exercised by these individuals and the appropriate
number of shares of Common Stock have been issued to these individuals.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature % of
Beneficial Owner of Beneficial Ownership Ownership
- ------------------- ----------------------- ---------
<S> <C> <C>
Douglas C. MacLellan 8,000 (1) *
8324 Delgany Avenue
Playa del Rey, CA 90293
Thomas P. Madden 150,500 (2) *
c/o 10061 Talbert Ave. #200
Fountain Valley, CA 92708
Morris J. Magid 1,016,352 (3) 7.3%
1054 Selby Avenue
Los Angeles, CA 90024
Michael Marcus 723,852 (4) 5.2%
300 South 4th. Street
Suite 1100
Las Vegas, NV 89101
Michael A. Richard 1,500 *
c/o 10061 Talbert Ave. #200
Fountain Valley, CA 92708
Steven B. Rosner 10,000 *
c/o 10061 Talbert Ave. #200
Fountain Valley, CA 92708
</TABLE>
<PAGE>
All Directors and Executive 162,000 (5) 1.2%
Officers as a group (3 persons)
_______________________
(1) Mr. MacLellan, who served as Chief Executive Officer of the Registrant
during all of 1997, is a "named executive officer" for the purpose of this
Item 12.
(2) Includes 150,000 shares of common stock of the Registrant issuable upon
the exercise of certain outstanding options held by Mr. Madden which are
currently exercisable at a price of C$2.41.
(3) Includes 384,928 shares held by 380144 B.C. Ltd., a British Columbia
corporation owned 60% by Morris Magid and 40% by Marvin Magid. Morris and
Marvin Magid are brothers.
(4) Includes 194,772 shares of common stock issuable upon the exercise of
certain warrants held by Will's Wei Corporation which are currently
exercisable at prices ranging between $2.74 and $3.32 per share. Includes
20,000 shares held by Can Mark Trading Company.
(5) Includes 150,000 shares of common stock of the Registrant issuable upon
the exercise of outstanding options owned by the directors and executive
officers of the Registrant.
* Less than 1%.
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
1. MAC Transaction
---------------
As of December 31, 1996, Douglas C. MacLellan owned 500,000 shares of MAC.
See "Item 1: Business; Metromedia Asia Corporation."
2. Acquisition of PortaCom Wireless Communications, Inc.
-----------------------------------------------------
Pursuant to an agreement dated November 3, 1995 (the "PWC Agreement"), the
Registrant agreed to acquire PortaCom Wireless Communications, Inc., a Delaware
corporation, ("PWC") in exchange for shares of the Registrant's common stock.
Of the shareholders of PWC, Douglas C. MacLellan, who, during 1997 was the
President and a director of the Registrant, was to receive 682,000 shares,
Stephen O. Stephens, who during 1997 was a director of the Registrant , was to
receive 136,400 shares, J. Michael Christianson, who, during 1996 was a Chief
Financial Officer of the Registrant, was to receive 341,000, and PJL
Communications, Inc. was to receive 409,200 shares. On July 18, 1996, the
Registrant terminated the acquisition of PWC as it had not yet received
regulatory approval. The Registrant has determined, however, that it will issue
shares of its common stock to Messrs. MacLellan and Stephens and to PJL, in the
same amounts as previously provided in the PWC Agreement, in the event it is
permissible to do so without receiving approval of the Vancouver Stock Exchange.
In the opinion of management, the likelihood can be considered to be remote that
the conditions under which the above shares may be issued will ever arise.
Additionally, certain Prepetition Settlements expected to be consummated under
the plan of reorganization contemplate the provision to the Company of claim
releases with respect to the respective issuances to Messrs. MacLellan and
Stephens referred to above.
3. Funds Advanced and Repaid
-------------------------
In January 1994, a company controlled by Morris Magid pledged 1,128,415
shares of common stock to guarantee a loan for the benefit of the Company. In
connection with such and with advances and loans made in prior periods, the
Company agreed, subject to regulatory approval, to issue a total of 42,757 bonus
shares to Mr. Magid. During 1997, regulatory approval for the issuance of 42,757
shares was received and the Company then issued the shares.
4. Compensatory Shares Contingently Issuable Pursuant to Cancellation of
---------------------------------------------------------------------
Performance Shares
------------------
As compensation for the agreement by Messrs. Morris Magid, Robert Alexander
and Howard Frantom to surrender their 5,950,000 performance shares which were
held under an escrow agreement, the Registrant has offered to issue, at a deemed
price of $2.00 per share, 43,516 common
<PAGE>
shares, 271,245 common shares and 1 common share each to Mr. Magid, Mr.
Alexander, and Mr. Frantom, respectively. As of the date of this filing, none
of the aforementioned shares have been issued. The Registrant does not expect
to issue any of the compensatory shares while it remains subject to the
jurisdiction of the Vancouver Stock Exchange and the British Columbia Securities
Commission. In the opinion of management, the likelihood can be considered to
be remote that the conditions under which the above shares may be issued will
ever arise.
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following Exhibits are filed as part of this Report:
Exhibit Description
No.
2.1 The Registrant's Voluntary Petition for Relief under Chapter 11 of the
United States Bankruptcy Code, filed March 23, 1998 in the United
States Bankruptcy Court, District of Delaware, Case #98-661 (PJW)/(1)/
2.2 Form of Interim Order Authorizing Debtor To Obtain Secured
Post-Petition Financing Pursuant To U.S.C. (S) 364(c)*
2.3 Form of Motion and Order (A) Establishing Bidding Procedures and
Approving A Break-Up Fee In Connection with the Sale of the Debtor's
Interest In Certain Property of the Estate And (B) Approving the Form
and Manner of Notice*
2.4 Form of Stipulation and Order in Lieu of objection Amending the Post
Petition Asset Purchase Agreement between the Registrant and VDC
Corporation, Ltd.*
3.1 Certificate of Incorporation of the Registrant/(2)/
3.2 Amendment to Certificate of Incorporation dated May 1, 1990/(3)/
3.3 Amendment to Certificate of Incorporation dated September 10,
1991/(4)/
3.4 Amendment to Certificate of Incorporation dated November 1, 1994/(5)/
3.5 Amendment to Certificate of Incorporation dated December 5, 1995/(6)/
3.6 Amended and Restated Certificate of Incorporation dated December 10,
1996/(7)/
3.7 By-Laws of the Registrant/(8)/
4.1 Specimen Stock Certificate/(9)/
4.2 Form of Escrow Agreement dated September 30, 1991/(10)/
4.3 Form of Escrow Agreement dated June 30, 1992/(11)/
10.1 Participation Agreement between Hoang Ly Huu, Sonny Luu, CMC
International, Inc., Asia Telecom, Inc., and the Registrant/(12)/
10.2 Agreement For Cancellation of Performance Shares between the
Registrant and Morris J. Magid, Robert B. Alexander, and Howard B.
Frantom/(13)/
<PAGE>
10.3 Form of Stock Purchase Agreement between the Registrant and Stephen O.
Stephens, Douglas C. MacLellan, J. Michael Christiansen, PJL
Communications, Inc., and PortaCom Wireless Communications, Inc./(14)/
10.4 Separation and Consulting Agreement between the Registrant and Francis
T. Phalen/(15)/
10.5 Stock Option Agreement between the Registrant and Keith A.J. Hay/(16)/
10.6 Stock Option Agreement between the Registrant and Robert Flitton/(17)/
10.7 Stock Option Agreement between the Registrant and Stephen O.
Stephens/(18)/
10.8 Form of Termination Agreement between the Registrant and Asian
American Telecommunications Corporation/(19)/
10.9 Form of Employment Agreement between the Registrant and Douglas C.
MacLellan/(20)/
10.10 Form of Employment Agreement between the Registrant and Michael A.
Richard/(21)/
10.11 Joint Venture Agreement for the Establishment of a Joint Venture
Enterprise for a CDMA Based Telecommunications System in the Kingdom
of Cambodia/(22)/
10.12 License for the Provision and Operation of a CDMA Based
Telecommunications System Within the Kingdom of Cambodia/(23)/
10.13 Stock Option Agreement between the Registrant and R. Keith
Alexander/(24)/
10.14 Stock Option Agreement between the Registrant and Douglas C.
MacLellan/(25)/
10.15 Stock Option Agreement between the Registrant and Stephen M.
Leahy/(26)/
10.16 Employment Agreement between the Registrant and Thomas P. Scichili. A
verbal agreement was entered into between the Registrant and Thomas P.
Scichili whereby the Registrant agreed to pay Mr. Scichili a salary of
up to $8,000 per month on a month-to-month basis, plus reimbursement
of reasonable expenses, terminable mutually at will, to serve as the
Registrant's Vice President-General Counsel. Effective July 31, 1997,
Mr. Scichili resigned his position with the Registrant and his
employment agreement with the Registrant was terminated.
10.17 Employment Agreement between the Registrant and Paul Robert Carr. A
verbal agreement was entered into between the Registrant and Paul
Robert Carr whereby the Registrant agreed to pay Mr. Carr a salary of
$6,000 per month on a month-to-month basis, plus reimbursement of
reasonable expenses, terminable mutually at will, to serve as the
Registrant's Vice President-Asia Pacific. Effective January 15, 1998,
Mr. Carr resigned his position with the Registrant and his employment
agreement with the Registrant was terminated.
<PAGE>
10.18 Employment Agreement between the Registrant and Thomas P. Madden. A
verbal agreement was entered into between the Registrant and Thomas P.
Madden whereby the Registrant agreed to pay Mr. Madden a salary of
$6,000 per month on a month-to-month basis, plus reimbursement of
reasonable expenses, terminable mutually at will, to serve as the
Registrant's Vice President-Investor Relations.
10.19 Acquisition Agreement and Plan of Reorganization between the
Registrant and Asian American Telecommunications Corporation/(27)/
10.20 Form of First Amendment to Acquisition Agreement and Plan of
Reorganization between the Registrant and Asian American
Telecommunications Corporation/(28)/
10.21 Form of Second Amendment to Acquisition Agreement and Plan of
Reorganization between the Registrant and Asian American
Telecommunications Corporation/(29)/
10.22 Agreement between the Registrant and Howard B. Frantom acknowledging
cancellation of Employment Agreement/(30)/
10.23 Stock Option Agreement between the Registrant and Michael Marcus *
10.24 Stock Option Agreement between the Registrant and Thomas Scichili *
10.25 Form of Post Petition Asset Purchase Agreement between the Registrant
and VDC Corporation, Ltd. *
10.26 Debtor-In-Possession Loan, Pledge and Security Agreement between the
Registrant and VDC Corporation, Ltd. *
10.27 Letter of Intent between the Registrant and VDC Corporation, Ltd. *
10.28 Asset Purchase Agreement between the Registrant and VDC Corporation,
Ltd. *
10.29 First Amendment to Asset Purchase Agreement between the Registrant and
VDC Corporation, Ltd. *
10.30 Loan Agreement between the Registrant and VDC Corporation, Ltd. *
10.31 Pledge Agreement between the Registrant and VDC Corporation, Ltd. *
10.32 Security between the Registrant and VDC Corporation, Ltd. *
10.33 Agreement Re: Transfer Of Interest Of PortaCom Wireless, Inc. In
American Cambodian Telecom, Ltd. *
<PAGE>
16 Letter from KPMG to the United States Securities and Exchange
Commission regarding the change in the Company's certifying accountant
dated April 9, 1998/(31)/
21 Subsidiaries of the Registrant *
27 Financial Data Schedule *
* Filed herewith
/(1)/ Incorporated by reference to Exhibit 2 to Form 8-K filed with the
Securities and Exchange Commission on March 30, 1998.
/(2)/ Incorporated by reference to Exhibit 3.1 to Form 10-SB filed with the
Securities and Exchange Commission on January 18, 1994 (the "Form 10-
SB").
/(3)/ Incorporated by reference to Exhibit 3.3 to Amendment #1 to Form 10-SB
filed with the Securities and Exchange Commission on September 8, 1994
(the "Amendment #1 to Form 10- SB").
/(4)/ Incorporated by reference to Exhibit 3.4 to Amendment #1 to Form 10-SB.
/(5)/ Incorporated by reference to Exhibit 3.4 to Form 10-KSB for the fiscal
year ended March 31, 1995.
/(6)/ Incorporated by reference to Exhibit 3.5 to Form 10-KSB for the fiscal
year ended March 31, 1995.
/(7)/ Incorporated by reference to Exhibit 3.6 to Form 10-K for the fiscal year
ended December 31, 1996.
/(8)/ Incorporated by reference to Exhibit 3.7 to Form 10-K for the fiscal year
ended December 31, 1996.
/(9)/ Incorporated by reference to Exhibit 4.1 to Form 10-K for the fiscal year
ended December 31, 1996.
/(10)/ Incorporated by reference to Exhibit 4.5 to Form 10-SB.
/(11)/ Incorporated by reference to Exhibit 4.6 to Form 10-SB.
/(12)/ Incorporated by reference to Exhibit 10.5 to Form 10-KSB for the fiscal
year ended March 31, 1995.
/(13)/ Incorporated by reference to Exhibit 10.8 to Form 10-KSB for the fiscal
year ended March 31, 1995.
/(14)/ Incorporated by reference to Exhibit 10.9 to Form 10-KSB for the fiscal
year ended March 31, 1995.
/(15)/ Incorporated by reference to Exhibit 10.10 to Form 10-KSB for the fiscal
year ended March 31, 1995.
/(16)/ Incorporated by reference to Exhibit 10.17 to Form 10-KSB for the fiscal
year ended March 31, 1995.
/(17)/ Incorporated by reference to Exhibit 10.18 to Form 10-KSB for the fiscal
year ended March 31, 1995.
/(18)/ Incorporated by reference to Exhibit 10.19 to Form 10-KSB for the fiscal
year ended March 31, 1995.
<PAGE>
/(19)/ Incorporataed by reference to Exhibit 10.02 to Form 10-QSB for the
quarter and nine months ended September 30, 1996.
/(20)/ Incorporated by reference to Exhibit 10.24 to Form 10-K for the fiscal
year ended December 31, 1996.
/(21)/ Incorporated by reference to Exhibit 10.25 to Form 10-K for the fiscal
year ended December 31, 1996.
/(22)/ Incorporated by reference to Exhibit 10.26 to Form 10-K for the fiscal
year ended December 31, 1996.
/(23)/ Incorporated by reference to Exhibit 10.27 to Form 10-K for the fiscal
year ended December 31, 1996.
/(24)/ Incorporated by reference to Exhibit 10.28 to Form 10-K for the fiscal
year ended December 31, 1996.
/(25)/ Incorporated by reference to Exhibit 10.29 to Form 10-K for the fiscal
year ended December 31, 1996.
/(26)/ Incorporated by reference to Exhibit 10.30 to Form 10-K for the fiscal
year ended December 31, 1996.
/(27)/ Incorporated by reference to Exhibit 10.2 to Form 10-KSB for the fiscal
year ended March 31, 1995.
/(28)/ Incorporated by reference to Exhibit 10.3 to Form 10-KSB for the fiscal
year ended March 31, 1995.
/(29)/ Incorporated by reference to Exhibit 10.01 to Form 10-QSB for the quarter
and nine months ended September 30,1996.
/(30)/ Incorporated by reference to Exhibit 10.3 to Form 10-KSB for the fiscal
year ended March 31, 1995.
/(31)/ Incorporated by reference to Exhibit 16 to Form 8-K/A filed with the
Securities and Exchange Commission on April 10, 1998.
(b) Reports on Form 8-K:
The following report on Form 8-K was filed during the last quarter of
the period covered by this Report:
Date of Report Subject Matter
- -------------- --------------
10/8/97 Letter of Intent Signed for Sale of Principal Asset to VDC
Corporation
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Registrant has duly caused this report on Form 10-K for the fiscal
year ended December 31, 1997 to be signed on its behalf by the undersigned,
thereunto duly authorized, in Fountain Valley, California, on April 14, 1998.
PORTACOM WIRELESS, INC.
By: /s/ Michael A. Richard
----------------------------------
Michael A. Richard
Chief Executive Officer and Vice
President, Accounting (principal
financial officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report on Form 10-K for the fiscal year ended December 31, 1997 has been signed
below by the following persons on behalf of the Registrant and in the capacities
and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Thomas P. Madden Director and April 14, 1998
- ------------------------ Vice President, Investor Relations
Thomas P. Madden
/s/ Michael A. Richard Director, Chief Executive Officer April 14, 1998
- ------------------------ and Vice President, Accounting
Michael A. Richard (principal financial officer)
/s/ Steven B. Rosner Director April 14, 1998
- ------------------------
Steven B. Rosner
<PAGE>
EXHIBIT 2.2
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re :
: Case No. 98-661 (PJW)
:
PORTACOM WIRELESS, INC., : Chapter 11
:
:
Debtor. :
INTERIM ORDER AUTHORIZING DEBTOR
TO OBTAIN SECURED POST-PETITION FINANCING
PURSUANT TO 11 U.S.C. (S) 364(C)
--------------------------------
AND NOW, this __ day of _____, 1998, upon consideration of the Emergency
Motion of PortaCom Wireless, Inc. ("Debtor") to Obtain Secured Post-Petition
Financing Pursuant to 11 U.S.C. (S) 364(c) (the "Motion") and after a
preliminary hearing pursuant to Rule 4001(c)(2) of the Federal Rules of
Bankruptcy Procedure having been held before this Court on March 23, 1998, and
it appearing that the requested relief in the Motion is in the best interest of
the Debtor, its creditors and its estate, and is necessary to ensure the
continued operations and successful reorganization of the Debtor and after due
deliberation and good and sufficient cause appearing therefor, it is hereby
found, concluded and determined that:
1. Immediately prior to the hearing, notice of the Motion and hearing was
given to the U.S. Trustee, the secured creditors, and the 20 largest unsecured
creditors.
2. The Debtor is unable to obtain unsecured credit under Code (S)
503(b)(1) as an administrative expense.
3. The Debtor is unable to obtain "new" credit without: (i) granting to
VDC Corporation Ltd. ("VDC" or "Lender") claims having priority over that of
administrative
<PAGE>
expenses of the kind specified in 11 U.S.C. (S)(S) 503(b), 506(c), and 507(b);
and (ii) securing such post-petition credit with a first-priority security
interest in and lien on substantially all property of the Debtor, as further
identified in the Motion and attached exhibits, limited only to the extent that
there exists perfected security interests in favor of other third parties.
4. Lender and Debtor have entered into an Asset Purchase Agreement dated
November, 1997, and amendments thereto (as amended, the "Purchase Agreement"),
whereby Lender agreed to purchase and Debtor agreed to sell the Securities, as
defined in the Debtor In Possession Loan, Security And Pledge Agreement between
Lender and the Debtor (the "DIP Financing Agreement"), in consideration of 5.3
million shares of the common stock of Lender plus $700,000.00 and which Purchase
Agreement has been superseded by an Asset Purchase Agreement entered into
between the parties post-petition (the "Transaction").
5. It is in the best interests of the Debtor's estate to permit the
Debtor to continue to finance its operations, the case and the Transaction,
under the terms and conditions set forth herein, so as to minimize and prevent a
disruption of its operations and to permit the Debtor to attempt to maximize the
value of its business and assets.
6. The DIP Financing Agreement attached to the Motion as Exhibit "G" was
negotiated in good faith and at arm's length by and between the Debtor and
Lender and any credit extended and loans made to the Debtor by Lender under the
DIP Financing Agreement were extended in good faith, within the meaning of Code
(S) 364(e), and the reversal or modification on appeal of this Order authorizing
Debtor to: (i) obtain such credit, or incur such debt, from Lender does not
affect the validity of either the credit obtained or the debt incurred;
-2-
<PAGE>
and (ii) grant a priority claim, or lien, to Lender does not effect the extent,
validity, priority or enforceability of the claim and lien so granted.
7. Prior to the commencement of the case, Debtor and Lender entered into
a Loan Agreement dated November 10, 1997, whereby Lender agreed to extend a loan
to Debtor in the principal amount not to exceed $700,000.00 (the "Loan"). Prior
to the commencement of the case, Lender extended $366,725.00 to Debtor under the
Loan, which advances are evidenced by Credit Notes in the principal amount of
$366,725.00 (collectively, the "Credit Notes"), together with any and all
accrued and unpaid interest, costs and fees, including attorneys' fees (the
"Pre-Petition Indebtedness").
8. The Debtor, for itself, its creditors and its estate, ratified and
confirmed for the benefit of Lender, its successors and assigns, the full extent
of the Pre-Petition Indebtedness, the enforceability of the Loan Agreement,
Security Agreement, and Pledge Agreement, dated November 10, 1997 and the Credit
Notes (collectively the "Pre-Petition Loan Documents") in accordance with their
respective terms, and the extent, validity, priority, enforceability and
perfection of Lender's lien on and interest in and to those certain warrants to
purchase 4,000,000 shares of common stock of Metromedia Asia Corporation (the
"Warrants"). The Debtor acknowledged and confirmed that it has no defenses,
counterclaims, set-offs, recoupments or other claims or rights to disallow, in
whole or in part, the Pre-Petition Indebtedness or Lender's lien on and interest
in and to the Warrants, and no objection to the secured claim of Lender. Lender
holds an allowed secured claim to the full extent of the Pre-Petition
Indebtedness.
9. The Maturity Date of the loan authorized by this Order, the terms of
which are set forth in the DIP Financing Agreement (the "Post-Petition Loan") is
the earlier to occur (the
-3-
<PAGE>
"Maturity Date") of: (i) the forty-fifth (45th) day following the entry of the
Order for Relief under Code (S) 301; or (ii) the date approved by the Court as
the sale or auction date of the Transaction; or (iii) April 30, 1998.
Notwithstanding anything herein or in the DIP Financing Agreement to the
contrary, the Maturity Date may be extended from time to time upon the written
consent of Lender, which consent shall be in Lender's absolute and sole
discretion, may be withheld without cause, and shall not constitute or be deemed
a waiver or cure of any Event of Default.
10. The Debtor has authority to borrow the Post-Petition Loan, to execute
and deliver the DIP Financing Agreement and any and all Notes executed in
connection with the Post-Petition Loan (the "Note(s)"), and any other
instruments and documents required to be executed in connection herewith and
therewith (such other instruments and documents being collectively called the
"Other Documents") without further Order of the Court.
11. The DIP Financing Agreement has been, and will be, validly executed
and delivered by the Debtor and is the legal, valid and binding obligation of
the Debtor, enforceable against the Debtor in accordance with its respective
terms.
12. The proceeds from the Post-Petition Loan shall be used by the Debtor
only for working capital purposes in the ordinary course of business, or in
connection with the case or the Transaction.
13. The Debtor has all right, title and interest in, and good and
marketable title to the Securities and Collateral, as defined in the DIP
Financing Agreement, free and clear of any claim, pledge, security interest,
restriction, lien or encumbrance of any kind or nature
-4-
<PAGE>
whatsoever, except for the pre-petition lien to VDC and the Permitted Lien on
the Shares, as such term is defined in the Security Agreement.
14. The Debtor's other secured creditor(s) is/are adequately protected
from any adverse consequences which might result from the consummation of the
proposed post-petition secured financing between the Debtor and Lender.
15. The Debtor has acknowledged notice of the Lender's intention to, upon
the occurrence of an Event of Default or the Maturity Date, retain the Warrants
in satisfaction of the obligations of Debtor to Lender with respect to the Pre-
Petition Indebtedness and all obligations under the Post-Petition Loan and has
expressly waived its right to receive any further notice from Lender of its
intention to do so, either before or after the occurrence of any Event of
Default or the Maturity Date.
Accordingly, it hereby ORDERED, ADJUDGED and DECREED that:
1. The Motion is GRANTED.
2. The form of Notice of Final Hearing on the Debtor's Motion to Obtain
Secured Post-Petition Financing Pursuant to 11 U.S.C. (S) 364(c) attached as
Exhibit "H" to the Motion is APPROVED.
3. The Debtor is authorized and directed to do and perform all acts, to
make, execute, and deliver all instruments and documents which may be required
or necessary for the performance by the Debtor under or in connection with the
DIP Financing Agreement and to pay all present and future fees, costs, expenses
and taxes which may be required or necessary for its performance thereunder
including, without limitation, the execution and delivery of the DIP
-5-
<PAGE>
Financing Agreement and any other document related to or necessary for the
performance of the Debtor's obligations thereunder.
4. Pursuant to 11 U.S.C. (S) 364(c), Lender is granted a lien on all of
the Debtor's now owned and hereafter acquired property, including, without
limitation, all cash, accounts, accounts receivable, inventory, goods,
equipment, chattel paper, instruments, general intangibles, documents, and
Collateral, whether arising pre- or post-petition, and all proceeds and products
of all of the foregoing (hereinafter referred to as the "Post-Petition
Collateral") superior to any and all liens, including post-petition replacement
liens under Code (S)(S) 361 and 363 and claims under Code (S) 507(b) granted now
or in the future to another, and with priority over any and all administrative
expenses, whether now in existence or hereafter incurred, of the kind specified
in Code (S)(S) 503(b), 506(c), and 507(b) or otherwise, with respect to all of
the Debtor's obligations and indebtedness arising under the DIP Financing
Agreement, as and to the extent set forth in the DIP Financing Agreement. With
respect to property of the Debtor in which other creditors hold a valid and
perfected pre-petition interest, the pledge, lien and security interest granted
and pledged to Lender in accordance herewith shall have priority junior to other
creditors' interests in such property.
5. As additional security for the post-petition credit being extended to
the Debtor, Lender is hereby granted, pursuant to Code (S) 364(c), nunc pro tunc
as of March 23, 1998 (the "Petition Date"), and without the necessity of the
Debtor's execution or recordation of any financing statements, pledges,
mortgages, security agreements, or otherwise, or Lender's recordation with
respect to or possession of any of the Post-Petition Collateral, a first
priority
-6-
<PAGE>
security interest in and lien on the Post-Petition Collateral, as more
particularly detailed in the Motion and the DIP Financing Agreement, all of
which are incorporated herein by reference.
6. Lender shall not be required to file financing statements or similar
instruments in any jurisdiction or take possession of the Post-Petition
Collateral any other action in order to validate or perfect the liens and
security interests granted to it pursuant to this Order. Lender may, however,
at its sole discretion, choose to file such instruments or otherwise confirm
perfection of such liens and security interests. Accordingly, the automatic
stay of Code (S) 362 is hereby modified to permit: (i) the Debtor to grant and
(ii) Lender to evidence the perfection of the liens and security interests
granted herein.
7. The Debtor is authorized and directed, at its sole expense, to permit
Lender access to the Debtor's books and records in accordance with the terms and
conditions of the DIP Financing Agreement, or as otherwise reasonably requested
by Lender.
8. The Debtor is authorized and directed to make such payments to Lender
as are required under the terms of the DIP Financing Agreement, including,
without limitation, reimburse Lender for any and all filing and recording fees,
title insurance premiums, reasonable internal and auditing examination fees, and
reasonable attorneys' fees, costs and expenses incurred by Lender in connection
with the negotiating, closing, documenting of the DIP Financing Agreement and
obtaining the Court's approval of same, without the necessity of application to
the Court; provided, however, that the reasonableness of such professional fees,
costs and expenses shall be subject to review by the Court upon motion by any
party in interest.
-7-
<PAGE>
9. Lender is authorized to accrue interest on the post-petition credit
being extended hereunder in accordance with the terms and conditions of the DIP
Financing Agreement nunc pro tunc as of the Petition Date.
10. Lender is authorized to retain the Warrants in its possession
notwithstanding the provisions of 11 U.S.C. (S)(S) 542 and 543.
11. As additional "adequate protection" of Lender's interest in and lien
on the Post-Petition Collateral, the automatic stay provisions imposed by Code
(S) 362(a) are hereby modified so as to permit Lender to: (i) stop "funding" the
Debtor's operations upon default under the DIP Financing Agreement or this
Order; (ii) following three (3) business days' notice to Debtor, any committee
appointed by the U.S. Trustee and the U.S. Trustee, exercise all rights and
remedies set forth in the following paragraph 15.
12. Until repayment, in full, of any credit extended under the DIP
Financing Agreement, Debtor will not, without the prior approval of the Court
and prior notice to Lender: (i) allow any covenants, representations or
warranties set forth herein or in the DIP Financing Agreement to be breached or
to become materially untrue; (ii) engage in any transaction which is not in the
ordinary course of its business (any sale, lease, exchange, collection or other
disposition (any of which is a "Disposition") of the Post-Petition Collateral);
(iii) engage in new or different business activities; (iv) invest whether by
purchase, lease, or otherwise, in fixed or capital assets; or (v) create,
assume, or suffer to exist any lien on security interest, in favor of any person
other than Lender except: (x) liens or security interests existing as of the
date of the entry of this Order; or (y) liens expressly consented to in writing
by Lender.
-8-
<PAGE>
13. In addition to the "Events of Default" under the Pre-Petition Loan
Documents and the DIP Financing Agreement, each of the following events shall
constitute an Event of Default hereunder and thereunder:
(a) The Debtor fails to pay when due any principal, interest or other
sums due hereunder or under any of the Notes.
(b) Except for Events of Default described in sub-paragraph (i)
hereof, the Debtor defaults in the observance or performance of
any condition or covenant contained in the DIP Financing Agreement
or any Note and the Debtor shall not have remedied the default
within fifteen (15) days after receipt of written notice of such
default has been given by Lender to the Debtor.
(c) A breach by the Debtor of any warranty or any representation
contained in the DIP Financing Agreement or any Note, and such
breach shall not have been remedied within fifteen (15) days after
receipt of written notice of such breach has been given by Lender
to the Debtor.
(d) The conversion of the Debtor's case to a case proceeding under
Chapter 7 of the Code, or the dismissal of the Debtor's Chapter 11
case, or the appointment of a trustee in either a Chapter 7 or
Chapter 11 case of the Debtor.
(e) The appeal, rehearing, reconsideration, reversal, modification,
vacation or stay of this Order.
-9-
<PAGE>
(f) The failure to have scheduled a hearing on approval of the post-
petition Asset Purchase Agreement and the Transaction ("Sale
Hearing") within thirty (30) days following the commencement of
the Case.
(g) The failure to have obtained approval of the proposed bidding
procedures and Break-Up Fee, as described in the Transaction
documents and in connection with the Sale Hearing.
(h) The failure to have obtained approval of the post-petition Asset
Purchase Agreement and the Transaction within thirty-five (35)
days following the commencement of the Case.
(i) The appeal, rehearing, reconsideration, reversal, modification,
vacation or stay of the Order approving the Transaction.
(j) The failure of the parties to close the Transaction within fifty
(50) days of the commencement of the Case.
(k) If there shall have occurred an Event of Default under any other
agreements between the Debtor and the Lender, except that the
commencement of the Debtor's case shall not be deemed to
constitute a default.
14. In addition to any and all other remedies available to Lender
resulting from the occurrence of an Event of Default, Lender, in its sole
discretion and without further notice to the Debtor or any other party, may
declare the unpaid principal amount of the Post-Petition Loan, together with all
accrued interest thereon at the applicable rate specified in the Notes, and all
other sums due by the Debtor under any Note or the DIP Financing Agreement shall
become
-10-
<PAGE>
immediately due and payable, without presentment, demand, protest or other
requirements of any kind, all of which are expressly waived by the Debtor. Upon
the occurrence of an Event of Default, the Lender shall have the right to charge
and accrue interest at a rate per annum equal to ten percent (10%) (the
"Interest Rate") plus three percent (3%) (the "Default Rate"). In addition, in
each case, the Lender may recover all costs of suit and other expenses incurred
by the Lender (including attorneys' fees) in connection with the collection of
any sums due under any and all Notes or under the DIP Financing Agreement. In
addition to all other remedies available to it, the Lender may exercise its
rights under any and all Notes delivered to the Lender. The remedies set forth
herein shall be in addition to, and not in lieu of, any other additional rights
or remedies the Lender may have at law or in equity. In addition, upon the
occurrence of an Event of Default, the automatic stay imposed by Code (S) 362,
and all other stays and injunctions, if any, shall be deemed modified and
dissolved, and of no further force or effect, without further order of the Court
in order to permit Lender to exercise all rights or remedies with respect to or
in the Collateral and all obligations due Lender under the DIP Financing
Agreement and the Notes. Further, upon the occurrence of an Event of Default or
the Maturity Date, whichever shall first occur, following three (3) business
days' notice to Debtor, any committee appointed by the U.S. Trustee and the U.S.
Trustee, Lender is authorized to (i) exercise its rights in and to the Warrants,
(ii) credit the Debtor, and (iii) apply the Warrants to and in satisfaction of
the obligations of Debtor to Lender with respect to the Pre-Petition
Indebtedness and all obligations under the Post-Petition Loan.
15. All defenses or claims of, every kind or nature, whether existing by
virtue of state, federal bankruptcy or non-bankruptcy law, by agreement or
otherwise, against Lender, as such
-11-
<PAGE>
defenses or claims may presently exist, are hereby forever waived, relinquished
and released by Debtor, against Lender, including without limitation, any
affirmative defense, counterclaim, setoff, deduction or recoupment as of the
entry of this Order, except that any committee appointed by the U.S. Trustee may
bring an action to challenge the validity, priority and extent of Lender's Pre-
Petition Indebtedness within forty-five (45) days after the entry of this Order.
16. If any or all of the provisions of this Order or the DIP Financing
Agreement are hereafter modified, vacated or stayed by subsequent order of this
Court or by any other court, such stay, modification, or vacation shall not
affect the validity of any debt to Lender in respect to any post-petition
lending prior to the effective date of such stay, modification, or vacation, or
the validity and enforceability of any lien, security interest or priority
authorized or created by this Order or the DIP Financing Agreement and
notwithstanding such stay, modification, or vacation, any obligations of the
Debtor pursuant to this Order or the DIP Financing Agreement arising prior to
the effective date of such stay, modification or vacation shall be governed in
all respects by the original provisions of this Order and the DIP Financing
Agreement, and the validity of any such credit extended or lien granted pursuant
to this Order and the DIP Financing Agreement is subject to the protections
afforded under 11 U.S.C. (S) 364(e).
17. The Debtor specifically waives and relinquishes any right, whether now
existing or hereafter arising, to seek or request any stay, injunction, or other
order concerning the Lender's ability to enforce its rights under the DIP
Financing Agreement.
18. In addition, the Debtor specifically waives and relinquishes any
right, whether now existing or hereafter arising, under Code (S)(S) 506(c) and
552(b) to challenge, modify, alter,
-12-
<PAGE>
amend or surcharge Lender's rights, interest or liens in and to the Collateral
and the proceeds thereof.
19. The Debtor as plan proponent may not modify, alter, or revise any
terms, conditions, liens, priorities, payment terms, or other provisions of the
DIP Financing Agreement under any plan of reorganization.
20. A final hearing in this Motion shall be held on April 23, 1998, at
2:30 p.m. (Prevailing Eastern Time) at the United States Bankruptcy Court for
the District of Delaware. The Debtor shall promptly serve a copy of the Motion
and this Interim Order upon: (i) Lender; (ii) the Office of the United States
Trustee, (iii) the Debtor's twenty (20) largest unsecured creditors; and (iv)
any entity or person who has entered its appearance in this matter.
