<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________ to _____________
Commission file number: 0-25940
VIEW TECH, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0312442
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3760 CALLE TECATE, SUITE A
CAMARILLO, CA 93012
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (805) 482-8277
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the 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. Yes X No __
---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Number of Shares Outstanding
Class as of November 4, 1998
----- ----------------------
Common Stock, $.0001 par value 6,895,610
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VIEW TECH, INC.
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page Reference
--------------
<S> <C> <C>
PART I FINANCIAL INFORMATION
Consolidated Balance Sheets
September 30, 1998 (unaudited) and December 31, 1997 1
Consolidated Statements of Operations
Three Months and Nine Months Ended September 30, 1998
and 1997 (unaudited) 2
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1998 and 1997 (unaudited) 3
Notes to Consolidated Financial Statements (unaudited) 4
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II OTHER INFORMATION
Exhibits and Reports on Form 8-K 14
SIGNATURES 15
</TABLE>
i
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VIEW TECH, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
-------------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 802,536 $ 1,204,690
Accounts receivable (net of reserves of $724,637
and $658,656, respectively) 13,718,807 13,326,667
Inventory 4,012,588 2,532,456
Other current assets 496,761 428,889
----------- -----------
Total current assets 19,030,692 17,492,702
PROPERTY AND EQUIPMENT, Net 3,630,672 3,423,838
GOODWILL, net 2,333,856 4,198,927
OTHER ASSETS 760,667 696,701
----------- -----------
$25,755,887 $25,812,168
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 8,961,336 $ 7,168,763
Current portion of long-term debt 688,323 661,290
Accrued payroll and related costs 1,962,891 1,904,506
Deferred revenue 2,055,104 1,087,161
Accrued restructuring costs 1,463,662 --
Other current liabilities 903,526 1,371,248
----------- -----------
Total Current Liabilities 16,034,842 12,192,968
----------- -----------
LONG-TERM DEBT 4,563,644 5,342,368
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.0001, authorized
5,000,000 shares, none issued or outstanding -- --
Common stock, par value $.0001, authorized
20,000,000 shares, issued and outstanding
6,893,609 and 6,589,571 shares at September 30, 1998
and December 31, 1997, respectively 689 659
Additional paid-in capital 14,061,174 13,653,624
Accumulated deficit (8,904,462) (5,377,451)
----------- -----------
5,157,401 8,276,832
----------- -----------
$25,755,887 $25,812,168
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
1
<PAGE>
VIEW TECH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- -------------------------
1998 1997 1998 1997
-------------------------- -------------------------
<S> <C> <C> <C> <C>
Revenues:
Product sales and service
revenues $11,093,151 $ 9,108,062 $29,523,733 $23,499,101
Agency commissions 3,724,310 3,929,021 13,804,138 11,798,183
----------- ----------- ----------- -----------
14,817,461 13,037,083 43,327,871 35,297,284
----------- ----------- ----------- -----------
Costs and Expenses:
Costs of goods sold 7,600,287 6,581,193 20,620,986 16,901,135
Sales and marketing expenses 4,741,564 4,349,621 15,713,332 12,785,328
General and administrative
expenses 1,854,646 1,634,854 5,897,974 5,244,982
Restructuring and other
charges -- -- 4,201,013 --
----------- ----------- ----------- -----------
14,196,497 12,565,668 46,433,305 34,931,445
----------- ----------- ----------- -----------
Income (Loss) from Operations 620,964 471,415 (3,105,434) 365,839
Interest expense (123,465) (104,406) (417,676) (259,570)
----------- ----------- ----------- -----------
Income (Loss) Before Income
Taxes 497,499 367,009 (3,523,110) 106,269
Provision for Income Taxes - (3,135) (3,900) (4,512)
----------- ----------- ----------- -----------
Net Income (Loss) $ 497,499 $ 363,874 $(3,527,010) $ 101,757
=========== =========== =========== ===========
Earnings (Loss) Per Share
(Basic) $ 0.07 $ 0.06 $ (0.52) $ 0.02
========== =========== =========== ===========
Earnings (Loss) Per Share
(Diluted) $ 0.07 $ 0.05 $(0.52) $ 0.02
========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
VIEW TECH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
---------------------------------
1998 1997
---------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $(3,527,010) $ 101,757
Adjustments to reconcile net loss to
net cash from operating activities:
Depreciation and amortization 1,178,511 825,108
Provision for bad debts 65,981 (47,623)
Non-cash charges related to restructuring 1,491,392 --
Changes in assets and liabilities:
Accounts receivable (458,121) (2,010,909)
Inventory (1,597,874) (220,512)
Other assets (183,290) 196,464
Accounts payable 1,792,573 (229,933)
Accrued merger costs -- (1,160,494)
Accrued restructuring charges 1,474,120 --
Accrued payroll and related costs 58,385 121,577
Deferred revenue 967,943 612,085
Other accrued liabilities (267,723) 176,291
----------- -----------
Net cash provided (used) by operating activities 994,887 (1,636,189)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITY:
Purchase of property and equipment (805,108) (871,347)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings under lines of credit (670,528) 1,391,068
Repayments of capital lease and other debt obligations (328,985) (591,953)
Issuance of common stock, net 407,580 2,798,276
----------- -----------
Net cash provided (used) by financing activities (591,933) 3,597,391
----------- -----------
NET INCREASE (DECREASE) IN CASH (402,154) 1,089,855
CASH, beginning of period 1,204,690 365,139
----------- -----------
CASH, end of period $ 802,536 $ 1,454,994
=========== ===========
SUPPLEMENTAL DISCLOSURES:
Operating activities reflect:
Interest paid $ 457,001 $ 266,242
=========== ===========
Income taxes paid $ 96,175 $ 2,800
=========== ===========
Schedule of non-cash investing and financing activities:
Equipment acquired under capital lease obligations $ 237,364 $ 123,378
=========== ===========
Equipment transferred from inventory $ 117,742 $ --
=========== ===========
Goodwill reserve write-off $ 200,000 $ --
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - GENERAL
- ----------------
View Tech, Inc., a Delaware corporation ("View Tech"), commenced operations in
July 1992 as a California corporation. Since its initial public offering of
common stock in June 1995, View Tech has grown through internal expansion and
acquisitions. In November 1996, View Tech merged with USTeleCenters, Inc., a
Massachusetts corporation ("UST" and together with View Tech, the "Company") and
the Company reincorporated in Delaware. In November 1997, the Company, through
its wholly-owned subsidiary, acquired the net assets of Vermont
Telecommunications Network Services, Inc., a Vermont corporation headquartered
in Burlington, Vermont, ("NSI") which sells, manages and supports
telecommunication network solutions as an agent for Bell Atlantic. The Company
currently has 28 offices nationwide.
The Company, is a leading, single source provider of voice, video and data
equipment, network services and bundled telecommunications solutions for
business customers nationwide. The Company has equipment distribution
partnerships with PictureTel Corporation, VTEL Corporation, PolyCom, Inc.,
Intel, Madge Networks, Ascend Communications, VideoServer, Inc., and Northern
Telecom and markets network services through agency agreements with Bell
Atlantic, BellSouth, GTE, Southwestern Bell, Sprint and UUNET Technologies. The
consolidated financial statements include the accounts of View Tech and UST.
All significant intercompany balances and transactions have been eliminated in
consolidation.
The information for the nine months ended September 30, 1998 and 1997 has
not been audited by independent accountants, but includes all adjustments
(consisting of normal recurring accruals) which are, in the opinion of
management, necessary for a fair presentation of the results for such periods.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to the rules of the Securities and Exchange
Commission, although the Company believes that the disclosures included in these
financial statements are adequate to make the information not misleading. The
financial statements presented herein should be read in conjunction with the
audited financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
NOTE 2 - ACQUISITIONS
- ----------------------
In November 1997, the Company through its wholly-owned subsidiary, acquired
the net assets of Vermont Telecommunications Network Services, Inc. ("NSI"), a
Vermont corporation headquartered in Burlington, Vermont, which sells, manages
and supports telecommunication network solutions as an agent for Bell Atlantic.
Following is summarized pro forma operating results assuming that the Company
had acquired NSI on January 1, 1997.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1997 September 30, 1997
------------------ ------------------
<S> <C> <C>
Revenues $13,604,872 $37,014,080
Income before income taxes 441,040 410,580
Net income 437,905 406,068
Net income per share Basic 0.07 0.06
Net income per share - Diluted 0.06 0.06
</TABLE>
The summarized pro forma operating results include the historical operating
results for NSI for the three months and nine months ended September 30, 1997.
The summarized pro forma information may not be indicative of the results of
operations that would have occurred if the acquisition had been concluded on
January 1, 1997.
4
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 3 - EARNINGS (LOSS) PER SHARE
- ----------------------------------
Earnings (loss) per share - basic is computed on the basis of the weighted
average number of shares of common stock outstanding during the period.
Earnings per share - diluted is based on the weighted average number of shares
outstanding during the period including the dilutive effect of common stock
equivalents using the treasury stock method.
<TABLE>
<CAPTION>
Weighted Average Shares Outstanding Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -------------------------
1998 1997 1998 1997
----------------------------- -------------------------
<S> <C> <C> <C> <C>
Weighted average shares outstanding 6,833,329 6,387,188 6,746,100 6,323,135
Effect of dilutive options and warrants 135,574 460,535 -- 378,189
--------- --------- --------- ---------
Weighted average shares outstanding
including dilutive effect of securities 6,968,904 6,847,723 6,746,100 6,701,324
========= ========= ========= =========
</TABLE>
Options and warrants to purchase 2,113,314, 2,254,664, 2,294,153 and
2,237,610 weighted average shares of common stock were outstanding during the
three month and nine month periods ended September 30, 1998 and 1997,
respectively, but were not included in the computation of diluted EPS because
the options' exercise price was either greater than the average market price of
the common stock or the Company reported a net operating loss and their effect
would have been antidilutive.
NOTE 4 - LINES OF CREDIT
- ------------------------
The Company entered into a $15 million Credit Agreement (the "Agreement")
with Imperial Bank and BankBoston, N.A., effective November 21, 1997. The
Agreement provides for a maximum credit line of up to $15 million for a term of
five (5) years. Amounts outstanding under the Agreement are collateralized by
certain assets of the Company. Funds available under the Agreement will vary
from time to time depending on many variables including, without limitation, the
amount of Eligible Trade Accounts Receivable and Eligible Inventory of the
Company, as such terms are defined in the Agreement. The interest charged on
outstanding amounts vary between the Prime Rate, plus the Prime Rate Margin, or
between the Eurodollar Rate, plus the Eurodollar Rate Margin, depending upon the
Company's Leverage Ratio, as defined in the Agreement. At September 30, 1998,
the interest rate on this facility was 9.0%. The Agreement requires the Company
to comply with various financial and operating loan covenants. As of September
30, 1998 the Company was in compliance with these covenants. Under certain
conditions, the Agreement allows the Company to prepay principal amounts
outstanding without penalty.
The Agreement provides for three separate loan commitments consisting of
(i) a Facility A Commitment up to $7 million; (ii) a Facility B Commitment up to
$5 million and (iii) a Facility C Commitment up to $3 million. Amounts drawn
under the Facility A Commitment are due and payable no later than November 21,
2002. Amounts drawn under the Facility B Commitment are subject to mandatory
repayments in sixteen (16) equal quarterly installments commencing on March 31,
1999. Amounts outstanding under the Facility C Commitment are subject to
mandatory repayments in twelve (12) equal quarterly installments commencing on
March 31, 2000. All amounts outstanding under each such Facility are due and
payable no later than November 21, 2002. At September 30, 1998, the total
outstanding principal balance due under these facilities was $4,235,329.
In connection with the Agreement the Company issued Common Stock Purchase
Warrants for the purchase of 80,000 shares of the Company's common stock by the
lenders at a purchase price of $7.08 per share. In July 1998, the warrants
were re-priced at $4.50 per share.
5
<PAGE>
NOTE 5 - RESTRUCTURING AND OTHER CHARGES
- ----------------------------------------
On April 22, 1998, the Company announced a plan (the "Plan") to restructure the
Company's operations in the second quarter of 1998 designed to reduce costs and
improve profitability. The implementation of the Plan resulted in a one-time
charge of $4,201,013. Included in this charge against second quarter results
are costs related to an impairment write-down of goodwill relating to previous
acquisitions and the closing of unprofitable operations.
The following are the significant components of the charge for restructuring:
<TABLE>
<S> <C>
Impairment write-down of goodwill relating to previous acquisitions.................. $1,464,843
Provision for costs in closing unprofitable operations, employee severance,
benefits and related costs........................................................... 2,736,170
----------
$4,201,013
==========
</TABLE>
The total cash impact of the restructuring amounted to $2,709,621, of which
$1,474,120 remains to be paid as of September 30, 1998. Included in the
accompanying balance sheet at September 30, 1998 is $1,463,662 of current
liabilities and $10,458 of long-term liabilities related to the restructuring
charge. The Company anticipates that the balance of the restructuring cost will
be paid by October 31, 1999.
NOTE 6 - SUBSEQUENT EVENT
- -------------------------
The Company has received a notice from Nasdaq informing it that its common
stock is subject to delisting from the Nasdaq National Market due to the fact
that is does not meet the applicable listing requirements stipulating $4,000,000
in net tangible assets. Nasdaq has notified the Company that Nasdaq scheduled a
hearing before a panel for November 13, 1998 to consider this matter. The
Company has been advised that, should the hearing panel decide to delist the
common stock, the common stock will cease to trade on the Nasdaq National Market
pending further appeals, if any. As of September 30, 1998, the Company's net
tangible assets were $2,823,545. The Company is committed to the continued
listing of its stock on the Nasdaq National Market, and therefore it is raising
up to an additional $1,200,000 of capital through a private placement of its
common stock to a limited group of accredited investors. The Company believes
that it will be successful in raising such capital, and that Nasdaq will
continue to list its common stock for trading, however, this decision is not
within the control of the Company and no assurance can be given that Nasdaq will
not delist the common stock from the Nasdaq National Market.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements and the notes thereto appearing elsewhere in
this Form 10-Q. Except for historical information contained herein, the
statements in this Form 10-Q are forward-looking statements (including without
limitation, statements indicating that the Company "expects," "estimates,"
"anticipates," or "believes" and all other statements concerning future
financial results, product offerings or other events that have not yet
occurred), that are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995, Section 21E of the Securities Exchange
Act of 1934, as amended and Section 27A of the Securities Act of 1933, as
amended. Forward-looking statements involve known factors, risks and
uncertainties which may cause the Company's actual results in future periods to
differ materially from forecasted results. Those factors, risks and
uncertainties include, but are not limited to: the Company's ability to raise
additional funds that may be necessary to meet its future capital needs; the
uncertainties related to restructuring; the Company's limited history of
profitable operations and significant fluctuations in operating results which
may continue due to delays in product enhancements and new product introductions
by its suppliers; the termination of or change of the Company's business
relationships with PictureTel or Bell Atlantic, disruption in supply, failure of
PictureTel or Bell Atlantic to remain competitive in product quality, function
or price or a determination by PictureTel or Bell Atlantic to reduce reliance on
independent providers such as the Company; and the introduction of new rules
and regulations by the federal government and/or certain states pertaining to
the Company's telecommunications business that could lead to additional
competition from entities with greater financial and managerial resources.
Additional information on these and other risk factors are included under "Risk
Factors" and elsewhere in this Form 10-Q.