21. Any person opposing the Motion must file an objection or other
responsive pleading with the Clerk of the United States Bankruptcy Court for the
District of Delaware 824 Market Street, Wilmington, Delaware, 19801 and deliver
a copy to Debtor's counsel, whose name and address appears below, on or before
April 20, 1998 at 4:00 p.m. In the absence of any timely filed and property
served objection or responsive pleading, the Court may, upon consideration of
the record, enter a final order granting the Motion.
ORDERED in the District of Delaware, this 25th day of March, 1998.
BY THE COURT:
________________________________________
UNITED STATES BANKRUPTCY JUDGE
-13-
<PAGE>
EXHIBIT 2.3
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re: : Chapter 11
:
PORTACOM WIRELESS, INC., : Case No. 98-661 (PJW)
:
Debtor. :
MOTION OF DEBTOR (A) TO ESTABLISH BIDDING PROCEDURES AND
APPROVE A BREAK-UP FEE IN CONNECTION WITH THE SALE OF
THE DEBTOR'S INTEREST IN CERTAIN PROPERTY OF THE ESTATE
AND (B) TO APPROVE THE FORM AND MANNER OF NOTICE
------------------------------------------------
PortaCom Wireless, Inc. (the "Debtor"), as debtor in possession, hereby
moves this Court for the entry of an order (a) establishing bidding procedures
and approving a break-up fee in connection with the sale of certain assets of
the Debtor, and (b) approving the form and manner of notice (the "Motion"), and
respectfully states in support thereof as follows:
Background
----------
1. On March 23, 1998 (the "Filing Date"), the Debtor filed a voluntary
petition for reorganization under chapter 11 of title 11 the United States Code
(the "Bankruptcy Code"). Since the Filing Date, the Debtor has continued in
possession of its assets and operation of its business as a debtor-in-possession
pursuant to (S)(S) 1107 and 1108 of the Bankruptcy Code.
2. PortaCom Wireless, Inc., a publicly held Delaware corporation,
develops wireless and wireline telecommunications services in selected
developing world markets.
3. The Debtor's assets consist primarily of its interest in 2,000,000
shares of common stock (the "MAC Shares") in Metromedia Asia Corporation ("MAC")
and warrants to purchase an additional 4,000,000 shares of MAC common stock with
a strike price of $4.00 per
<PAGE>
share (the "Warrants").
4. During this Chapter 11 case, the Debtor intends to sell its interest
in the MAC Shares and Warrants pursuant to section 363 of the Bankruptcy Code.
The Debtor believes, based on the current value of shares of common stock of VDC
Corporation, Ltd. ("VDC"), that it will receive approximately $30 million, plus
a deferred payment, in consideration for the sale of the MAC Shares and
Warrants. The proceeds from the sale of the MAC Shares and Warrants (the "Sale
Proceeds") will be used to maximize value to the Debtor's creditors and equity
security holders and fund the Debtor's plan of reorganization.
5. In 1996, the Debtor's business generated revenues of approximately
$1,000,000 from one transaction (a break-up fee from a failed merger). In 1997,
the Debtor did not generate any revenues. Due to the lack of capital resources,
the Debtor's business activities have virtually come to a standstill. At the
same time, the Debtor faced increasing pressure from trade creditors and, in
certain instances, litigation in a variety of locations across the country.
6. The Debtor determined that for it to maximize value to its
shareholders and creditors, it was necessary to commence this chapter 11 case
and to sell the MAC Shares and Warrants to the highest bidder pursuant to
sections 363(b) and (f) of the Bankruptcy Code.
7. Under the terms of that certain Postpetition Asset Purchase Agreement
between the Debtor and VDC, the Debtor agreed to sell the MAC Shares and
Warrants to VDC in consideration for 5.3 million shares of common stock of VDC
and the difference between $700,000 and the Debtor's outstanding indebtedness
arising from prepetition and postpetition financing
2
<PAGE>
provided by VDC (the "Purchase Offer"), subject to its receipt of higher and
better offers. The proposed sale will generate value to creditors and the
estate, based on the current market value of VDC common stock, of approximately
$30 million, plus a deferred payment. This will, in turn, result in a fund for
distribution under a plan which the Debtor anticipates will be sufficient to
satisfy allowed unsecured claims in full and provide substantial value to the
Debtor's shareholders. A true and correct copy of the Postpetition Asset
Purchase Agreement is attached hereto as Exhibit "A".
Relief Requested
----------------
8. The Debtor requests the entry of an order establishing bidding
procedures and approving a break-up fee in connection with the sale of the MAC
Shares and Warrants. The Debtor also seeks approval of the form and manner of
notice of these procedures. The relief sought is authorized by section 363 of
the Bankruptcy Code and is designed to maximize value to the Debtor's creditors
and equity security holders. In addition, the Debtor is requesting the Court to
schedule a hearing to consider the Purchase Offer on or about April 15, 1998.
The Debtor submits that a hearing held on that date will not require shortened
notice and is within the time specified for notice under Federal Rule of
Bankruptcy Procedure 2002(a).
The Bidding Procedures
----------------------
9. Both the Debtor and VDC recognize that the transaction contemplated
by the Postpetition Asset Purchase Agreement will be subject to higher and
better offers. Therefore, the Debtor seeks authority to implement certain
procedures (the "Bidding Procedures") to assure that the Debtor has obtained the
best return possible with respect to the MAC Shares and Warrants for the benefit
of its estate and creditors.
3
<PAGE>
10. As set forth below, the Debtor will accept bids from interested
third-parties pursuant to the Bidding Procedures. Bids will be accepted on a
global basis for all of the MAC Shares and Warrants, to the extent that all, or
some portion, of the MAC Shares and Warrants have not been otherwise disposed of
pursuant to an Order of the Bankruptcy Court. To the extent that third-party
offers are received by the Debtor, the Debtor will conduct an auction between
and among VDC and other parties interested in bidding on the MAC Shares and
Warrants. The Debtor, pursuant to this Motion, will seek authority to enter
into an agreement with the Successful Bidder (as hereafter defined) for the
purchase and sale of the MAC Shares and Warrants, subject to the approval of
this Court at a duly scheduled hearing (the "Hearing").
Notice of the Auction
---------------------
11. Within five (5) business days following the entry of an order
granting this Motion, or as soon thereafter as is practicable, the Debtor will
(a) publicize the auction of the MAC Shares and Warrants by publishing the
Notice of Auction for the Purchase of Certain Property, a form of which is
attached hereto and incorporated herein by reference as Exhibit "B" (the
"Auction Notice"), in The Financial Times, and (b) serve a copy of the Auction
-------------------
Notice by first class U.S. mail, postage pre-paid, on all creditors and
shareholders and any person or entity that has expressed to the Debtor a
substantial interest in bidding on the MAC Shares and Warrants.
Bidding Guidelines
------------------
12. Any person, entity, or buyer who desires to purchase the MAC Shares
and Warrants (collectively, a "Competing Bidder") must be present at the Auction
(as hereinafter defined) and bid in accordance with the following procedures (a
"Competing Bid"):
4
<PAGE>
(a) The Debtor will not consider offers for less than all the MAC
Shares and Warrants.
(b) To be eligible for participation in the Auction (as hereinafter
defined), offers must:
(1) be in writing and received by the Debtor's respective
undersigned counsel no later that two (2) days prior to the
date established for the Auction;
(2) be made on terms and conditions that are substantially
similar to those set forth in the Postpetition Asset
Purchase Agreement;
(3) contain a minimum initial bid providing consideration at
least $2,000,000 higher than the consideration provided by
the Purchase Offer;
(4) be accompanied by a refundable deposit of 10% of the
Competing Bid, payable in cash, certified check or cashier's
check, which shall be delivered to the Debtor not later than
the commencement of the Hearing;
(5) not be contingent upon any unperformed due diligence
investigation by the Competing Bidder, the receipt of
financing or any board of directors, shareholders or other
corporate approval;
(6) close the transaction prior to July 1, 1998;
(7) be accompanied by proof in a form satisfactory to the Debtor
of the Competing Bidder's financial ability to consummate
its offer to purchase the MAC Shares and Warrants;
(8) be in the form of a final written contract that will contain
terms and conditions substantially similar to the
Postpetition Asset Purchase Agreement signed by the
Competing Bidder which, when and if determined by the Debtor
and the Court to be the highest and best offer for the MAC
Shares and Warrants (the "Successful Bid"), can be
immediately countersigned by the Debtor and shall constitute
a binding agreement between the parties thereto; and
(9) acknowledge that the offer shall remain open and irrevocable
until the earlier of (a) entry of an order approving the
sale of the MAC Shares and Warrants, or (b) consummation of
an agreement with any Competing Bidder.
5
<PAGE>
(c) All offers are subject to approval of the Court at the Hearing.
The Auction
-----------
13. The Debtor will conduct the Auction beginning at 10:00 a.m on the
date of the Hearing and continue if necessary, from day to day until completed,
at the offices of Klehr, Harrison, Harvey, Branzburg & Ellers LLP, 1401 Walnut
Street, Philadelphia, Pennsylvania 19102. At the Auction, VDC and all other
interested parties will submit their highest and best bids to purchase the MAC
Shares and Warrants.
14. For purposes of determining whether a Competing Bid is higher and
better than the Purchase Offer, the shares of VDC common stock will be valued
based upon the mean of the last bid and ask prices per share as listed on the
NASD Electronic Bulletin Board or other similar interdealer quotation system
through which bid and ask prices for VDC are submitted, or any national
securities exchange on which VDC is listed, for the consecutive five (5) trading
days immediately preceding the Auction. In the event VDC is not trading on any
exchange for the five (5) days prior to the Auction, the value of VDC common
stock shall be the fair market value as reasonably determined by an investment
banking firm selected by the Debtor, with the costs of such appraisal to be
borne by the Debtor.
15. At the commencement of the Auction, the Debtor will announce which
bid (including the Purchase Offer and any Competing Bid) was the highest and
best initial offer (the "Opening Bid"). Thereafter, the Debtor will open the
bidding to submissions which are higher and better than the Opening Bid. Such
bids, other than the minimum initial bid described in paragraph 12(b)(3) hereof,
must be submitted in minimum increments of $100,000, until such
6
<PAGE>
time as the Debtor announces the Successful Bidder.
16. The Debtor reserves the sole discretion to determine which bidder is
the Successful Bidder.
17. At the time the Successful Bidder is announced at the Auction, and in
the event that such a Successful Bidder is a Competing Bidder, the Successful
Bidder shall increase its deposit to twenty (20%) percent of the Successful Bid,
which deposit shall be nonrefundable. If the Successful Bidder fails to increase
the deposit, the penultimate highest and best offer will be announced as the
Successful Bid, subject to the requirements of this paragraph.
18. No bidder in the Auction shall be entitled to any termination fee or
break-up fee (other than VDC, who may be entitled to a break-up fee under the
Postpetition Asset Purchase Agreement, as described below).
19. Following the Auction or as soon thereafter as the Court's calendar
permits, the Successful Bid shall be presented to the Court for approval at the
Hearing, so that the sale of the MAC Shares and Warrants can be approved and
authorized by the Court to the Successful Bidder.
The Sale Hearing
----------------
20. The Debtor requests that the Court schedule the Hearing for April 15,
1998, or as soon thereafter as the Court's calendar permits. At the Hearing,
the Court shall consider the sale of the MAC Shares and Warrants and enter an
order (the "Sale Order") authorizing the sale of the MAC Shares and Warrants as
follows:
i. If VDC is the Successful Bidder for the MAC Shares and Warrants,
the Debtor requests that the Court enter a Sale Order
substantially similar in form to the proposed order attached to
this Motion, modified as necessary
7
<PAGE>
to reflect the contents of the Successful Bid at the Auction;
and
ii. If VDC is not the Successful Bidder for the MAC Shares and
Warrants, the Debtor requests that the Court enter an
alternative Sale Order approving the Debtor's sale of the MAC
Shares and Warrants to the Successful Bidder.
21. If necessary, any alternative order will be submitted to the Court on
the day of the Hearing and will be substantially similar in form and substance
to the proposed order attached to the Motion, except as modified to reflect the
results of the Auction.
22. The sale of the MAC Shares and Warrants shall be without
representation or warranty of any kind, nature or description by the Debtor,
except as set forth in the Postpetition Asset Purchase Agreement.
Justifications for the Bidding Procedures
-----------------------------------------
23. The Debtor believes that the Bidding Procedures are the best way to
maximize the value of the MAC Shares and Warrants.
The Break-Up Fee
----------------
24. The Postpetition Asset Purchase Agreement provides that, if VDC is
not the Successful Bidder with respect to the purchase of all of the MAC Shares
and Warrants (including a determination that a Competing Bidder is the
Successful Bidder), then the Debtor is required to pay a break-up fee equal to
$1,000,000 (the "Break-Up Fee") to VDC. The Debtor is required to pay the Break-
Up Fee in consideration of VDC's efforts and expenses incurred in connection
with the Postpetition Asset Purchase Agreement and the DIP financing. Thus, the
Debtor also hereby requests authority to pay the Break-Up Fee to the extent
required under the Postpetition Asset Purchase Agreement.
8
<PAGE>
25. The Break-Up Fee is beneficial to the Debtor's estate and creditors.
VDC's Purchase Offer has established a floor for any further bidding on the MAC
Shares and Warrants. If VDC is not the Successful Bidder at the Auction because
the Debtor receives a higher and better offer, the Debtor will have benefited
from the floor established by the Purchase Offer.
26. Approval of break-up fees and/or expense reimbursement in connection
with the sale of significant assets has become an established practice in
chapter 11 asset sales, enabling a debtor to assure a sale to a contractually
committed bidder at a price the debtor believes is fair, while providing the
debtor with the potential of obtaining even greater benefits for the estate
through an auction process. This and other courts have approved break-up fees
in numerous other chapter 11 cases. See, e.g., In re Kupp Acquisition Corp.,
--- ---- ----------------------------
Case No. 96-1223 (PJW) (Bankr. D. Del. Mar. 3, 1997); In re Anchor (6/955)
--------------------
Container Corp., Case No. 96-1434 through 96-1516 (PJW) (Bankr. D. Del. Dec.
- ---------------
1996); In re Sfuzzi, Inc., Case No. 395-35195-HCA-1) (Bankr. N.D. TX Nov. 27,
------------------
1996); In re Abrasive Indus. Inc., Case No. 94-135 (HSB) (Bankr. D. Del. Feb.
--------------------------
22, 1994); In re The Icing, Inc., Case No. 95-512 (PJW) (approval of $200,000
---------------------
breakup fee an approximate purchase price of $2.2 million); In re Simmons
-------------
Upholstered Furniture, Inc., Case No. 94-634 (HSB) (approval of $350,000
- ---------------------------
termination fee and $300,000 in expense reimbursement on approximate purchase
price of $14,000,000); In re Industrial Gen. Corp., Case No. 95-895 (PJW)
---------------------------
(approval of $500,000 termination fee on approximate purchase price of $9.5
million); In re Buddy L. Inc., Case No. 95-235 (HSB) (sale of fitness division
-------------------
(approval of $157,000 termination fee and $100,000 in expense reimbursement on
approximate purchase price of $3.14 million); In re Buddy L. Inc., Case No. 95-
-------------------
235) (sale of toy division) (approval of $800,000 breakup fee and up to $445,000
in expense reimbursement on approximate purchase
9
<PAGE>
price of $50 million); In re Tempo Technology Corp., Case No. 95-596 (HSB)
----------------------------
(approval of $150,000 breakup fee including expense reimbursement on approximate
price of $150,000 in cash and securities worth $3.5 million); In re Continental
-----------------
airlines, Inc., Case No. 90-932 (HSB) (approval of $1.5 million breakup fee on
- --------------
approximate purchase price of $61 million).
27. The Break-Up Fee is within the range established by the precedents
set forth above. Assuming that the consideration offered by VDC has a value,
as of the Hearing, of at least approximately $30 million, the Break-Up Fee
represents less than four (4%) percent of the purchase price. Further, the
Break-Up Fee is the result of the Debtor's prudent business judgment and has
been agreed upon to maximize the value of the MAC Shares and Warrants. If
necessary, therefore, the Debtor should be authorized to pay the Break-Up Fee
pursuant to the Postpetition Asset Purchase Agreement. See In re Integrated
--- ----------------
Resources Inc., 135 B.R. 746 (Bankr. S.D.N.Y.), aff'd, 147 B.R. 650 (S.D.N.Y.
- -------------- -----
1992).
Notice
------
28. No trustee or examiner has been appointed in this chapter 11 case.
Notice of this Motion has been given to (a) the United States Trustee; (b) all
of the Debtor's 20 largest unsecured creditors; (c)MAC; and (d) the Debtor's
secured lenders; and (e) the Securities and Exchange Commission. In light of
the relief requested herein, the Debtor submits that no other or further notice
need be given.
[This page intentionally left blank]
10
<PAGE>
WHEREFORE the Debtor respectfully requests entry of an order granting the
relief sought herein and such other and further relief as is just and proper.
WALSH & MONZACK, P.A.
By:____________________________________
Francis A. Monaco, Jr. (#2078)
Joseph J. Bodnar (#2512)
400 Commerce Center
Twelfth and Orange Streets
P.O. Box 2031
Wilmington, DE 19899
(302) 656-8162
Counsel to Debtor and
Debtor-in-Possession
-and-
KLEHR, HARRISON, HARVEY,
BRANZBURG & ELLERS LLP
Joanne B. Wills, Esquire (#2357)
919 Market Street, Suite 1000
Wilmington, DE 19801
(302) 426-1189
Special Counsel to Debtor and
Debtor-in-Possession
Dated: March 23, 1998
11
<PAGE>
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re: : Chapter 11
:
PORTACOM WIRELESS, INC., : Case No. 98-661 (PJW)
:
Debtor. :
NOTICE OF AUCTION TO PURCHASE CERTAIN PROPERTY
----------------------------------------------
PLEASE TAKE NOTICE THAT:
1. Upon motion (the "Motion") by the above-captioned debtor (the
"Debtor"), and pursuant to an order of the United States Bankruptcy Court for
the District of Delaware (the "Bankruptcy Court") dated April 3, 1998 (the
"Order"), the above-captioned debtor (the "Debtor") is holding an auction for
the purchase of the Debtor's interest in 2,000,000 shares of common stock (the
"MAC Shares") in Metromedia Asia Corporation ("MAC") and warrants to purchase an
additional 4,000,000 shares of MAC common stock with a strike price of $4.00 per
share (the "Warrants").
2. The Debtor will hold the Auction beginning on April 23, 1998 at 10:00
a.m. and continuing if necessary, from day to day until completed, at the
offices of Klehr, Harrison, Harvey, Branzburg & Ellers LLP, 1401 Walnut Street,
Philadelphia, Pennsylvania 19102. At the Auction, VDC Corporation, Ltd. ("VDC")
and all other interested parties will submit their highest and final bids to
purchase the MAC Shares and Warrants in accordance with the bidding procedures
described below.
The purchase offer for the MAC Shares and Warrants made by VDC is set forth
in the
<PAGE>
Post-Petition Asset Purchase Agreement, as amended (the "Purchase Offer").
3. Participation at the Auction is subject to the terms and conditions
approved by the Bankruptcy Court in the Order (the "Bidding Procedures"),
including the following:
(a) The Debtor will not consider offers for less than all of the MAC
Shares and Warrants.
(b) To be eligible for participation in the Auction (as hereinafter
defined), offers must:
(1) be in writing and received by the Debtor's respective
counsel indicated below no later that two (2) days prior to
the date established for the Auction (i.e., by April 21,
----
1998);
(2) be made on terms and conditions that are substantially
similar to those set forth in the Postpetition Asset
Purchase Agreement;
(3) contain a minimum initial bid providing consideration at
least $2,000,000 higher than the consideration provided by
the Purchase Offer;
(4) be accompanied by a refundable deposit of 10% of the
Competing Bid, payable in cash, certified check or cashier's
check, which shall be delivered to the Debtor not later
than the commencement of the hearing to approve the sale of
the MAC Shares and Warrants scheduled for April 23, 1998 at
2:30 p.m. (the "Hearing");
(5) not be contingent upon any unperformed due diligence
investigation by the Competing Bidder, the receipt of
financing or any board of directors, shareholders or other
corporate approval;
(6) agree to close the transaction prior to July 1, 1998;
(7) be accompanied by proof in a form satisfactory to the Debtor
of the Competing Bidder's financial ability to consummate
its offer to purchase the MAC Shares and Warrants;
(8) be in the form of a final written contract that will contain
terms and conditions substantially similar to the
Postpetition Asset Purchase Agreement signed by the
Competing Bidder which, when and if determined by the Debtor
and the Court to be the highest and best
2
<PAGE>
offer for the MAC Shares and Warrants (the "Successful
Bid"), can be immediately countersigned by the Debtor and
shall constitute a binding agreement between the parties
thereto; and
(9) acknowledge that the offer shall remain open and irrevocable
until the earlier of (a) entry of an order approving the
sale of the MAC Shares and Warrants, or (b) consummation of
an agreement with any Competing Bidder.
(c) All offers are subject to approval of the Court at the Hearing.
4. At the Auction, the following procedure will be utilized:
(a) VDC and all other interested parties will submit their highest
and best bids to purchase the MAC Shares and Warrants.
(b) For purposes of determining whether a Competing Bid is higher and
better than the Purchase Offer, the shares of VDC common stock will
be valued based upon the mean of the last bid and ask prices per
share as listed on the NASD Electronic Bulletin Board or other
similar interdealer quotation system through which bid and ask
prices for VDC are submitted, or any national securities exchange
on which VDC is listed, for the consecutive five (5) trading days
immediately preceding the Auction. In the event VDC is not trading
on any exchange for the five (5) prior to the Auction, the value of
VDC common stock shall be the fair market value as reasonably
determined by an investment banking firm selected by the Debtor,
with the costs of such appraisal to be borne by the Debtor.
(c) At the commencement of the Auction, the Debtor will announce
which bid (including the Purchase Offer and any Competing Bid) was
the highest and best initial offer (the "Opening Bid"). Thereafter,
the Debtor will open the bidding to submissions which are higher
and better than the Opening Bid. Such bids, other than the minimum
initial bid described in paragraph 3(b)(3) above, must be submitted
in minimum increments of $100,000, until such time as the Debtor
announces the Successful Bidder.
(d) The Debtor reserves the sole discretion to determine which bidder
is the Successful Bidder.
(e) At the time the Successful Bidder is announced at the Auction, and
in the event that such a Successful Bidder is a Competing Bidder,
the Successful Bidder shall increase its deposit to 20% of the
Successful Bid, which deposit shall be nonrefundable. If the
Successful Bidder fails to increase
3
<PAGE>
the deposit, the penultimate highest and best offer will be
announced as the Successful Bid, subject to the requirements of
this paragraph.
5. A hearing to approve the sale of the MAC Shares and Warrants to the
highest and best bidder will be held on April 23, 1998 at 2:30 p.m. (Prevailing
Eastern Time) at the Bankruptcy Court, 824 N. Market Street, 6th Floor,
Wilmington, Delaware 19801.
6. This Notice is qualified in its entirety by the Order.
7. Copies of the Order and the Postpetition Asset Purchase Agreement, as
amended, are available upon request, at the Debtor's expense, from (a) Delaware
Legal Copy (302) 426-1500, or (b) the below-listed counsel.
Dated: April 6, 1998
Wilmington, Delaware
BY ORDER OF THE COURT
WALSH & MONZACK, P.A.
400 Commerce Center
Twelfth and Orange Streets
P.O. Box 2031
Wilmington, DE 19899
Attn: Francis A. Monaco, Jr., Esquire
Counsel to the Debtor and
Debtor-in-Possession
-and-
KLEHR, HARRISON, HARVEY,
BRANZBURG & ELLERS LLP
1401 Walnut Street
Philadelphia, Pennsylvania 19102-3163
(215) 569-6060
Attn: Jeffrey D. Kurtzman, Esquire
Special Counsel to the Debtor
and Debtor in Possession
4
<PAGE>
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re: : Chapter 11
:
PORTACOM WIRELESS, INC., : Case No. 98-661 (PJW)
:
Debtor. :
ORDER (A) ESTABLISHING BIDDING PROCEDURES AND APPROVING A
BREAK-UP FEE IN CONNECTION WITH THE SALE OF THE DEBTOR'S
INTEREST IN CERTAIN PROPERTY OF THE ESTATE AND
(B) APPROVING THE FORM AND MANNER OF NOTICE
-------------------------------------------
Upon consideration of the motion (the "Motion") of PortaCom Wireless, Inc.
(the "Debtor"), for an order approving certain bidding and notice procedures to
be employed in connection with the sale of the Debtor's interest in 2,000,000
shares of common stock (the "MAC Shares") in Metromedia Asia Corporation ("MAC")
and warrants to purchase an additional 4,000,000 shares of MAC common stock with
a strike price of $4.00 per share (the "Warrants") pursuant to 11 U.S.C. (S)(S)
363(b) and (f) and Fed. R. Bankr. P. 6004; and upon the record in this case; and
the relief requested being appropriate and in the best interests of the Debtor's
estate; and adequate and sufficient notice of the Motion having been given; and
it appearing that no further notice need be given; and it appearing that good
cause exists for the relief requested in the Motion; and this Court having found
and determined that the relief requested by the Debtor is necessary;
IT IS HEREBY ORDERED THAT:
<PAGE>
1. The Motion is granted.
2. The Bidding Procedures set forth in the Motion shall be, and hereby
are, approved.
3. The Debtor shall be, and hereby is, authorized to sell the MAC Shares
and Warrants in accordance with the Bidding Procedures, subject to the approval
of the Court at a hearing (the "Hearing") scheduled for April 23, 1998 at 2:30
p.m. (Prevailing Eastern Time).
4. The Debtor shall be, and hereby is, authorized to pay the Break-Up Fee,
as required pursuant to the Postpetition Asset Purchase Agreement at Closing
from the sale proceeds derived from another buyer without further order of the
Court.
5. The form and manner of the notice of the Bidding Procedures described
in the Motion, including the publication and service of the Auction Notice,
shall be, and hereby is approved as sufficient notice of the Bidding Procedures.
6. Without implying that any Competing Bidder is a party in interest with
respect to the Hearing, VDC Corporation, Ltd. is a party in interest entitled to
be heard at the Hearing.
7. This Court shall retain jurisdiction over any matters related to or
arising from the implementation of this Order.
Dated: Wilmington, Delaware
April 3, 1998
__________________________________
United States Bankruptcy Judge
<PAGE>
EXHIBIT 2.4
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re: :
: Case No. 98-661(PJW)
PORTACOM WIRELESS, INC., :
: Chapter 11
Debtor. :
STIPULATION AND ORDER IN LIEU OF OBJECTION
------------------------------------------
This Amended Stipulation and Order In Lieu of Objection ("Stipulation") is
made as of the 3rd day of April, 1998, by and among PortaCom Wireless, Inc.
("Debtor"), VDC Corporation Ltd. ("Buyer") and the Official Committee of
Unsecured Creditors of PortaCom Wireless, Inc. ("Committee"), by and through
their respective undersigned counsel.
W I T N E S S E T H:
WHEREAS, on March 23, 1998, Debtor filed a voluntary petition for relief
under Chapter 11 of Title 11 of the United States Code ("Code"), commencing a
case in the United States Bankruptcy Court for the District of Delaware (the
"Court"), which is pending at number 98-661 (the "Case"); and
WHEREAS, on March 29, 1998, the Office of the United States Trustee
convened a meeting of the twenty largest unsecured creditors of the Debtor for
the purpose of appointing a committee of creditors; and
WHEREAS, the Office of the United States Trustee appointed three creditors
to the committee, which Committee engaged counsel; and
WHEREAS, prior to the commencement of the Case, the Debtor and Buyer were
parties to an asset purchase agreement and amendments thereto, pertaining to the
Debtor's agreement to
<PAGE>
sell to Buyer its interest in and to 2,000,000 shares of common stock ("MAC
Shares") of Metromedia Asia Corporation ("MAC") and warrants to purchase an
additional 4,000,000 of MAC common stock with a strike price of $4.00 per share
("MAC Warrants"); and
WHEREAS, the Debtor and Buyer negotiated the terms of an asset purchase
agreement to be entered into in the Case and approved by the Court ("Purchase
Agreement") and agreed upon the procedures pursuant to which the Purchase
Agreement would be submitted to the Court for approval; and
WHEREAS, together with the petition commencing the Case, the Debtor filed
the Motion Of Debtor (A) To Establish Bidding Procedures And To Approve A Break-
Up Fee In Connection With The Sale Of The Debtor's Interest In Certain Property
Of The Estate And (B) To Approve The Form And Manner Of Notice ("Motion") with
respect to the Purchase Agreement, which is attached to the Motion as Exhibit A;
and
WHEREAS, the Court scheduled a hearing on the Motion on April 3, 1998 at
2:00 p.m. and provided the Committee the opportunity to object to the Motion at
any time at or prior to the scheduled hearing; and
WHEREAS, the Committee expressed its intention to object to various
provisions of the Motion and Notice; and
WHEREAS, the Debtor, Buyer and Committee, have agreed to resolve the
Committee's concerns and objections by modifying the terms of the Purchase
Agreement, as more fully set forth below, in consideration of the Committee's
waiver of its objections to the Motion and approval of the Purchase Agreement at
the hearing to be scheduled to approve the same and confirm the Buyer as the
"Successful Bidder;" and
<PAGE>
NOW, THEREFORE, intending to be legally bound hereby, for and in
consideration of the mutual covenants set forth below, the parties agree as
follows:
1. The recitals set forth above are incorporated herein as though set
forth below at length.
2. The Purchase Agreement is incorporated herein and shall be amended
pursuant to the terms set forth below. Capitalized terms used herein and not
defined herein shall have the meaning ascribed to such term in the Purchase
Agreement.
3. Section 1.1 shall be amended by adding a new definition, as follows:
"Allowed Claims" means the pre-petition unsecured claims, as defined
in Code (S) 101(5), or portion thereof, that: (a) are allowed pursuant
to a final, non-appealable Order of the Court, or (b) are deemed
allowed pursuant to Code (S) 1111(a), or (c) are the subject of pre-
petition settlement agreement, or post-petition settlements agreement
approved by the Court, that provide for the payment of cash, in whole
or in part, in settlement and satisfaction thereof, and in such case,
the cash portion thereof (collectively, the "Settlements"). Debtor's
counsel believes the Settlements are enforceable and will vigorously
attempt to enforce them in the Chapter 11, to the extent necessary.
"Cash Purchase Escrow" means that segregated, interest bearing escrow
account established and maintained by the Debtor, funded by Buyer, in
an amount equal to $2.6 million. The Cash Purchase Escrow may be
funded by any combination of cash and stand-by letter of credit;
provided, however, that the cash portion shall be in the minimum
amount of $1,250,000. The holders of priority unsecured claims and
general unsecured claims shall be the beneficiaries of this fund.
"Disputed Claims" means any pre-petition, unsecured claim that is not
an Allowed Claim, by virtue of its being scheduled by the Debtor as
disputed, contingent or unliquidated, and proof of which has not been
timely filed, or as to which an objection has been interposed and
which is pending as of Closing.
4. Section 3.2 of the Purchase Agreement is hereby amended by deleting the
section in its entirety and replacing it with the following:
3.2 Closing Purchase Price. The Closing Purchase Price (the "Closing
----------------------
Purchase Price") shall be paid or delivered by Buyer at Closing in the
following manner:
<PAGE>
(a) Subject to adjustment pursuant to Section 3.4 hereof, Buyer shall
deliver the Cash Purchase Escrow (the "Cash Funds") to the Cash
Purchase Escrow escrow agent ("Escrow Agent") for the benefit of
Seller; and
(b) Buyer shall deliver newly issued shares of common stock, par value
$2.00 per share, of Buyer in accordance with the provisions of Section
3.3 hereof (the "VDC Shares"). The number of VDC Shares to be
delivered shall equal the difference between (i) 5,300,000 and (ii)
the difference between the principal amount of the Cash Purchase
Escrow delivered to Seller at Closing and the Indebtedness, divided by
the value of the VDC stock valued consistently with paragraph 14 of
the Motion. For example, if the funds of the Cash Purchase Escrow
delivered to Seller at Closing are in the amount of $2,000,000, the
Indebtedness is $366,125 and the value of the VDC Shares is $6.00, the
number of VDC Shares to be delivered is equal to 5,027,688 shares
(5,300,000 - ((2,000,000 - 366,125)/6)); and
(c) The Indebtedness shall be satisfied by Seller's delivery, in its
capacity as escrow agent, to Buyer of that portion of the Cash
Purchase Escrow, together with all accrued interest and other earnings
thereon, not delivered to Seller pursuant to sub-section (a) above.
5. Section 3.4 of the Purchase Agreement is hereby amended by adding to
the end of the paragraph, the following:
Following the Closing, from time to time, Disputed Claims, or a
portion thereof, may become Allowed Claims. To the extent that any
Disputed Claim becomes an Allowed Claim, the Escrow Agent shall
deliver to the Seller for distribution to the holder thereof the
amount of such Allowed Claim; to Buyer 60% of the disallowed amount of
the Disputed Claim; and the Escrow Agent shall retain the balance.
6. The Cash Purchase Escrow shall be funded the later of April 8, 1998 or
forty-eight (48) hours after entry by the Court of an Order approving this
Stipulation and upon the satisfaction of the condition identified in paragraph 7
below.
7. Debtor, or its counsel, shall be appointed escrow agent with respect to
the Cash Purchase Escrow. The Cash Purchase Escrow shall be established and
invested in a money market or federally backed instrument. Interest and all
other earnings on the Cash Purchase
<PAGE>
Escrow shall inure to the benefit of Buyer. The excess Cash Purchase Escrow, or
any portion thereof, shall be returned to Buyer from time to time at such time
as any Disputed Claim becomes an Allowed Claim. The amount returned to Buyer
shall be 60% of the amount which is disallowed. All other terms and conditions
of the escrow shall be set forth in an agreement mutually acceptable to the
Debtor, Buyer and the Committee, which shall be executed as a condition
precedent to the funding of such escrow.
8. Upon approval of the Purchase Agreement by the Court and confirmation
of Buyer as the Successful Bidder and approved purchaser thereunder, 10% of the
Cash Purchase Escrow shall become non-refundable as to Buyer, except in the
event of a default by Seller under the Purchase Agreement.
9. The Debtor In Possession Loan, Security and Pledge Agreement between
the Debtor and Buyer, approved by interim order entered on March 25, 1998 ("DIP
Financing Agreement"), shall be deemed modified by reducing the amount of
advances available thereunder post-petition to $100,000.00.
10. Except as expressly modified hereby, the Purchase Agreement, Motion,
Notice and DIP Financing Agreement shall remain in full force and effect.
11. The Committee hereby waives any and all objections to the Motion,
Notice and approval of the Purchase Agreement by the Court and confirmation of
Buyer as the Successful Bidder and approved purchaser thereunder.
12. The Debtor shall use its best efforts to review the claims asserted
against the estate and interpose and pursue objects thereto. Any and all
objections to claims shall be filed on or before May 15, 1998.
<PAGE>
13. This Stipulation sets forth the entire agreement of the parties hereto
with respect to the subject matter hereof and may be amended only by a writing
signed by each party hereto and approved by the Court.
14. This Stipulation shall inure to and be binding upon the parties hereto
and their respective successor and assigns upon approval hereof by an Order of
the Court.
15. Counsel signing this Stipulation on behalf of the parties hereto each
represent that they have all the requisite authority to bind their client
hereto.