GENERAL
View Tech, Inc. ("View Tech") commenced operations in July 1992 as a
California corporation. Since its initial public offering of common stock in
June 1995, View Tech has grown through internal expansion and through
acquisitions. In November 1996, View Tech merged with USTeleCenters, Inc., a
Massachusetts corporation ("UST" and together with View Tech, the "Company") and
the Company reincorporated in Delaware. In November 1997, the Company through
its wholly-owned subsidiary, acquired the net assets of Vermont
Telecommunications Network Services, Inc., a Vermont corporation headquartered
in Burlington, Vermont, ("NSI") which sells, manages and supports
telecommunication network solutions as an agent for Bell Atlantic. The Company
currently has 28 offices nationwide.
The Company is a leading, single source provider of voice, video and data
equipment, network services and bundled telecommunications solutions for
business customers nationwide. The Company has equipment distribution
partnerships with PictureTel Corporation, VTEL Corporation, PolyCom, Inc.,
Intel, Madge Networks, Ascend Communications, VideoServer, Inc., and Northern
Telecom and markets network services through agency agreements with Bell
Atlantic, BellSouth, GTE, Southwestern Bell, Sprint and UUNET Technologies.
In the second quarter of 1998, the Company implemented a restructuring plan
(the "Plan") designed to reduce costs and improve profitability. The
implementation of the Plan resulted in a one time charge of $4.2 million.
Included in this charge against second quarter results are costs related to an
impairment write-down of goodwill relating to previous acquisitions and the
closing of unprofitable operations.
7
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, information derived
from the Company's consolidated financial statements expressed as a percentage
of the Company's revenues:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ---------------
1998 1997 1998 1997
--------- -------- ------- -----
<S> <C> <C> <C> <C>
Revenues:
Product sales and service
revenues.............................. 74.9% 69.9% 68.1% 66.6%
Agency commissions..................... 25.1 30.1 31.9 33.4
----- ----- ----- -----
100.0 100.0 100.0 100.0
===== ===== ===== =====
Costs and Expenses:
Costs of goods sold.................... 51.3 50.5 47.6 47.9
Sales and marketing expenses........... 32.0 33.4 36.3 36.2
General and administrative
expenses.............................. 12.5 12.5 13.6 14.9
Restructuring and other
costs................................. 0.0 0.0 9.7 0.0
----- ----- ----- -----
95.8 96.4 107.2 99.0
----- ----- ----- -----
Income (Loss) from Operations........... 4.2 3.6 (7.2) 1.0
Interest Expense........................ (0.8) (0.8) (0.9) (0.7)
----- ----- ----- -----
Income (Loss) Before
Provision for Income Taxes............. 3.4 2.8 (8.1) 0.3
Provision for Income Taxes.............. 0.0 0.0 0.0 0.0
----- ----- ----- -----
Net (Loss) Income....................... 3.4% 2.8% (8.1)% 0.3%
===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1997
REVENUES
Total revenues for the three months ended September 30, 1998 increased by
$1.780 million or 14% to $14.817 million compared to $13.037 million in 1997.
Product Sales and Service Revenues
Product sales and service revenues increased by $1.985 million or 22% to
$11.093 million in 1998 compared to $9.108 million in 1997. This increase in
revenues was primarily related to expansion of the Company's videoconferencing
business.
Agency Commissions
Agency commissions for 1998 decreased by $204,711 or (5%) to $3.724 million
compared to $3.929 million in 1997. The decrease in agency commissions was
primarily due to the closure of one of the Company's offices and changes in
compensation rates and product offers from one of the Company's significant
service providers.
COSTS AND EXPENSES
Costs of goods sold for 1998 increased by $1.019 million or 15% to $7.6
million compared to $6.581 million in 1997. Costs of goods sold as a percentage
of revenues increased to 51% in 1998 from 50% in 1997. The dollar increase in
costs of goods sold is primarily related to the increase in product sales. The
percentage increase is primarily related to the higher product revenue mix.
Sales and marketing expenses for 1998 increased by $391,943 or 9% to $4.742
million from $4.350 million in 1997. Sales and marketing expenses as a
percentage of revenues decreased to 32% in 1998 from 33% in 1997. The dollar
increase was primarily due to the compensation and related expenses associated
with the revenues generated by NSI. The
8
<PAGE>
percentage decrease was attributable to the Company's product sales and service
revenues growing at a faster rate than the associated sales and marketing
expenses.
General and administrative expenses for 1998 increased by $219,792 or 13% to
$1.855 million from $1.635 million in 1997. General and administrative expenses
as a percentage of total revenues remained constant at 13%. The dollar increase
resulted from a general increase in such expenses as a result of the growth of
the Company's videoconferencing business.
Income from operations increased $149,549 or 32% to income of $620,964 in 1998
from income of $471,415 in 1997. The increase in income from operations for
1998 was primarily related to the overall increase in sales and improved
profitability relating to the Company's restructuring which included cost-
savings from closing of unprofitable operations.
Interest expense increased $19,059 to $123,465 in 1998 from $104,406 in 1997
due to additional borrowings related to the Company's credit facilities and
capital lease obligations.
There was no provision for income tax expense in 1998, compared to a tax
provision of $3,135 for 1997. The decrease relates to the operating loss
created by the restructuring charges recorded in the second quarter of 1998.
Net income increased $133,625 or 37% to income of $497,499 in 1998 from net
income of $363,874 for 1997. Net income as a percentage of revenues increased
to 3.4% for 1998 compared to 2.8% for 1997. Net income per share increased to
$0.07, or 17%, for 1998 compared to net income of $0.06 per share for 1997. Net
income per share, assuming dilution, increased to $0.07, or 40%, for 1998
compared to net income of $0.05 per share for 1997. The weighted average number
of shares outstanding increased to 6,833,329 for 1998 from 6,387,188 in 1997.
The weighted average number of shares outstanding assuming dilution increased to
6,968,904 in 1998 from 6,847,723 in 1997.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1997
REVENUES
Total revenues for the nine months ended September 30, 1998 increased by
$8.031 million or 23% to $43.328 million from $35.297 million in 1997.
Product Sales and Service Revenues
Product sales and service revenues increased by $6.025 million or 26% to
$29.524 million in 1998 from $23.499 million in 1997. This increase in revenues
was primarily related to the Company's nationwide growth of its
videoconferencing business.
Agency Commissions
Agency commissions for 1998 increased by $2.006 million, or 17%, to $13.804
million from $11.798 million in 1997. The increase in agency commissions was
due primarily to the Company benefiting from agency commissions generated by its
wholly-owned subsidiary, NSI, acquired in the fourth quarter of 1997.
COSTS AND EXPENSES
Costs of goods sold for 1998 increased by $3.720 million or 22% to $20.621
million from $16.901 million in 1997. Costs of goods sold as a percentage of
revenues decreased to 47.6% in 1998 from 47.9% in 1997. The dollar increase in
costs of goods sold is primarily related to the increase in product sales and
service revenues and to an increase in technical service costs related to the
Company's videoconferencing business. The percentage decrease is primarily
related to an increase in service revenues related to the Company's
videoconferencing business. Service revenues generally provide a higher profit
margin than equipment revenues.
Sales and marketing expenses for 1998 increased by $2.928 million or 23% to
$15.713 million from $12.785 million in 1997. Sales and marketing expenses as a
percentage of revenues increased to 36.3% in 1998 from 36.2% in 1997. The
9
<PAGE>
dollar increase was primarily due to higher sales volume which resulted in
higher compensation and related expenses for the Company's sales force. The
percentage increase was attributable to the mix of product and service revenues
versus agency commissions.
General and administrative expenses for 1998 increased by $652,992 or 12% to
$5.898 million from $5.245 million in 1997. General and administrative expenses
as a percentage of total revenues decreased to 13.6% in 1998 from 14.8% in 1997.
The dollar increase resulted from a general increase in such expenses as a
result of the growth of the Company's videoconferencing business. The
percentage decrease is due to synergies achieved as part of the integration and
restructuring efforts.
In the second quarter of 1998, the Company implemented a restructuring plan
(the "Plan") designed to reduce costs and improve profitability. The
implementation of the Plan resulted in a one-time charge of $4.201 million.
Included in this charge against second quarter results are costs related to an
impairment write-down of goodwill relating to previous acquisitions and the
closing of unprofitable operations.
Income (loss) from operations decreased to a loss of $(3.105) million
compared to income of $365,839 in 1997. This loss in income related to the
Company's restructuring efforts in the second quarter. Income (loss) from
operations as a percentage of revenues decreased to (7.2)% for 1998, compared to
1.04% for 1997.
Interest expense increased $158,106 to $417,676 in 1998 from $259,570 in 1997.
The increase was primarily due to additional borrowings related to the Company's
credit facilities and capital lease obligations.
Provision for income tax expense decreased $612 to a provision of $3,900 in
1998 compared to a provision of $4,512 for 1997. The decrease was primarily
attributable to state tax provisions.
Net income (loss) decreased $3.629 million to a loss of $(3.527) million in
1998 from income of $101,757 for 1997. Net income as a percentage of revenues
decreased to (8.14)% for 1998 compared to 0.3% for 1997. Net income (loss) per
share decreased to $(0.52) for 1998 compared to $0.02 for 1997. Net income
(loss) per share, assuming dilution, decreased to $(0.52) for 1998 compared to
$0.02 for 1997. The weighted average number of shares outstanding for both
basic and diluted earnings per share increased to 6,746,100 and 6,746,100 for
1998 from 6,323,135 and 6,701,324 in 1997, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Over the past two years, View Tech has financed its operations and expansion
activities with the proceeds from its initial public offering completed in June
1995, private placements of equity securities, bank debt and vendor credit
arrangements.
Net cash provided by operating activities for the nine months ended September
30, 1998 was $.995 million, primarily generated by non-cash charges related to
restructuring of $1.491 million and increases in accounts payable, accrued
restructuring charges, and deferred revenue of $1.793 million, $1.474 million
and $.967 million, respectively, offset by an increase in inventory of $1.598
million and an increase in accounts receivable of $.458 million.
Net cash used by investing activities for the nine months ended September 30,
1998 was $805,108, primarily relating to the purchase of office furniture and
computer equipment.
Net cash used by financing activities for the nine months ended September 30,
1998 was $591,933, related to net repayments under the Company's line of credit
of $670,528, repayments under capital lease obligations of $328,985, offset by
the issuance of common stock of $407,580.
The Company entered into a $15 million Credit Agreement (the"Agreement") with
Imperial Bank and BankBoston, N.A., effective November 21, 1997. The Agreement
provides for a maximum credit line of up to $15 million for a term of five (5)
years. Amounts outstanding under the Agreement are collateralized by certain
assets of the Company. Funds available under the Agreement will vary from time
to time depending on many variables including, without limitation, the amount of
Eligible Trade Accounts Receivable and Eligible Inventory of the Company, as
such terms are defined in the Agreement. The interest charged on outstanding
amounts vary between the Prime Rate, plus the Prime Rate Margin, or between the
10
<PAGE>
Eurodollar Rate, plus the Eurodollar Rate Margin, depending upon the Company's
Leverage Ratio, as defined in the Agreement. At September 30, 1998, the
interest rate on this Facility was 9.0%. The Agreement requires the Company to
comply with various financial and operating loan covenants. As of September 30,
1998 the Company was in compliance with these covenants. Under certain
conditions, the Agreement allows the Company to prepay principal amounts
outstanding without penalty.
The Agreement provides for three separate loan commitments consisting of (i) a
Facility A Commitment up to $7 million; (ii) a Facility B Commitment up to $5
million and (iii) a Facility C Commitment up to $3 million. Amounts drawn under
the Facility A Commitment are due and payable no later than November 21, 2002.
Amounts drawn under the Facility B Commitment are subject to mandatory
repayments in sixteen (16) equal quarterly installments commencing on March 31,
1999. Amounts outstanding under the Facility C Commitment are subject to
mandatory repayments in twelve (12) equal quarterly installments commencing on
March 31, 2000. All amounts outstanding under each such Facility are due and
payable no later than November 21, 2002. At September 30, 1998, the total
outstanding principal balance due under these facilities was $4,235,329
RISK FACTORS
VIEW TECH MAY BE DELISTED FROM THE NASDAQ NATIONAL MARKET
Nasdaq has notified the Company that it does not meet the applicable listing
requirements because it does not have $4,000,000 in net tangible assets and,
therefore, is subject to delisting from the Nasdaq National Market. The Company
believes that delisting of its common stock from the Nasdaq National Market
could have a material adverse effect on the liquidity of the common stock and
consequently on market capitalization of the Company. The Company is committed
to the continued listing of its stock on the Nasdaq National Market, and
therefore it is raising up to an additional $1,200,000 of capital through a
private placement of its common stock to a limited group of accredited
investors. The Company believes that it will be successful in raising such
capital and that Nasdaq will continue to list its common stock for trading,
however, this decision is not within the control of the Company and no assurance
can be given that Nasdaq will not delist the Common Stock from the Nasdaq
National Market.
DEPENDENCE UPON KEY PERSONNEL
The Company depends to a considerable degree on the continued services of
certain of its executive officers, including William J. Shea, its chief
executive officer, Franklin A. Reece III, its president and Ali Inanilan, its
chief financial and administrative officer, as well as on a number of key
personnel. Any further changes in current management, including but not limited
to the loss of Messrs. Shea, Reece or Inanilan could have a material adverse
affect on the Company. The loss of key management or technical personnel or the
failure to attract and retain such personnel could have a material adverse
effect on the Company's business, financial condition and results of operations.
LIMITED HISTORY OF PROFITABLE OPERATIONS; SIGNIFICANT FLUCTUATIONS IN OPERATING
RESULTS AND NON-RECURRING ITEMS; FUTURE RESULTS OF OPERATIONS
View Tech and UST have operated since 1992 and 1987, respectively. Since
November 29, 1996, the Company has operated on a combined basis. The Company
reported net income (loss) of $497,499 and $(3,527,010), including restructuring
costs, for the three months and nine months ended September 30, 1998,
respectively. Although the Company achieved operating profitability, in the
future, the Company may continue to experience significant fluctuations in
operating results as a result of a number of factors, including, without
limitations, delays in product enhancements and new product introductions by its
suppliers, market acceptance of new products and services and reduction in
demand for existing products and services as a result of introductions of new
products and services by its competitors or by competitors of its suppliers. In
addition, the Company's operating results may vary significantly depending on
the mix of products and services comprising its revenues in any period. There
can be no assurance that the Company will achieve revenue growth or will be
profitable on a quarterly or annual basis in the future.
DEPENDENCE ON SUPPLIERS, INCLUDING PICTURETEL, BELL ATLANTIC AND GTE
For the nine months ended September 30, 1998, approximately 31% of the
Company's consolidated revenues were attributable to the sale of equipment
manufactured by PictureTel Corporation and an additional 31% of consolidated
revenues to the sale of network products and services provided by Bell Atlantic
and GTE. Termination of or change of the Company's business relationships with
PictureTel, Bell Atlantic or GTE, disruption in supply, failure of PictureTel,
Bell Atlantic or GTE to
11
<PAGE>
remain competitive in product quality, function or price or a determination by
PictureTel, Bell Atlantic or GTE to reduce reliance on independent providers
such as the Company, among other things, would have a material adverse effect on
the Company's business, financial condition and results of operations. The
Company is a party to agreements with PictureTel on the one hand, Bell Atlantic
and GTE on the other, that authorize the Company to serve as a non-exclusive
dealer and sales agent, respectively, in certain geographic territories. The
PictureTel, Bell Atlantic and GTE agreements can be terminated without cause
upon written notice by the suppliers, subject to certain notification
requirements. There can be no assurance that these agreements will not be
terminated, or that they will be renewed on terms acceptable to the Company.