16. This Stipulation may be executed in counterparts.
<PAGE>
IN WITNESSETH WHEREOF, the parties hereto through their duly authorized
counsel, have signed this Stipulation the day and year first above written.
PORTACOM WIRELESS, INC.
Dated: ======================================
By: Jeffrey Kurtzman, Esquire
Special Counsel to PortaCom Wireless, Inc.
VDC CORPORATION, LTD.
Dated: ======================================
By: Kenneth E. Aaron, Esquire
Stuart M. Brown, Esquire
Counsel to VDC Corporation, Ltd.
OFFICIAL COMMITTEE OF UNSECURED CREDITORS
Dated: ======================================
By: Francis Lawall, Esquire
J. Gregg Miller, Esquire
Counsel to Official Committee of Unsecured
Creditors
APPROVED and so ORDERED, ADJUDGED and DECREED, this day of April, 1998.
======================================
Peter J. Walsh,
United States Bankruptcy Judge
<PAGE>
EXHIBIT 10.23
THIS EMPLOYEE INCENTIVE OPTION AGREEMENT dated for reference as at the 7th day
of February, 1997.
BETWEEN:
PORTACOM WIRELESS, INC., a company duly incorporated under
the laws of the State of Delaware, with an office at #11 -
1155 Melville Street, in the City of Vancouver, in the
Province of British Columbia, V6Z 4G4.
(the "Company")
OF THE FIRST PART
AND:
MICHAEL MARCUS
300 South 4th Street
Suite 1100
Las Vegas, Nevada
89101
(the "Employee")
OF THE SECOND PART
WHEREAS:
A. The Employee is an employee of the Company by virtue of being a member
of the Company's steering committee which advises the Company's Board of
Directors with respect to future and existing operations and opportunities for
the Company.
B. It is advantageous for the Company to grant to the Employee stock
options to purchase the Company's shares as an incentive for services to be
rendered to the Company by the Employee.
IN CONSIDERATION OF THESE PREMISES, AND THE COVENANTS AND AGREEMENTS HEREIN
CONTAINED IN THIS AGREEMENT, THE PARTIES COVENANT AND AGREE AS FOLLOWS:
1. Grant of Options. The Company grants to the Employee, irrevocable
----------------
within the time limited by this Agreement, options (the "Options") to purchase
free and clear of all liens, charges and encumbrances, in aggregate, 45,000
common shares of the Company (the "Option Shares") at the price per Option Share
set out in paragraph 2.
2. Term and Price. Subject as hereinafter provided, the Options may be
--------------
exercised by the Employee during the period February 7, 1997 to February 7,
2,002 inclusive (the "Option Term"), at a price of $3.61 (U.S.) per share, or
such other price as may be approved by the Vancouver Stock Exchange.
3. Employment Status. Each of the Company and the Employee acknowledge
-----------------
and represent, each to the other, that the Employee serves as a part time
dependent contractor who provides services to the Company as a member of its
steering committee on a continuing and regular basis consisting of not less than
18 hours per calendar week and that in providing the services to the Company the
Employee is subject to the same control and direction by the Company over the
details
<PAGE>
-2-
and methods of work as that of an employee of the Company and further
that the Employee possesses business and management expertise of value to the
Company and has an ongoing relationship with the Company that enables the
Employee to be knowledgeable about and siezed with the business and affairs of
the Company.
4. Exercise of Options. The Employee may exercise the Options either
-------------------
wholly or in part any time and from time to time within the Option Term by
transmitting notice in writing to the Company setting out the number of shares
to be purchased, together with payment for those shares by certified cheque,
bank draft or wire order.
5. Continuing to Act in Designated Capacity. The Options are subject to
----------------------------------------
the Employee continuing to act as a part time dependent contractor for the
Company as a member of the Company's steering committee during the Option Term.
If the Employee should cease to continue to act in such a capacity with the
Company during the Option Term for any reason except by reason of death, or
termination for cause, then the Options allocated to such Employee pursuant to
paragraph 1 shall be terminated without further action of the Company and become
null and void within thirty (30) days of the Employee so ceasing to act. Should
the Employee's capacity with the Company be terminated for cause then the
Options then remaining unexercised shall immediately terminate and become null
and void without further action by the Company.
3. Corporate Authority. Prior to the issuance of any of the Option
-------------------
Shares the Company will take or cause to be taken all necessary steps to validly
and effectively approve or authorize the allotment and issuance by the Company
of the Option Shares.
4. Death of Optionee. In the event of the death of the Employee, the
-----------------
Options allocated to the Employee may be exercised by the Employee's estate or
legal representative for a period of six (6) months from the date of death.
5. Options Personal. The Options granted are personal to the Employee
----------------
and shall not be assigned or transferred. It is acknowledged and agreed that
the Employee has not been induced to exercise any of the Options or to purchase
any of the Option Shares pursuant to this Agreement by expectation of employment
or, if applicable, continued employment with the Company.
6. Regulatory and Shareholder Approvals. This Agreement and any
------------------------------------
amendments hereto and the Options provided for herein are subject to the
approval of the Vancouver Stock Exchange, and are further subject to the
approval of the shareholders of the Company in a general meeting prior to any
exercise of the Options in the event the Employee is considered to be an
<PAGE>
-3-
"insider" of the Company as that term is defined in the Securities Act (British
Columbia). In addition, the Employee acknowledges that there may be resale
restrictions and reporting requirements imposed upon any or all of the Option
Shares. The Employee agrees to abide by any resale restrictions as may be
imposed and any and all reporting requirements as prescribed by the Securities
Act (British Columbia) and the rules and regulations pursuant thereto, and, the
Employee further agrees to abide by all applicable securities laws (including,
but not limited to such hold periods as may be applicable in respect of any
resale of the Option Shares as a result of such securities laws) in the
jurisdiction in which the Employee is resident.
7. Adjustment of Terms on Capital Alterations. If, during the Option
------------------------------------------
Term, there is a subdivision, consolidation, redivision, or reclassification of
the issued common shares of the Company, the class, number and price of the
balance of the Option Shares to be issued in respect of any of the Options
thereafter will be adjusted proportionately.
8. Notice of Exercise. Notice of exercise of the Options shall be deemed
------------------
to be well and sufficiently given if sent by prepaid registered mail or
delivered to the Company at the address set forth above together with the
appropriate exercise payment.
9. Counterparts. This Agreement may be executed in several parts in the
------------
same form and such parts as so executed shall together form one original
agreement, and such parts if more than one shall be read together and construed
as if all the signing parties had executed one copy of this Agreement.
10. Enurement. This Agreement shall enure to the benefit of and be
---------
binding upon the parties to this Agreement and their respective heirs,
executors, administrators and successors.
11. Headings. The paragraph headings that appear at the beginning of each
--------
paragraph of this Agreement are not intended to form a part of this Agreement,
but are inserted for convenience of reference only.
12. Time of the Essence. Time shall be of the essence.
-------------------
<PAGE>
-4-
13. Governing Law. This Agreement shall be governed and construed in
-------------
accordance with the laws of the Province of British Columbia.
THE PARTIES have executed this Agreement as at the day first above written.
THE CORPORATE SEAL OF PORTACOM WIRELESS, INC.
was hereunto affixed in the presence of: )
)
/s/ Michael A. Richard )
- -----------------------------------------------
Authorized Signatory )
)
) C/S
)
- ----------------------------------------------- )
Authorized Signatory
SIGNED, SEALED AND DELIVERED by MICHAEL )
MARCUS, in the presence of: )
)
)
)
)
/s/ Judith Hobgood )
- ---------------------------------------
WITNESS /s/ Michael Marcus
--------------------------
MICHAEL MARCUS
<PAGE>
EXHIBIT 10.24
THIS EMPLOYEE INCENTIVE OPTION AGREEMENT dated for reference as at the 7th day
of February, 1997.
BETWEEN:
PORTACOM WIRELESS, INC., a company duly incorporated under the laws of
the State of Delaware, with an office at #11 - 1155 Melville Street, in
the City of Vancouver, in the Province of British Columbia, V6Z 4G4.
(the "Company")
OF THE FIRST PART
AND:
THOMAS SCICHILI
Via Della Croce, 77
00187 Rome
Italy
(the "Employee ")
OF THE SECOND PART
WHEREAS:
A. The Employee is an employee of the Company by virtue of providing legal
services including the negotiation and completion of telecommunications licences
and services agreements in foreign jurisdictions.
B. It is advantageous for the Company to grant to the Employee stock options
to purchase the Company's shares as an incentive for services to be rendered to
the Company by the Employee.
IN CONSIDERATION OF THESE PREMISES, AND THE COVENANTS AND AGREEMENTS HEREIN
CONTAINED IN THIS AGREEMENT, THE PARTIES COVENANT AND AGREE AS FOLLOWS:
1. Grant of Options. The Company grants to the Employee, irrevocable within
----------------
the time limited by this Agreement, options (the "Options") to purchase free and
clear of all liens, charges and encumbrances, in aggregate, 45,000 common shares
of the Company (the "Option Shares") at the price per Option Share set out in
paragraph 2.
2. Term and Price. Subject as hereinafter provided, the Options may be
--------------
exercised by the Employee during the period February 7, 1997 to February 7,
2,002 inclusive (the "Option Term"), at a price of $3.61 (U.S.) per share, or
such other price as may be approved by the Vancouver Stock Exchange.
3. Employment Status. Each of the Company and the Employee acknowledge
-----------------
and represent, each to the other, that the Employee serves as a part time
dependent contractor who provides services to the Company as its legal adviser
negotiating and contracting telecommunications licenses and services agreements
on behalf of the Company on a continuing and regular basis consisting of not
less than 18 hours per calendar week and that in providing the services to the
Company the Employee is subject to the same control and direction by the Company
over the details and methods of work as that of an employee of the Company and
further that the Employee possesses business and legal expertise of value to the
Company and has an ongoing relationship with the Company that enables the
Employee to be knowledgeable about and siezed with the business and affairs of
the Company.
4. Exercise of Options. The Employee may exercise the Options either
-------------------
wholly or in part any time and from time to time within the Option Term by
transmitting notice in writing to the
<PAGE>
Company setting out the number of shares to be purchased, together with payment
for those shares by certified cheque, bank draft or wire order.
5. Continuing to Act in Designated Capacity. The Options are subject to the
----------------------------------------
Employee continuing to act as a part time dependent contractor for the Company
as a member of the Company's steering committee during the Option Term. If the
Employee should cease to continue to act in such a capacity with the Company
during the Option Term for any reason except by reason of death, or termination
for cause then the Options allocated to such Employee pursuant to paragraph 1
shall be terminated without further action of the Company and become null and
void within thirty (30) days of the Employee so ceasing to act. Should the
Employee's capacity with the Company be terminated for cause then the Options
then remaining unexercised shall immediately terminate and become null and void
without further action by the Company.
3. Corporate Authority. Prior to the issuance of any of the Option Shares
-------------------
the Company will take or cause to be taken all necessary steps to validly and
effectively approve or authorize the allotment and issuance by the Company of
the Option Shares.
4. Death of Optionee. In the event of the death of the Employee, the
-----------------
Options allocated to the Employee may be exercised by the Employee's estate or
legal representative for a period of six (6) months from the date of death.
5. Options Personal. The Options granted are personal to the Employee and
----------------
shall not be assigned or transferred. It is acknowledged and agreed that the
Employee has not been induced to exercise any of the Options or to purchase any
of the Option Shares pursuant to this Agreement by expectation of employment or,
if applicable, continued employment with the Company.
6. Regulatory and Shareholder Approvals. This Agreement and any amendments
------------------------------------
hereto and the Options provided for herein are subject to the approval of the
Vancouver Stock Exchange, and are further subject to the approval of the
shareholders of the Company in a general
<PAGE>
meeting prior to any exercise of the Options in the event the Employee is
considered to be an "insider" of the Company as that term is defined in the
Securities Act (British Columbia). In addition, the Employee acknowledges that
there may be resale restrictions and reporting requirements imposed upon any or
all of the Option Shares. The Employee agrees to abide by any resale
restrictions as may be imposed and any and all reporting requirements as
prescribed by the Securities Act (British Columbia) and the rules and
regulations pursuant thereto, and, the Employee further agrees to abide by all
applicable securities laws (including, but not limited to such hold periods as
may be applicable in respect of any resale of the Option Shares as a result of
such securities laws) in the jurisdiction in which the Employee is resident.
7. Adjustment of Terms on Capital Alterations. If, during the Option Term,
------------------------------------------
there is a subdivision, consolidation, redivision, or reclassification of the
issued common shares of the Company, the class, number and price of the balance
of the Option Shares to be issued in respect of any of the Options thereafter
will be adjusted proportionately.
8. Notice of Exercise. Notice of exercise of the Options shall be deemed to
------------------
be well and sufficiently given if sent by prepaid registered mail or delivered
to the Company at the address set forth above together with the appropriate
exercise payment.
9. Counterparts. This Agreement may be executed in several parts in the
------------
same form and such parts as so executed shall together form one original
agreement, and such parts if more than one shall be read together and construed
as if all the signing parties had executed one copy of this Agreement.
10. Enurement. This Agreement shall enure to the benefit of and be binding
---------
upon the parties to this Agreement and their respective heirs, executors,
administrators and successors.
11. Headings. The paragraph headings that appear at the beginning of each
--------
paragraph of this Agreement are not intended to form a part of this Agreement,
but are inserted for convenience of reference only.
12. Time of the Essence. Time shall be of the essence.
-------------------
<PAGE>
13. Governing Law. This Agreement shall be governed and construed in
-------------
accordance with the laws of the Province of British Columbia.
THE PARTIES have executed this Agreement as at the day first above written.
THE CORPORATE SEAL OF PORTACOM WIRELESS, INC. was
hereunto affixed in the presence of:
/s Michael A. Richard
- ---------------------------------------------
Authorized Signatory
- --------------------------------------------- C/S
Authorized Signatory
SIGNED, SEALED AND DELIVERED by THOMAS SCICHILI, )
in the presence of: )
)
)
)
)
/s/ Macarena Puigrredon )
- --------------------------------------------- /s/ Thomas Scichili
WITNESS -----------------------
THOMAS SCICHILI
<PAGE>
EXHIBIT 10.25
ASSET PURCHASE AGREEMENT
by and between
VDC CORPORATION LTD.
as Buyer,
and
PORTACOM WIRELESS, INC.
as Seller
March 23, 1998
<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
This ASSET PURCHASE AGREEMENT (the "Agreement") is made as of the 23rd day
of March, 1998, by and between VDC CORPORATION LTD., a Bermuda corporation
("Buyer"), and PORTACOM WIRELESS, INC., a Delaware corporation ("Seller").
WITNESSETH:
WHEREAS, Seller desires to sell, and Buyer desires to purchase, on the
terms and conditions hereafter set forth, certain of the assets of Seller as
described herein; and
WHEREAS, Seller and Buyer are parties to that certain Asset Purchase
Agreement, dated as of November 25, 1997, as amended as of February 16, 1998,
concerning the subject matter hereof (the "Original Agreement"); and
WHEREAS, Seller and Buyer intend that this Agreement supersede in its
entirety the Original Agreement; and
WHEREAS, on March 23, 1998, Seller filed a voluntary petition for relief
under Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code")
before the United States Bankruptcy Court for the District of Delaware (or any
other tribunal exercising jurisdiction over the Debtor and property of its
estate, the "Court"); and
WHEREAS, Seller remains in possession of its property and in control of its
business pursuant to (S)(S) 1107 and 1108 of the Bankruptcy Code; and
WHEREAS, Seller and Buyer are parties to a Loan Agreement, Security
Agreement and Pledge Agreement, entered into on November 10, 1997, whereby Buyer
extended to Seller prior to the commencement of the case the principal sum of
approximately $360,000 (together with all accrued interests, costs and fees, the
"Pre-Petition Indebtedness"); and
WHEREAS, Seller and Buyer are parties to a Debtor In Possession Loan,
Security and Pledge Agreement, entered into after the commencement of the case,
and subject to Court approval, whereby Buyer agreed to advance to Seller the
principal amount up to an additional $333,000, subject to the terms and
conditions set forth therein (together with all accrued interests, costs and
fees, the "Post-Petition Indebtedness" and together with the Pre-Petition
Indebtedness, the "Indebtedness"); and
WHEREAS, Seller and Buyer agree that the transactions contemplated hereby
are other than in the ordinary course of Seller's business, and accordingly
Court approval is required; and
1
<PAGE>
WHEREAS, Seller and Buyer desire to consummate the transactions
contemplated hereby as quickly as possible in order to maximize the benefit to
the estate and intend to seek expedited consideration by the Court of the
approval of this Agreement; and
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants,
agreements and representations and warranties herein contained, and for other
good and legal consideration, the receipt and sufficiency of which is hereby
acknowledged, Seller and Buyer, intending to be legally bound hereby, agree as
follows:
ARTICLE 1
DEFINITIONS
1.1 When used in this Agreement, the following terms, in their singular
and plural forms, shall have the meanings assigned to them below:
"Act" means the Securities Act of 1933, as amended.
---
"Agreement" is defined in the initial paragraph hereof.
---------
"Assets" means all of Seller's right, title and interest in and to all
------
of the following described holdings:
(i) Two million shares of common stock, par value $.0l per share
("MAC Common Stock"), of Metromedia Asia Corporation ("MAC"), as evidenced by
Stock Certificate Number 59, dated February 28, 1997; and
(ii) Warrants ("MAC Warrants") to purchase four million shares of
common stock, par value $.0l per share, at $4.00 per share, of MAC, as evidenced
by Warrant Number 19.
"Buyer" is defined in the initial paragraph hereof.
-----
"Cash Funds" is defined in Section 3.2(a).
---------- --------------
"Claim" means a claim or demand for any and all Liabilities, damages,
-----
losses, obligations, deficiencies, encumbrances, penalties, costs and expenses,
including reasonable attorneys' fees, resulting from, related to or arising out
of (i) any misrepresentation, breach of warranty or non-fulfillment of any
covenant of Seller set forth in this Agreement or in any Related Document; (ii)
Seller's ownership of the Assets; (iii) any and all actions, suits,
investigations, proceedings, demands, assessments, audits, judgments and claims
arising out of any of the foregoing.
"Closing" and "Closing Date" are defined in Section 6.1.
------- ------------ -----------
2
<PAGE>
"Disclosure Schedule" is defined in Section 4.1.
------------------- -----------
"GAAP" means generally accepted accounting principles in the United
----
States, consistently applied.
"Governmental Authority" means any foreign, federal, state, regional
----------------------
or local authority, agency, body, court or instrumentality, regulatory or
otherwise, which, in whole or in part, was formed by or operates under the
auspices of any foreign, federal, state, regional or local government.
"Indemnified Party" is defined in Section 10.4.
----------------- ------------
"Indemnifying Party" is defined in Section 10.4.
------------------ ------------
"Law" means any common law and any federal, state, regional, local or
---
foreign law, rule, statute, ordinance, rule, order or regulation.
"Liabilities" means liabilities, obligations, claims or debts of
-----------
Seller of any type or nature, whether matured, unmatured, contingent or unknown,
including, without limitation, tort, contract or other claims asserted against
Seller which are based on acts or omissions occurring on, before or after the
Closing Date.
"Lien" means any lien, charge, covenant, condition, easement, adverse
----
claim, demand, encumbrance, security interest, option, pledge, or any other
title defect, easement or restriction of any kind.
"Purchase Price" is defined in Section 3.1.
-------------- -----------
"Registration Statement" is defined in Section 7.6.
---------------------- -----------
"Related Documents" means this Agreement and each document or
-----------------
instrument executed in connection with the consummation of the transactions
contemplated herein.
"Seller" is defined in the initial paragraph of this Agreement.
------
"Termination Agreement" means that certain Termination Agreement,
---------------------
dated September 11, 1996, by and among Seller, MAC, as successor-in-interest to
Asian American Telecommunications Corporation and Max E. Bobbitt, as Agent.
"VDC Shares" is defined in Section 3.2(b).
---------- --------------
3
<PAGE>
ARTICLE 2
SALE AND PURCHASE OF ASSETS
2.1 Agreement to Sell and Purchase Assets. Subject to the terms and
-------------------------------------
conditions hereof and on the basis of and in reliance upon the covenants,
agreements and representations and warranties set forth herein, on the Closing
Date Seller shall sell the Assets to Buyer, and Buyer shall purchase the Assets
from Seller. The Assets shall be sold, transferred and conveyed by Seller to
Buyer free and clear of any and all claims, liens, encumbrances and the rights
of others.
2.2 Responsibility for Liabilities. Buyer shall not assume any
------------------------------
Liabilities of Seller by virtue of this Agreement or otherwise. Notwithstanding
anything herein, in the Original Agreement or in any Related Document to the
contrary, except as otherwise expressly provided herein, Buyer is neither
assuming nor agreeing to pay or discharge any of the claims against, or
liabilities or obligations of, the Seller, Seller's bankruptcy estate or of any
other party and nothing in this Agreement shall be construed to the contrary.
All claims against, and liabilities and obligations of Seller, and Seller's
bankruptcy estate, whether known or unknown, suspected or unsuspected, direct or
contingent, in litigation, threatened or not yet asserted or existing with
respect to any aspect of the Assets, Seller's bankruptcy case or estate, or this
Agreement, arising or existing prior to or on the Closing Date are and shall
remain the responsibility of Seller and Seller's bankruptcy estate, and such
liabilities or obligations arising after Closing shall be the responsibility of
the Buyer. The Order entered by the Court approving this Agreement shall
specifically provide that the Buyer is not liable for pre-Closing claims,
liabilities or obligations and is not liable as a successor-in-interest to
creditors of Seller or Seller's bankruptcy estate.
ARTICLE 3
PAYMENT OF THE PURCHASE PRICE
3.1 Purchase Price. The purchase price ("Purchase Price") for the Assets
--------------
shall consist of (i) the Closing Purchase Price (as such term is defined in
Section 3.2 below) and (ii) the Deferred Purchase Price (as such term is defined
in Section 3.5 below), if any.
3.2 Closing Purchase Price. The Closing Purchase Price (the "Closing
----------------------
Purchase Price") shall be paid or delivered by Buyer at Closing in the following
manner:
(a) Subject to adjustment pursuant to Section 3.4 hereof, Buyer shall
deliver an amount not to exceed the difference between Seven Hundred Thousand
Dollars ($700,000) and the outstanding Indebtedness (the "Cash Funds") in
immediately available funds in the form of cash, cashier's check or wire
transfer, and
4
<PAGE>
(b) Buyer shall deliver 5,300,000 shares of newly issued shares of
common stock, par value $2.00 per share, of Buyer (the "VDC Shares") in
accordance with the provisions of Section 3.3; and
(c) Buyer shall satisfy of the Indebtedness.
3.3 Allocation of Closing Purchase Price. The Closing Purchase Price
------------------------------------
shall be allocated in the following manner:
(a) At the Closing, Seller will deliver a schedule (the "Debt
Schedule") identifying its indebtedness as of the Closing Date. Buyer shall
deliver to and deposit with Seller that portion of the Cash Funds and the VDC
Shares necessary to satisfy Seller's indebtedness to its creditors in the
amounts and manner as set forth in the Debt Schedule. The Cash Funds and/or any
and all VDC Shares delivered to Seller pursuant to this Section 3.3(a) shall be
credited against and considered a part of the Closing Purchase Price and shall
be held and distributed by Seller to the creditors (or provision shall be made
for the ultimate distribution of such amounts and/or Shares to creditors upon
the final resolution of any disputed amounts payable or claims against Seller)
in accordance with the provisions of a further order of the Court.
(b) Seller shall retain the VDC Shares until such time as a
disposition of such shares occurs to Seller's stockholders pursuant to a
confirmed plan of reorganization providing for the issuance of the VDC Shares
pursuant to the exemption set forth in Bankruptcy Code (S) 1 145, or an
effective registration statement in accordance with the provisions of Section
7.6 hereof
3.4 Adjustment to Closing Purchase Price. Forgiveness of the Indebtedness
------------------------------------
shall constitute initial payments and deposits against the Closing Purchase
Price, and, as such, shall be applied towards the Closing Purchase Price under
this Agreement upon the Closing Date.
3.5 Deferred Purchase Price.
-----------------------
(a) For the purposes of this Section 3.5, the terms listed below shall
have the following meanings:
(i) "MAC Base Price" means $12.00 per share for each share of MAC
common stock;
(ii) "MAC Market Price" means
(A) If MAC's common stock is traded in the over-the-counter
market and not on any national securities exchange or in the NASDAQ Reporting
System, the market price shall be the average of the mean between the last bid
and ask prices per share, as reported by the National Quotation Bureau, Inc. or
an equivalent generally accepted reporting service, for the consecutive 20
trading days following the one year anniversary of the Closing Date,
5
<PAGE>
or if not so reported, the average of the closing bid and asked prices for a
share of MAC common stock for the consecutive 20 trading days following the one
year anniversary of the Closing Date as furnished to MAC by any member of the
National Association of Securities Dealers, Inc., selected by MAC for that
purpose.
(B) If MAC's common stock is traded on a national securities
exchange or in the NASDAQ Reporting System, the market price shall be the simple
average of the closing prices of a share of MAC's common stock, as quoted on the
NASDAQ Reporting System or its other principal exchange for the consecutive 20
trading days following the one year anniversary of the Closing Date.
(C) If the market price cannot be determined for MAC's common
stock on such date on either of the foregoing bases, the market price shall be
the fair market value as reasonably determined by an investment banking firm
selected by Seller and Buyer, with the cost therefor to be home equally by
Seller and Buyer.
(iii) "VDC Base Price" means $5.00 per share for each share of VDC
common stock; and
(iv) "VDC Market Price" means
(A) If VDC's common stock is traded in the over-the-counter
market and not on any national securities exchange nor in the NASDAQ Reporting
System, the market price shall be the average of the mean between the last bid
and ask prices per share, as reported by the National Quotation Bureau, Inc. or
an equivalent generally accepted reporting service, for the consecutive 20
trading days following the one year anniversary of the Closing Date, or if not
so reported, the average of the closing bid and asked prices for a share of VDC
common stock for the consecutive 20 trading days following the one year
anniversary of the Closing Date as furnished to VDC by any member of the
National Association of Securities Dealers, Inc., selected by VDC for that
purpose.
(B) If VDC's common stock is traded on a national securities
exchange or in the NASDAQ Reporting System, the market price shall be the simple
average of the closing prices at which a share of VDC's common stock traded, as
quoted on the NASDAQ Reporting System or its other principal exchange for the
consecutive 20 trading days following the one year anniversary of the Closing
Date.
(C) If the market price cannot be determined for VDC's common
stock on such date on either of the foregoing bases, the market price shall be
the fair market value as reasonably determined by an investment banking firm
selected by Seller and Buyer, with the cost therefor to be borne equally by
Seller and Buyer.
6
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(b) In the event that on the one year anniversary of the Closing Date,
MAC is a publicly held company whose shares are registered with the Securities
and Exchange Commission ("SEC") under the Securities Exchange Act of 1934, Buyer
shall pay and deliver to Seller the Deferred Purchase Price (the "Deferred
Purchase Price") calculated in accordance with Section 3.5(c) below, if any,
within ninety (90) days following the one year anniversary of the Closing Date.
The Deferred Purchase Price shall be paid, at VDC's sole option, in either (i)
immediately available funds in the form of cash, cashier's check or wire
transfer, or (ii) shares of VDC common stock. In the event that VDC elects to
pay the Deferred Purchase Price in the form of shares of VDC common stock, such
stock shall be priced at the higher of $5.00 per share or the VDC Market Price
per share.
(c) The Deferred Purchase Price shall be calculated in accordance with
the following formula:
MAC Market Price - VDC Market Price x $5,000,000
---------------- ----------------
MAC Base Price VDC Base Price
For example, assuming that the MAC Market Price is $13.20, and the VDC
Market Price is $5.00, the Deferred Purchase Price would equal (10% - 0%) x
($5,000,000) = $500,000.
If the number calculated from the above formula is negative, there is
no Deferred Purchase Price.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
4.1 Disclosure Schedule. Seller has delivered or caused to be delivered
-------------------
to Buyer, prior to the execution of this Agreement, disclosure schedules, and
documents relating thereto, which include the numbered schedules specifically
referred to in this Agreement and which are attached hereto (collectively, the
"Disclosure Schedule"). To the best of Seller's knowledge, the information
contained in the Disclosure Schedule is complete and accurate in all material
respects and all documents that are attached to the Disclosure Schedule are
complete and accurate copies of the genuine original documents they purport to
represent as in effect on the date hereof Capitalized terms used in the
Disclosure Schedule and not otherwise defined therein have the meanings ascribed
to such terms in this Agreement.
4.2 Organization and Standing of Seller. Seller is a corporation duly
-----------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware. Subject only to approval by the Court, Seller has all requisite
corporate power and authority to sell the Assets, free and clear of any and all
Liens. A certified copy of Seller's Articles of Incorporation and Bylaws are
attached to Schedule 4.2 of the Disclosure Schedule.
------------
7
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4.3 Encumbrances Created by this Agreement. The execution and delivery of
--------------------------------------
this Agreement and each of the Related Documents does not, and the consummation
of the transactions contemplated hereby or thereby will not, create any Liens on
any assets (including the Assets) of Seller in favor of third parties.
4.4 Title to Assets. Seller and Seller's bankruptcy estate own and hold
---------------
of record the entire fight, title and interest in and to all of the Assets, free
and clear of any and all Liens, except the liens held by Buyer and the interests
held by MAC.
4.5 VDC Shares to Be Issued Pursuant to Plan or Constitute Restricted
-----------------------------------------------------------------
Securities. Seller represents and warrants: (I) (a) that it will prepare and
- ----------
file a plan of reorganization and disclosure statement pertaining thereto, as
soon as is practicable and in no event later than the original period fixed by
(S) 1121(b) of the Bankruptcy Code, (b) that this Agreement, the transactions
contemplated hereby and the issuance and distribution of the VDC Shares are and
will be under and in accordance with such plan as contemplated by (S) 1145 of
the Bankruptcy Code, or (II) upon Seller's failure to obtain a declaration from
the Court that the issuance of the VDC Shares is exempt from registration
pursuant to Bankruptcy Code (S) 1145, (a) that it has reviewed the annual and
periodic reports of Buyer, as filed by Buyer with the SEC pursuant to the
Securities Exchange Act of 1934, and that it has such knowledge and experience
in financial and business matters that it is capable of utilizing the
information set forth therein concerning Buyer to evaluate the risks of
investing in the VDC Shares; (b) that it has been advised that the VDC Shares to
be issued by Buyer constitute "restricted securities" as defined in Rule 144
promulgated under the Securities Act, and accordingly, have not been and will
not be registered under the Securities Act except as otherwise set forth in this
Agreement, and, therefore, it may not be able to sell or otherwise dispose of
such VDC Shares except if the VDC Shares are subject to an effective
registration statement filed with the SEC, in compliance with Rule 144 or
otherwise pursuant to an exemption from registration under the Act; (c) that the
VDC Shares so issued are being acquired by them for their own benefit and on
their own behalf for investment purposes and not with a view to, or for sale or
for resale in connection with, a public offering or re-distribution thereof, (d)
that the VDC Shares so issued will not be resold (i) without registration
thereof under the Securities Act (unless an opinion of counsel acceptable to
VDC, or to Buyer, an exemption from such registration is available), (ii) in
violation of any law; and (e) that the certificate or certificates representing
the VDC Shares to be issued will be imprinted with a legend in form and
substance as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE
SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN
THE ABSENCE OF REGISTRATION, OR THE AVAILABILITY OF AN EXEMPTION FROM
REGISTRATION, UNDER THE SECURITIES ACT OF 1933, AS AMENDED, BASED ON
AN OPINION LETTER OF COUNSEL FOR THE COMPANY OR A
8
<PAGE>
NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION.
and Buyer is hereby authorized to notify the transfer agent of the status of the
VDC Shares, and to take such other action including, but not limited to, the
placing of a "stop transfer" order on the books and records of Buyer's transfer
agent to ensure compliance with the foregoing,
4.6 Brokers' Fees. No broker, finder or other person or entity acting in
-------------
a similar capacity has participated on behalf of Seller in connection with the
transactions contemplated by this Agreement. Seller has not incurred any
Liability for brokers' fees, finders' fees, agents' commissions or other similar
forms of compensation in connection with this Agreement or the transactions
contemplated hereby.
4.7 Avoidance. The transactions contemplated hereby are not subject to
---------
avoidance as fraudulent transfers or fraudulent conveyances under applicable
non-bankruptcy law or the Bankruptcy Code.
4.8 Fair Value. Seller acknowledges and agrees that the Purchase Price
----------
constitutes fair, adequate and reasonably equivalent consideration in exchange
for the Assets.
4.9 Full Disclosure. No representation or warranty by Seller in this
---------------
Agreement and no statement contained in any Disclosure Schedule to this
Agreement contains any untrue statement of a material fact, or omits to state a
material fact necessary to make the statements contained therein, in light of
the circumstances in which they are made, not misleading.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
5.1 Organization and Standing of Buyer. Buyer is a corporation duly
----------------------------------
organized, validly existing and in good standing under the laws of the
Commonwealth of Bermuda.
5.2 Authorization and Enforceability. Buyer has all requisite corporate
--------------------------------
power and authority to enter into this Agreement and the Related Documents to
which it is a party and to carry out the transactions contemplated hereby and
thereby and to perform its obligations hereunder and thereunder. All necessary
and appropriate action has been taken by Buyer with respect to the execution and
delivery of this Agreement and each of the Related Documents and the performance
of its obligations hereunder and thereunder. The execution and delivery of this
Agreement and the Related Documents and the consummation of the contemplated
transactions by Buyer will not (a) result in the breach of any of the terms or
conditions of, or constitute a default under, the Certificate of Incorporation
or the By-Laws of Buyer or (b) violate any Law or any order, writ, injunction or
9
<PAGE>
decree of any Governmental Authority. This Agreement and any Related Documents
to which Buyer is a party constitute valid and binding obligations of Buyer
enforceable against Buyer in accordance with their respective terms.
5.3 VDC Shares. The VDC Shares delivered by Buyer at Closing will be
----------
validly and legally issued, free and clear of any and all Liens, and will be
fully paid and non-assessable, except that in the event the Court does not
declare that the issuance of the VDC Shares are under a plan in Seller's
bankruptcy case pursuant to Bankruptcy Code (S) 1145, the VDC Shares shall be
"restricted securities" pursuant to Rule 144 promulgated under the Act and
except for the restrictions on resale set forth in Section 7.6 hereof
5.4 Approval. The Board of Directors of the Buyer has approved the
--------
execution of this Agreement and the transactions contemplated thereby.
5.5 Brokers' Fees. Buyer has not incurred any liability for brokers'
-------------
fees, finders' fees, agents' commissions or other similar forms of compensation
in connection with this Agreement or the transactions contemplated hereby.
5.6 Full Disclosure. No representation or warranty by Buyer in this
---------------
Agreement contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained therein, in light of
the circumstances in which they are made, not misleading.
ARTICLE 6
CLOSING
6.1 Closing. Subject to satisfaction or waiver of all conditions
-------
precedent set forth in Sections 8 and 9 of this Agreement, the closing of the
transactions contemplated by this Agreement (the "Closing") shall take place at
the offices of Buchanan Ingersoll Professional Corporation, at 10:00 a.m., local
time the day on which the last of the conditions precedent set forth in either
Section 8 or 9 of this Agreement is fulfilled (the "Closing Date") or at such
other time, date and place as the parties may agree, but in no event shall such
date be later than April 30, 1998.