These suppliers have no affiliation with the Company and are competitors of the
Company. In October 1998, Bell Atlantic announced a decrease in the commission
rates paid to the Company effective January 1, 1999.
COMPETITION
The video communications industry is highly competitive. The Company competes
with manufacturers of video communications equipment, which include PictureTel,
VTEL Corporation, Computer Telephone and Lucent Technologies, and their networks
of dealers and distributors, telecommunications carriers and other large
corporations, as well as other independent distributors. Other
telecommunications carriers and other corporations that have entered the video
communications market include, AT&T, MCI, some of the Regional Bell Operating
Companies ("RBOCs"), Minnesota Mining & Manufacturing Corporation, Intel
Corporation, Microsoft, Inc., Sony Corporation and British Telecom. Many of
these organizations have substantially greater financial and other resources
than the Company, furnish many of the same products and services provided by the
Company and have established relationships with major corporate customers that
have policies of purchasing directly from them. Management believes that as the
demand for video communications systems continues to increase, additional
competitors, many of which may have greater resources than the Company, may
enter the video communications market.
A specific manufacturer's network of dealers and distributors typically
involves discreet territories that are defined geographically, in terms of
vertical market, or by application (e.g., project management or government
procurement). The current agreement with PictureTel authorizes the Company to
distribute PictureTel products in the following states: Alabama, Arizona,
Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia,
Louisiana, Maine, Massachusetts, Mississippi, Montana, New Hampshire, New
Jersey, New Mexico, New York, Oklahoma, Tennessee, Texas, Utah, Vermont and
Wyoming. Because the agreement is non-exclusive, however, the Company is subject
to competition within these territories by other PictureTel dealers, whose
customers elsewhere may have branch facilities in these territories, and by
PictureTel itself, which directly markets its products to certain large national
corporate accounts. The agreement expires on August 1, 2000 and can be
terminated without cause upon 60 days' written notice by PictureTel. There can
be no assurance that the agreement will not be terminated, or that it will be
renewed by PictureTel, which has no other affiliation with the Company and is a
competitor of the Company. While there are suppliers of video communications
equipment other than PictureTel, termination of the Company's relationship with
PictureTel could have a material adverse effect on the Company.
The Company believes that customer purchase decisions are influenced by
several factors, including cost of equipment and services, video communication
system features, connectivity and compatibility, a system's capacity for
expansion and upgrade, ease of use and services provided by a vendor. Management
believes its comprehensive knowledge of the operations of the industries it has
targeted, the quality of the equipment the Company sells, the quality and depth
of its services, its nationwide presence and ability to provide its customers
with all of the equipment and services necessary to ensure the successful
implementation and utilization of its video communications systems enable the
Company to compete successfully in the industry.
The telecommunications industry is also highly competitive. The Company
competes with many other companies in the telecommunications business which have
substantially greater financial and other resources than the Company, selling
both the same and similar services. The Company's competitors in the sale of
network services include RBOCs such as Bell South, Bell Atlantic, Southwestern
Bell and GTE, long distance carriers such as AT&T Corporation, MCI
Communications Corporation, SPRINT Corporation, other long distance and
communications companies such as Qwest Communications International Inc. and IXC
Communications Inc., by-pass companies and other agents. There can be no
assurance that the Company will be able to compete successfully against such
companies.
12
<PAGE>
YEAR 2000 DISCLOSURE
As the year 2000 approaches, it is generally anticipated that certain
computers, software and other equipment utilizing microprocessors may be unable
to recognize or properly process dates after the year 1999 without software
modifications. The Company is reviewing all internal systems, outside services,
and the products it sells for their Year 2000 compliance. The Company has
determined that some internal systems are not Year 2000 compliant. The Company
expects these systems to be compliant no later than March 31, 1999. The costs to
upgrade these systems and become fully Year 2000 compliant is not expected to
exceed $50,000. The Company has evaluated its products and believes that most of
the products it is currently shipping are Year 2000 compliant. The Company plans
to upgrade any products that are not Year 2000 compliant through its suppliers,
and anticipates completion of this process during 1999. Based on its review of
all systems and products to date, the Company does not expect the costs related
to the Year 2000 problem will have a material effect on its financial condition.
The ability of its suppliers and customers to correct potential Year 2000
problems, however, are beyond the Company's control. The Company's operations
and financial results could be adversely affected to the extent that the costs
to become fully compliant differ materially from its present estimates. The
Company is conducting interviews with suppliers to determine the extent of their
Year 2000 readiness. The Company is developing a contingency plan in the event
third party systems are not Year 2000 compliant.
RAPIDLY CHANGING TECHNOLOGY AND OBSOLESCENCE
The market for communications products and services is characterized by
rapidly changing technology, evolving industry standards and the frequent
introduction of new products and services. The Company's future performance will
depend in significant part upon its ability to respond effectively to these
developments. New products and services are generally characterized by improved
quality and function and are frequently offered at lower prices than the
products and services they are intended to replace. The introduction of products
embodying new technologies and the emergence of new industry standards can
render the Company's existing products and services obsolete, unmarketable or
noncompetitive. The Company's ability to implement its growth strategies and
remain competitive will depend upon its ability to successfully (i) maintain and
develop relationships with manufacturers of new and enhanced products that
include new technology, (ii) achieve levels of quality, functionality and price
acceptability to the market, (iii) maintain a high level of expertise relating
to new products and the latest in communications systems technology, (iv)
continue to market quality telecommunications services on behalf of its RBOC and
other exchange service carriers, and (v) continue to design, sell, manage and
support competitive telecommunications solutions for its customers. There can be
no assurance, however, that the Company will be able to implement its growth
strategies or remain competitive.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FROM 8-K
(a) Exhibits
2.1 Amendment No. 2 dated as of May 1, 1998, to the Credit
Agreement, dated as of November 21, 1997, among
USTeleCenters, Inc., a Delaware corporation, (the
borrower), View Tech, Inc., a Delaware corporation (the
parent company), and Imperial Bank and BankBoston, N.A.
(the banks).
2.2 Amendment No. 3 dated as of August 14, 1998, to the
Credit Agreement, dated as of November 21, 1997, among
USTeleCenters, Inc., a Delaware corporation, (the
borrower), View Tech, Inc., a Delaware corporation (the
parent company), and Imperial Bank and BankBoston, N.A.
(the banks).
2.3 Amendment No. 4 dated as of October 27, 1998, to the
Credit Agreement, dated as of November 21, 1997, among
USTeleCenters, Inc., a Delaware corporation, (the
borrower), View Tech, Inc., a Delaware corporation (the
parent company), and Imperial Bank and BankBoston, N.A.
(the banks).
10.1 Amendment No. 1, Exhibit A, dated as of October 14,
1998, to the Common Stock Purchase Warrant, dated as of
November 21, 1997, for the purchase of common stock of
View Tech, Inc., a Delaware corporation, by Imperial
bank.
10.2 Amendment No. 1, Exhibit B, dated as of October 14, 1998,
to the Common Stock Purchase Warrant, dated as of
November 21, 1997, for the purchase of common stock of
View Tech, Inc., a Delaware corporation, by BankBoston,
N.A.
10.3 Separation Agreement, effective August 31, 1998, by and
between View Tech, Inc., a Delaware corporation, and
David A. Kaplan, the former Chief Financial Officer.
10.4 General Release between, David A. Kaplan, former Chief
Financial Officer and View Tech, Inc., a Delaware
corporation.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
14
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
VIEW TECH, INC.
Date: November 09, 1998 By: \s\ Ali Inanilan
------------------------
Ali Inanilan
Chief Financial and Administrative
Officer
(Principal Financial and
Accounting Officer)
15
<PAGE>
EXHIBIT 2.1
AMENDMENT NO. 2 TO CREDIT AGREEMENT
-----------------------------------
AMENDMENT NO. 2, dated as of May 1, 1998, to the Credit Agreement,
dated as of November 21, 1997 (as amended from time to time, the "Credit
------
Agreement"), among (a) USTELECENTERS, INC., a Delaware corporation (the
- ---------
"Borrower"), (b) VIEW TECH, INC., a Delaware corporation (the "Parent Company"),
- --------- --------------
(c) IMPERIAL BANK and BANKBOSTON, N.A. (the "Banks"), and (d) IMPERIAL BANK, in
-----
its capacity as Agent for the Banks and as Issuer with respect to Letters of
Credit.
RECITALS
--------
The Borrower, the Parent Company, the Banks and the Agent have agreed
to amend certain of the provisions contained in the Credit Agreement, all as set
forth in this Amendment No. 2 ("this Agreement").
--------------
Accordingly, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
SECTION 1.1. DEFINITIONS IN CREDIT AGREEMENT. Unless otherwise defined
-------------------------------
herein, terms defined in the Credit Agreement are used herein as therein
defined.
SECTION 1.2. AMENDED AND RESTATED DEFINED TERM. Section 1.1 of the Credit
--------------------------------- -----------
Agreement is amended by amending and restating the following defined term to
read in its entirety as follows:
"Adjusted Borrowing Base" means, as at any date, (a) the Borrowing
-----------------------
Base determined as at such date, less (b) $1,500,000.
SECTION 1.3. NEW DEFINED TERMS. Section 1.1 of the Credit Agreement is
----------------- -----------
amended by adding thereto each of the following new defined terms:
"Agency Account Agreement" means, with respect to any depository or
------------------------
other similar account maintained by a particular Obligor with an Agency
Account Institution, the Agency Account Agreement, in or substantially in
the form of Exhibit C to Amendment No. 2 (or in a form otherwise approved
---------
by the Agent), entered into by such Obligor with the
<PAGE>
-2-
Agent and such Agency Account Institution with respect to such depository
or other similar account.
"Agency Account Institution" means any financial institution (other
--------------------------
than Imperial Bank) which receives deposits directly or indirectly (whether
as the result of an interim concentration of funds in depository accounts
or otherwise) from or for the account of a particular Obligor.
"Agency Account" means any depository or other similar account
--------------
maintained by a particular Obligor with an Agency Account Institution, the
funds from which are periodically transferred, upon the terms contained in
the Agency Account Agreement applicable thereto, to the Concentration
Account of such Obligor with the Agent.
"Approved Account" is defined in Section 9.2.14
---------------- --------------
"Amendment No. 2" means Amendment No. 2, dated as of May 1, 1998,
---------------
among the Borrower, the Parent Company, the Banks and the Agent, and upon
the terms of which each of the parties to this Agreement has agreed to
amend this Agreement.
"Amendment No. 2 Effective Date" means May 1, 1998.
------------------------------
"Concentration Account" means, with respect to a particular Obligor,
---------------------
the depository account of such Obligor with the Agent under the control of
the Agent for the benefit of the Banks and the Agent.
"Controlled Disbursement Account" means, with respect to a particular
-------------------------------
Obligor, the controlled disbursement account maintained by such Obligor
with the Agent.
"Imperial Bank" means Imperial Bank, a bank organized under the laws
-------------
of the State of California.
"Net Settlement Amount" means, in relation to any particular
---------------------
Settlement pursuant to Section 3.11, the net amount (if any) shown by such
------------
Settlement to be owed by one Settling Party ("net payor") to another
---------
Settling Party ("net payee"), such net amount (if any) to be equal to the
---------
EXCESS OF (a) the Settlement Amount shown by such Settlement to be owed by
---------
the net payor to the net payee, OVER (b) the Settlement Amount shown by
----
such Settlement to be owed by the net payee to the net payor.
"Obligors" means, collectively, the Borrower and the Parent Company;
--------
and "Obligor" means either of the Obligors.
-------
<PAGE>
-3-
"Operating Account" means, with respect to a particular Obligor, any
-----------------
demand deposit account maintained by such Obligor with Imperial Bank or
BankBoston.
"Primary Operating Account" means, with respect to a particular
-------------------------
Obligor, the Operating Account of such Obligor with Imperial Bank
identified on Exhibit A to Amendment No. 2 as the "Primary Operating
---------
Account" of such Obligor.
"Settlement" means, in relation to the Agent and the Banks on or as of
----------
any Settlement Date, (a) the determination on and as of such Settlement
Date, in accordance with the provisions set forth in Section 3.11.1(a), of
-----------------
(i) the Settlement Amount (if any) required to be paid by the Agent to each
Bank for or on account of principal of Facility A Loans received and held
by the Agent for and on behalf of the Banks pursuant to Section 3.10.1
--------------
during the Settlement Reference Period ended on the day before such
Settlement Date, (ii) the Settlement Amount (if any) required to be paid by
each Bank to the Agent (for the Agent's own account) for or on account of
principal of Facility A Loans advanced by the Agent for and on behalf of
the Banks pursuant to Section 3.1.3 during such Settlement Reference
-------------
Period, and (iii) the Settlement Amount (if any) required to be paid by one
Bank to another Bank in order to cause each Bank's actual share of the
aggregate outstanding principal amount of all Facility A Loans (determined
on and as of such Settlement Date) to be equal to each Bank's Percentage
(determined as of such Settlement Date) of such aggregate outstanding
principal amount of all Facility A Loans, in any case where, prior to the
payment of such Settlement Amount, the actual share is not so equal, (b)
the determination on and as of such Settlement Date, in accordance with the
provisions set forth in Section 3.11.1(b), of the Net Settlement Amount (if
-----------------
any) required to be paid by any Settling Party to another Settling Party,
and (c) the payment of Net Settlement Amounts by Settling Parties to other
Settling Parties on and as of such Settlement Date pursuant to and in
compliance with Section 3.11.1(c).
-----------------
"Settlement Amount" is defined in Section 3.11.1(a).
----------------- -----------------
"Settlement Date" means each of (a) the Drawdown Date relating to any
---------------
Loan Request for a Facility A Loan, (b) Friday of each week, or if Friday
is not a Business Day, the Business Day immediately following such Friday,
and (c) the Business Day immediately following the day on which the Agent
shall receive from any of the Principal Companies or Banks a written notice
of the existence of any Event of Default.
"Settlement Reference Period" means the period beginning on a
---------------------------
Settlement Date and ending on the day before the next Settlement Date.
<PAGE>
-4-
"Settling Parties" means, for all purposes of Section 3.11 and any
---------------- ------------
Settlement hereunder, collectively, the Agent and the Banks; and "Settling
--------
Party" means any one of the Settling Parties.
-----
ARTICLE II
AMENDMENTS
-----------
Effective on and as of May 1, 1998 ("Effective Date"), and subject always
--------------
in any event to the provisions of Article III, the Credit Agreement is hereby
-----------
amended in each of the following respects:
SECTION 2.1. DAILY BORROWINGS OF FACILITY A LOANS. Section 3.1 of the
------------------------------------ -----------
Credit Agreement is hereby amended by adding the following new Section 3.1.3
-------------
immediately after Section 3.1.2 of the Credit Agreement:
-------------
SECTION 3.1.3. DAILY BORROWINGS OF FACILITY A LOANS.
------------------------------------
(a) Notwithstanding the notice and minimum amount requirements
set forth in Section 3.1.1(a), and notwithstanding the requirement set
----------------
forth in Section 7.2.3 to calculate and confirm the Borrowing Base as
-------------
of the Drawdown Date of each Facility A Loan, the Agent shall from
time to time, for and on behalf of each Bank pro rata in accordance
--------
with its Percentage thereof, make Facility A Loans to the Borrower by
entry of credits to the Controlled Disbursement Account of each
Obligor to cover checks or other items or charges which such Obligor
has drawn or made against such Controlled Disbursement Account or to
cause payment of principal, interest, fees or other charges due and
payable by such Obligor under the Loan Documents. Each of the
Borrower, the Parent Company and the Banks hereby irrevocably requests
and authorizes the Agent to make such Facility A Loans to the Borrower
from time to time pursuant to this Section 3.1.3(a) by means of
----------------
appropriate entries of such credits sufficient to cover any such
checks, items and other charges then presented.