6.2 Obligations of Seller. At or prior to the Closing, Seller shall
---------------------
deliver to Buyer, in each case, in form and substance satisfactory to Buyer:
(a) a written release by all of the parties to the Termination
Agreement agreeing to the release of the MAC Common Stock to the Buyer;
(b) written evidence from MAC confirming that, as of the Closing Date,
no part of the Assets pledged as collateral under the Termination Agreement has
been sold, assigned, transferred or otherwise disposed of or subject to any
action for any of the foregoing (other than the transaction contemplated in this
Agreement), and that, as of the Closing Date, neither MAC nor its
10
<PAGE>
parent corporation, Metromedia International Group, Inc., contemplates taking
any of the foregoing actions;
(c) such other instruments of transfer as shall be necessary or
appropriate to vest in the Buyer good and marketable title to the Assets;
(d) such other documents as may be described in Article 8 of this
---------
Agreement; and
(e) a certified copy of the Order approving this Agreement and
authorizing Seller to consummate the transactions contemplated hereby.
6.3 Obligations of Buyer. At the Closing, Buyer shall deliver:
--------------------
(a) the Purchase Price in accordance with Article 3 of this Agreement;
---------
(b) a Deferred Purchase Price Note, in form and substance mutually
satisfactory to the parties hereto;
(c) evidence of the satisfaction of the Indebtedness; and
(d) such other documents as may be described in Article 9 of this
---------
Agreement.
6.4 Further Documents or Necessary Action. Buyer and Seller each agree to
-------------------------------------
take all such further actions on or after the Closing Date as may be necessary,
desirable or appropriate in order to confirm or effectuate the transactions
contemplated by this Agreement.
ARTICLE 7
COVENANTS AND AGREEMENTS
Seller covenants to and agrees with Buyer, and Buyer covenants to and
agrees with Seller, as follows:
7.1 Conduct of Business Pending the Closing. During the period from the
---------------------------------------
date of this Agreement to the Closing Date, Seller shall conduct its business
operations in the ordinary and usual course and to maintain its records and
books of account in a manner consistent with prior periods. Seller shall,
without purporting to make any commitment on behalf of Buyer, exercise
reasonable efforts to preserve intact the present business organization and
personnel of Seller and the present goodwill of Seller with persons having
business dealings with them. Except as otherwise required or contemplated
hereby, Seller further covenants and agrees that, from the date of this
Agreement to the Closing Date, it shall not, without the written consent of
Buyer:
11
<PAGE>
(a) enter into any negotiations, discussions or agreements
contemplating, affecting or respecting the Assets or Seller's ability to
transfer the Assets;
(b) enter into any negotiations, discussions or agreements
contemplating or respecting the acquisition of Seller or any material asset
thereof (other than in the ordinary course of business), whether through a sale
of stock, a merger or consolidation, the sale of all or substantially all of the
assets of Seller, any type of recapitalization or otherwise, with the exception
of the Seller's interest in and to its Cambodian venture, the disposition of
which has been discussed with the Buyer;
(c) incur any Liabilities or take any action that would diminish the
value of the Assets;
(d) take any action which would interfere with or prevent performance
of this Agreement; or
(e) engage in any activity or enter into any transaction which would
be inconsistent in any respect with any of the representations, warranties or
covenants set forth in this Agreement, as if such representations, warranties
and covenants were made at a time subsequent to such activity or transaction and
all references to the date of this Agreement were deemed to be such later date.
7.2 Access By Buyer, Confidentiality. During the period from the date of
--------------------------------
this Agreement to the Closing Date, Seller shall cause Buyer, its agents and
representatives to be given full access during normal business hours to the
premises, buildings, offices, books, records, assets (including the Assets),
Liabilities, operations, contracts, files, personnel, financial and tax
information and other data and information of Seller, and shall cooperate with
Buyer in conducting its due diligence investigation of Seller; provided that
--------
such access shall not unreasonably interfere with the normal operations and
employee relationships of Seller. All information provided to or teamed by
Buyer as a result of such access or otherwise in connection with the
transactions contemplated by this Agreement shall be held in confidence.
7.3 Access By Seller, Confidentiality. During the period from the date of
---------------------------------
this Agreement to the Closing Date, Buyer shall cause Seller, its agents and
representatives to be given full access during normal business hours to the
premises, buildings, offices, books, records, assets, liabilities, operations,
contracts, files, personnel, financial and tax information and other data and
information of Buyer, and shall cooperate with Seller in conducting its due
diligence investigation of Buyer; provided that such access shall not
--------
unreasonably interfere with the normal operations and employee relationships of
Buyer. Buyer shall provide Seller with copies of all reports and/or findings
made with the Securities and Exchange Commission from the date hereof through
the Closing. All information provided to or learned by Seller as a result of
such access or otherwise in connection with the transactions contemplated by
this Agreement shall be held in confidence.
12
<PAGE>
7.4 Notice of Breach or Failure of Condition. Seller and Buyer agree to
----------------------------------------
give prompt notice to the others of the occurrence of any event or the failure
of any event to occur that might preclude or interfere with the timely
satisfaction of any condition precedent to the obligations of Seller or Buyer
under this Agreement.
7.5 Best Efforts. Seller and Buyer shall use their respective best
------------
efforts to obtain all consents or approvals necessary to bring about the
satisfaction of the conditions required to be performed, fulfilled or complied
with by them pursuant to this Agreement and to take or cause to be taken all
action, and to do or cause to be done all things, necessary, proper or advisable
under applicable Laws to consummate and make effective the transactions
contemplated by this Agreement as expeditiously as practicable.
7.6 Registration Rights Agreement.
-----------------------------
(a) Buyer agrees that, to the extent that the VDC shares may not be
transferred by Seller pursuant to the provisions of Section 1145 of the
Bankruptcy Code, within forty-five (45) days after the Closing Date, it shall,
at its sole expense, use its best efforts to file with the SEC a registration
statement (the "Registration Statement") which shall register (i) the
distribution of the VDC Shares to the stockholders of Seller and (ii) the
distribution of the VDC Shares delivered to third parties by the Seller in
satisfaction of claims against Seller and its bankruptcy estate. Resale of the
VDC Shares shall be subject to the following limitations
(i) 25% of the VDC Shares may be sold upon the date of
declaration of the effectiveness of the Registration Statement;
(ii) 25% of the VDC Shares may be sold upon the six month
anniversary of the date of declaration of effectiveness of the
Registration Statement; and
(iii) the remaining 50% of the VDC Shares may be sold upon the
one year anniversary of the date of declaration of effectiveness of
the Registration Statement.
(b) Notwithstanding the rights granted hereunder, Buyer shall have no
obligation whatsoever to:
(i) assist or cooperate in the offering or disposition of the VDC
Shares;
(ii) indemnify or hold harmless the holders of the VDC Shares or
any underwriter designated by such security holders;
(iii) obtain a commitment from an underwriter relative to the
sale of the VDC Shares, or
13
<PAGE>
(iv) include the VDC Shares within an underwritten offering of
Buyer.
7.7 Loans. Buyer agrees to make advances, in its sole discretion, to the
-----
Seller under and in accordance Loan, Security and Pledge Agreement, with such
advances being applied against the Purchase Price pursuant to Section 3.4 hereof
7.8 Exclusive Dealing. In consideration of Buyer expending considerable
-----------------
time and expenses in connection with the transactions contemplated in this
Agreement, including those incurred for due diligence inquiries and legal fees,
Seller hereby covenants and agrees that until the later of (i) sixty (60) days
after the date on which this Agreement automatically expires pursuant to Section
11.5 and (ii) the date on which this Agreement is terminated pursuant to
Sections 11.1, 11.2 or 11.3, Seller will not, directly or indirectly, through
any representative or otherwise, solicit or entertain offers from, negotiate
with or in any manner encourage, discuss, accept or consider any proposal of any
other person relating to the acquisition of the Assets, in whole or in part,
whether directly or indirectly, through purchase, merger, consolidation or
otherwise, except as otherwise may be required by law or order of the Court.
7.9 Good Faith. Seller and Buyer have each acted and negotiated this
----------
Agreement in good faith. This Agreement represents an arms-length agreement
among the parties, absent collusion, coercion or duress. The Purchase Price to
be paid by the Buyer for the Assets in accordance herewith, represents the fair
and reasonably equivalent value of and for the Assets. Further, the Order
approving this Agreement shall provide that the reversal or modification or
appeal thereof will not affect the validity of the Closing of the sale of the
Assets to Buyer under and in accordance with such Order by virtue of specific
findings that the Buyer purchased the Assets in good faith, unless such Order is
stayed prior to the Closing.
7.10 Bidding Procedures. Seller covenants and agrees that it will seek
------------------
expedited consideration by the Court of the approval of this Agreement, together
with approval of bidding procedures acceptable to Buyer and approval of the
Break-Up Fee provided for in Section 11.4 below. In the event that the Court
makes the sale of the Assets to Buyer subject to the submission of higher and
better offers, the following procedure, among others agreed to by Buyer, will
govern the submission of any Competing Bid as follows:
(a) The Competing Bid shall provide for consideration that exceeds the
Purchase Price offered by Buyer by at least $1,100,000 (taking into effect that
portion of the Purchase Price resulting from the forgiveness of the
Indebtedness), and if the successful highest bidder is not Buyer, deliver to
Seller at the hearing scheduled for the approval of this Agreement a
nonrefundable deposit payable in cash or by certified or cashier's check in an
amount equal to IO% of successful highest Competing Bid;
(b) The amount of the Competing Bid for purposes of paragraph (a)
above shall not be on terms which are more burdensome or conditional in any
material respect than the terms hereof;
14
<PAGE>
(c) The form of the Competing Bid must be in the form of a final
written contract signed by the competing bidder which, when and if approved by
the Court, can be immediately countersigned by the Seller and shall form a
binding agreement between the parties thereto;
(d) The Competing Bid shall not be contingent upon receipt of
financing necessary to its consummation; and
(e) The Competing Bid shall not be conditioned on the outcome of
unperformed due diligence by the competing bidder with respect to the business
or the Seller's Assets; and the competing bidder shall be obligated to close
prior to July 1, 1998.
(f) If any Competing Bid does not conform to paragraphs (a) through
(e) above, such bid will not be considered by the Court or be admissible at such
hearing.
7.11 Cooperation. Seller and Buyer agree that they will cooperate in good
-----------
faith with respect to all proceedings before the Court in the case in connection
with the approval and consummation of this Agreement and the transactions
contemplated hereby.
ARTICLE 8
CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
All obligations of Buyer under this Agreement are subject to the
satisfaction by Seller at or before the Closing of all of the following
conditions, except to the extent expressly waived in writing by Buyer:
8.1 Representations and Warranties True at Closing. The representations
----------------------------------------------
and warranties of Seller contained in this Agreement shall have been true and
correct in all material respects when made and shall be true and correct in all
material respects on the Closing Date as though such representations and
warranties were made again on the Closing Date.
8.2 Performance. Seller shall have performed and complied in all material
-----------
respects with all agreements and conditions required by this Agreement to be
performed or complied with by Seller prior to or at the Closing, including,
without limitation, the delivery to Buyer of the documents listed in Section
6.2.
8.3 No Adverse Changes. Except as contemplated by this Agreement, there
------------------
shall have been no material adverse change in the condition, prospects, business
or operations, financial or otherwise, of Seller from the date of this Agreement
to the Closing Date.
8.4 Litigation. On the Closing Date, there shall not be any pending or
----------
threatened litigation in any court or any proceedings by or before any
Governmental Authority with a view to seek, or in which it is sought, to
restrain or prohibit the consummation of the transactions
15
<PAGE>
contemplated by this Agreement or in which it is sought to obtain divestiture,
rescission or damages in connection with the transactions contemplated by this
Agreement and no investigation by any Governmental Authority shall be pending
which might result in any such litigation or other proceeding.
8.5 Necessary Consents. All statutory requirements for the valid
------------------
consummation by Buyer of the transactions contemplated by this Agreement shall
have been fulfilled and all authorizations, consents, waivers, approvals or
other actions by any Governmental Authority or third party which are required
for the consummation of the transactions contemplated by this Agreement shall
have been received and shall be in full force and effect.
8.6 Stockholder Approval. To the extent required by the laws of Bermuda,
--------------------
the stockholders of Buyer shall have approved the transactions contemplated by
this Agreement.
8.7 Certificate. Seller shall have delivered to Buyer a certificate,
-----------
dated as of the Closing Date, of the Seller to the effect that the conditions
set forth in Sections 8.1, 8.2, 8.3, 8.4 and 8.8 have been satisfied.
--------------------------- ---
8.8 Consents. Seller shall have provided written consents to the
--------
acquisition of the Assets by Buyer from all appropriate Governmental Authorities
(to the extent so required by law) in form and substance reasonably acceptable
to Buyer.
8.9 Due Diligence. Buyer shall have completed, to its satisfaction, a due
-------------
diligence review of the financial condition, results of operations, properties,
assets, liabilities, business and prospects of Seller.
8.10 Evidence of Satisfaction of Indebtedness. Seller shall have provided
----------------------------------------
validly executed releases, waivers and/or settlement agreements, satisfactory in
form and substance to Buyer, evidencing agreements for the satisfaction of
substantially all indebtedness of, and claims against, Seller.
8.11 Court Approval. The Court shall have entered an Order in form and
--------------
substance satisfactory to Buyer, approving this Agreement, authorizing the
transactions contemplated hereby, replacing the Liens on the Assets by granting
to the holders thereof Liens in and on the Purchase Price and authorizing the
sale of the Assets free and clear of all Liens, which Order shall not be subject
to a pending appeal, or motion for reconsideration, modification, vacation or
stay, and as to which the time to file such appeal or motion has expired, or any
such appeal or motion that may have been filed has been dismissed with prejudice
or otherwise disposed of without impacting negatively the Order contemplated
hereby. Further, such Order shall recognize Buyer's rights with respect to the
Indebtedness under Bankruptcy Code (S) 363(k), shall declare the parties' good
faith in all respects under and in accordance with Bankruptcy Code (S) 363(m),
and shall give full effect to the Break-Up Fee, bidding and exclusive dealing
provisions hereof
16
<PAGE>
ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
All obligations of Seller under this Agreement are subject to the
satisfaction by Buyer at or before the Closing of all of the following
conditions, except to the extent expressly waived in writing by Seller:
9.1 Representations and Warranties True at Closing. The representations
----------------------------------------------
and warranties of Buyer contained in this Agreement shall have been true and
correct in all material respects when made and shall be true and correct in all
material respects on the Closing Date as though such representations and
warranties were made again on the Closing Date; provided, however, that if Buyer
changes its jurisdiction of incorporation from the Commonwealth of Bermuda to
the State of Delaware on or before the Closing Date, Buyer shall be deemed to
represent in Section 5.1 that it is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
9.2 Performance. Buyer shall have performed and complied, in all material
-----------
respects, with all agreements and conditions required by this Agreement to be
performed or complied with by Buyer prior to or at the Closing.
9.3 No Adverse Changes. Except as contemplated by this Agreement, there
------------------
shall have been no material adverse change in the condition, business or
operations, financial or otherwise, of Buyer from the date of this Agreement to
the Closing Date.
9.4 Necessary Consents. All statutory requirements for the valid
------------------
consummation by Seller of the transactions contemplated by this Agreement shall
have been fulfilled and all authorizations, consents, waivers, approvals or
other actions by any Governmental Authority or third party which are required
for the consummation of the transactions contemplated by this Agreement shall
have been received and shall be in full force and effect.
9.5 Certificate. Buyer shall have delivered to Seller a certificate,
-----------
dated as of the Closing Date, to the effect that the conditions set forth in
Sections 9.1, 9.2 and 9.3 have been satisfied.
9.6 Court Approval. The Court shall have entered an Order in form and
--------------
substance satisfactory to Seller, approving this Agreement, authorizing the
transactions contemplated hereby, replacing the Liens on the Assets by granting
to the holders thereof Liens in and on the Purchase Price and authorizing the
sale of the Assets free and clear of all Liens.
9.7 Indebtedness. Seller shall be obligated to perform hereunder and
------------
Close the transactions contemplated hereby notwithstanding the occurrence of an
Event of Default under the documents evidencing the Indebtedness or Buyer's
exercise of any rights or remedies thereunder, including, without limitation,
Seller shall continue to seek approval of this Agreement with respect
17
<PAGE>
to the MAC Shares following Buyer's exercise of its right to retain possession
of the MAC Warrants in satisfaction of the Indebtedness and the Purchase Price
shall be adjusted by reducing the Purchase Price by the Indebtedness and Cash
Funds, resulting in the VDC Shares and Deferred Purchase Price being exchanged
for the Assets.
ARTICLE 10
INDEMNIFICATION AND RELATED MATTERS
10.1 Survival of Representations and Warranties. The representations and
------------------------------------------
warranties contained in this Agreement, the schedules and exhibits hereto, and
any agreement, document, instrument or certificate delivered hereunder,
including the Related Documents, shall survive the Closing Date. This Article
-------
10 constitutes the sole and exclusive remedy of Buyer and Seller with respect to
- --
any subject matter addressed herein, and Buyer and Seller hereby waive and
release the other from any and all claims and other causes of action, including
without limitation claims for contribution, relating to any such subject matter.
10.2 Indemnification by Seller.
-------------------------
(a) Seller agrees to indemnify Buyer against and hold it harmless
from:
(i) all liability, loss, damage or deficiency resulting from or
arising out of any inaccuracy in or breach of any representation or
warranty by Seller in this Agreement, in any Related Document to which
Seller was a signatory or in any other agreement or document delivered
by or on behalf of Seller in connection with the transactions
contemplated by this Agreement;
(ii) all liability of Seller not expressly assumed by Buyer;
(iii) all liability, loss, damage or deficiency resulting from or
arising out of any breach or nonperformance of any covenant or
obligation made or incurred by Seller in this Agreement, in any
Related Document to which Seller was a signatory or in any other
agreement or document delivered by or on behalf of Seller in
connection with the transactions contemplated by this Agreement; and
(iv) any and all reasonable costs and expenses (including
reasonable legal and accounting fees) related to any of the foregoing.
In the event that Buyer makes a Claim which is determined by a court
of competent jurisdiction to be without reasonable basis in law or
fact, Buyer shall bear all reasonable costs and expenses (including
court costs and reasonable legal and accounting fees), incurred by
Seller in investigating and defending against such Claim,
18
<PAGE>
which indemnification obligation of Seller shall be secured by the Deferred
Purchase Price and the VDC Shares that remain unissued and Buyer shall have the
fight of offset with respect thereto.
10.3 Indemnification by Buyer. Buyer shall indemnify Seller against and
------------------------
hold it harmless from:
(a) all liability, loss, damage or deficiency resulting from or
arising out of any inaccuracy in or breach of any representation or warranty by
Buyer in this Agreement in any Related Document or in any other agreement or
document delivered by or on behalf of Buyer in connection with the transactions
contemplated by this Agreement;
(b) all liability, loss, damage or deficiency resulting from or
arising out of any breach or nonperformance of any covenant or obligation made
or incurred by Buyer in this Agreement, in any Related Document, or in any other
agreement or document delivered by or on behalf of Buyer in connection with the
transactions contemplated by this Agreement, and
(c) any and all reasonable costs and expenses (including reasonable
legal and accounting fees) related to any of the foregoing. In the event that
Seller makes a Claim which is determined by a court of competent jurisdiction to
be without reasonable basis in law or fact, Seller shall bear all reasonable
costs and expenses (including court costs and reasonable legal and accounting
fees), incurred by Buyer in investigating and defending against such Claim.
10.4 Third Party Claims. If any action, suit, investigation or proceeding
------------------
(including without limitation negotiations with federal, state, local or foreign
tax authorities) shall be threatened or commenced by a third party in respect of
which a party (an "Indemnified Party") may make a Claim hereunder, the
Indemnified Party shall notify the party obligated to indemnify such party
hereunder (the "Indemnifying Party") to that effect with reasonable promptness
(so as to not prejudice such party's rights) after the commencement or
threatened commencement of such action, suit, investigation or proceeding, and
the Indemnifying Party shall have the opportunity to defend against such action,
suit, investigation or proceeding (or, if the action, suit, investigation or
proceeding involves to a significant extent matters beyond the scope of the
indemnity agreement contained herein, those claims that are covered hereby)
subject to the limitations set forth below. If the Indemnifying Party elects to
defend against any action, suit, investigation or proceeding (or, as described
in the preceding parenthetical, one or more claims relating thereto), the
Indemnifying Party shall notify the Indemnified Party to that effect with
reasonable promptness. In such case, the Indemnified Party shall have the fight
to employ its own counsel and participate in the defense of such matter, but the
fees and expenses of counsel shall be at the expense of the Indemnified Party
unless the employment of such counsel at the expense of the Indemnifying Party
shall have been authorized in writing by the Indemnifying Party. Any party
granted the right to direct the defense of a threatened or actual suit,
investigation or proceeding hereunder shall: (i) keep the other fully informed
of material developments in the action, suit, investigation or proceeding at all
stages thereof, (ii) promptly submit to the other copies of all pleadings,
responsive pleadings, motions and other similar legal documents and papers
received in connection with the action, suit, investigation
19
<PAGE>
or proceeding; (iii) permit the other and its counsel, to the extent
practicable, to confer on the conduct of the defense of the action, suit,
investigation or proceeding; and (iv) to the extent practicable, permit the
other and its counsel an opportunity to review all legal papers to be submitted
prior to their submission. The parties shall make available to each other and
each other's counsel and accountants all of its or their books and records
relating to the action, suit, investigation or proceeding, and each party shall
render to the other such assistance as may be reasonably required in order to
insure the proper and adequate defense of the action, suit, investigation or
proceeding. The parties shall use their respective good faith efforts to avoid
the waiver of any privilege of either party. The assumption of the defense of
any matter by an Indemnifying Party shall not constitute an admission of
responsibility to indemnify or in any manner impair or restrict such party's
fights to later seek to be reimbursed its costs and expenses if indemnification
under this Agreement with respect to such matter was not required. An
Indemnifying Party may elect to assume the defense of a matter at any time
during the pendency of such matter, even if initially such party did not elect
to assume such defense, so long as such assumption at such later time would not
prejudice the fights of the Indemnified Party. No settlement of a matter by the
Indemnified Party shall be binding on an Indemnifying Party for purposes of such
party's indemnification obligations hereunder.
ARTICLE 11
TERMINATION
11.1 Termination by Mutual Consent. At any time on or prior to the
-----------------------------
Closing Date, this Agreement may be terminated by the mutual written consent of
Seller and Buyer without liability on the part of Seller or Buyer.
11.2 Termination Upon Breach or Default. If Seller or Buyer shall
----------------------------------
materially default in the observance or in the due and timely performance of any
of the covenants contained in this Agreement, or if there shall have been a
material breach by either of the parties of any of the representations or
warranties set forth in this Agreement, the other party may, upon written notice
and a reasonably opportunity to cure, terminate this Agreement, without
prejudice to its rights and remedies available at law, including the fight to
recover expenses, costs and other damages.
11.3 Termination Based Upon Failure of Conditions. If any of the
--------------------------------------------
conditions of this Agreement to be complied with or performed by a party on or
before the Closing Date, shall not have been complied with or performed in all
material respects by such date and such noncompliance or nonperformance shall
not have been waived in writing by the other party, the party to whom the
benefit of such condition runs may, upon written notice, terminate this
Agreement, without prejudice to its or their rights and remedies available under
law, including the right to recover expenses, costs and other damages.
11.4 Break-Up Fees. Notwithstanding anything to the contrary contained
-------------
within this Agreement, in the event Seller is unable to, or elects not to
complete the transactions contemplated by this Agreement for any reason, except:
(i) a breach by Buyer of any of its representations,
20
<PAGE>
warranties and covenants contained herein or (ii) a material adverse development
in the business or operations of Buyer between the date of this Agreement and
the Closing Date, then; and in that event, Seller shall pay Buyer a break-up fee
equal to One Million Dollars ($1,000,000) ("Break-Up Fee") in order to reimburse
Buyer for its time and expenses incurred in connection with the transactions
contemplated in this Agreement, as well as for any lost opportunity costs and
direct and indirect consequential damages. Payment of the Break-Up Fee shall be
made by wire transfer of immediately available funds to an account designated by
Buyer not later than five (5) days after receipt by Seller of a written demand
for the Break-Up Fee by Buyer, but in no case later than Seller's receipt of
proceeds from the sale or other disposition of the Assets, directly or
indirectly. Seller acknowledges that any payment of the Break-Up Fee will be
treated as one for liquidated damages and not a penalty, such being agreed
between Buyer and Seller to be a necessary condition to this Agreement to
compensate Buyer for expenses and expenditures incurred and made in connection
herewith and otherwise for Seller's non-compliance with this Agreement.
11.5 Final Expiration. This Agreement shall automatically expire if the
----------------
Closing does not occur on or before April 30, 1998, or, upon such later date as
VDC in its sole discretion may determine; provided, however, that such later
date shall not be later than July 1, 1998.
ARTICLE 12
GENERAL
12.1 Entire Agreement. This Agreement, and the exhibits and schedules
----------------
hereto (including the Disclosure Schedule), and the agreements specifically
referred to herein, including the documents evidencing the Indebtedness, set
forth the entire agreement and understanding of Seller and Buyer in respect of
the transactions contemplated hereby and, except with respect to the provisions
of Section 13 of the Letter of Intent and the no shop provisions set forth in
Section 8 of the Letter of Intent, supersede all prior agreements, arrangements
and understandings relating to the subject matter hereof No representation,
promise, inducement or statement of intention has been made by Seller or Buyer
that is not embodied in this Agreement or in the documents specifically referred
to herein and neither Seller nor Buyer shall not be bound by or liable for any
alleged representation, promise, inducement or statement of intention not so set
forth.
12.2 Binding Effect, Benefits, Assignment. Upon the entry of an Order by
------------------------------------
the Court approving this Agreement, all of the terms of this Agreement shall be
binding upon, inure to the benefit of and be enforceable by and against Seller
and its successors and authorized assigns, and Buyer and its successors and
authorized assigns. Nothing in this Agreement, express or implied, is intended
to confer upon any other person any rights or remedies under or by reason of
this Agreement except as expressly indicated herein. Neither Seller nor Buyer
shall assign any of their respective rights or obligations under this Agreement
to any other person, firm or corporation without the prior written consent of
the other party, except that Buyer may assign its rights and obligations under
this Agreement to a direct or indirect wholly-owned subsidiary of Buyer,
although Buyer shall remain fully responsible for all of its obligations under
this Agreement.
21
<PAGE>
12.3 Construction. The headings of the sections and paragraphs of this
------------
Agreement have been inserted for convenience of reference only and shall in no
way restrict or otherwise modify any of the terms or provisions hereof The
language used in this Agreement shall be deemed to be the language chosen by the
parties to this Agreement to express their mutual intent, and no rule of strict
construction shall be applied against any party.
12.4 Amendment and Waiver. This Agreement may be amended, modified,
--------------------
superseded or canceled and any of the terms, covenants, representations,
warranties or conditions hereof may be waived only by a written instrument
executed by Seller and Buyer or, in the case of a waiver, by or on behalf of the
party waiving compliance.
12.5 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Delaware as applicable to contracts
made and to be performed in Delaware, without regard to conflict of laws
principles.
12.6 Public Disclosure. Except as required by Law, or in connection with
-----------------
the solicitation of new investment advisory agreements with Seller's clients,
neither Buyer nor Seller shall make any public disclosure of the existence or
terms of this Agreement or the transactions contemplated hereby without the
prior written consent of the other party, which consent shall not be
unreasonably withheld. In the event that Seller or Buyer determines that the
disclosure of the existence or terms of this Agreement is required by Law, such
party shall so notify the other parties and shall provide to the other party a
copy of any such public disclosure prior to releasing the same.
12.7 Notices. All notices, requests, demands and other communications to
-------
be given pursuant to the terms of this Agreement shall be in writing and shall
be deemed to have been duly given if hand delivered, sent by overnight mail by a
nationally recognized overnight delivery service or mailed first class, postage
prepaid:
(a) If to Seller:
Michael Richard, President
PortaCom Wireless, Inc.
10061 Talbert Avenue, Suite 200
Fountain Valley, CA 92708
Telephone: (714) 593-3234
Telecopier: (714) 593-3264
22
<PAGE>
with a copy to:
Francis A. Monaco, Jr., Esquire
Walsh and Monzack, P.A.
1201 Orange Street, Suite 400
Wilmington, DE 19899
Telephone: (302) 656-8162
Telecopier: (302) 656-2769
and
Jeffrey Kurtzman, Esquire
Klehr, Harrison, Harvey, Branzburg & Ellers
1401 Walnut Street
Philadelphia, PA 19102
Telephone: (215) 568-4493
Telecopier: (215) 568-6603
(b) If to Buyer:
Frederick A. Moran, Chief Executive Officer
VDC Corporation Ltd.
27 Doubling Road
Greenwich, CT 06830
Telephone: (203) 661-9600
Telecopier: (203) 869-1430
with a copy to:
Stephen M. Cohen, Esq.
Stuart M. Brown, Esq.
Buchanan Ingersoll Professional Corporation
Eleven Penn Center, 14th Floor
1835 Market Street
Philadelphia, Pennsylvania 19103
Telephone: (215) 665-3873
Telecopier: (215) 665-8760
Either party may change its address by prior written notice to the other party.
12.8 Counterparts. This Agreement may be executed in counterparts, each
------------
of which when so executed shall be deemed to be an original and such
counterparts shall together constitute one and the same instrument.
23
<PAGE>
12.9 Expenses. Each party shall pay their own respective expenses, costs
--------
and fees incurred in connection with the negotiation, preparation, execution and
delivery of this Agreement and each of the Related Documents and the
consummation of the transactions contemplated hereby, including, without
limitation, the fees and expenses of their respective legal counsel, accountants
and financial advisors.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
VDC CORPORATION LTD.
By:_______________________________________
Frederick A. Moran, Chief Executive Officer
PORTACOM WIRELESS, INC.
By:_______________________________________
Michael Richard, President
24
<PAGE>
EXHIBIT A
Indebtedness of Seller to be satisfied from proceeds of the Purchase Price
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Source of Proceeds
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Creditor/Claimant Amount Cash Funds VDS Shares
(amount) (Number)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
EXHIBIT 10.26
DEBTOR IN POSSESSION LOAN, SECURITY AND PLEDGE AGREEMENT
--------------------------------------------------------
THIS DEBTOR IN POSSESSION LOAN, SECURITY AND PLEDGE AGREEMENT (the
"Agreement") is made this 23rd day of March, 1998, by and between VDC
Corporation Ltd., a Bermuda corporation (the "Lender" or "VDC"), and PortaCom
Wireless, Inc., a Delaware corporation (the "Debtor").
W I T N E S S E T H:
WHEREAS, the Lender and the Debtor entered into a Loan Agreement, Security
Agreement, and Pledge Agreement all dated November 10, 1997, in order to
evidence the terms and conditions pursuant to which the Lender agreed to advance
funds to Debtor (the "Loan"); and
WHEREAS, in order to secure the Debtor's obligations to Lender for amounts
advanced under the Loan, the Debtor granted to Lender a first-priority security
interest in all of the Debtor's rights, title, and interest in and to those
certain warrants to purchase 4,000,000 shares of common stock of Metromedia Asia
Corporation (the "Warrants") and those certain 2,000,000 shares of the common
stock of Metromedia Asia Corporation (the "Shares" and together with the
Warrants sometimes collectively referred to as the "Securities"), together with
all rights and privileges pertaining thereto, including, without limitation, all
securities and additional securities receivable in respect of or in exchange for
such Securities, all rights to subscribe for securities incident to or arising
from ownership of such Securities, all cash, interest, stock and other dividends
or distributions paid or payable on such Securities, and all books and records
pertaining to the foregoing, including, without limitation, all stock record and
transfer books, and whatever is received when any of the foregoing is sold,
exchanged or otherwise disposed of, including any proceeds as such term is
defined in 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 (the "UCC") (collectively, the
"Collateral"), as further defined in and pursuant to the Security Agreement; and
WHEREAS, VDC's interest in the Warrants was perfected as a result of (i)
the parties' execution of the Pledge Agreement, whereby Debtor pledged the
Warrants to VDC as collateral to secure Debtor's obligations to VDC, (ii) VDC's
possession of the Warrants, and (iii) the filing of UCC Financing Statements
with the Secretary of State for the States of Delaware, California, Ohio, New
Jersey, New York (collectively, the "UCC-1's"); and
WHEREAS, pursuant to the Loan, Lender agreed to advance certain amounts to
the Debtor to be used by the Debtor for working capital, as further described at
Section 4(e) of the Loan Agreement; and
<PAGE>
WHEREAS, on March 23, 1998 (the "Petition Date"), the Debtor filed a
Voluntary Petition for relief under Chapter 11 of Title 11 of the United States
Code (the "Code"); and
WHEREAS, the Debtor remains in control of its property and is maintaining
and managing its business as a debtor-in-possession pursuant to Code (S)(S) 1107
and 1108; and
WHEREAS, prior to the commencement of the case, VDC extended $366,725.00 to
Debtor under the Loan, which advances are evidenced by Credit Notes
(collectively, the "Credit Notes") in the principal amount of $366,725.00,
together with any and all accrued and unpaid interest, costs and fees, including
attorneys' fees (collectively, the "Pre-Petition Indebtedness"). The Loan
Agreement, Security Agreement, and Pledge Agreement dated November 10, 1997, and
Credit Notes shall be collectively referred to herein as the "Pre-Petition Loan
Documents"; and
WHEREAS, by virtue of the Pre-Petition Loan Documents, UCC-1's, and
possession of the Warrants, VDC has a first-priority lien on and security
interest in and to the Warrants; and
WHEREAS, Lender and Debtor have entered into an Asset Purchase Agreement
dated November, 1997, and amendments thereto (as amended, the "Purchase
Agreement"), whereby Lender agreed to purchase and Debtor agreed to sell the
Securities in consideration of 5.3 million shares of the common stock of Lender
plus $700,000.00 plus deferred purchase consideration, and which Purchase
Agreement has been superseded by an Asset Purchase Agreement entered into
between the parties post-petition (the "Transaction"); and
WHEREAS, Debtor has requested additional advances under the Loan post-
petition in accordance with the terms and conditions set forth below; and
WHEREAS, Lender has agreed to advance additional funds to Debtor ("Post-
Petition Loan") only in accordance with the terms and conditions set forth below
and upon the Court's approval of such financing under Code (S) 364(c), secured
by a Court-approved grant of a post-petition lien on and security interest in
all of the Debtor's property (the "Post-Petition Financing Order"); and
WHEREAS, Lender and Debtor have entered into this Agreement to evidence the
terms and conditions pursuant to which the Lender has agreed to extend credit
and advance funds to the Debtor post-petition; and
NOW, THEREFORE, in consideration of the promises and of the mutual
covenants contained herein, and intending to be legally bound hereby, subject
only to the entry of the Post-Petition Financing Order by the Court, the Lender
and the Debtor hereby agree as follows:
-2-
<PAGE>
1. Recitals Incorporated. The Recitals set forth above are incorporated
---------------------
herein as though set forth at length below.