(b) Each of the Obligors acknowledges and agrees that, except as
otherwise expressly provided below in this Section 3.1.3(b), the
----------------
making of such Facility A Loans pursuant to Section 3.1.3(a) shall, in
----------------
each case, be subject in all respects to the provisions of, including,
without limitation, the applicable conditions precedent contained in,
this Agreement as if each of such Facility A Loans were Facility A
Loans covered by a Loan Request, including, without limitation, the
limitations set forth in Section 2.1(a) and the requirement that the
--------------
applicable provisions of Section
-------
<PAGE>
-5-
7.2 be satisfied. The parties hereto agree that the making of such
---
Facility A Loans pursuant to Section 3.1.3(a) shall not be subject to
----------------
the requirements contained in Section 3.1.1 and shall not be subject
-------------
to the satisfaction of the conditions precedent set forth in Section
-------
7.2.2. or Section 7.2.3.
------ --------------
(c) Each of the Obligors agrees with the Banks and the Agent that
the making of each Facility A Loan pursuant to Section 3.1.3(a) shall
----------------
constitute the representation and warranty of such Obligor that each
of the applicable conditions contained in Sections 7.2.1, 7.2.4 and
-------------- -----
7.2.5 have been satisfied before giving effect to such Facility A Loan
-----
and will, after giving effect to such Facility A Loan, also be
satisfied. All actions taken by the Agent from time to time pursuant
to the provisions of Section 3.1.3(a) shall be conclusive and binding
----------------
on the Borrower, the Parent Company and the Banks, in each case absent
the Agent's gross negligence or willful misconduct. Each Bank shall,
in connection with Settlement on each Settlement Date, be obligated to
provide to the Agent, in the manner contemplated and provided by
Section 3.11.1, such Bank's Percentage of each Facility A Loan
--------------
advanced by the Agent during the Settlement Reference Period ended on
the day before such Settlement Date.
(d) The Borrower absolutely and unconditionally understands and
agrees that each Facility A Loan so made pursuant to Section 3.1.3(a)
----------------
by entry of credits to the Controlled Disbursement Account of the
Parent Company shall, for all purposes of this Agreement and the other
Loan Documents, be treated as and deemed to be a Facility A Loan made
directly to the Borrower.
(e) Without limitation of the Obligations of the Obligors under
Section 9.1.1(c)(iii), which Obligations remain unaltered, the
---------------------
Obligors hereby further agree to furnish to the Agent from time to
time upon the Agent's request therefor a Borrowing Base Report
confirming the Borrowing Base calculations as of such date or dates as
may be specified by the Agent.
SECTION 2.2. DEPOSITORY ARRANGEMENTS; SETTLEMENT; ETC. Article III of the
---------------------------------------- -----------
Credit Agreement is hereby amended by adding the following new Section 3.10 and
------------
Section 3.11 immediately after Section 3.9 of the Credit Agreement:
- ------------ -----------
SECTION 3.10. DEPOSITORY ARRANGEMENTS.
-----------------------
<PAGE>
-6-
SECTION 3.10.1. THE DEPOSITORY ARRANGEMENTS, ETC.
--------------------------------
(a) Each Obligor will, from and after the Amendment No. 2
Effective Date,
(i) maintain a separate Controlled Disbursement Account
with the Agent,
(ii) maintain a separate Primary Operating Account with
Imperial Bank,
(iii) maintain a separate Concentration Account with and
under the control of the Agent,
(iv) direct each Agency Account Institution, pursuant to
the Agency Account Agreements to which it is a party (whereby
such Agency Account Institution shall, among other things, waive
all rights of set-off, other than for service charges and returns
incurred in connection therewith), to cause all funds held by
such Agency Account Institution in its Agency Accounts to be
transferred daily (or with such other frequency as the Agent
shall request) to, and only to, the Agent for deposit in such
Obligor's Concentration Account, and
(v) upon the Agent's request after the occurrence of any
Default or Event of Default, direct all of its account debtors
and obligors on instruments and other obligors of such Obligor to
make all payments due or to become due to such Obligor directly
to such Obligor's Concentration Account.
If, at any time from and after the Amendment No. 2 Effective Date, an
Obligor receives any cash proceeds or cash payments in respect of any
of the Collateral, whether in the form of money, checks or otherwise,
such Obligor will hold such cash proceeds or payments in trust for the
benefit of the Agent and the Banks and turn such cash proceeds or
payments promptly over to the Agent in the identical form received by
deposit to such Obligor's Concentration Account.
(b) The Agent shall, for each Obligor and such Obligor's
Concentration Account,
(i) with respect to all funds and cash proceeds in the
form of money, checks and like items received in such
Concentration Account, on the same Business Day on which the
Agent determines that good collected funds have been
<PAGE>
-7-
received, and prior to the final collection of good collected
funds, on a provisional basis until such final collection,
(ii) with respect to all funds and cash proceeds in the
form of a wire transfer received in such Concentration Account,
on the same Business Day as the Agent's receipt of such amounts
(or on such later date as the Agent determines that good
collected funds have been received), and
(iii) with respect to all funds and cash proceeds in the
form of an automated clearing house transfer received in such
Concentration Account, on the next Business Day following the
Agent's receipt of such amounts (or on such later date as the
Agent determines that good collected funds have been received),
in each case, (A) receive for and on behalf of the Banks for immediate
application to the aggregate principal amount of the Facility A Loans
then outstanding all such funds and cash proceeds which were deposited
to such Concentration Account, and hold all of such funds and cash
proceeds so received and applied for and on behalf of the Banks until
the next Settlement, and (B) so long as no Default or Event of Default
shall be then continuing, cause any excess to be credited to the
Primary Operating Account of such Obligor with Imperial Bank (subject
always to the limitations of Section 9.2.14). During the continuance
--------------
of any Default or Event of Default, the Agent may, from time to time
in the Agent's discretion, retain any or all of such excess to pay any
Obligations then due and payable and to provide cash collateral for
any Obligations not then due and payable, with the Agent causing any
surplus, subject to the rights of any other persons entitled thereto,
to be credited to the Primary Operating Account of such Obligor with
Imperial Bank (subject always to the limitations of Section 9.2.14).
--------------
For the purposes of the foregoing provisions of this paragraph (b),
-------------
the Agent shall not be deemed to have received any such cash proceeds
on any day unless received by the Agent before 1:00 p.m., San Jose
time, on such day. Each of the Obligors further acknowledges and
agrees that any such provisional credit by the Agent shall be subject
to reversal if final collection in good collected funds of the related
item is not received by the Agent in accordance with the Agent's
customary procedures and practices for collecting provisional items.
(c) The Agent shall, in connection with Settlement on each
Settlement Date, be obligated to provide to each Bank, in the manner
contemplated and provided by Section 3.11.1, such Bank's Percentage of
--------------
the principal of the Facility A Loans repaid pursuant
<PAGE>
-8-
to Section 3.10.1 during the Settlement Reference Period ended on the
--------------
day before such Settlement Date. The parties hereto agree that
repayment and prepayment of principal of the Facility A Loans from
time to time pursuant to the provisions of this Section 3.10.1 shall
--------------
not be subject to the notice and minimum amount requirements set forth
in Section 3.3.2(a).