2. Ratification and Acknowledgment. The Debtor, for itself, its
-------------------------------
creditors and its estate, hereby ratifies and confirms for the benefit of
Lender, its successors and assigns, the full extent of the Pre-Petition
Indebtedness, the enforceability of the Pre-Petition Loan Documents in
accordance with their respective terms, and the extent, validity, priority,
enforceability and perfection of Lender's lien on and interest in and to the
Warrants. The Debtor hereby acknowledges and confirms that it has no defenses,
counterclaims, set-offs, recoupments or other claims or rights to disallow, in
whole or in part, the Pre-Petition Indebtedness or Lender's lien on and interest
in and to the Warrants, and no objection to, or the allowance of, the secured
claim of Lender. Prior to the making of any advances hereunder, Lender holds an
allowed secured claim to the full extent of the Pre-Petition Indebtedness and
will hold an allowed secured claim to the full extent of the Pre-Petition
Indebtedness plus all advances hereunder, if any, plus all accrued interest,
costs and fees, including attorneys' fees due hereunder.
3. The Post-Petition Loan. The Lender has agreed to extend credit and
----------------------
advance funds to the Debtor and make the Post-Petition Loan upon the terms and
subject to the conditions hereinafter set forth. Lender shall have no
obligation to provide advances, except in its sole discretion. Any amounts
advanced by Lender under this Agreement shall be evidenced by a properly
completed and executed Note, the form of which is attached hereto as Exhibit A,
dated as of the date of advancement (the "Note"), made by the Debtor in favor of
the Lender in such amounts as may be requested by Debtor and approved by Lender.
The principal amount of the Post-Petition Loan, or any portion thereof, that may
be issued under this Agreement is limited to the difference between (a)
$700,000.00 and (b) the Pre-Petition Indebtedness (approximately $333,000.00).
Notwithstanding anything to the contrary contained herein or in the Post-
Petition Financing Order, Lender shall not be obligated to extend credit or
advance funds under the Pre-Petition Loan Documents and the Post-Petition Loan
in the aggregate principal amount in excess of $700,000.00.
4. Payment of Interest and Principal.
---------------------------------
(a) Payment of Post-Petition Loan. The unpaid principal balance
-----------------------------
under the Post-Petition Loan (as evidenced by any Notes which may be issued
herewith or hereafter), together with all accrued and unpaid interest on the
unpaid principal balance, which shall accrue at the rate of ten percent (10%)
per annum (the "Interest Rate"), shall be paid in full upon the earlier to occur
(the "Maturity Date") of: (i) the forty-fifth (45th) day following the entry of
the Order for Relief under Code (S) 301; or (ii) the date approved by the Court
as the sale or auction date of the Transaction; or (iii) April 30, 1998.
Notwithstanding anything herein to the contrary, the Maturity Date may be
extended from time to time upon the written consent of
-3-
<PAGE>
Lender, which consent shall be in Lender's absolute and sole discretion, may be
withheld without cause and shall not constitute or be deemed a waiver or cure of
any Event of Default.
(b) Prepayment. The Debtor shall have the right to prepay at any
----------
time and from time to time, without penalty or premium, all or any portion of
the outstanding balance of the Pre-Petition Indebtedness and Post-Petition Loan.
All prepayments of the Pre-Petition Indebtedness and the Post-Petition Loan
shall be applied first to accrued interest, and second to the unpaid principal
balance due thereunder respectively first to the Post-Petition Loan and second
to the Pre-Petition Indebtedness.
(c) Place of Payment. The Debtor shall make all payments to the
----------------
Lender at the place set forth in Section 9(d) hereunder, or at such other place
or places as the Lender, from time to time, shall designate in writing to the
Debtor in accordance with Section 9(d) hereunder.
5. Security Interest. To secure all of the Debtor's obligations under
-----------------
the Post-Petition Loan, Notes and this Agreement, pursuant to Code (S) 364(c)
the Debtor hereby grants and pledges to Lender a security interest in and lien
on all now owned and hereafter acquired property of the Debtor, including,
without limitation, the Collateral, accounts, accounts receivable, inventory,
equipment, chattel paper, instruments, general intangibles and documents, and
the proceeds of all of the foregoing, whether arising pre- or post-petition,
which liens and security interests shall (i) have priority equal to the pre-
petition lien and security interest granted to Lender under the Loan, and (ii)
have first-priority in all other property of the Debtor's estate, and (iii) be
deemed perfected without the necessity of Lender taking possession of the Shares
or Warrants, filing UCC-1 Financing Statements, or taking any other action to
perfect such liens and interests in any other property of the Debtor's estate.
With respect to property of the Debtor in which other creditors hold a valid and
perfected pre-petition interest, the pledge, lien and security interest granted
and pledged to Lender in accordance herewith shall have priority equal to other
creditors' interests in such property.
6. Representations and Warranties of the Debtor. As a further inducement
--------------------------------------------
to the Lender to execute and deliver this Agreement and to make the Post-
Petition Loan available to the Debtor, the Debtor, except as otherwise set forth
in the disclosure statement attached as Exhibit B to the Loan Agreement, hereby
represents and warrants to, and makes the following agreements with the Lender,
and the Post-Petition Financing Order shall declare, find, determine and
conclude, as follows:
-4-
<PAGE>
(a) Authority.
---------
(i) The Debtor is a corporation, duly organized, validly existing
and subsisting under the laws of Delaware.
(ii) The Debtor has full power and authority to borrow the Post-
Petition Loan, to execute and deliver this Agreement and any and all Notes and
any other instruments and documents required to be executed in connection
herewith and therewith (such other instruments and documents being collectively
called the "Other Documents") without further Order of the Court.
(b) Validity and Enforceability. This Agreement, each Note and each
---------------------------
of the Other Documents have been, and will be, validly executed and delivered by
the Debtor and are the legal, valid and binding obligations of the Debtor,
enforceable against the Debtor in accordance with their respective terms.
(c) No Conflicts. The execution and delivery by the Debtor of this
------------
Agreement, any Note and each of the Other Documents and the performance by the
Debtor of all of its obligations hereunder and thereunder (a) will not violate
or be in conflict with any law, order, rule or regulation of any court of other
governmental authority applicable to the Debtor; (b) will not constitute a
default (with or without the giving of notice or the passage of time or both)
under any indenture, agreement or other instrument to which it is a party or by
which it or any of its properties or assets is or may be bound or subject; and
(c) will not result in the creation or imposition of any lien, security
interest, charge or encumbrance of any nature upon any of its properties or
assets, except the Permitted Lien, as such term is defined in the Security
Agreement.
(d) No Consents. No consent, approval or authorization of, or
-----------
registration, declaration or filing with, any governmental authority or other
third party is required as a condition to, or in connection with, the due and
valid execution and delivery by the Debtor of this Agreement, any Note or any of
the Other Documents.
(e) Use of Loan Proceeds. The proceeds from the Post-Petition Loan
--------------------
issued hereunder shall be used by the Debtor only for working capital purposes
in the ordinary course of business, or in connection with the case or the
Transaction.
(f) Business Qualification. The Debtor is duly qualified to transact
----------------------
business in the United States and in each state of the United States where it
conducts business and is in good standing in each jurisdiction in which its
failure to be so qualified and in good standing would have a materially adverse
effect on its financial condition of business, and it has
-5-
<PAGE>
the corporate power and ability to own and operate its properties and to carry
on its business as now conducted.
(g) SEC Filings. The Debtor has filed all necessary reports and
-----------
filings (collectively, the "Filings") required to be filed with the Securities
and Exchange Commission as of the date hereof and all Filings are true and
correct and contain no material misrepresentations or omissions of material
fact.
(h) Taxes. The Debtor has paid all federal and state income and other
-----
applicable taxes levied by the United States and all deficiencies or other
additions to any tax interest and penalties owed by the Debtor in connection
with any tax requiring to be paid relating to the Debtor or any of its assets or
business as of the date hereof. The Debtor shall timely pay all taxes relating
to it or its business or assets, including additions, interests, penalties and
estimated payments required to be paid by it under the applicable law after the
date hereof.
(i) Liens. The Debtor has all right, title and interest in, and good
-----
and marketable title to, the Securities and Collateral, free and clear of any
claim, pledge, security interest, restriction, lien or encumbrance of any kind
or nature whatsoever, except for the pre-petition lien to the Lender and the
Permitted Lien on the Shares, as such term is defined in the Security Agreement.
7. Events of Default: Remedies.
----------------------------
(a) Events of Default. The following shall constitute events of
-----------------
default under this Agreement ("Events of Default"):
(i) The Debtor fails to pay when due any principal, interest or
other sums due hereunder or under any of the Notes.
(ii) Except for Events of Default described in sub-paragraph (i)
hereof, the Debtor defaults in the observance or performance of any condition or
covenant contained in this Agreement or any Note and the Debtor shall not have
remedied the default within fifteen (15) days after receipt of written notice of
such default has been given by Lender to the Debtor.
(iii) A breach by the Debtor of any warranty or any
representation contained in this Agreement or any Note, and such breach shall
not have been remedied within fifteen (15) days after receipt of written notice
of such breach has been given by Lender to the Debtor.
(iv) The conversion of the Debtor's case to a case proceeding
under Chapter 7 of the Code, or the dismissal of the Debtor's Chapter 11 case,
or the appointment of a trustee in either a Chapter 7 or Chapter 11 case of the
Debtor.
-6-
<PAGE>
(v) The appeal, rehearing, reconsideration, reversal,
modification, vacation or stay of the Post-Petition Financing Order.
(vi) The failure to have scheduled a hearing on approval of the
post-petition Asset Purchase Agreement and the Transaction ("Sale Hearing")
within thirty (30) days following the commencement of the Case.
(vii) The failure to have obtained approval of the proposed
bidding procedures and Break-Up Fee, as described in the Transaction documents
and in connection with the Sale Hearing.
(viii) The failure to have obtained approval of the post-
petition Asset Purchase Agreement and the Transaction within thirty-five (35)
days following the commencement of the Case.
(ix) The appeal, rehearing, reconsideration, reversal,
modification, vacation or stay of the Order approving the Transaction.
(x) The failure of the parties to close the Transaction within
fifty (50) days of the commencement of the Case.
(xi) If there shall have occurred an Event of Default under any
other agreements between the Debtor and the Lender, except that the commencement
of the Debtor's case shall not be deemed to constitute a default hereunder or
thereunder.
(b) Remedies. In the event an Event of Default shall occur,
--------
then, in the sole discretion of the Lender and without further notice to the
Debtor or any other party, the unpaid principal amount of the Pre-Petition
Indebtedness and the Post-Petition Loan, together with all accrued interest
thereon at the applicable rate specified in the Note, and all other sums due by
the Debtor under any Note or this Agreement shall become immediately due and
payable, without presentment, demand, protest or other requirements of any kind,
all of which are hereby expressly waived by the Debtor. Upon the occurrence of
an Event of Default, the Lender shall have the right to charge and accrue
interest at a rate per annum equal to the Interest Rate plus three percent (3%)
(the "Default Rate"). In addition, in each case, the Lender may recover all
costs of suit and other expenses incurred by the Lender (including attorneys'
fees) in connection with the collection of any sums due under any and all Notes
or under this Agreement. In addition to all other remedies available to it, the
Lender may exercise its rights under any and all Notes delivered to the Lender
or under any of the Other Documents. The remedies set forth herein shall be in
addition to, and not in lieu of, any other additional rights or remedies the
Lender may have at law or in equity. In addition, upon the occurrence of an
Event of Default the automatic stay imposed by Code (S) 362, and all other stays
and injunctions, if any, following
-7-
<PAGE>
three (3) business days' notice to Debtor shall be deemed modified and
dissolved, and of no further force or effect, in order to permit Lender to
exercise all rights or remedies with respect to or in the Collateral and recover
therefrom the Pre-Petition Indebtedness and all obligations due Lender hereunder
and the Notes. Further, Lender and Debtor agree that upon the occurrence of an
Event of Default or the Maturity Date, whichever shall first occur, Lender shall
be entitled to (i) exercise its rights in and to the Warrants, (ii) credit the
Debtor, and (iii) apply the Warrants to and in satisfaction of the obligations
of Debtor to Lender with respect to the Pre-Petition Indebtedness and all
obligations under the Post-Petition Loan. Debtor hereby acknowledges notice of
the Lender's intention to retain the Warrants in satisfaction of such
obligations of Debtor to Lender and expressly waives its right to receive any
further notice from Lender of its intention to do so, either before or after the
occurrence of any Event of Default or the Maturity Date. All of the foregoing
rights and remedies shall be cumulative and the exercise of any such right or
remedy shall not exhaust or act to waive any other rights or remedies available
to the Lender. No failure to exercise, or delay by the Lender in exercising,
any right, power or privilege under this Agreement or otherwise shall preclude
any other or further exercise thereof, or the exercise of any other right, power
or privilege of the Lender.
8. Survival of Representations and Covenants. This Agreement and all
-----------------------------------------
covenants, agreements, representations and warranties made herein, in the
disclosure statement attached as Exhibit B to the Loan Agreement, and in any
Other Documents delivered pursuant hereto shall survive the making of the Post-
Petition Loan and the execution and delivery of any Note and this Agreement, and
shall continue in full force and effect until all of the obligations have been
fully paid, performed, satisfied and discharged.
9. Miscellaneous.
-------------
(a) Entire Agreement: Amendments. This Agreement, all Notes and all
----------------------------
of the Other Documents executed and delivered pursuant hereto constitute the
entire agreement between the Lender and the Debtor with respect to the subject
matter hereof. The provisions of this Agreement, any Note or any of the Other
Documents shall not be modified, rescinded or waived except in writing executed
by the party against whom such modification, rescission or waiver is sought to
be enforced.
(b) Successors and Assigns. This Agreement shall be binding upon, and
----------------------
inure to the benefit of, the Lender and the Debtor and their respective heirs,
personal representatives, successors and assigns, including, without limitation,
any committee of creditors or equity security holders appointed in the Debtor's
case, as well as any trustee appointed in the Debtor's case, whether interim,
permanent or elected, and whether under Chapter 7 or 11 of the Code, except that
the Debtor shall not make any assignment of its rights hereunder without the
prior written consent of the Lender.
(c) Rights Cumulative. The remedies of the Lender as provided in
-----------------
any and all Notes, or in this Agreement and all of the Other Documents shall be
cumulative and
-8-
<PAGE>
concurrent; may be pursued singly, successively, or together at the sole
discretion of the Lender; may be exercised as often as occasion for their
exercise shall occur; and in no event shall the failure to exercise any such
right or remedy be construed as a waiver or release of it.
(d) Notices. All notices, requests, demands and other communications
-------
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given and made when received by the party to whom the
notice, request, etc. is directed, and which shall be delivered personally, by
courier service such as Federal Express, or by messenger, or by United States
mail, registered or certified mail, postage pre-paid, return receipt requested,
addressed as set forth below.
If to the Debtor:
PortaCom Wireless, Inc.
10061 Talbert Avenue
Suite 200
Fountain Valley, CA 92708
with a copy to: Francis A. Monaco, Jr., Esquire
Walsh and Monzack, P.A.
1201 Orange Street, Suite 400
Wilmington, DE 19899
-and-
Jeffrey Kurtzman, Esquire
Klehr, Harrison, Harvey, Branzburg & Ellers
1401 Walnut Street
Philadelphia, PA 19102
If to the Lender:
VDC Corporation Ltd.
P.O. Box HM 1255
44 Church Street
Hamilton, Bermuda
with a copy to: Stephen M. Cohen, Esquire
-9-
<PAGE>
Stuart M. Brown, Esquire
Buchanan Ingersoll Profession Corporation
11 Penn Center, 14th Floor
1835 Market Street
Philadelphia, PA 19103
(e) Controlling Law and Jurisdiction. This Agreement and all
--------------------------------
questions relating to its validity, interpretation and performance shall be
governed by and construed in accordance with the laws of the State of Delaware
of the United States. The Debtor hereby consents to the exclusive jurisdiction
of the United States Bankruptcy Court for the District of Delaware for the
resolution of all claims, disputes and controversies arising hereunder.
(f) Notice of Default. The Debtor hereby agrees to promptly notify
-----------------
the Lender of any event or circumstance which gives rise to or which is
reasonably likely to give rise to an Event of Default hereunder.
[remainder of page intentionally left blank]
A.
-10-
<PAGE>
(g) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.
(h) Severability. If any provisions of this Agreement shall be held
------------
invalid under any applicable laws, such invalidity shall not affect any other
provision of this Agreement that can be given effect without the invalid
provisions and, to this end, the provisions hereof are severable.
IN WITNESS WHEREOF, the parties hereto have caused this Debtor In
Possession Loan, Security And Pledge Agreement to be executed and delivered as
of the date first written above.
VDC CORPORATION LTD.
BY: /s/ Fred A. Moran
-----------------------------
PORTACOM WIRELESS, INC.
BY: /s/ Michael A. Richard
-----------------------------
-11-
<PAGE>
EXHIBIT 10.27
VDC Corporation Ltd.
P.O. Box HM 1255
44 Church Street
Hamilton, Bermuda
September 29, 1997
VIA REGULAR MAIL AND
Re: Sale of Assets
Dear Douglas:
The purpose of this correspondence is to set forth the mutual agreements in
principle of VDC Corporation Ltd. ("VDC") and PortaCom Wireless, Inc.
("PortaCom"), whereby PortaCom has agreed to sell, and VDC has agreed to
purchase, those assets of PortaCom consisting of 2 million common shares and
warrants to acquire 4 million common shares of Metromedia Asia Corporation (the
"Assets").
1. Proposed Acquisition. Subject to confirmation of several tax issues,
--------------------
the purchase and sale transaction (the "Transaction") would most likely be
undertaken as a sale of the Assets of PortaCom. This sale would either be
structured as a tax free reorganization under Section 368(a)(1)(C) of the
Internal Revenue Code of 1986, as amended, or a transaction that would have a
materially equivalent result. In either event VDC would either directly, or
through a newly created wholly owned subsidiary, acquire the Assets subject to
confirmation of the fair market value of the Assets.
The Assets will be transferred to VDC at the closing free and clear of all
liens, liabilities, levies and encumbrances, except those restrictions imposed
under federal securities laws, however, subject to the terms of a Termination
Agreement entered into between Metromedia Asia Corporation ("MAC") and PortaCom
on September 11, 1996.
All other assets of PortaCom, including, but not limited to, all cash, cash
equivalents, accounts receivable, notes receivable, and other property
interests, (contingent and other) shall be retained by PortaCom and shall not be
subject to the terms of this Transaction. Furthermore, VDC shall not by virtue
of this Transaction assume, or be deemed to assume, any of the outstanding
debts, liabilities or obligations of PortaCom, whether matured, unmatured,
contingent, known or unknown.
2. Purchase Price. Subject to Section 3(b), the purchase price for the
--------------
acquisition of the Assets (the "Purchase Price") shall be paid or delivered to
PortaCom at the closing in the following manner:
<PAGE>
September 29, 1997
Page -2-
(i) the payment of up to $700,000 in cash, cashier's check or by wire
transfer to the extent necessary to satisfy PortaCom's obligation to creditors
and claimants identified in Section 3(b) below; and
(ii) the delivery of up to 5,300,000 newly issued shares of the common
stock of VDC.
The shares of VDC common stock to be delivered to PortaCom upon the closing
shall be free and clear of all liens, levies and restrictions, except that the
shares to be issued will be "restricted securities" pursuant to Rule 144,
promulgated under the Securities Act of 1933, as amended (the "Act") and except
for the restrictions on resale set forth in Section 7 hereof. The shares will,
however, be subject to certain registration rights as identified hereafter.
3. Composition of Indebtedness: Allocation of Purchase Price.
---------------------------------------------------------
(a) PortaCom has heretofore delivered to VDC a schedule of its
outstanding liabilities (the "Schedule"). Except as set forth on the Schedule,
PortaCom has no liabilities or obligations of any nature, fixed or contingent,
matured or unmatured. All reserves established by PortaCom within its financial
statements are adequate and there are no material loss contingencies (as such
term is used in Statement of Financial Accounting Standards No. 5 of the
Financial Accounting Standards Board) that are not adequately provided for.
(b) On or before the closing, PortaCom shall undertake an informal
composition of its outstanding indebtedness and shall have secured releases and
waivers satisfactory to VDC from those creditors and claimants whose claims
represent substantially all of PortaCom's outstanding liabilities.. Upon the
closing, the cash and stock portion of the Purchase Price necessary to satisfy
the indebtedness owed by PortaCom to its creditors and claimants shall be
delivered to a trustee mutually acceptable to each of us (the "Trustee"), for
delivery and distribution to the creditors and claimants of PortaCom in a manner
and upon terms to be agreed upon. Any and all amounts delivered to the Trustee
shall be credited against and considered a part of, the Purchase Price. The
remainder of the Purchase Price shall be distributed by PortaCom to its
stockholders pursuant to the registration rights identified herein.
4. Background and Outstanding Capitalization. VDC is a publicly held
-----------------------------------------
company whose assets consist of securities of other companies, as well as real
estate and mining interests. At or before the closing, VDC intends to dispose
of these Assets so that as of the closing VDC will have assets, net of
liabilities, of no less than $4,000,000 in the aggregate, consisting of cash and
promissory notes due within one (1) year of the closing.
Copies of VDC's most recent periodic reports filed with the Securities and
Exchange Commission have been or will upon request be provided to you for your
review.
In addition to this Transaction, VDC has proposed to acquire 100% of the
outstanding capital stock of NovoComm, Inc. ("NovoComm") in a stock-for-stock
exchange (the
<PAGE>
September 29, 1997
Page -3-
"NovoComm Transaction"). NovoComm is a privately held Delaware corporation,
which, through its subsidiaries and partnerships, owns and operates wireless
telephone, paging and FM radio businesses in Russia, Ukrania and Crimea. It is
anticipated that the acquisition of NovoComm will occur prior to this
Transaction. However, there is no assurance that the NovoComm transaction will
be consummated at this time.
As of the closing, VDC will have outstanding approximately 3,700,000 shares
of common stock, as well as options and/or warrants to acquire an additional
750,000 shares. In addition, as of the closing VDC anticipates issuing shares of
common stock or securities convertible into 38,000,000 shares of common stock in
the NovoComm Transaction. Accordingly, assuming completion of the NovoComm
Transaction as anticipated, the shares of VDC common stock to be delivered to
PortaCom upon the closing would, on a fully diluted basis, constitute
approximately 11.09% (5,300,000 / 47,750,000) of the issued and outstanding
common stock of VDC at that time.
5. Definitive Agreement. This correspondence is intended to reflect the
--------------------
agreement in principle of the parties hereto to complete the Transaction
subject, however, to the terms of a mutually acceptable definitive acquisition
agreement (the "Definitive Agreement") which once completed, will supersede the
terms hereof. The Definitive Agreement will contain such representations,
warranties and covenants of the parties as are customary in transactions of the
type contemplated, including, with respect to PortaCom, those related to title
to the Assets, condition of the Assets, financial statements, results of
operations, litigation, approval or consents from third parties, compliance with
laws and material contracts, and similar matters. Similar due diligence
information will be provided by VDC. PortaCom will also agree not to enter into
transactions that affect the Assets or PortaCom's ability to transfer the assets
or other transactions other than in the ordinary course of business without
VDC's consent. This would include a restriction on the payment of dividends or
other distributions to the stockholders or creditors of PortaCom not in the
ordinary course or any other extraordinary payments to employees, and the
incurrence of liabilities or any other actions diminishing the net assets or
value of the Assets. Additionally, the Definitive Agreement will contain mutual
indemnification provisions whereby VDC and PortaCom will agree to indemnify each
other against damages resulting from any misrepresentations, breaches of
warranty or non-fulfillment of any covenants contained within the Definitive
Agreement.
<PAGE>
September 29, 1997
Page -4-
6. Conditions Precedent.
--------------------
(a) The obligation of PortaCom to close the Transaction will be
conditioned upon satisfaction or waiver, at or prior to the closing, of the
conditions precedent to the closing to be identified within the Definitive
Agreement, including, among others:
(i) the stockholders of PortaCom shall have approved the
Transaction in accordance with the provisions of the Delaware General
Corporation Law;
(ii) the Vancouver Stock Exchange shall have either approved or not
disapproved the Transaction whichever is customary;
(iii) the representations and warranties of VDC contained within the
Definitive Agreement shall be true and correct in material respects on and as of
the closing;
(iv) all authorizations, consents, waivers, approvals or other
actions required in connection with the performance of the Transaction by
PortaCom shall have been obtained;
(v) the absence of any material adverse changes in the business or
affairs of VDC; and
(vi) the completion of a satisfactory due diligence review by
PortaCom of the business, assets, financial condition and prospects of VDC.
(b). The obligation of VDC to close the Transaction will be conditioned
upon satisfaction or waiver, at or prior to the closing, of the conditions
precedent to the closing to be identified within the Definitive Agreement,
including, among others:
(i) waiver of any restrictions upon transfer, and/or the receipt of
an assignment of the Assets under the existing Termination Agreement;
(ii) confirmation no action has been taken or is contemplated to be
taken by MAC or its parent corporation, Metromedia International Group, Inc.
against the Assets under the Escrow Agreement;
(iii) to the extent required under Bermuda law, the stockholders of
VDC shall have approved the Transaction;
(iv) the Vancouver Stock Exchange shall have either approved or not
disapproved the Transaction on behalf of the stockholders of PortaCom whichever
is customary;
(v) PortaCom shall have secured a current fairness opinion of a
qualified investment bank or appraisal firm reasonably satisfactory (as to the
form and content of the opinion) to VDC opining as to the fairness of the
Transaction to PortaCom and its stockholders;
<PAGE>
September 29, 1997
Page -5-
(vi) PortaCom shall have completed a composition of its total
outstanding indebtedness, including receipt of releases from creditors and
claimants, in the manner identified at Section 3(b) hereof;
(vii) VDC shall have closed or will close simultaneously on the
NovoComm Transaction;
(viii) PortaCom and/or MAC shall have provided to VDC whatever
audited or other financial statements are necessary in order to satisfy VDC's
obligations under the federal securities laws, including, among others,
Regulation S-X;
(ix) the representations and warranties of PortaCom contained in the
Definitive Agreement shall be true and correct in all material respects as of
the closing;
(x) all material authorizations, consents, waivers, approvals or
other actions required in connection with the performance of the Transaction by
VDC shall have been obtained;
(xi) PortaCom shall have satisfied any and all obligations under the
bulk sales laws as applicable in the State of Delaware;
(xii) the absence of any material adverse changes in the business or
affairs of PortaCom; and
(xiii) the completion of a satisfactory due diligence review by VDC
of the business, assets, financial condition and prospects of PortaCom.
7. Registration Rights Agreement. VDC agrees to utilize its best efforts
-----------------------------
to file a registration statement (the "Registration Statement") with the
Securities and Exchange Commission commencing as soon as practicable from the
date of the closing, at its sole cost and expense, the purpose of which, upon
effectiveness thereof, is to register either: (i) the distribution of the VDC
shares to the PortaCom stockholders; or (ii) the resale of the VDC shares by
PortaCom. Notwithstanding the above, resale of the VDC shares, other than in
distribution to PortaCom's Stockholders, shall be limited as follows:
(i) 25% of the shares may be sold upon effectiveness of the
Registration Statement;
(ii) 25% of the shares may be sold six months following
effectiveness of the Registration Statement; and
(iii) the remaining 50% of the shares may be sold one year following
effectiveness of the Registration Statement.
<PAGE>
September 29, 1997
Page -6-
In connection with the registration rights, VDC shall have no obligation:
(i) to assist or cooperate in the offering or disposition of such shares of
common stock; (ii) to indemnify or hold harmless the holders of such securities
being registered or any underwriter designated by such holders; (iii) to obtain
a commitment from an underwriter relative to the sale of such shares; or (iv) to
include such shares of common stock within an underwritten offering of the
Company.
8. No Shop: Confidentiality. In consideration of the substantial
------------------------
expenditures of time, effort and money to be undertaken by VDC in connection
with the preparation and execution of the Definitive Agreement, the various
reviews and verifications referred to above, PortaCom agrees that following the
acceptance of this letter and until the later of: (i) 180 days after the date
of this correspondence; or (ii) 180 days after the termination of this agreement
identified in this correspondence; or (iii) 180 days after the termination of
the Definitive Agreement, they shall break off all discussions with third
parties and will not enter into any negotiations or agreements of any kind with
any other parties with respect to sale of the Assets or the capital stock of the
PortaCom, or for the merger or sale of PortaCom or any subsidiary or assign with
or to any other entity. The parties hereto agree that this letter and the
transactions contemplated hereby shall remain in strict confidence and all press
releases and other announcements to the public or the employees, customers or
suppliers of either party hereto relating to the transaction contemplated by
this letter will be subject to the prior approval of both PortaCom and VDC other
than such announcements that either party is obligated to make under SEC
regulations.
9. Access to Information. At all times prior to the Closing or the
---------------------
earlier termination of the agreements in principle identified within this
correspondence as provided herein, each of PortaCom and VDC shall provide to the
other party hereto (and the other party's representatives) full access during
normal business hours to the premises, properties, books, records, assets,
liabilities, operations, contracts, personnel, financial and tax information and
other data and information of or relating to such party, and will cooperate with
the other party in conducting its due diligence investigation of such party.
10. Expenses. PortaCom and VDC will each bear their own costs and
--------
expenses incurred in connection with the transaction and investigations
contemplated herein including, without limitation, the fees and expenses of
their respective legal counsel, accountants and financial advisors. The parties
represent that except as otherwise set forth they have retained no brokers or
agents in connection with the contemplated Transaction, and will indemnify each
other against any breach of this representation.
11. Closing. The closing of the Transaction shall be held at such place
-------
and at such time as the parties mutually agree. The parties agree, however, to
use their best efforts to achieve the closing as soon as possible, however,
recognize that in view of the various regulatory and stockholder consents that
are required, closing may not occur until January 31, 1998 or as mutually agreed
upon thereafter.
<PAGE>
September 29, 1997
Page -7-
12. Not a Binding Agreement; Exceptions. Although it is our mutual
------------------------------------
understanding that the parties intend to negotiate in good faith the preparation
and execution of the Definitive Agreement, this correspondence is intended to
reflect our agreement in principle and does not constitute a binding obligation
of either party hereto, except for the provisions of Section 8 hereof which
shall be binding on the parties hereto. Each party acknowledges that the Board
of Directors of the other party hereto has approved the terms of this agreement
in principle. Notwithstanding the above, the provisions of Section 8 are
intended to create a legally binding obligation the violation of which would
provide the non-breaching party with the right to pursue whatever remedies are
available at law or in equity, including injunctive relief, it being understood
and acknowledged that no other adequate remedy may be available in the event of
the breach of Section 8. Portacom hereby waives the claim or defense in any
such action that the party making such application has no adequate remedy at
law.
13. Break-up Fees. In the event that following execution of the
--------------
Definitive Agreement PortaCom elects not to close the Transaction for any
reason except: (i) a breach by VDC of any of its representations, warranties or
covenants in the Definitive Agreement; or (ii) a material adverse development in
the business or affairs of VDC between the date of the Definitive Agreement and
the closing, then, and in that event, in order to compensate VDC for the
expenses it has incurred in this Transaction, as well as lost opportunity costs
and direct and indirect and consequential damages, PortaCom shall, upon five (5)
days written notice, pay to VDC a break-up fee of $1,000,000.
14. Interim Advances.
-----------------
PortaCom has requested that VDC provide certain working capital advances
prior to the closing, and VDC has agreed, to provide certain advances to
PortaCom in an amount, and for the purposes, to be agreed upon by VDC in its
sole discretion. To the extent advances are provided by VDC, PortaCom has
agreed, pending whatever regulatory requirements may be applicable, to secure
the repayment of such advances by providing a first lien, perfected security
interest and pledge in and to the warrants to acquire 4 million common shares of
MAC and other collateral as requested by VDC. VDC shall not have any obligation
to provide such advances until PortaCom has secured whatever regulatory
requirements may be applicable under the circumstances to permit the creation of
such security interest.
15. Miscellaneous.
--------------
(a) This agreement in principle shall be binding (only as specifically
provided in Section 8 hereof) on the parties hereto and their successors in
interest and assigns; provided, however, that neither party may assign its
rights or obligations hereunder to one or more third parties without the prior
written consent of the other party hereto.
(b) This agreement in principle may be terminated in writing with or
without cause by either party without further obligation and shall terminate
automatically in the event the Definitive Agreement is not executed prior to
October 30, 1997; provided, however, that the obligations imposed by Section 8
shall survive any termination.
<PAGE>
September 29, 1997
Page -8-
(c) This agreement in principle and the Definitive Agreement shall be
governed by and construed in accordance with the laws of theState of Delaware,
without regard to the laws that might otherwise govern under principles of
conflicts of laws applicable hereto and thereto.
(d) This agreement in principle is solely for the benefit of the
parties hereto and will not be construed to give rise to or create any liability
or obligation to, or to afford any claim or cause of action to, any other person
or entity, and will be superseded in its entirety by the provisions of the
Definitive Agreement upon the approval and execution thereof by the parties
thereto.
If this letter accurately sets forth your intentions and agreements, kindly
execute and return the enclosed copy of this correspondence whereupon we will
commence our due diligence efforts and instruct our counsel to commence
preparation of the Definitive Agreement for your review.
Very truly yours,
VDC Corporation Ltd.
By: /s/ Graham Lacey
-------------------------
Graham Lacey, President and
Chief Executive Officer
Accepted and Agreed
this 30 day of
--
September, 1997.
PortaCom Wireless, Inc.
BY: /s/ Douglas C. MacLellan
------------------------
Douglas C. MacLellan
<PAGE>
EXHIBIT 10.28
ASSET PURCHASE AGREEMENT
by and between
VDC CORPORATION LTD.,
as Buyer,
and
PORTACOM WIRELESS, INC.
as Seller
November 25, 1997
<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
This ASSET PURCHASE AGREEMENT (the "Agreement") is made as of the 10th
day of November, 1997, by and between VDC CORPORATION LTD., a Bermuda
corporation ("Buyer") and PORTACOM WIRELESS, INC., a Delaware corporation
("Seller").
WITNESSETH
WHEREAS, Seller desires to sell, and Buyer desires to purchase, on the
terms and conditions hereafter set forth, certain of the assets of Seller as
described herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants, agreements and representations and warranties herein contained, and
for other good and legal consideration, the receipt and sufficiency of which is
hereby acknowledged, Seller and Buyer, intending to be legally bound hereby,
agree as follows:
ARTICLE 1
DEFINITIONS
1.1. When used in this Agreement, the following terms, in their singular
and plural forms, shall have the meanings assigned to them below:
"Act" means the Securities Act of 1933, as amended.
---
"Agreement" is defined in the initial paragraph hereof.
---------
"Assets" means all of the right, title and interest that Seller
------
possesses and has the right to transfer in and to all of the following described
holdings:
(i) Two million shares of common stock, par value $.01 per share
("MAC Common Stock"), of Metromedia Asia Corporation ("MAC"), as evidenced by
Stock Certificate Number 59, dated February 28, 1997 with such shares being
currently held in escrow until January 1, 1999 serving as collateral for any
potential claims which may arise from the Termination Agreement; and
(ii) Warrants ("MAC Warrants") to purchase four million shares of
common stock, par value $.01 per share, at $4.00 per share, of MAC, as evidenced
by Warrant Number 19.
"Buyer" is defined in the initial paragraph hereof.
-----
"Cash Funds" is defined in Section 3.1(a).
---------- --------------
"Claim" means a claim or demand for any and all Liabilities, damages,
-----
losses, obligations, deficiencies, encumbrances, penalties, costs and expenses,
including reasonable
1
<PAGE>
attorneys' fees, resulting from, related to or arising out of (i) any
misrepresentation, breach of warranty or non-fulfillment of any covenant of
Seller set forth in this Agreement or in any Related Document; (ii) Seller's
ownership of the Assets; (iii) Seller's failure to comply with the provisions of
applicable bulk sales laws; and (iv) any and all actions, suits, investigations,
proceedings, demands, assessments, audits, judgments and claims arising out of
any of the foregoing.
"Closing" and "Closing Date" are defined in Section 6.1.
------- ------------ -----------
"Disclosure Schedule" is defined in Section 4.1.
------------------- -----------
"GAAP" means generally accepted accounting principles.
----
"Governmental Authority" means any foreign, federal, state, regional
----------------------
or local authority, agency, body, court or instrumentality, regulatory or
otherwise, which, in whole or in part, was formed by or operates under the
auspices of any foreign, federal, state, regional or local government.
"Indemnified Party" is defined in Section 10.4.
----------------- ------------
"Indemnifying Party" is defined in Section 10.4.
------------------ ------------
"Law" means any common law and any federal, state, regional, local or
---
foreign law, rule, statute, ordinance, rule, order or regulation.
"Liabilities" means liabilities, obligations, claims or debts of
-----------
Seller of any type or nature, whether matured, unmatured, contingent or unknown,
including, without limitation, tort, contract or other claims asserted against
Seller which are based on acts or omissions occurring on, before or after the
Closing Date.
"Lien" means any lien, charge, covenant, condition, easement, adverse
----
claim, demand, encumbrance, security interest, option, pledge, or any other
title defect, easement or restriction of any kind.
"Material Adverse Effect" is defined in Section 4.9(c).
----------------------- --------------
"Permitted Liens" means those Liens to which the Assets are subject
---------------
under (i) the Termination Agreement which are not required to be waived pursuant
to Section 6.2(a) of this Agreement; (ii) the Loan Agreement (as defined at
Section 3.3 hereof); and (iii) the federal securities laws of the United States.
"Purchase Price" is defined in Section 3.1.
-------------- -----------
"Registration Statement" is defined in Section 7.6
---------------------- -----------
2
<PAGE>
"Related Documents" means this Agreement, the Trust Agreement and each
-----------------
document or instrument executed in connection with the consummation of the
transactions contemplated herein.
"Returns" is defined in Section 4.8.
------- -----------
"Seller" is defined in the initial paragraph of this Agreement.
------
"Taxes" is defined in Section 4.8.
----- -----------
"Termination Agreement" means that certain Termination Agreement,
---------------------
dated September 11, 1996, by and among Seller, MAC, as successor-in-interest to
Asian American Telecommunications Corporation and Max E. Bobbitt, as Agent.
"Trust Agreement" means that certain Trust Agreement, of even date
---------------
herewith, by and among Buyer, Seller and Trustee.
"Trustee" means that person or entity mutually agreed upon by the
-------
parties hereto to act as trustee under the Trust Agreement.
"VDC Shares" is defined in Section 3.1(b).
----------
ARTICLE 2
SALE AND PURCHASE OF ASSETS
2.1. Agreement to Sell and Purchase Assets. Subject to the terms and
-------------------------------------
conditions hereof and on the basis of and in reliance upon the covenants,
agreements and representations and warranties set forth herein, on the Closing
Date Seller shall sell the Assets to Buyer, and Buyer shall purchase the Assets
from Seller.
2.2. Responsibility for Liabilities. Buyer shall not assume any Liabilities
------------------------------
of Seller by virtue of this Agreement or otherwise.
ARTICLE 3
PAYMENT OF THE PURCHASE PRICE
3.1. Purchase Price.
--------------
The purchase price ("Purchase Price") for the Assets shall be paid or
delivered by Buyer at Closing in the following manner:
(a) Subject to adjustment pursuant to Section 3.3 hereof, Buyer shall
deliver an amount not to exceed Seven Hundred Thousand Dollars
($700,000) (the "Cash Funds") in immediately available funds in
the form of cash, cashier's check or wire transfer with such
amount as is necessary solely to
3
<PAGE>
satisfy the outstanding indebtedness of Seller in accordance with
the provisions of Section 3.2; and
(b) Buyer shall deliver 5,300,000 shares of newly issued shares of
common stock of Buyer (the "VDC Shares") in accordance with the
provisions of Section 3.2.
3.2. Allocation of Purchase Price.
----------------------------
The Purchase Price shall be allocated in the following manner:
(a) At the Closing, Seller will deliver a schedule (the "Debt
Schedule") identifying its indebtedness as of the Closing Date. Buyer shall
deliver to and deposit with Trustee the portion of the Cash Funds and the number
of VDC Shares necessary to satisfy Seller's indebtedness to its creditors and
claimants in the amounts and manner as set forth in the Debt Schedule. The Cash
Funds and/or any and all VDC Shares delivered to Trustee pursuant to this
Section 3.2(a) shall be credited against and considered a part of the Purchase
Price and shall be held and distributed by Trustee to the creditors and
claimants (or provision shall be made for the ultimate distribution of such
amounts and/or Shares to creditors and claimants upon the final resolution of
any disputed amounts payable or claims against Seller) in accordance with the
provisions of a Trust Agreement to be agreed upon between the parties. Prior to
the Closing Date, Seller shall have received releases, waivers and/or settlement
agreements, satisfactory to Buyer, evidencing satisfaction of substantially all
indebtedness of, and claims against, Seller.
(b) Buyer shall deliver to Seller that portion of the VDC Shares not
required to be delivered to or deposited with the Trustee pursuant to Section
3.2(a) hereof. Seller shall retain such VDC Shares until such time as a
disposition occurs to its stockholders pursuant to an effective registration
statement in accordance with the provisions of Section 7.6 hereof.
3.3. Adjustment to Purchase Price. Any and all sums advanced to Seller by
----------------------------
Buyer pursuant to the Loan Agreement, dated November 10, 1997 between Buyer and
Seller ("Loan Agreement"), as evidenced by the note(s) made thereunder by Seller
in favor of Buyer, shall constitute initial payments and deposits against the
Purchase Price, shall be part of the Purchase Price under this Agreement upon
the Closing Date, and shall be applied to the Cash Funds.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
4.1. Disclosure Schedule. Seller has delivered or caused to be delivered to
-------------------
Buyer, prior to the execution of this Agreement, disclosure schedules, and
documents relating thereto, which include the numbered schedules specifically
referred to in this Agreement and which are attached hereto (collectively, the
"Disclosure Schedule"). The information contained in the Disclosure Schedule is
complete and accurate in all material respects and all documents that are
attached to
4
<PAGE>
the Disclosure Schedule are complete and accurate copies of the genuine original
documents they purport to represent as in effect on the date hereof. Capitalized
terms used in the Disclosure Schedule and not otherwise defined therein have the
meanings ascribed to such terms in this Agreement.
4.2. Organization and Standing of Seller. Seller is a corporation duly
-----------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware. Seller has all requisite corporate power and authority to sell the
Assets, free and clear of any and all Liens other than Permitted Liens. A
certified copy of Seller's Articles of Incorporation and Bylaws are attached to
Schedule 4.2 of the Disclosure Schedule.
- ------------
4.3. Encumbrances Created by this Agreement. The execution and delivery of
--------------------------------------
this Agreement and each of the Related Documents does not, and the consummation
of the transactions contemplated hereby or thereby will not, create any Liens on
any assets (including the Assets) of Seller in favor of third parties.
4.4. Authorization and Enforceability. The Seller has the full and
--------------------------------
unrestricted legal right, power and authority to enter into this Agreement and
the Related Documents to which it is a party, to carry out the transactions
contemplated hereby and thereby, and to perform the obligations hereunder and
thereunder. All necessary and appropriate action has been taken by Seller with
respect to the execution and delivery of this Agreement and each of the Related
Documents and the performance of its obligations hereunder and thereunder.
Except as listed on Schedule 4.4 of the Disclosure Schedule, no authorization,
------------
consent or approval of, or filing with, any third party or Governmental
Authority is necessary for the consummation by Seller of the transactions
contemplated by this Agreement or any Related Document. The execution and
delivery of this Agreement and the Related Documents and the consummation of the
contemplated transactions by Seller will not (a) result in the breach of any of
the terms or conditions of or constitute a default under the Articles of
Incorporation or the By-Laws of the Seller, (b) violate any Law or any order,
writ, injunction or decree of any Governmental Authority, (c) except as
disclosed on Schedule 4.4 of the Disclosure Schedule, conflict with or
------------
constitute a default under any agreement or commitment that is binding upon
Seller or (d) except as disclosed on Schedule 4.4 of the Disclosure Schedule,
------------
result in the acceleration of any indebtedness of Seller. This Agreement
constitutes a valid and binding obligation of Seller, enforceable against Seller
in accordance with its terms.
4.5. Title to Assets. Seller owns and holds of record the entire right,
---------------
title and interest in and to all of the Assets, free and clear of any and all
Liens, other than Permitted Liens.
4.6. Indebtedness. Identified on Schedule 4.6 is a true, correct and
------------
complete list of Seller's creditors and claimants representing all of Seller's
outstanding indebtedness as of the date of this Agreement and the amount and
type of settlement agreed upon by Seller and each such claimant in full
satisfaction of Seller's indebtedness to such claimant.
4.7. Financial Statements. Copies of the financial statements for Seller
--------------------
as of and for the fiscal years ended March 31, 1995 and 1994, for the transition
period ended December 31, 1995 and for the fiscal year ended December 31, 1996
are attached to Schedule 4.7 of the
------------
5
<PAGE>
Disclosure Schedule (collectively, the "Financial Statements"). The Financial
Statements are accompanied by the opinion of KPMG to the effect that such
financial statements have been audited by KPMG and present fairly, in all
material respects, the financial position of Seller as of the dates indicated
and the results of its operations and cash flows for the periods then ended in
conformity with GAAP applied on a consistent basis (except as otherwise stated
in the Financial Statements, including the related notes). Also attached to
Schedule 4.7 of the Disclosure Schedule are copies of the balance sheet and
- ------------
income statement of Seller as of and for the three-month period ended September
30, 1997 prepared internally by Seller (the "Interim Financial Statements"). The
Interim Financial Statements have been prepared in accordance with Seller's
standard accounting practices with respect to interim financial statements which
conform to the practices employed in preparing the Financial Statements and
present fairly, in all material respects, the financial position of Seller as of
the dates indicated and the results of its operations and cash flows for the
periods then ended in conformity with GAAP applied on a consistent basis, except
as described on Schedule 4.7 of the Disclosure Schedule. For purposes of this
------------
Agreement, the Financial Statements and the Interim Financial Statements shall
be deemed to include any notes and schedules thereto.
4.8. Taxes. Except as disclosed on Schedule 4.8 of the Disclosure Schedule,
----- ------------
all (a) federal, state, local or foreign tax returns (collectively, the
"Returns") required to be filed by Seller with respect to the properties,
assets, operations, income and net worth of Seller have been timely filed or
appropriate extensions have been obtained and such Returns are true, correct and
complete; (b) taxes and governmental charges, including, without limitation, any
interest and penalties (collectively, "Taxes") due pursuant to such Returns have
been paid or adequate provision therefor has been made on the Financial
Statements or Interim Financial Statements; and (c) federal, state, local and
foreign withholdings required with respect to the business of Seller have been
withheld and timely paid over to the appropriate Governmental Authority.
Schedule 4.8 of the Disclosure Schedule sets forth for each taxable year the
- ------------
current status of any examination being conducted by the Internal Revenue
Service or any other taxing authority relating to Seller. Except as disclosed
on Schedule 4.8 of the Disclosure Schedule, there are no outstanding agreements
------------
or waivers extending the statutory period of limitation concerning any tax
Liability of Seller, no examination of any Return of Seller is currently in
progress and no Governmental Authority has, within the last five (5) years,
notified Seller of any tax claim, investigation or proceeding.
4.9. Absence of Undisclosed Liabilities. Except as disclosed on Schedule
---------------------------------- --------
4.9 of the Disclosure Statement:
- ---
(a) Seller does not have any Liabilities;
(b) All Liabilities are fully and adequately reflected or reserved
against in the Financial Statements or Interim Financial Statements; and
(c) There have been no Liabilities incurred in the ordinary course of
business since September 23, 1997 which individually or in the aggregate
have had or would reasonably be expected to have an effect that is or is
reasonably likely to be materially adverse to the
6
<PAGE>
business, operations, properties (including intangible properties),
prospects, condition (financial or otherwise), assets (including the
Assets) or Liabilities of Seller (a "Material Adverse Effect").
4.10. Absence of Material Loss Contingencies. Seller has no material loss
--------------------------------------
contingencies (as such term is used in Statement of Financial Accounting
Standards No. 5 of the Financial Accounting Standards Board) for which Seller
has not made adequate provision.
4.11. Absence of Certain Changes or Events. Except as disclosed on Schedule
------------------------------------ --------
4.11 of the Disclosure Schedule, since the date of the Interim Financial
- ----
Statements:
(a) Seller has been operating in the ordinary course and there has
been no material change in accounting methods, principles or practices used
by Seller;
(b) Seller has not incurred any material indebtedness for borrowed
money or been delinquent in the payment of any material indebtedness, except
to the extent the same was being contested in good faith;
(c) Seller has not sold, assigned, transferred or subjected to any
Lien, any tangible or intangible asset material to the operation of its
business, other than inventory in the ordinary and normal course and
miscellaneous items of equipment and other assets no longer necessary to the
operation of its business;
(d) Seller has not entered into material contracts or entered into
amendments to material contracts other than in the ordinary course of
business;
(e) Seller has not increased the rate or terms of compensation
payable or to become payable by Seller to its directors, officers or
employees, except increases occurring in the ordinary course of business in
accordance with their customary practices (which shall include normal
periodic performance reviews and related compensation and benefit
increases);
(f) there has been no revaluation by Seller of any of its assets,
including, without limitation, writing off accounts receivables other than
in the ordinary course of business; and
(g) there has been no authorization, approval, agreement or
commitment to do any of the foregoing.
4.12. Litigation. Except as disclosed on Schedule 4.12 of the Disclosure
---------- -------------
Schedule, there is no claim, suit, arbitration, investigation, action, inquiry,
review or proceeding pending or threatened against Seller which (a) affects the
validity of this Agreement or any of the Related Documents or which could
prevent or delay the transactions contemplated hereunder or (b) could reasonably
be expected to have a Material Adverse Effect. Except as disclosed on Schedule
--------
4.12 of the Disclosure Schedule, Seller is not subject to any judicial
- ----
injunction or mandate or any administrative order.
7
<PAGE>
4.13. VDC Shares to Constitute Restricted Securities. Seller represents
----------------------------------------------
and warrants: (a) that it has reviewed the annual and periodic reports of Buyer,
as filed by Buyer with the Securities and Exchange Commission ("SEC") pursuant
to the Securities Exchange Act of 1934, and that it has such knowledge and
experience in financial and business matters that it is capable of utilizing the
information set forth therein concerning Buyer to evaluate the risks of
investing in the VDC Shares; (b) that it has been advised that the VDC Shares to
be issued to them by Buyer constitute "restricted securities" as defined in Rule
144 promulgated under the Securities Act, and accordingly, have not been and
will not be registered under the Securities Act except as otherwise set forth in
this Agreement, and, therefore, it may not be able to sell or otherwise dispose
of such VDC Shares except if the VDC Shares are subject to an effective
registration statement filed with the SEC, in compliance with Rule 144 or
otherwise pursuant to an exemption from registration under the Act; (c) that the
VDC Shares so issued are being acquired by them for their own benefit and on
their own behalf for investment purposes and not with a view to, or for sale or
for resale in connection with, a public offering or re-distribution thereof; (d)
that the VDC Shares so issued will not be resold (i) without registration
thereof under the Securities Act (unless an opinion of counsel acceptable to
VDC, or to Buyer, an exemption from such registration is available), (ii) in
violation of any law; and (e) that the certificate or certificates representing
the VDC Shares to be issued will be imprinted with a legend in form and
substance as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE
SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN
THE ABSENCE OF REGISTRATION, OR THE AVAILABILITY OF AN EXEMPTION FROM
REGISTRATION, UNDER THE SECURITIES ACT OF 1933, AS AMENDED, BASED ON
AN OPINION LETTER OF COUNSEL FOR THE COMPANY OR A NO-ACTION LETTER
FROM THE SECURITIES AND EXCHANGE COMMISSION.
and Buyer is hereby authorized to notify the transfer agent of the status of the
VDC Shares, and to take such other action including, but not limited to, the
placing of a "stop transfer" order on the books and records of Buyer's transfer
agent to ensure compliance with the foregoing.
4.14. Approval. The Board of Directors of Seller has approved the
--------
execution of this Agreement and the transactions contemplated thereby.
4.15. Brokers' Fees. No broker, finder or other person or entity acting in
-------------
a similar capacity has participated on behalf of Seller in connection with the
transactions contemplated by this Agreement. Seller has not incurred any
Liability for brokers' fees, finders' fees, agents' commissions or other similar
forms of compensation in connection with this Agreement or the transactions
contemplated hereby.
4.16. Full Disclosure. No representation or warranty by Seller in this
---------------
Agreement and no statement contained in any Disclosure Schedule to this
Agreement contains any untrue
8
<PAGE>
statement of a material fact, or omits to state a material fact necessary to
make the statements contained therein, in light of the circumstances in which
they are made, not misleading.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
5.1. Organization and Standing of Buyer. Buyer is a corporation duly
----------------------------------
organized, validly existing and in good standing under the laws of the
Commonwealth of Bermuda.
5.2. Authorization and Enforceability. Buyer has all requisite corporate
--------------------------------
power and authority to enter into this Agreement and the Related Documents to
which it is a party and to carry out the transactions contemplated hereby and
thereby and to perform its obligations hereunder and thereunder. All necessary
and appropriate action has been taken by Buyer with respect to the execution and
delivery of this Agreement and each of the Related Documents and the performance
of its obligations hereunder and thereunder. The execution and delivery of this
Agreement and the Related Documents and the consummation of the contemplated
transactions by Buyer will not (a) result in the breach of any of the terms or
conditions of, or constitute a default under, the Certificate of Incorporation
or the By-Laws of Buyer or (b) violate any Law or any order, writ, injunction or
decree of any Governmental Authority. This Agreement and any Related Documents
to which Buyer is a party constitute valid and binding obligations of Buyer
enforceable against Buyer in accordance with their respective terms.
5.3. VDC Shares. The VDC Shares delivered by Buyer at Closing will be
----------
validly and legally issued, free and clear of any and all Liens, and will be
fully paid and non-assessable, except that the VDC Shares shall be "restricted
securities" pursuant to Rule 144 promulgated under the Act and except for the
restrictions on resale set forth in Section 7.6 hereof.
5.4. Approval. The Board of Directors of the Buyer has approved the
--------
execution of this Agreement and the transactions contemplated thereby.
5.5. Brokers' Fees. Buyer has not incurred any liability for brokers' fees,
-------------
finders' fees, agents' commissions or other similar forms of compensation in
connection with this Agreement or the transactions contemplated hereby.
5.6. Full Disclosure. No representation or warranty by Buyer in this
---------------
Agreement contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained therein, in light of
the circumstances in which they are made, not misleading.
9
<PAGE>
ARTICLE 6
CLOSING
6.1. Closing. Subject to satisfaction or waiver of all conditions precedent
-------
set forth in Sections 8 and 9 of this Agreement, the closing of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Buchanan Ingersoll Professional Corporation, at 10:00 a.m., local time the
day on which the last of the conditions precedent set forth in either Section 8
or 9 of this Agreement is fulfilled (the "Closing Date") or at such other time,
date and place as the parties may agree, but in no event shall such date be
later than March 1, 1998, unless such date is extended by the mutual written
agreement of the parties.
6.2. Obligations of Seller. At or prior to the Closing, Seller shall
---------------------
deliver to Buyer, in each case, in form and substance satisfactory to Buyer:
(a) a written release by all of the parties to the Termination
Agreement agreeing to the release of the MAC Common Stock to the Buyer;
(b) written evidence from MAC confirming that, as of the Closing
Date, no part of the Assets pledged as collateral under the Termination
Agreement has been sold, assigned, transferred or otherwise disposed of or
subject to any action for any of the foregoing (other than the transaction
contemplated in this Agreement), and that, as of the Closing Date, neither MAC
nor its parent corporation, Metromedia International Group, Inc., contemplates
taking any of the foregoing actions;
(c) releases and waivers from each of Seller's creditors and
claimants listed in Schedule 4.6;
(d) such other instruments of transfer as shall be necessary or
appropriate to vest in the Buyer good and marketable title to the Assets; and
(e) such other documents as may be described in Article 8 of this
---------
Agreement.
6.3. Obligations of Buyer. At the Closing, Buyer shall deliver:
--------------------
(a) the Purchase Price in accordance with Article 3 of this
---------
Agreement; and
(b) such other documents as may be described in Article 9 of this
---------
Agreement.
6.4. Further Documents or Necessary Action. Buyer and Seller each agree to
-------------------------------------
take all such further actions on or after the Closing Date as may be necessary,
desirable or appropriate in order to confirm or effectuate the transactions
contemplated by this Agreement.
10
<PAGE>
ARTICLE 7
COVENANTS AND AGREEMENTS
Seller covenants to and agrees with Buyer, and Buyer covenants to and
agrees with Seller, as follows:
7.1. Conduct of Business Pending the Closing. During the period from the
---------------------------------------
date of this Agreement to the Closing Date, Seller shall conduct its business
operations in the ordinary and usual course and to maintain its records and
books of account in a manner consistent with prior periods. Seller shall,
without purporting to make any commitment on behalf of Buyer, exercise
reasonable efforts to preserve intact the present business organization and
personnel of Seller and the present goodwill of Seller with persons having
business dealings with them. Seller further covenants and agrees that, from the
date of this Agreement to the Closing Date, it shall not, without the written
consent of Buyer:
(a) enter into any negotiations, discussions or agreements
contemplating, affecting or respecting the Assets or Seller's ability to
transfer the Assets;
(b) enter into any negotiations, discussions or agreements
contemplating or respecting the acquisition of Seller or any material asset
thereof (other than in the ordinary course of business), whether through a sale
of stock, a merger or consolidation, the sale of all or substantially all of the
assets of Seller, any type of recapitalization or otherwise, with the exception
------------------
of the Seller's interest in and to its Cambodian venture, the disposition of
- ----------------------------------------------------------------------------
which has been discussed with the Buyer;
- ---------------------------------------
(c) pay any dividend or make any distributions to the stockholders,
creditors or claimants of Seller not in the ordinary course of business;
(d) pay any compensation or bonus its directors, officers or
employees, other than in the ordinary course of business;
(e) incur any Liabilities or take any action that would materially
----------
diminish the net assets of Seller or the value of the Assets;
(f) take any action which would interfere with or prevent performance
of this Agreement; or
(g) engage in any activity or enter into any transaction which would
be inconsistent in any respect with any of the representations, warranties or
covenants set forth in this Agreement, as if such representations, warranties
and covenants were made at a time subsequent to such activity or transaction and
all references to the date of this Agreement were deemed to be such later date.
7.2. Access By Buyer; Confidentiality. During the period from the date of
--------------------------------
this Agreement to the Closing Date, Seller shall cause Buyer, its agents and
representatives to be
11
<PAGE>
given full access during normal business hours to the premises, buildings,
offices, books, records, assets (including the Assets), Liabilities, operations,
contracts, files, personnel, financial and tax information and other data and
information of Seller, and shall cooperate with Buyer in conducting its due
diligence investigation of Seller; provided that such access shall not
--------
unreasonably interfere with the normal operations and employee relationships of
Seller. All information provided to or learned by Buyer as a result of such
access or otherwise in connection with the transactions contemplated by this
Agreement shall be held in confidence.
7.3. Access By Seller; Confidentiality. During the period from the date of
---------------------------------
this Agreement to the Closing Date, Buyer shall cause Seller, its agents and
representatives to be given full access during normal business hours to the
premises, buildings, offices, books, records, assets, liabilities, operations,
contracts, files, personnel, financial and tax information and other data and
information of Buyer, and shall cooperate with Seller in conducting its due
diligence investigation of Buyer; provided that such access shall not
--------
unreasonably interfere with the normal operations and employee relationships of
Buyer. Buyer shall provide Seller with copies of all reports and/or findings
made with the Securities and Exchange Commission from the date hereof through
the Closing. All information provided to or learned by Seller as a result of
such access or otherwise in connection with the transactions contemplated by
this Agreement shall be held in confidence.
7.4. Notice of Breach or Failure of Condition. Seller and Buyer agree to
----------------------------------------
give prompt notice to the others of the occurrence of any event or the failure
of any event to occur that might preclude or interfere with the timely
satisfaction of any condition precedent to the obligations of Seller or Buyer
under this Agreement.
7.5. Best Efforts. Seller and Buyer shall use their respective best efforts
------------
to obtain all consents or approvals necessary to bring about the satisfaction of
the conditions required to be performed, fulfilled or complied with by them
pursuant to this Agreement and to take or cause to be taken all action, and to
do or cause to be done all things, necessary, proper or advisable under
applicable Laws to consummate and make effective the transactions contemplated
by this Agreement as expeditiously as practicable.
7.6. Registration Rights Agreement.
-----------------------------
(a) Buyer agrees that, at its sole expense, within forty-five (45)
days after the Closing Date, it shall use its best efforts to file with the
Securities and Exchange Commission a registration statement (the "Registration
Statement") which shall register (i) the distribution of the VDC Shares to the
stockholders of Seller and (ii) the distribution of the VDC Shares delivered to
third parties by the Trustee in satisfaction of Seller's outstanding claims and
indebtedness. Resale of the VDC Shares shall be subject to the following
limitations:
(i) 25% of the VDC Shares may be sold upon the date of
declaration of the effectiveness of the Registration Statement;
12
<PAGE>
(ii) 25% of the VDC Shares may be sold upon the six month
anniversary of the date of declaration of effectiveness of the
Registration Statement; and
(iii) the remaining 50% of the VDC Shares may be sold upon the
one year anniversary of the date of declaration of effectiveness of
the Registration Statement.
(b) Notwithstanding the rights granted hereunder, Buyer shall have no
obligation whatsoever to:
(i) assist or cooperate in the offering or disposition of the
VDC Shares;
(ii) indemnify or hold harmless the holders of the VDC Shares or
any underwriter designated by such security holders;
(iii) obtain a commitment from an underwriter relative to the
sale of the VDC Shares; or
(iv) include the VDC Shares within an underwritten offering of
Buyer.
7.7. Loans. Buyer agrees to make advances, in its sole discretion,
-----
to the Seller for working capital purposes pursuant to the terms and conditions
of the Loan Agreement, with such advances being applied against the Purchase
Price pursuant to Section 3.3 hereof.
ARTICLE 8
CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
All obligations of Buyer under this Agreement are subject to the
satisfaction by Seller at or before the Closing of all of the following
conditions, except to the extent expressly waived in writing by Buyer:
8.1. Representations and Warranties True at Closing. The representations
----------------------------------------------
and warranties of Seller contained in this Agreement shall have been true and
correct in all material respects when made and shall be true and correct in all
material respects on the Closing Date as though such representations and
warranties were made again on the Closing Date.
8.2. Performance. Seller shall have performed and complied in all material
-----------
respects with all agreements and conditions required by this Agreement to be
performed or complied with by Seller prior to or at the Closing, including,
without limitation, the delivery to Buyer of the documents listed in Section
6.2.
8.3. No Adverse Changes. Except as contemplated by this Agreement, there
------------------
shall have been no material adverse change in the condition, prospects, business
or operations, financial or otherwise, of Seller from the date of this Agreement
to the Closing Date.
13
<PAGE>
8.4. Litigation. On the Closing Date, there shall not be any pending or
----------
threatened litigation in any court or any proceedings by or before any
Governmental Authority with a view to seek, or in which it is sought, to
restrain or prohibit the consummation of the transactions contemplated by this
Agreement or in which it is sought to obtain divestiture, rescission or damages
in connection with the transactions contemplated by this Agreement and no
investigation by any Governmental Authority shall be pending which might result
in any such litigation or other proceeding.
8.5. Necessary Consents. All statutory requirements for the valid
------------------
consummation by Buyer of the transactions contemplated by this Agreement shall
have been fulfilled and all authorizations, consents, waivers, approvals or
other actions by any Governmental Authority or third party which are required
for the consummation of the transactions contemplated by this Agreement shall
have been received and shall be in full force and effect.
8.6. Stockholder Approval. To the extent required by the laws of Bermuda,
--------------------
the stockholders of Buyer shall have approved the transactions contemplated by
this Agreement.
8.7. Vancouver Stock Exchange. The Vancouver Stock Exchange shall have
------------------------
either approved or not disapproved the transactions contemplated by this
Agreement.
8.8. Certificate. Seller shall have delivered to Buyer a certificate,
-----------
dated as of the Closing Date, of the Seller to the effect that the conditions
set forth in Sections 8.1, 8.2, 8.3, 8.4 and 8.9 have been satisfied.
------------ --- --- --- ---
8.9. Bulk Sales Laws. Seller shall have satisfied any and all obligations
---------------
under all applicable bulk sales laws as applicable in the State of Delaware.
8.10. Fairness Opinion. Seller shall have obtained a fairness opinion, in
----------------
form and substance satisfactory to the Buyer and to the Vancouver Stock
Exchange, of a qualified investment bank or appraisal firm to the effect that
the consideration to be received by the Seller and its stockholders pursuant to
the transactions contemplated in this Agreement is fair.
8.11. Consents. Seller shall have provided written consents to the
--------
acquisition of the Assets by Buyer from all appropriate Governmental Authorities
(to the extent so required by law) in form and substance reasonably acceptable
to Buyer.
8.12. Due Diligence. Buyer shall have completed, to its satisfaction, a due
-------------
diligence review of the financial condition, results of operations, properties,
assets, liabilities, business and prospects of Seller.
14
<PAGE>
ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
All obligations of Seller under this Agreement are subject to the
satisfaction by Buyer at or before the Closing of all of the following
conditions, except to the extent expressly waived in writing by Seller:
9.1. Representations and Warranties True at Closing. The representations
----------------------------------------------
and warranties of Buyer contained in this Agreement shall have been true and
correct in all material respects when made and shall be true and correct in all
material respects on the Closing Date as though such representations and
warranties were made again on the Closing Date.
9.2. Performance. Buyer shall have performed and complied, in all material
-----------
respects, with all agreements and conditions required by this Agreement to be
performed or complied with by Buyer prior to or at the Closing.
9.3. No Adverse Changes. Except as contemplated by this Agreement, there
------------------
shall have been no material adverse change in the condition, business or
operations, financial or otherwise, of Buyer from the date of this Agreement to
the Closing Date.
9.4. Necessary Consents. All statutory requirements for the valid
------------------
consummation by Seller of the transactions contemplated by this Agreement shall
have been fulfilled and all authorizations, consents, waivers, approvals or
other actions by any Governmental Authority or third party which are required
for the consummation of the transactions contemplated by this Agreement shall
have been received and shall be in full force and effect.
9.5. Stockholder Approval. The stockholders of Seller shall have approved
--------------------
the transactions contemplated by this Agreement in accordance with the
provisions of the Delaware General Corporation Law.
9.6. Vancouver Stock Exchange. The Vancouver Stock Exchange shall have
------------------------
either approved or not disapproved the transactions contemplated by this
Agreement.
9.7. Certificate. Buyer shall have delivered to Seller a certificate,
-----------
dated as of the Closing Date, to the effect that the conditions set forth in
Sections 9.1, 9.2 and 9.3 have been satisfied.
ARTICLE 10
INDEMNIFICATION AND RELATED MATTERS
10.1. Survival of Representations and Warranties. The representations and
------------------------------------------
warranties contained in this Agreement, the schedules and exhibits hereto, and
any agreement, document, instrument or certificate delivered hereunder,
including the Related Documents, shall survive the Closing Date. This Article
-------
10 constitutes the sole and exclusive remedy of Buyer and Seller with respect to
- --
any subject matter addressed herein, and Buyer and Seller hereby waive and
release the
15
<PAGE>
other from any and all claims and other causes of action, including without
limitation claims for contribution, relating to any such subject matter.
10.2. Indemnification by Seller.
-------------------------
(a) Seller agrees to indemnify Buyer against and hold it harmless
from:
(i) all liability, loss, damage or deficiency resulting from
or arising out of any inaccuracy in or breach of any representation
or warranty by Seller in this Agreement, in any Related Document to
which Seller was a signatory or in any other agreement or document
delivered by or on behalf of Seller in connection with the
transactions contemplated by this Agreement;
(ii) all liability of Seller not expressly assumed by Buyer;
(iii) all liability, loss, damage or deficiency resulting from
or arising out of any breach or nonperformance of any covenant or
obligation made or incurred by Seller in this Agreement, in any
Related Document to which Seller was a signatory or in any other
agreement or document delivered by or on behalf of Seller in
connection with the transactions contemplated by this Agreement; and
(iv) any and all reasonable costs and expenses (including
reasonable legal and accounting fees) related to any of the
foregoing. In the event that Buyer makes a Claim which is determined
by a court of competent jurisdiction to be without reasonable basis
in law or fact, Buyer shall bear all reasonable costs and expenses
(including court costs and reasonable legal and accounting fees),
incurred by Seller in investigating and defending against such Claim.
10.3. Indemnification by Buyer. Buyer shall indemnify Seller against and
------------------------
hold it harmless from:
(a) all liability, loss, damage or deficiency resulting from or
arising out of any inaccuracy in or breach of any representation or warranty
by Buyer in this Agreement in any Related Document or in any other agreement
or document delivered by or on behalf of Buyer in connection with the
transactions contemplated by this Agreement;
(b) all liability, loss, damage or deficiency resulting from or
arising out of any breach or nonperformance of any covenant or obligation
made or incurred by Buyer in this Agreement, in any Related Document, or in
any other agreement or document delivered by or on behalf of Buyer in
connection with the transactions contemplated by this Agreement; and
(c) any and all reasonable costs and expenses (including reasonable
legal and accounting fees) related to any of the foregoing. In the event
that Seller makes a Claim which is determined by a court of competent
jurisdiction to be without reasonable basis in law or fact, Seller shall
bear all reasonable costs and expenses (including court costs and
16
<PAGE>
reasonable legal and accounting fees), incurred by Buyer in investigating
and defending against such Claim.
10.4. Third Party Claims. If any action, suit, investigation or proceeding
------------------
(including without limitation negotiations with federal, state, local or foreign
tax authorities) shall be threatened or commenced by a third party in respect of
which a party (an "Indemnified Party") may make a Claim hereunder, the
Indemnified Party shall notify the party obligated to indemnify such party
hereunder (the "Indemnifying Party") to that effect with reasonable promptness
(so as to not prejudice such party's rights) after the commencement or
threatened commencement of such action, suit, investigation or proceeding, and
the Indemnifying Party shall have the opportunity to defend against such action,
suit, investigation or proceeding (or, if the action, suit, investigation or
proceeding involves to a significant extent matters beyond the scope of the
indemnity agreement contained herein, those claims that are covered hereby)
subject to the limitations set forth below. If the Indemnifying Party elects to
defend against any action, suit, investigation or proceeding (or, as described
in the preceding parenthetical, one or more claims relating thereto), the
Indemnifying Party shall notify the Indemnified Party to that effect with
reasonable promptness. In such case, the Indemnified Party shall have the right
to employ its own counsel and participate in the defense of such matter, but the
fees and expenses of counsel shall be at the expense of the Indemnified Party
unless the employment of such counsel at the expense of the Indemnifying Party
shall have been authorized in writing by the Indemnifying Party. Any party
granted the right to direct the defense of a threatened or actual suit,
investigation or proceeding hereunder shall: (i) keep the other fully informed
of material developments in the action, suit, investigation or proceeding at all
stages thereof; (ii) promptly submit to the other copies of all pleadings,
responsive pleadings, motions and other similar legal documents and papers
received in connection with the action, suit, investigation or proceeding; (iii)
permit the other and its counsel, to the extent practicable, to confer on the
conduct of the defense of the action, suit, investigation or proceeding; and
(iv) to the extent practicable, permit the other and its counsel an opportunity
to review all legal papers to be submitted prior to their submission. The
parties shall make available to each other and each other's counsel and
accountants all of its or their books and records relating to the action, suit,
investigation or proceeding, and each party shall render to the other such
assistance as may be reasonably required in order to insure the proper and
adequate defense of the action, suit, investigation or proceeding. The parties
shall use their respective good faith efforts to avoid the waiver of any
privilege of either party. The assumption of the defense of any matter by an
Indemnifying Party shall not constitute an admission of responsibility to
indemnify or in any manner impair or restrict such party's rights to later seek
to be reimbursed its costs and expenses if indemnification under this Agreement
with respect to such matter was not required. An Indemnifying Party may elect
to assume the defense of a matter at any time during the pendency of such
matter, even if initially such party did not elect to assume such defense, so
long as such assumption at such later time would not prejudice the rights of the
Indemnified Party. No settlement of a matter by the Indemnified Party shall be
binding on an Indemnifying Party for purposes of such party's indemnification
obligations hereunder.
17
<PAGE>
ARTICLE 11
TERMINATION
11.1. Termination by Mutual Consent. At any time on or prior to the Closing
-----------------------------
Date, this Agreement may be terminated by the mutual written consent of Seller
and Buyer without liability on the part of Seller or Buyer.
11.2. Termination Upon Breach or Default. If Seller or Buyer shall
----------------------------------
materially default in the observance or in the due and timely performance of any
of the covenants contained in this Agreement, or if there shall have been a
material breach by either of the parties of any of the representations or
warranties set forth in this Agreement, the other party may, upon written notice
and a reasonably opportunity to cure, terminate this Agreement, without
prejudice to its rights and remedies available at law, including the right to
recover expenses, costs and other damages.
11.3. Termination Based Upon Failure of Conditions. If any of the
--------------------------------------------
conditions of this Agreement, except Sections [8.5, 8.7, 9.4 and 9.6], to be
complied with or performed by a party on or before the Closing Date, shall not
have been complied with or performed in all material respects by such date and
such noncompliance or nonperformance shall not have been waived in writing by
the other party, the party to whom the benefit of such condition runs may, upon
written notice, terminate this Agreement, without prejudice to its or their
rights and remedies available under law, including the right to recover
expenses, costs and other damages. With respect to the conditions in Sections
[8.5, 8.7, 9.4 and 9.6], no liability shall arise as a result of the
nonperformance or noncompliance thereof.
11.4. Break-Up Fees. Notwithstanding anything to the contrary contained
-------------
within this Agreement, in the event Seller is unable to, or elects not to
complete the transactions contemplated by this Agreement for any reason, except:
(i) a breach by Buyer of any of its representations, warranties and covenants
contained herein or (ii) a material adverse development in the business or
operations of Buyer between the date of this Agreement and the Closing Date,
then, and in that event, Seller shall pay Buyer a break-up fee equal to One
Million Dollars ($1,000,000) ("Break-Up Fee") in order to reimburse Buyer for
its time and expenses incurred in connection with the transactions contemplated
in this Agreement, as well as for any lost opportunity costs and direct and
indirect consequential damages. Payment of the Break-Up Fee shall be made by
wire transfer of immediately available funds to an account designated by Buyer
not later than five (5) days after receipt by Seller of a written demand for the
Break-Up Fee by Buyer.
11.5. Final Expiration. This Agreement shall automatically expire if the
----------------
Closing does not occur on or before March 1, 1998, or such later date as the
parties hereto may mutually agree.
18
<PAGE>
ARTICLE 12
GENERAL
12.1. Entire Agreement. This Agreement, and the exhibits and schedules
----------------
hereto (including the Disclosure Schedule), and the agreements specifically
referred to herein set forth the entire agreement and understanding of Seller
and Buyer in respect of the transactions contemplated hereby and, except with
respect to the provisions of Section 13 of the Letter of Intent and the no shop
provisions set forth in Section 8 of the Letter of Intent, supersede all prior
agreements, arrangements and understandings relating to the subject matter
hereof. No representation, promise, inducement or statement of intention has
been made by Seller or Buyer that is not embodied in this Agreement or in the
documents specifically referred to herein and neither Seller nor Buyer shall not
be bound by or liable for any alleged representation, promise, inducement or
statement of intention not so set forth.
12.2. Binding Effect; Benefits; Assignment. All of the terms of this
------------------------------------
Agreement shall be binding upon, inure to the benefit of and be enforceable by
and against Seller and its successors and authorized assigns, and Buyer and its
successors and authorized assigns. Nothing in this Agreement, express or
implied, is intended to confer upon any other person any rights or remedies
under or by reason of this Agreement except as expressly indicated herein.
Neither Seller nor Buyer shall assign any of their respective rights or
obligations under this Agreement to any other person, firm or corporation
without the prior written consent of the other party, except that Buyer may
assign its rights and obligations under this Agreement to a direct or indirect
wholly-owned subsidiary of Buyer, although Buyer shall remain fully responsible
for all of its obligations under this Agreement.
12.3. Construction. The headings of the sections and paragraphs of this
------------
Agreement have been inserted for convenience of reference only and shall in no
way restrict or otherwise modify any of the terms or provisions hereof. The
language used in this Agreement shall be deemed to be the language chosen by the
parties to this Agreement to express their mutual intent, and no rule of strict
construction shall be applied against any party.
12.4. Amendment and Waiver. This Agreement may be amended, modified,
--------------------
superseded or canceled and any of the terms, covenants, representations,
warranties or conditions hereof may be waived only by a written instrument
executed by Seller and Buyer or, in the case of a waiver, by or on behalf of the
party waiving compliance.
12.5. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Delaware as applicable to contracts
made and to be performed in Delaware, without regard to conflict of laws
principles.
12.6. Public Disclosure. Except as required by Law, or in connection with
-----------------
the solicitation of new investment advisory agreements with Seller's clients,
neither Buyer nor Seller shall make any public disclosure of the existence or
terms of this Agreement or the transactions contemplated hereby without the
prior written consent of the other party, which consent shall not be
unreasonably withheld. In the event that Seller or Buyer determines that the
disclosure of the
19
<PAGE>
existence or terms of this Agreement is required by Law, such party shall so
notify the other parties and shall provide to the other party a copy of any such
public disclosure prior to releasing the same.
12.7. Notices. All notices, requests, demands and other communications to
-------
be given pursuant to the terms of this Agreement shall be in writing and shall
be deemed to have been duly given if hand delivered, sent by overnight mail by a
nationally recognized overnight delivery service or mailed first class, postage
prepaid:
(a) If to Seller:
Douglas C. MacLellan, President
PortaCom Wireless, Inc.
10061 Talbert Avenue, Suite 200
Fountain Valley, CA 92708
Telephone: (714) 593-3234
Telecopier: (714) 593-3264
(b) If to Buyer:
Graham Lacey, President
VDC Corporation Ltd.
P.O. Box HM 1255
44 Church Street
Hamilton, Bermuda
Telephone: 01624 878762
Telecopier: 01624 878765
with a copy to:
Stephen M. Cohen, Esq.
Buchanan Ingersoll Professional Corporation
Eleven Penn Center, 14th Floor
1835 Market Street
Philadelphia, Pennsylvania 19103
Telephone: (215) 665-3873
Telecopier: (215) 665-8760
Either party may change its address by prior written notice to the other party.
12.8. Counterparts. This Agreement may be executed in counterparts, each
------------
of which when so executed shall be deemed to be an original and such
counterparts shall together constitute one and the same instrument.
20
<PAGE>
12.9. Expenses. Each party shall pay their own respective expenses, costs
--------
and fees incurred in connection with the negotiation, preparation, execution and
delivery of this Agreement and each of the Related Documents and the
consummation of the transactions contemplated hereby, including, without
limitation, the fees and expenses of their respective legal counsel, accountants
and financial advisors.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
VDC CORPORATION LTD.
By: /s/ Graham Ferguson Lacey
------------------------------
Graham Ferguson Lacey,
President
PORTACOM WIRELESS, INC.
BY: /s/ Douglas C. MacLellan
------------------------------
Douglas C. MacLellan,
President and Chief Executive Officer
21
<PAGE>
EXHIBIT A
Indebtedness of Seller to be satisfied from proceeds of the Purchase Price
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Source of Proceeds
----------------------------------
- -------------------------------------------------------------------------------------------------
Cash Funds VDC Shares
Creditor/Claimant Amount (amount) (Number)
----------------- ------ ---------- ----------
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
EXHIBIT 10.29
AMENDMENT TO ASSET PURCHASE AGREEMENT
This Amendment to Asset Purchase Agreement ("Amendment") is made as of the
16th day of February, 1998, by and between VDC CORPORATION LTD., a Bermuda
corporation ("Buyer"), and PORTACOM WIRELESS, INC., a Delaware corporation
("Seller"). Capitalized terms used but not otherwise defined herein shall have
the meaning ascribed to them in the Purchase Agreement (as such term is defined
below).
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, Buyer and Seller have entered into that certain Asset Purchase
Agreement, dated as of November 25, 1997 (the "Purchase Agreement"); and
WHEREAS, Buyer and Seller wish to amend the Purchase Agreement in
accordance with Section 12.4 thereof.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to be
legally bound hereby, do agree as follows:
1. In Section 1.1 of the Purchase Agreement, the term "Trustee" shall be
defined as "that person or entity mutually agreed upon by the parties
hereto to act as trustee under the Trust Agreement."
2. In Section 1.1 of the Purchase Agreement, the term "Cash Funds" shall be
defined in Section 3.2(a), and the term "VDC Shares" shall be defined in
Section 3.2(b).
3. Article 3 is hereby amended and restated in its entirety to read as
follows:
"ARTICLE 3
PAYMENT OF THE PURCHASE PRICE
3.1. Purchase Price.
--------------
The purchase price ("Purchase Price") for the Assets shall consist of
(i) the Closing Purchase Price (as such term is defined in Section 3.2 below)
and (ii) the Deferred Purchase Price (as such term is defined in Section 3.5
below), if any.
<PAGE>
3.2. Closing Purchase Price.
----------------------
The Closing Purchase Price (the "Closing Purchase Price") shall be
paid or delivered by Buyer at Closing in the following manner:
(a) Subject to adjustment pursuant to Section 3.4 hereof, Buyer shall
deliver an amount not to exceed Seven Hundred Thousand Dollars ($700,000) (the
"Cash Funds") in immediately available funds in the form of cash, cashier's
check or wire transfer with such amount as is necessary solely to satisfy the
outstanding indebtedness of Seller in accordance with the provisions of Section
3.3; and
(b) Buyer shall deliver 5,300,000 shares of newly issued shares of
common stock of Buyer (the "VDC Shares") in accordance with the provisions of
Section 3.3.
3.3. Allocation of Closing Purchase Price
------------------------------------
The Closing Purchase Price shall be allocated in the following
manner:
(a) At the Closing, Seller will deliver a schedule (the "Debt
Schedule") identifying its indebtedness as of the Closing Date. Buyer shall
deliver to and deposit with Trustee the portion of the Cash Funds and the number
of VDC Shares necessary to satisfy Seller's indebtedness to its creditors and
claimants in the amounts and manner as set forth in the Debt Schedule. The Cash
Funds and/or any and all VDC Shares delivered to Trustee pursuant to this
Section 3.3(a) shall be credited against and considered a part of the Closing
Purchase Price and shall be held and distributed by Trustee to the creditors and
claimants (or provision shall be made for the ultimate distribution of such
amounts and/or Shares to creditors and claimants upon the final resolution of
any disputed amounts payable or claims against Seller) in accordance with the
provisions of a Trust Agreement to be agreed upon between the parties. Prior to
the Closing Date, Seller shall have received releases, waivers and/or settlement
agreements, satisfactory to Buyer, evidencing satisfaction of substantially all
indebtedness of, and claims against, Seller.
(b) Buyer shall deliver to Seller that portion of the VDC Shares not
required to be delivered to or deposited with the Trustee pursuant to Section
3.3(a) hereof. Seller shall retain such VDC Shares until such time as a
disposition occurs to its stockholders pursuant to an effective registration
statement in accordance with the provisions of Section 7.6 hereof.
2
<PAGE>
3.4. Adjustment to Closing Purchase Price Any and all sums advanced to
------------------------------------
Seller by Buyer pursuant to the Loan Agreement, dated November 10, 1997 between
Buyer and Seller ("Loan Agreement"), as evidenced by the note(s) made thereunder
by Seller in favor of Buyer, shall constitute initial payments and deposits
against the Closing Purchase Price, shall be part of the Closing Purchase Price
under this Agreement upon the Closing Date, and shall be applied to the Cash
Funds.
3.5. Deferred Purchase Price.
-----------------------
(a) For the purposes of this Section 3.4, the terms listed below
shall have the following meanings:
(i) "MAC Base Price" means $12.00 per share for each share of
MAC common stock;
(ii) "MAC Market Price" means
(A) If MAC's common stock is traded in the over-the-
counter market and not on any national securities exchange nor in the NASDAQ
Reporting System, the market price shall be the average of the mean between the
last bid and ask prices per share, as reported by the National Quotation Bureau,
Inc. or an equivalent generally accepted reporting service for the last 20
trading days following the one year anniversary of the Closing Date, or if not
so reported, the average of the closing bid and asked prices for a share for the
last 20 trading days following the one year anniversary of the Closing Date as
furnished to MAC by any member of the National Association of Securities
Dealers, Inc., selected by MAC for that purpose.
(B) If MAC's common stock is traded on a national
securities exchange or in the NASDAQ Reporting System, the market price shall be
the simple average of the high and low prices at which a share of MAC's common
stock traded, as quoted on the NASDAQ-NMS or its other principal exchange for
the last 20 trading days following the one year anniversary of the Closing Date.
(iii) "VDC Base Price" means $5.00 per share for each share of
VDC common stock; and
(iv) "VDC Market Price" means
3
<PAGE>
(A) If VDC's common stock is traded in the over-the-
counter market and not on any national securities exchange nor in the NASDAQ
Reporting System, the market price shall be the average of the mean between the
last bid and ask prices per share, as reported by the National Quotation Bureau,
Inc. or an equivalent generally accepted reporting service for the last 20
trading days following the one year anniversary of the Closing Date, or if not
so reported, the average of the closing bid and asked prices for a share for the
last 20 trading days following the one year anniversary of the Closing Date as
furnished to VDC by any member of the National Association of Securities
Dealers, Inc., selected by VDC for that purpose.
(B) If VDC's common stock is traded on a national
securities exchange or in the NASDAQ Reporting System, the market price shall be
the simple average of the high and low prices at which a share of VDC's common
stock traded, as quoted on the NASDAQ-NMS or its other principal exchange for
the last 20 trading days following the one year anniversary of the Closing Date.
(b) In the event that on the one year anniversary of the Closing
Date, MAC is a publicly held and traded company, Buyer shall pay and deliver the
Deferred Purchase Price (the "Deferred Purchase Price") calculated in accordance
with Section 3.5(c) below, if any, to Seller within ninety (90) days following
the one year anniversary of the Closing Date. The Deferred Purchase Price shall
be paid in either, at VDC's sole option, (i) immediately available funds in the
form of cash, cashier's check or wire transfer or (ii) shares of VDC common
stock. In the event that VDC elects to pay the Deferred Purchase Price in the
form of shares of VDC common stock, such stock shall be priced at the higher of
$5.00 per share or the VDC Market Price per share.
(c) The Deferred Purchase Price shall be calculated in accordance
with the following formula:
(MAC Market Price - VDC Market Price) x $5,000,000
----------------- ----------------
(MAC Base Price VDC Base Price)
For example, assuming that the MAC Market Price is $13.20, and the VDC
Market Price is $5.00, the Deferred Purchase Price would equal (10% - 0%) x
($5,000,000) = $500,000."
4. In the last sentence of Section 6.1 of the Purchase Agreement, the date
"March 1, 1998" is hereby changed to "June 30, 1998."
4
<PAGE>
5. The following paragraph is hereby added to the Purchase Agreement as
Section 7.8:
"7.8 Exclusive Dealing. In consideration of Buyer expending
-----------------
considerable time and expenses in connection with the transactions
contemplated in this Agreement, including those incurred for due
diligence inquiries and legal fees, Seller hereby covenants and agrees
that until the later of (i) sixty (60) days after the date on which
this Agreement automatically expires pursuant to Section 11.5 and (ii)
the date on which this Agreement is terminated pursuant to Sections
11.1, 11.2 or 11.3, Seller will not, directly or indirectly, through
any representative or otherwise, solicit or entertain offers from,
negotiate with or in any manner encourage, discuss, accept or consider
any proposal of any other person relating to the acquisition of the
Assets, in whole or in part, whether directly or indirectly, through
purchase, merger, consolidation or otherwise."
6. The following language is hereby added to the end of the first sentence of
Section 9.1:
"; provided, however, that if Buyer changes its jurisdiction of
incorporation from the Commonwealth of Bermuda to the State of
Delaware on or before the Closing Date, Buyer shall be deemed to
represent in Section 5.1 that it is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware."
7. All brackets contained within Section 11.3 of the Purchase Agreement are
hereby deleted.
8. Section 11.5 of the Purchase Agreement is amended and restated in its
entirety to read as follows:
"Final Expiration. This Agreement shall automatically expire if the
----------------
Closing does not occur on or before April 30, 1998, or, upon such
later date as VDC in its sole discretion may determine, provided,
however, that such later date shall not be later than November 1,
1998."
9. The following language is hereby added to the end of Section 11.4 of the
Purchase Agreement:
"Seller acknowledges that any payment of the Break-Up Fee will be
treated as one for liquidated damages and not a penalty, such being
agreed between Buyer and Seller to be a necessary condition to this
Agreement to compensate Buyer for expenses and expenditures incurred
and made in connection herewith and otherwise for Seller's non-
compliance with this Agreement."
5
<PAGE>
10. Copies of all notices sent to Seller pursuant to Section 12.7 of the
Purchase Agreement shall also be sent, in accordance with the manner set
forth in Section 12.7, to:
Leonard J. McGill, Esquire
Day Campbell & McGill
3070 Bristol Street
Suite 650
Costa Mesa, CA 92626
Telephone: (714) 429-2900
Telecopier: (714) 429-2901
11. Except as otherwise set forth herein, the terms of the Purchase Agreement
shall remain in full force and effect.
12. This Amendment shall be construed in accordance with the laws of the State
of Delaware without giving effect to conflicts of law principles.
13. This Amendment is made and entered into effective as of the date first
above written. This Amendment may be executed in one or more counterparts,
each of which shall be an original and which together shall constitute one
and the same document.
IN WITNESS WHEREOF, Buyer and Seller have caused this Amendment to be duly
executed as of the day and year first above written.
VDC CORPORATION LTD.
By: /s/ Graham Ferguson Lacey
-------------------------
Graham Ferguson Lacey
President
PORTACOM WIRELESS, INC.
By: /s/ Douglas C. MacLellan
------------------------
Douglas C. MacLellan
President
6
<PAGE>
EXHIBIT 10.30
LOAN AGREEMENT
--------------
THIS LOAN AGREEMENT (the "Agreement") is made this 10th day of
November, 1997, by and between VDC Corporation Ltd., a Bermuda corporation (the
"Lender"), and PortaCom Wireless, Inc., a Delaware corporation (the "Debtor").
W I T N E S S E T H:
WHEREAS, the Lender and the Debtor have entered into a Letter of
Intent dated September 29, 1997 (the "Letter of Intent"), attached hereto as
Exhibit B, which sets forth the proposed terms of a possible acquisition
transaction between the parties (the "Transaction"); and
WHEREAS, pursuant to the Letter of Intent, Lender has agreed to
advance certain amounts to the Debtor as a loan (the "Loan") to be used by the
Debtor for the purposes identified at Section 4(e) hereafter. The Debtor and
the Lender desire to set forth herein the terms and conditions pursuant to which
the Lender has agreed to advance the Loan to the Debtor.
NOW, THEREFORE, in consideration of the promises and of the mutual
covenants contained herein, and intending to be legally bound hereby, the Lender
and the Debtor hereby agree as follows:
1. The Loan. The Lender has granted to the Debtor the Loan upon the
--------
terms and subject to the conditions hereinafter set forth. Lender shall have no
obligation to provide advances, except in its sole discretion. Any amounts
advanced by Lender under this Agreement shall be evidenced by a properly
completed and executed Note, the form of which is attached hereto as Exhibit A,
dated as of the date of advancement (the "Note"), made by the Debtor in favor of
the Lender in such amounts as may be requested by Debtor and approved by Lender.
The determination of the principal amount of the Loan issued under this
Agreement on any date shall be made on the basis of the face aggregate amount of
the Note(s) which have been issued and are outstanding on such date. The
obligation of the Debtor to repay to the Lender the aggregate outstanding
principal amount of the Loan, together with accrued interest thereon, shall be
evidenced by any and all Notes to be executed and delivered by the Debtor to the
Lender either concurrently with the execution and delivery of this Agreement or
in the future.
2. Payment of Interest and Principal.
---------------------------------
(a) Payment of Loan. The unpaid principal balance under the Loan
---------------
(as evidenced by any Notes which may be issued), together with all accrued and
unpaid interest on the unpaid principal balance, which shall accrue at the rate
of ten percent (10%) per annum (the "Interest Rate"), shall be paid in full upon
the earlier to occur of: (i) the date the Transaction has been terminated by
either of the parties (as such termination may be provided for in the Letter of
Intent, or thereafter, in any "Definitive Agreement," as such term is defined in
the Letter of Intent); (ii) the date of the closing of the Transaction; or (iii)
180 days from the date hereof.
(b) Prepayment. The Debtor shall have the right to prepay at any
----------
time and from time to time, without penalty or premium, all or any portion of
the outstanding balance
<PAGE>
of the Loan. All prepayments of the Loan shall be applied first to accrued
interest, and second to the unpaid principal balance due thereunder.
(c) Place of Payment. The Debtor shall make all payments to the
----------------
Lender at the place set forth in Section 7(d) hereunder, or at such other place
or places as the Lender, from time to time, shall designate in writing to the
Debtor in accordance with Section 7(d) hereunder.
3. Security Interest. To secure all of the Debtor's obligations
-----------------
under the Notes and this Agreement, the Debtor has concurrently herewith granted
to Lender a lien on and security interest in and to the Collateral, as such term
is defined in the Security Agreement, dated of even date herewith, which is
hereby confirmed and ratified as being in full force and effect and incorporated
into this Agreement by reference. Except as expressly stated otherwise in the
Security Agreement, the Lender's security interest in the Collateral shall be a
first priority lien.
4. Representations and Warranties of the Debtor. As a further
--------------------------------------------
inducement to the Lender to execute and deliver this Agreement and to make the
Loan available to the Debtor, the Debtor, except as otherwise set forth in the
Disclosure Statement attached hereto as Exhibit B, hereby represents and
warrants to, and makes the following agreements with the Lender as follows:
(a) Authority.
---------
(i) The Debtor is a corporation, duly organized, validly
existing and subsisting under the laws of Delaware.
(ii) The Debtor has full power and authority to borrow the
Loan, to execute and deliver this Agreement and any and all Notes and any other
instruments and documents required to be executed in connection herewith and
therewith (such other instruments and documents being collectively called the
"Other Documents").
(b) Validity and Enforceability. This Agreement, each Note and
---------------------------
each of the Other Documents have been, and will be, validly executed and
delivered by the Debtor and are the legal, valid and binding obligations of the
Debtor, enforceable against the Debtor in accordance with their respective
terms.
(c) No Conflicts. The execution and delivery by the Debtor of
------------
this Agreement, any Note and each of the Other Documents and the performance by
the Debtor of all of its obligations hereunder and thereunder (a) will not
violate or be in conflict with any law, order, rule or regulation of any court
of other governmental authority applicable to the Debtor; (b) will not
constitute a default (with or without the giving of notice or the passage of
time or both) under any indenture, agreement or other instrument to which it is
a party or by which it or any of its properties or assets is or may be bound or
subject; and (c) will not result in the creation or imposition of any lien,
security interest, charge or encumbrance of any nature upon any of its
properties or assets, except the Permitted Lien, as such term is defined in the
Security Agreement.
-2-
<PAGE>
(d) No Consents. No consent, approval or authorization of, or
-----------
registration, declaration or filing with, any governmental authority or other
third party is required as a condition to, or in connection with, the due and
valid execution and delivery by the Debtor of this Agreement, any Note or any of
the Other Documents.
(e) Use of Loan Proceeds. The proceeds from the Loan issued
--------------------
hereunder shall be used by the Debtor only for working capital purposes in the
ordinary course of business.
(f) Business Qualification. The Debtor is duly qualified to
----------------------
transact business in the United States and in each state of the United States
where it conducts business and is in good standing in each jurisdiction in which
its failure to be so qualified and in good standing would have a materially
adverse effect on its financial condition of business, and it has the corporate
power and ability to own and operate its properties and to carry on its business
as now conducted.
(g) SEC Filings. The Debtor has filed all necessary reports and
-----------
filings (collectively, the "Filings") required to be filed with the Securities
and Exchange Commission as of the date hereof and all Filings are true and
correct and contain no material misrepresentations or omissions of material
fact.
(h) Litigation. Except as disclosed in the Filings, there is no
----------
action, suit or proceeding pending with any court, administrative agency or
other governmental body or arbitrator, or threatened against the Debtor. The
Debtor is not a party or subject to or bound by any injunction, judgment, order
or decree, whether or not still subject to appeal, of any court, administrative
agency or other governmental body or arbitrator.
(i) Taxes. The Debtor has paid all federal and state income and
-----
other applicable taxes levied by the United States and all deficiencies or other
additions to any tax interest and penalties owed by the Debtor in connection
with any tax requiring to be paid relating to the Debtor or any of its assets or
business as of the date hereof. The Debtor shall timely pay all taxes relating
to it or its business or assets, including additions, interests, penalties and
estimated payments required to be paid by it under the applicable law after the
date hereof.
(j) Liens. The Debtor has all right, title and interest in, and
-----
good and marketable title to, the Collateral, free and clear of any claim,
pledge, security interest, restriction, lien or encumbrance of any kind or
nature whatsoever, except for the Permitted Lien, as such term is defined in the
Security Agreement.
5. Events of Default: Remedies.
----------------------------
(a) Events of Default. The following shall constitute events of
-----------------
default under this Agreement ("Events of Default"):
-3-
<PAGE>
(i) The Debtor fails to pay when due any principal,
interest or other sums due hereunder or under any of the Notes and shall not
have remedied such failure within five (5) days after the date when due.
(ii) The Debtor defaults in the observance or performance
of any condition or covenant contained in this Agreement or any Note and the
Debtor shall not have remedied the default within fifteen (15) days after
receipt of written notice of such default has been given by Lender to the
Debtor.
(iii) A breach by the Debtor of any warranty or any
representation contained in this Agreement or any Note, and such breach shall
not have been remedied within fifteen (15) days after receipt of written notice
of such breach has been given by Lender to the Debtor.
(iv) A dissolution or liquidation of the Debtor shall have
been declared.
(v) If Debtor shall make an assignment for the benefit of
creditors, or file a voluntary petition under the Bankruptcy Code, as amended,
or any other insolvency law, or apply for or consent to the appointment of a
receiver, trustee or custodian of all or part of its property.
(vi) If the Debtor files an answer admitting the
jurisdiction of the court and the material allegations of an involuntary
petition filed against the Debtor under the Bankruptcy Code, as amended, or any
other insolvency law or there is a failure to have such petition dismissed
within ninety (90) days after its filing.
(vii) If an Order for relief shall be entered following the
filing of an involuntary petition against the Debtor under the Bankruptcy Code,
as amended, or any other insolvency law, or if an Order shall be entered
appointing a receiver, trustee or custodian of all or parts of its property.
(viii) If there shall have occurred an Event of Default under
any other agreements between the Debtor and the Lender.
(b) Remedies. In the event an Event of Default shall occur and
--------
be continuing, then, in the sole discretion of the Lender and without further
notice to the Debtor, the unpaid principal amount of the Loan, together with all
accrued interest thereon at the applicable rate specified in the Note, and all
other sums due by the Debtor under any Note or this Agreement shall become
immediately due and payable, without presentment, demand, protest or other
requirements of any kind, all of which are hereby expressly waived by the
Debtor, until Debtor has made full payment to the Lender of all amounts due
under any and all Notes or under this Agreement. Upon the occurrence of an Event
of Default, the Lender shall have the right to charge and accrue interest at a
rate per annum equal to the Interest Rate plus three percent (3)% (the "Default
Rate"). In addition, in each case, the Lender may recover all costs of suit and
other expenses incurred by the Lender (including attorneys' fees) in connection
with the collection of
-4-
<PAGE>
any sums due under any and all Notes or under this Agreement. In addition to all
other remedies available to it, the Lender may exercise its rights under any and
all Notes delivered to the Lender or under any of the Other Documents. The
remedies set forth herein shall be in addition to, and not in lieu of, any other
additional rights or remedies the Lender may have at law or in equity.
6. Survival of Representations and Covenants. This Agreement and all
-----------------------------------------
covenants, agreements, representations and warranties made herein, in the
Disclosure Statement attached hereto as Exhibit B, and in any Other Documents
delivered pursuant hereto shall survive the making of the Loan and the execution
and delivery of any Note and this Agreement, and shall continue in full force
and effect until all of the obligations have been fully paid, performed,
satisfied and discharged.
7. Miscellaneous.
-------------
(a) Entire Agreement: Amendments. This Agreement, all Notes and
----------------------------
all of the Other Documents executed and delivered pursuant hereto constitute the
entire agreement between the Lender and the Debtor with respect to the subject
matter hereof. The provisions of this Agreement, any Note or any of the Other
Documents shall not be modified, rescinded or waived except in writing executed
by the party against whom such modification, rescission or waiver is sought to
be enforced.
(b) Successors and Assigns. This Agreement shall be binding
----------------------
upon, and inure to the benefit of, the Lender and the Debtor and their
respective heirs, personal representatives, successors and assigns, except that
the Debtor shall not make any assignment of its rights hereunder without the
prior written consent of the Lender.
(c) Rights Cumulative. The remedies of the Lender as provided in
-----------------
any and all Notes, or in this Agreement and all of the Other Documents shall be
cumulative and concurrent; may be pursued singly, successively, or together at
the sole discretion of the Lender; may be exercised as often as occasion for
their exercise shall occur; and in no event shall the failure to exercise any
such right or remedy be construed as a waiver or release of it.
(d) Notices. All notices, requests, demands and other
-------
communications required or permitted under this Agreement shall be in writing
and shall be deemed to have been duly given and made when received by the party
to whom the notice, request, etc. is directed, and which shall be delivered
personally, by courier service such as Federal Express, or by messenger, or by
United States mail, registered or certified mail, postage pre-paid, return
receipt requested, addressed as set forth below.
If to the Debtor:
PortaCom Wireless, Inc.
10061 Talbert Avenue
Suite 200
Fountain Valley, CA 92708
-5-
<PAGE>
If to the Lender:
VDC Corporation Ltd.
P.O. Box HM 1255
44 Church Street
Hamilton, Bermuda
with a copy to: Stephen M. Cohen, Esquire
Buchanan Ingersoll Profession Corporation
11 Penn Center, 14th Floor
1835 Market Street
Philadelphia, PA 19103
(e) Controlling Law and Jurisdiction. This Agreement and all
--------------------------------
questions relating to its validity, interpretation and performance shall be
governed by and construed in accordance with the laws of the State of Delaware
of the United States. The Debtor hereby consents to the exclusive jurisdiction
of the United States District Court for the Eastern District of Pennsylvania for
the resolution of all claims, disputes and controversies arising hereunder.
(f) Notice of Default. The Debtor hereby agrees to promptly
-----------------
notify the Lender of any event or circumstance which gives rise to or which is
reasonably likely to give rise to an Event of Default hereunder.
(g) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.
(i) Severability. If any provisions of this Agreement shall
------------
be held invalid under any applicable laws, such invalidity shall not affect any
other provision of this Agreement that can be given effect without the invalid
provisions and, to this end, the provisions hereof are severable.
IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement
to be executed and delivered as of the date first written above.
VDC CORPORATION LTD.
BY: /s/ Graham Ferguson Lacey
-------------------------
Graham Ferguson Lacey, President
PORTACOM WIRELESS, INC.
BY: /s/ Douglas C. MacLellan
-------------------------
Douglas C. MacLellan,
President and Chief Executive Officer
-6-
<PAGE>
EXHIBIT 10.31
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (the "Agreement"), dated November 10, 1997, is
made and entered into by and between PORTACOM WIRELESS, INC., a Delaware
corporation (the "Debtor") and VDC CORPORATION LTD., (the "Secured Party") under
that certain Loan Agreement dated of even date herewith (as it may hereafter
from time to time be restated, amended, modified or supplemented, the "Loan
Agreement") by and between the Debtor and the Secured Party.
WHEREAS, pursuant to the Loan Agreement, the Secured Party agreed to
provide certain loans to Debtor; and
WHEREAS, as security for such loans, and as required by the Loan
Agreement, all of the warrants (whether now existing or hereafter acquired) held
by Debtor to purchase common stock of Metromedia Asia Corporation ("MAC") shall
be pledged to the Secured Party in accordance herewith.
NOW, THEREFORE, intending to be legally bound hereby, the parties
hereto agree as follows:
1. Defined Terms.
-------------
(a) Except as otherwise expressly provided herein, capitalized
terms used in this Agreement shall have the respective meanings assigned to them
in the Loan Agreement. Where applicable and except as otherwise expressly
provided herein, terms used herein (whether or not capitalized) shall have the
respective meanings assigned to them in the Uniform Commercial Code as enacted
in each applicable jurisdiction and as may be amended from time to time (the
"Code").
(b) "Pledged Collateral" shall mean and include the following:
(i) the securities listed on Schedule A attached hereto and made a part hereof,
----------
and all rights and privileges pertaining thereto, including, without limitation,
all securities and additional securities receivable in respect of or in exchange
for such securities, all rights to subscribe for securities incident to or
arising from ownership of such securities, all cash, interest, stock and other
dividends or distributions paid or payable on such securities, and all books and
records pertaining to the foregoing, including, without limitation, all stock
record and transfer books, (ii) any and all other securities hereafter pledged
to the Secured Party to secure the Secured Obligations (as hereinafter defined)
of Debtor, and all rights and privileges pertaining thereto, including, without
limitation, all securities and additional securities receivable in respect of or
in exchange for such securities, all rights to subscribe for securities incident
to or arising from ownership of such securities, all cash, interest, stock and
other dividends or distributions paid or payable on such securities, and all
books and records pertaining to the foregoing, including, without limitation,
all stock record and stock transfer books and (iii) whatever is received when
any of the foregoing is
-1-
<PAGE>
sold, exchanged or otherwise disposed of, including any proceeds as such term is
defined in the Code.
2. Grant of Security Interests.
---------------------------
(a) Debtor, to secure on a first priority basis, the payment and
performance of all of its indebtedness and other obligations of every nature it
owes under the Loan Agreement, any and all Notes and all of the Other Documents
(the "Secured Obligations"), hereby grants to the Secured Party a security
interest in all of Debtor's now existing and hereafter acquired and/or arising
right, title and interest in, to and under the Pledged Collateral, whether now
or hereafter existing and wherever located.
(b) Upon the execution and delivery of this Agreement, Debtor has
delivered to and deposited with the Secured Party in pledge, stock and/or
warrant certificates and any other instruments evidencing the Pledged
Collateral, together with undated stock powers signed in blank by Debtor.
3. Further Assurances.
------------------
Prior to or concurrently with the execution of this Agreement, and
thereafter at any time and from time to time upon reasonable request of the
Secured Party, Debtor shall execute and deliver to the Secured Party all
financing statements, continuation financing statements, termination statements,
assignments, certificates and documents of title, affidavits, reports, notices,
schedules of account, letters of authority, further pledges, powers of attorney
and all other documents (collectively, the "Security Documents") which the
Secured Party may reasonably request, in form reasonably satisfactory to the
Secured Party, and take such other action which the Secured Party may request,
to perfect and continue perfected and to create and maintain the first priority
status of the Secured Party's security interest in (subject only to Permitted
Liens) the Pledged Collateral and to fully consummate the transactions
contemplated under the Loan Agreement, any and all Notes and this Agreement.
Debtor hereby irrevocably makes, constitutes and appoints the Secured Party (and
any of the Secured Party's officers or employees or agents designated by the
Secured Party) as Debtor's true and lawful attorney with power to sign the name
of Debtor on all or any of the Security Documents which the Secured Party
reasonably determines must be executed, filed, recorded or sent in order to
perfect or continue perfected the Secured Party's security interest in the
Pledged Collateral in the event Debtor fails to so execute such documents upon
Secured Party's request. Such power, being coupled with an interest, is
irrevocable until all of the Secured Obligations have been indefeasibly paid in
full and have terminated.
4. Representations and Warranties.
------------------------------
In addition to the representations and warranties of Debtor set
forth in the Loan Agreement which are incorporated herein by reference, Debtor
hereby represents and warrants to the Secured Party as follows:
-2-
<PAGE>
(a) Debtor has, and will continue to have (or, in the case of
after-acquired Pledged Collateral, at the time Debtor acquires rights in such
Pledged Collateral, will have), title to the Pledged Collateral, free and clear
of all Liens.
(b) Debtor owns warrants or other ownership interests of MAC as
set forth in Schedule A hereto.
(c) The warrants to purchase shares of common stock constituting
the Pledged Collateral have been duly authorized and validly issued to Debtor
(as set forth on Schedule A hereto), and constitute all of the warrants to
----------
purchase common stock of MAC owned by Debtor.
(d) The security interests in the Pledged Collateral granted
hereunder are valid, perfected and of first priority.
(e) There are no restrictions upon the transfer of the Pledged
Collateral and Debtor has the power and authority and right to transfer the
Pledged Collateral free of any encumbrances and without obtaining the consent of
any other person. It is acknowledged that a transfer of the Pledged Collateral
by Secured Party following a foreclosure may require compliance with federal and
state securities laws.
(f) Debtor has all necessary power to execute, deliver and
perform this Agreement and all necessary action to authorize the execution,
delivery and performance of this Agreement has been properly taken.
(g) There are no actions, suits, or proceedings pending or, to
Debtor's best knowledge after due inquiry, threatened against or affecting
Debtor with respect to the Pledged Collateral, at law or in equity or before or
by any commission, board, bureau, agency, department or instrumentality, and
Debtor is not in default with respect to any judgment, writ, injunction, decree,
rule or regulation which would adversely affect Debtor's performance hereunder.
(h) This Agreement has been duly executed and delivered and
constitutes the valid and legally binding obligation of Debtor, enforceable in
accordance with its terms, except to the extent that enforceability of this
Agreement may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforceability of creditors'
rights generally or limiting the right of specific performance or by general
equitable principles.
(i) Neither the execution and delivery by Debtor of this
Agreement, nor the compliance with the terms and provisions hereof, will violate
any provision of the articles or certificates of incorporation or similar
organizational documents, bylaws or partnership agreement of Debtor or any law
or conflict with or result in a breach of any of the terms, conditions or
provisions of any judgment, order, injunction, decree or ruling of any court or
arbitration tribunal or any governmental authority to which Debtor is subject or
any provision of
-3-
<PAGE>
any material agreement, understanding or arrangement to which Debtor is a party
or by which Debtor is bound.
(j) Debtor's principal place of business and chief executive
office is as set forth on the signature page hereto.
5. General Covenants.
-----------------
In addition to any covenants and agreements of Debtor set forth in
the Loan Agreement, the Notes and Other Documents, which are incorporated herein
by this reference, Debtor hereby covenants and agrees as follows:
(a) Debtor shall do all reasonable acts that may be necessary and
appropriate to maintain, preserve and protect the Pledged Collateral; Debtor
shall be responsible for the risk of loss of, damage to, or destruction of the
Pledged Collateral owned by Debtor, unless such loss is the result of the gross
negligence or willful misconduct of the Secured Party. Debtor shall notify the
Secured Party in writing ten (10) days prior to any change in either the address
and location of Debtor's chief executive office or the address and location of
Debtor's principal place of business.
(b) Debtor shall pay promptly when due all taxes, assessments,
charges and obligations secured by encumbrances and liens now or hereafter
imposed upon or affecting any of the Pledged Collateral, except as otherwise
expressly permitted under the Loan Agreement.
(c) Debtor shall appear in and defend any action or proceeding of
which Debtor is aware which could reasonably be expected to affect Debtor's
title to, or the Secured Party's interest in, the Pledged Collateral owned by
Debtor and the proceeds thereof; provided, however, that Debtor may settle such
-------- -------
actions or proceedings with respect to the Pledged Collateral Debtor owns with
the consent of the Secured Party, which consent shall not be unreasonably
withheld or delayed.
(d) Debtor shall keep separate, accurate and complete records of
the Pledged Collateral owned by Debtor, disclosing the Secured Party's security
interest hereunder.
(e) Debtor shall permit the Secured Party, its officers,
employees and agents at reasonable times and on reasonable prior notice to
inspect all books and records related to the Pledged Collateral.
(f) During the term of this Agreement, Debtor shall not sell,
assign, transfer, pledge, grant a security interest, place a lien on or
otherwise dispose of the Pledged Collateral except as permitted under the Loan
Agreement.
-4-
<PAGE>
6. Other Rights With Respect to Pledged Collateral.
-----------------------------------------------
In addition to the other rights with respect to the Pledged
Collateral granted to the Secured Party hereunder, at any time and from time to
time, after and during the continuation of an Event of Default, the Secured
Party at its option and at the expense of Debtor, may (a) transfer into its own
name, or into the name of its nominee, all or any part of the Pledged
Collateral, thereafter receiving all dividends, income or other distributions
upon the Pledged Collateral; (b) take control of and manage all or any of the
Pledged Collateral; (c) apply to the payment of any of the Secured Obligations,
whether any be due and payable or not, any moneys, including cash dividends and
income from any Pledged Collateral, now or hereafter in the hands of the Secured
Party or any Affiliate of the Secured Party, on deposit or otherwise, belonging
to Debtor, as the Secured Party, in its sole discretion, shall determine; and
(d) do anything which Debtor is required but fails to do hereunder. The proceeds
of any collection, sale or other disposition of the Pledged Collateral of
Debtor, or any part thereof, shall, after the Secured Party has made all
deductions of expenses, including but not limited to reasonable attorneys' fees
and other expenses incurred in connection with repossession, collection, sale or
disposition of such Pledged Collateral or in connection with the enforcement of
the Secured Party's rights with respect to the Pledged Collateral in any
insolvency, bankruptcy or reorganization proceedings, be applied against the
Secured Obligations, whether or not all the same be then due and payable, in
such manner and order as set forth in the Loan Agreement.
7. Additional Remedies Upon Event of Default.
-----------------------------------------
Upon the occurrence of any Event of Default and while such Event of
Default shall be continuing, the Secured Party shall have, in addition to all
rights and remedies of a secured party under the Code or other applicable Law,
and in addition to its rights under Section 6 above and under the Loan
Agreement, the Notes and the Other Documents, the following rights and remedies:
(a) The Secured Party may, after ten (10) days' advance notice to
Debtor, sell, assign, give an option or options to purchase or otherwise dispose
of the Pledged Collateral or any part thereof at public or private sale, at any
of the Secured Party's offices or elsewhere, for cash, on credit or for future
delivery, and upon such other terms as the Secured Party may deem commercially
reasonable. Debtor agrees that ten (10) days' advance notice of the time and
place of any public sale or the time after which any private sale is to be made
shall constitute reasonable notification. The Secured Party shall not be
obligated to make any sale of Pledged Collateral regardless of notice of sale
having been given. The Secured Party may adjourn any public or private sale from
time to time by announcement at the time and place fixed therefor, and such sale
may, without further notice, be made at the time and place to which it was so
adjourned. Debtor recognizes that the Secured Party may be compelled to resort
to one or more private sales of the Pledged Collateral to a restricted group of
purchasers who will be obliged to agree, among other things, to acquire such
securities for its own account for investment and not with a view to the
distribution or resale thereof. Debtor acknowledges and agrees that any such
private sale may result in prices and other terms less favorable than if such
sale were a public sale and, notwithstanding such circumstances, agrees that any
such private sale
-5-
<PAGE>
shall be deemed to have been made in a commercially reasonable manner. The
Secured Party shall be under no obligation to delay sale of any of the Pledged
Collateral for the period of time necessary to permit Debtor to register such
securities for public sale under the Securities Act of 1933, as amended, or
under applicable state securities laws, even if Debtor would agree to do so.
(b) The proceeds of any collection, sale or other disposition of
the Pledged Collateral of Debtor, or any part thereof, shall, after the Secured
Party has made all deductions of expenses, including but not limited to
reasonable attorneys' fees and other expenses incurred in connection with
repossession, collection, sale or disposition of such Pledged Collateral or in
connection with the enforcement of the Secured Party's rights with respect to
the Pledged Collateral in any insolvency, bankruptcy or reorganization
proceedings, be applied against the Secured Obligations, whether or not all the
same be then due and payable, in such manner and order as set forth in the Loan
Agreement.
8. Secured Party's Duties.
----------------------
The powers conferred on the Secured Party hereunder are solely to
protect its interest in the Pledged Collateral and shall not impose any duty
upon it to exercise any such powers. Except for the safe custody of any Pledged
Collateral in its possession and the accounting for moneys actually received by
it hereunder, the Secured Party shall have no duty as to any Pledged Collateral
or as to the taking of any necessary steps to preserve rights against prior
parties or any other rights pertaining to any Pledged Collateral.
9. No Waiver; Cumulative Remedies.
------------------------------
No failure to exercise, and no delay in exercising, on the part of
the Secured Party, any right, power or privilege hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any further exercise thereof or the exercise of any
other right, power or privilege. The remedies herein provided are cumulative and
not exclusive of any remedies provided under the Loan Agreement, the Note, and
the Other Documents or by Law. Debtor waives any right to require the Secured
Party to proceed against any other person or to exhaust any of the Pledged
Collateral or other security for the Secured Obligations or to pursue any remedy
in the Secured Party's power.
10. Assignment.
----------
All rights of the Secured Party under this Agreement shall inure to
the benefit of its successors and assigns. All obligations of Debtor shall bind
its successors and assigns; provided, however, Debtor may not assign or transfer
-------- -------
any of its rights and obligations hereunder or any interest herein.
11. Severability.
------------
Any provision of this Agreement which shall be held invalid or
unenforceable shall be ineffective without invalidating the remaining provisions
hereof.
-6-
<PAGE>
12. Governing Law and Jurisdiction.
------------------------------
This Agreement shall be construed in accordance with and governed
by the internal laws of the State of Delaware without regard to its conflicts of
law principles, except to the extent the validity or perfection of the security
interests or the remedies hereunder in respect of any Pledged Collateral are
governed by the law of a jurisdiction other than the State of Delaware. The
Debtor hereby irrevocably consents to the exclusive jurisdiction of the courts
of the Commonwealth of Pennsylvania located within Philadelphia County or the
United States District Court for the Eastern District of Pennsylvania for the
resolution of all claims, disputes and controversies arising hereunder.
13. Notices.
-------
Debtor agrees that all notices, statements, requests, demands and
other communications under this Agreement shall be given to each of the parties
at the address set forth below their names and the manner provided in Section 7
of the Loan Agreement.
14. Specific Performance.
--------------------
Debtor acknowledges and agrees that, in addition to the other
rights of the Secured Party hereunder and under the other Loan Documents,
because the Secured Party's remedies at law for failure of Debtor to comply with
the provisions hereof relating to the Secured Party's rights (i) to inspect the
books and records related to the Pledged Collateral, (ii) to receive the various
notifications Debtor is required to deliver hereunder, (iii) to obtain copies of
agreements and documents as provided herein with respect to the Pledged
Collateral, (iv) to enforce the provisions hereof pursuant to which Debtor has
appointed the Secured Party its attorney-in-fact, and (v) to enforce the Secured
Party's remedies hereunder, would be inadequate and that any such failure would
not be adequately compensable in damages, Debtor agrees that each such provision
hereof may be specifically enforced.
15. Dividends; Voting Rights in Respect of the Pledged Collateral.
-------------------------------------------------------------
So long as no Event of Default shall occur and be continuing under
the Loan Agreement, Debtor may exercise any and all voting and other consensual
rights pertaining to the Pledged Collateral or any part thereof for any purpose
not inconsistent with the terms of this Agreement, the Loan Agreement, the Notes
or Other Documents; provided, however, that Debtor will not exercise or will
-------- -------
refrain from exercising any such right, as the case may be, if such action would
be inconsistent with the covenants and obligations of Debtor under the Loan
Agreement and the Other Documents or would have a material adverse effect on the
value of any Pledged Collateral. So long as no Event of Default has occurred and
is continuing, any lawful dividends paid in cash to Debtor in respect of the
Pledged Collateral may be used or applied by Debtor for any purpose permitted by
the Loan Agreement.
16. Entire Agreement; Amendments.
----------------------------
This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof and supersedes all prior agreements
relating to a grant of a
-7-
<PAGE>
security interest in the Pledged Collateral by Debtor. This Agreement may not be
amended or supplemented except by a writing signed by the Secured Party and
Debtor.
17. Counterparts.
------------
This Agreement may be executed in any number of counterparts, and
by different parties hereto in separate counterparts, each of which when so
executed shall be deemed an original and all of which taken together shall
constitute but one and the same agreement.
18. Descriptive Headings.
--------------------
The descriptive headings which are used in this Agreement are for
the convenience of the parties only and shall not affect the meaning of any
provision of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
SECURED PARTY:
VDC CORPORATION LTD.
BY: /s/ Graham Ferguson Lacey
-------------------------
Graham Ferguson Lacey, President
DEBTOR:
PORTACOM WIRELESS, INC.
BY: /s/ Douglas C. MacLellan
------------------------
Douglas C. MacLellan,
President and Chief Executive Officer
[SEAL]
Principal Place of Business:
10061 Talbert Avenue - Suite 200
Fountain Valley, CA 92708
Chief Executive Office:
10061 Talbert Avenue - Suite 200
Fountain Valley, CA 92708
-8-
<PAGE>
SCHEDULE A
TO
PLEDGE AGREEMENT
Description of Pledged Collateral
---------------------------------
Type and
Debtor Amount of Ownership
- ------ -------------------
PORTACOM WIRELESS, INC. 4,000,000 Warrants to Purchase Common
Stock of Metromedia Asia Corporation
-9-
<PAGE>
EXHIBIT 10.32
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is dated November 10, 1997 and is made between
PortaCom Wireless, Inc., a Delaware corporation ("Grantor") and VDC Corporation
Ltd. ("Lender") pursuant to the Loan Agreement referred to below.
WITNESSETH THAT:
WHEREAS, pursuant to that certain Loan Agreement dated November 10, 1997
(as it may hereafter be amended or otherwise modified from time to time, the
"Loan Agreement") between Grantor and the Lender, the Lender has agreed to make
certain loans to Grantor;
WHEREAS, the obligations of the Lender to make loans under the Loan
Agreement are subject to the condition, among others, that Grantor secure its
obligations to the Lender under the Loan Agreement by the grant of security
interests in the Collateral, as defined and more fully set forth herein; and
WHEREAS, Grantor is (or will be with respect to after-acquired property)
the legal and beneficial owner and holder of the Collateral (as defined in
Section 1 hereof), and has agreed to grant security interests in such Collateral
to the Lender on 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. Terms which are defined in the Loan Agreement and not
-----------
otherwise defined herein are used herein as defined therein. 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):
(i) warrants to purchase 4,000,000 shares of the common stock of
Metromedia Asia Corporation (the "Warrants") which the Grantor now beneficially
owns or may hereafter acquire, as the same have been described in the
Termination Agreement (the "Termination Agreement"), dated September 11, 1996,
by and among Grantor, Metromedia Asia Corporation ("MAC"), as successor-in-
interest to Asian American Telecommunications Corporation and Max E. Bobbitt;
and
<PAGE>
(ii) 2,000,000 shares (the "Shares") of the common stock of MAC
held beneficially and of record by Grantor, to the extent permissible under the
terms of the Termination Agreement, pursuant to which such shares are being held
in escrow until January 1, 1999.
The Shares and the Warrants collectively shall be referred to
as the "Securities". The term "Collateral" as it applies to the Shares and the
Warrants shall also include all rights and privileges pertaining thereto,
including, without limitation, all securities and additional securities
receivable in respect of or in exchange for such Securities, all rights to
subscribe for securities incident to or arising from ownership of such
Securities, all cash, interest, stock and other dividends or distributions paid
or payable on such Securities, and all books and records pertaining to the
foregoing, including, without limitation, all stock record and transfer books,
and whatever is received when any of the foregoing is sold, exchanged or
otherwise disposed of, including any proceeds as such term is defined in the
Code.
(c) "Secured Indebtedness" shall mean (i) all obligations, whether of
principal, interest, fees, expenses or otherwise, of Grantor to Lender, whether
now existing or hereafter incurred, under the Loan Agreement, Notes or any of
the Other Documents 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 Lender, (ii) all
out-of-pocket costs, expenses and disbursements, including reasonable attorneys'
fees and legal expenses, incurred by the Lender 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 Lender, 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 Lender shall have, and Grantor hereby grants to and
creates in favor of the Lender, for the benefit of the Lender, to secure all of
the Secured Indebtedness, a continuing first priority security interest in and
to Grantor's Collateral; provided, however, that the security interest granted
in all of the Shares is subordinated to any security interest in the Shares
granted by the Grantor to MAC (the "Permitted Lien") pursuant to the Termination
Agreement. 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 Lender 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
Lender such documents, agreements, notices, assignments and instruments and take
such further actions as may be reasonably requested by the Lender from time to
time for the purpose of creating a valid and perfected first priority lien on
such item, enforceable against the Grantor and all third parties to secure the
Secured Indebtedness.
2
<PAGE>
3. Representations and Warranties. Except as otherwise set forth in the
------------------------------
Disclosure Statement attached as Exhibit B to the Loan Agreement, Grantor
represents, warrants and covenants to the Lender 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 Lender for Grantor's grant
of security interests hereunder and, except for the security interests granted
to and created in favor of the Lender hereunder, all of the Collateral is and
will continue to be free and clear of all liens, except 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 of the Termination
Agreement 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 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 Lender's security interests in the
Collateral (other than the Shares) as continuing first priority perfected
security interests and the Lender's security interest in Grantor's Shares as a
continuing perfected security interest subordinate only to the Permitted Lien,
and will do all such other acts and things and will, upon request therefor by
the Lender, 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 Lender 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 Lender 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,
3
<PAGE>
Grantor agrees to execute and deliver such further documents and instruments and
do such further acts as the Lender may from time to time require.
5. Covenants. Grantor covenants and agrees that, except as otherwise
---------
required by the Termination Agreement, (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 and such other books
and records as may be required under the Loan Agreement; (d) it will promptly
furnish to the Lender such information and documents relating to the Collateral
as the Lender may reasonably request in order to confirm the status of the
Lender'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; (f) it will execute and deliver to the Lender and record
such supplements to this Security Agreement and additional assignments as the
Lender reasonably may request to evidence and confirm the security interests
herein contained; and (g) it will not agree to change, modify, extend or
terminate the Termination Agreement without the prior written consent of the
Lender. The Grantor shall notify the Lender in writing ten (10) days prior to
the effective date of any change or modification to, or extension or terminate
of, the Termination Agreement.
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 Lender's right, title and security interests in and to the Collateral
against the claims and demands of all persons. The Lender shall be deemed to
have exercised reasonable care in the custody and preservation of the Collateral
in the Lender's possession if, prior to the existence of an Event of Default,
the Lender 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 Lender, impair the security interests in the Collateral created
hereby or the Lender's rights in, or the value of, such Collateral, and provided
--------
further that such written request is received by the Lender in sufficient time
- -------
to permit the Lender to take the requested action.
7. Lender'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 Lender 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 Lender 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 Loan Agreement, as evidenced by
the Notes, and other liabilities of Grantor secured by this Security Agreement;
(b) inspect the Collateral at any reasonable time; and (c) pay any amounts the
Lender 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.
4
<PAGE>
8. Remedies on Default. If there shall have occurred and be continuing an
-------------------
Event of Default under the terms of the Loan Agreement, then the Lender shall,
subject to any restrictions set forth in the Termination Agreement, 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 Lender shall have the right to
(a) transfer all or any part of any of the Collateral into the Lender'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 Lender, 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 Lender, 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 Lender 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 Lender may deem appropriate,
including extending or modifying the terms of payment of the debtors of Grantor.
In addition, upon the occurrence of an Event of Default but subject to any
restrictions set forth in the Termination Agreement, Grantor, at the request of
the Lender, shall assemble all or any portion of the Grantor's Collateral at
such locations as the Lender shall designate which are reasonably convenient to
Grantor, and the Lender 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 Lender 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) 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 Lender 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 Lender at law may not fully compensate the Lender 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 in accordance with the terms of the Loan Agreement. 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 Lender is entitled.
5
<PAGE>
10. Attorneys-in-Fact. After an Event of Default the Grantor hereby
-----------------
irrevocably appoints the Lender, 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
Lender 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 Lender, its officers, employees or agents
pursuant to the foregoing power of attorney.
11. Indemnity and Expenses.
----------------------
(a) The Grantor unconditionally agrees to indemnify the Lender 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 Lender.
(b) The Grantor unconditionally agrees upon demand to pay to the
Lender 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 Lender 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 Lender 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
---------------------------------------------
Lender hereunder, all security interests hereunder, and all obligations of the
Grantor hereunder shall be absolute and unconditional, irrespective of: (a) any
lack of validity or enforceability of the Loan Agreement, the Notes or any of
the 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 Loan Agreement,
the Notes 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 Lender of this
Security Agreement, the provisions of the Loan Agreement, the Notes 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 Loan Agreement and the Notes, this Security Agreement shall
terminate and be of no further force and effect, and the Lender, at the
Grantor's expense, shall thereupon promptly return to Grantor the Collateral and
such other documents delivered by Grantor hereunder as may
6
<PAGE>
then be in the Lender's possession. Upon any such termination, the Lender 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
Lender 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 Section 7 of the Loan Agreement.
15. No Implied Waivers; Cumulative Remedies. No course of dealing and no
---------------------------------------
failure or delay on the part of the Lender 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 Lender 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 Lender under this
Security Agreement are cumulative and not exclusive of any rights or remedies
which it may otherwise have.
16. Notices. All notices, statements, requests, demands and other
-------
communications given to or made upon the Grantor, the Lender in accordance with
the provisions of this Security Agreement shall be given or made as provided in
Section 7 of the Loan Agreement.
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 Lender, 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.
(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.
7
<PAGE>
18. Governing Law. This Security Agreement shall be deemed to be a
-------------
contract under the laws of the State of Delaware and for all purposes shall be
governed by and construed in accordance with the internal laws of said State,
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 the State of Delaware.
19. Successors and Assigns. This Security Agreement shall be freely
----------------------
assignable and transferable by the Lender 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 Lender. The rights and privileges of the
Lender shall inure to their benefit and the benefit of its respective successors
and assigns (as permitted under the Loan Agreement) 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 the
Commonwealth of Pennsylvania located within Philadelphia County and the United
States District Court for the Eastern District of Pennsylvania 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 or referred to in Section 16 hereof 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 LENDER WAIVES TRIAL BY JURY IN
ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM WITH RESPECT TO THIS SECURITY
AGREEMENT TO THE FULL EXTENT PERMITTED BY LAW.
WITNESS the due execution hereof as of the day and year first above
written.
PORTACOM WIRELESS, INC.
BY: /s/ Douglas C. MacLellan
------------------------
Douglas C. MacLellan,
President and Chief Executive Officer
VDC CORPORATION LTD.
BY: /s/ Graham Ferguson Lacey
-------------------------
Graham Ferguson Lacey, President
8
<PAGE>
EXHIBIT 10.33
AGREEMENT RE TRANSFER OF INTEREST IN PORTACOM WIRELESS, INC. IN AMERICAN
CAMBODIAN TELECOM, LTD.
WHEREAS PortaCom Wireless, Inc., a corporation organized and existing under
the laws of the State of Delaware in the United States of America and
hereinafter referred to simply as "PCW", owns an 86 percent interest, and/or
rights to acquire such interest, in the issued and outstanding shares of
American Cambodian Telecom, Ltd., a corporation organized and existing under the
laws of the Kingdom of Cambodia and hereinafter referred to simply as "ACT"; and
WHEREAS Paul Robert Carr, a natural person and a citizen of the State of
California of the United States of America hereinafter referred to simply as
"CARR", has for some time been employed by PCW and engaged in an effort to
obtain for ACT from the Kingdom of Cambodia a license for the operation
throughout Cambodia of a code division multiple access ("CDMA")
telecommunications system; and
WHEREAS said license was issued to ACT on December 26, 1996, for a term of
25 years, by the Ministry of Posts and Telecommunications of The Kingdom of
Cambodia; and
WHEREAS PCW is indebted to CARR in an amount not less than US$100,000 for
earned but unpaid compensation for services rendered and un-reimbursed expenses
advanced and/or incurred by CARR in the performance of his duties for PCW; and
WHEREAS PCW is willing and desirous of i) transferring to CARR all rights,
titles and interests in ACT, including said licence, which PCW holds, or has any
option to acquire, and ii) acknowledging that it does not object to the lawful
substitution of its name with the name of CARR on any and all documents related
to ACT, from the date of this agreement forward, in consideration of CARR
waiving and releasing PCW, its partners, affiliates, subsidiaries, divisions,
shareholders and any and all current or former directors, officers, employees,
agents, contractors, successors, heirs and assigns of any and all claims,
charges or demands in law or in equity whether known or unknown of CARR arising
from or in relation to CARR's employment with, or termination of employment
from, PCW, including but not limited to claims, charges or demands for unpaid
compensation, un-reimbursed expenses, wrongful discharge, breach of contract,
wrongful conduct or any other claims, charges or demands in any way related to
CARR's employment with or termination from PCW; and
WHEREAS PCW has not made any representations as to the investment value,
business or prospects of ACT and CARR has relied solely on his own knowledge and
independent investigation in determining to accept the aforementioned rights,
titles and interests in consideration for the agreements set forth herein; and
WHEREAS CARR is willing and desirous of transferring and delivering to PCW,
for future examination by PCW's independent auditors, copies of certain
corporate and financial information of ACT in existence from the date of its
formation up to and including the date upon which the transfer of PCW's interest
in ACT to CARR occurs, such corporate and financial information hereinafter
referred to simply as "ACT Information" and defined herein as
Page 1 of 4
<PAGE>
information including but not necessarily limited to official copies of i)
---------------
constating documents such as articles or certificates of incorporation and
bylaws, ii) executed shareholder and director consent resolutions and minutes of
all meetings of shareholders and directors, iii) any and all documents filed
with any governmental agency of the Kingdom of Cambodia or political
subdivisions thereof, iv) lists of officers and directors and their dates of
election and resignation, v) corporate income, property and other applicable tax
or informational returns filed with any governmental agency of the Kingdom of
Cambodia or political subdivision thereof , and vi) a statement disclosing full
details of any such documents or informational returns or tax returns which were
required to have been filed with any governmental agency of the Kingdom of
Cambodia or political subdivision thereof, but which were not timely filed by
ACT or its representatives, and vii) bank statements on all ACT accounts, and
viii) receipts satisfactorily evidencing all income items, expense items, assets
and liabilities of ACT, and ix) books of account, summary reports, unaudited
financial statements, transaction lists, ledgers, etc. containing a sufficiently
detailed account of all transactions and/or entries in the bank accounts and
books of account of ACT, and x) a balance sheet of ACT and accompanying
schedules as of the date upon which the transfer of the equity interest to CARR
takes effect to be prepared by KPMG of Phnom Penh, Cambodia, such schedules to
detail a) cash on hand and in banks along with other assets, their original
cost, depreciation methodology and accumulated depreciation at balance sheet
date, b) liabilities at balance sheet date by creditor, and c) share capital by
stockholder at balance sheet date by shareholder; and
WHEREAS PCW acknowledges that certain of the above documents, if in
existence, are under the care, custody and control of KPMG of Phnom Penh,
Cambodia, PCW's independent accountants, and that any of the above documents may
be found by CARR to not exist, and that PCW will accept as satisfactory CARR's
oral or written statements attesting to the non-existence of any of the above
documents and will not consider the non provision by CARR of any such documents
which CARR has attested to be non-existent as a breach of this agreement; and
WHEREAS PCW is willing and desirous of bearing the reasonable expenses of
CARR of procuring the ACT Information, including any delivery charges incurred
by CARR for services provided by either Federal Express or United Parcel
Service, payments which must be made to KPMG of Phnom Penh, Cambodia related to
accounting and administrative work up to and including the date upon which the
transfer of PCW's interest in ACT to CARR occurs.
NOW THEREFORE IT IS HEREBY AGREED that:
1. PCW shall deliver, upon receipt from CARR of a duly executed, dated and
notarized waiver and release document in a form acceptable to PCW, all
additional documents, share certificates, or other instruments
necessary and/or advisable to transfer to CARR all rights, titles and
interests in ACT which PCW now holds, or has any option to acquire; and
2. PCW shall, at the request of CARR, confirm in writing to any third
party that
Page 2 of 4
<PAGE>
such transfer of its rights, titles and interests in ACT has taken
place and, should CARR request any additional documents to validate
such transfer, it will not be unreasonably withheld; and
3. CARR shall deliver the ACT Information as herein above defined via
Federal Express or United Parcel Service to PCW, within 30 days of the
date upon which PCW has paid the reasonable expenses related such
delivery by CARR or has caused such expenses to be paid; and
4. PCW shall indemnify, save, defend and hold harmless CARR and/or ACT, as
well as ACT's other shareholders, from any and all cost, liability or
expense, including attorneys' fees, to which CARR or ACT may become
subject be reason of any actions or failures to act on the part of PCW,
CARR's employment by PCW, or ACT's relationship with PCW, this
obligation to vest upon PCW's receipt of said duly executed waiver and
release document in a form acceptable to PCW and only with respect to
actions or failures to act of CARR if CARR acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best
interests of PCW, except that no indemnification shall be made in
respect of any claim, issue or matter as to which CARR shall have been
adjudged to be liable for negligence or misconduct in the performance
of his duty to PCW, unless and only to the extent that the Court of
Chancery of the State of Delaware or the court in which such action or
suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the
case, CARR is fairly and reasonable entitled to indemnity for expenses
deemed proper by the Court of Chancery of the State of Delaware or the
court in which such action or suit was brought and which have actually
and reasonably been incurred by CARR in connection with the defense or
settlement of such action or suit; and
5. PCW represents and warrants that it has not assigned, transferred,
encumbered, suffered the encumbrance of, or otherwise undergone any
diminishment or impairment of its right, title and interest in ACT and
will not do so prior to the transfer of same to CARR pursuant to this
agreement, and that its officer who executes this agreement has been
fully authorized to do so by PCW in accordance with its by-laws,
articles of incorporation and applicable laws to which it is subject;
and
6. This agreement cancels and supercedes that certain agreement entitled
Agreement Re Transfer of Interest of PortaCom Wireless Inc. in American
-----------------------------------------------------------------------
Cambodian Telecom, Ltd. executed by and among CARR, ACT and PCW on
-----------------------
November 19, 1997; and
7. There are no other agreements, promises or representations by and among
the parties signatory to this agreement bearing upon the subject matter
of this agreement except as set forth herein; and
Page 3 of 4
<PAGE>
8. This agreement may be altered or modified only by a further written
instrument specifically making reference to this agreement and executed
by all the same parties or their legal representatives.
IN WITNESS WHEREOF, this agreement is executed effective this 15 day of
--
January, 1998, in the State of California subject to the laws of said state.
PORTACOM WIRELESS, INC.,
a corporation
BY: /s/ Douglas C. MacLellan
-----------------------------------------
DOUGLAS C. MACLELLAN
President and CEO
/s/ Paul Robert Carr
--------------------------------------------
PAUL ROBERT CARR,
a natural person
AMERICAN CAMBODIAN TELECOMMUNICATIONS, LTD.,
a corporation
BY: /s/ Paul Robert Carr
----------------------------------------
PAUL ROBERT CARR
President and CEO
Page 4 of 4
<PAGE>
EXHIBIT 21
Subsidiaries of PortaCom Wireless, Inc.
Name Jurisdiction of incorporation or organization
---- ---------------------------------------------
PortaCom International, Ltd. Nevada
Extreme Telecom, Inc. California
PCBX Systems, Inc. California
Extreme Laboratories, Inc. California
American Cambodian Telecom, Ltd. Kingdom of Cambodia
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE COMPANY, AUDITED BY COGEN SKLAR LLP, FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 15,070
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,070
<PP&E> 18,557
<DEPRECIATION> 12,376
<TOTAL-ASSETS> 8,021,771
<CURRENT-LIABILITIES> 3,568,491
<BONDS> 0
0
0
<COMMON> 13,576
<OTHER-SE> 4,439,704
<TOTAL-LIABILITY-AND-EQUITY> 8,021,771
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,958,452
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 182,161
<INCOME-PRETAX> (4,140,613)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,140,613)
<DISCONTINUED> 0
<EXTRAORDINARY> 40,994
<CHANGES> 0
<NET-INCOME> (4,099,619)
<EPS-PRIMARY> (0.32)
<EPS-DILUTED> (0.32)
</TABLE>