----------------
SECTION 3.10.2. FEES AND EXPENSES; ETC. Each Obligor agrees to
----------------------
pay to the Agent, upon demand, any and all reasonable fees, costs and
expenses which the Agent shall charge or otherwise incur from time to
time in connection with (a) the Agent's provision of the cash
management services contemplated by this Agreement, (b) opening and
maintaining the Concentration Accounts, Controlled Disbursement
Accounts and Primary Operating Accounts, or (c) the depositing for
collection by the Agent of any check or other item of payment. Absent
gross negligence or willful misconduct by the Agent, each Obligor,
jointly and severally, agrees to indemnify the Agent and each of the
Banks and to hold the Agent and each of the Banks harmless from and
against any loss, cost or expense sustained or incurred by the Agent
or by any of the Banks on account of any claims of third parties
arising in connection with the Agent's operation of the Concentration
Accounts, Controlled Disbursement Accounts or Primary Operating
Accounts.
SECTION 3.11. SETTLEMENT, ETC.
----------------
SECTION 3.11.1. SETTLEMENT AND FUNDING PROCEDURES.
---------------------------------
(a) On each Settlement Date, the Agent shall, prior to 11:00
a.m., San Jose time, determine each of the following amounts (each, a
"Settlement Amount"):
-----------------
(i) the sum for each Bank of (A) the amount (if any)
required to be paid by the Agent to such Bank for or on account
of principal of Facility A Loans received and held by the Agent
for and on behalf of the Banks pursuant to Section 3.10.1 during
--------------
the Settlement Reference Period ended on the day before such
Settlement Date, plus (B) interest payable by the Agent to such
----
Bank calculated on the basis of such Bank's Percentage of
principal of Facility A Loans repaid with funds so received by
the Agent, such interest to accrue on such principal at an annual
rate equal to the daily average Federal Funds Rate plus 1/2% from
the date of repayment of such principal to and including the day
before such Settlement Date;
<PAGE>
-9-
(ii) the sum for each Bank of (A) the amount (if any)
required to be paid by such Bank to the Agent (for the Agent's
own account) for or on account of principal of Facility A Loans
advanced by the Agent for and on behalf of the Banks pursuant to
Section 3.1.3 during the Settlement Period ended on the day
-------------
before such Settlement Date, plus (B) interest payable by such
----
Bank to the Agent calculated on the basis of such Bank's
Percentage of each Facility A Loan so advanced, such interest to
accrue on such Bank's Percentage of such Facility A Loan at an
annual rate equal to the daily average Federal Funds Rate plus
1/2% from the date of advance to and including the day before
such Settlement Date; and
(iii) the amount (if any) required to be paid by one Bank
to another Bank in order to cause each Bank's actual share of the
aggregate outstanding principal amount of all Facility A Loans
(determined on and as of such Settlement Date) to be equal to
each Bank's Percentage (determined as of such Settlement Date) of
such aggregate outstanding principal amount of all Facility A
Loans, in any case where, prior to the payment of such Settlement
Amount, the actual share is not so equal.
(b) On each Settlement Date, the Agent shall, not later than
11:00 a.m., San Jose time, also determine the Net Settlement Amount
(if any) required to be paid by each Settling Party to another
Settling Party, undertake to complete a Settlement with respect to
each Settling Party for the immediately preceding Settlement Reference
Period and give telephonic or facsimile notice (i) to each of the
Banks and the Obligors of the principal amount of each of the Facility
A Loans made by the Agent for and on behalf of the Banks during the
immediately preceding Settlement Reference Period, (ii) to each of the
Banks and the Obligors of the principal amount of each of the Facility
A Loans received and held by the Agent for and on behalf of the Banks
during such Settlement Reference Period, (iii) to each of the Banks of
the Settlement Amount (if any) owed by each Settling Party to each
other Settling Party as determined by the Agent for such Settlement,
and (iv) to each of the Banks of the Net Settlement Amount (if any)
required to be paid by each Settling Party to each other Settling
Party in order to effect and complete a Settlement on and as of such
Settlement Date.
(c) A statement of the Agent submitted to each of the Banks with
respect to each (if any) Net Settlement Amount owing by any Settling
Party to another Settling Party under this Section
-------
<PAGE>
-10-
3.11.1 in connection with each Settlement shall be prima facie
------ -----------
evidence thereof. Each Settling Party shall, not later than 1:00
p.m., San Jose time, on each Settlement Date, pay, by wire transfer of
immediately available funds, the Net Settlement Amount required to be
paid by such Settling Party to another Settling Party in connection
with the completion of Settlement on such Settlement Date.
SECTION 3.11.2. ADVANCES BY AGENT, ETC. The Agent shall, unless
----------------------
notified in writing to the contrary by any Bank prior to the making of
any particular Facility A Loan pursuant to Section 3.1.3(a), be
----------------
entitled conclusively to presume that the Agent is authorized by such
Bank to advance such Bank's Percentage of such Facility A Loan. In
reliance upon such presumption, the Agent shall be held harmless by
such Bank for making available such Bank's Percentage of each such
Facility A Loan to the Borrower pursuant to and as contemplated by
Section 3.1.3(a). To the extent of any inconsistency between the
----------------
provisions contained in the last three sentences of Section 3.7.1 and
-------------
the provisions of Section 3.11.1, the provisions of Section 3.11.1
-------------- --------------
shall be controlling.
SECTION 2.3. LIMITATIONS ON FUNDING OPTIONS FOR FACILITY A LOANS. Section
--------------------------------------------------- -------
4.4.2 of the Credit Agreement is hereby amended by adding the following new
- -----
sentence to such Section 4.4.2 immediately after the first sentence thereof:
-------------
"Anything herein to the contrary notwithstanding, no portion of the
outstanding principal amount of any Facility A Loan may, at any time
on or after the Amendment No. 2 Effective Date, be continued as, or
converted into, any Eurodollar Loans."
SECTION 2.4. COVENANTS REGARDING BANK ACCOUNTS. Section 9.2 of the Credit
--------------------------------- -----------
Agreement is hereby amended by adding the following new Section 9.2.14
--------------
immediately after Section 9.2.13 of the Credit Agreement:
--------------
SECTION 9.2.14. BANK ACCOUNTS, ETC. Each Obligor covenants and
------------------
agrees with the Agent and the Banks that, from and after the Amendment
No. 2 Effective Date and until all of the Commitments have terminated
and all of the Obligations have been paid in full, such Obligor will
not for any reason or under any circumstances: (a) establish or
maintain any bank accounts other than the Controlled Disbursement
Account of such Obligor, the Primary Operating Account of such Obligor
and the other bank accounts of such Obligor identified on Exhibit A to
---------
Amendment No. 2 (each bank account of each Obligor identified on
Exhibit A (as amended from time to time) being herein referred to as
---------
an
<PAGE>
-11-
"Approved Account"), (b) breach in any respect any of its obligations
----------------
under any Agency Account Agreement, (c) deposit into, or otherwise
maintain on deposit in, any "Operating Account" of such Obligor
identified on Exhibit A to Amendment No. 2 any amounts in excess of
---------
the amounts necessary to pay current obligations of such Obligor, (d)
at any time deposit into any "Operating Account" of such Obligor
identified on Exhibit A to Amendment No. 2 any amounts other than
---------
proceeds of Facility A Loans or funds transferred from such Obligor's
Controlled Disbursement Account or Concentration Account as permitted
by Section 3.10.1, or (e) at any time deposit into, or otherwise
--------------
maintain or deposit in, any bank account any funds or cash proceeds
unless such bank account is an Approved Account of such Obligor. Each
Obligor will, within thirty days after the Amendment No. 2 Effective
Date, make subject to an Agency Account Agreement each bank account of
such Obligor identified on Exhibit A to Amendment No. 2 as an Agency
---------
Account, which Agency Account Agreement shall have been duly and
properly executed and delivered to the Agent by such Obligor and the
financial institution with which such bank account has been
established. The execution and delivery by each Obligor of each such
Agency Account Agreement shall have been duly authorized by
resolutions, in or substantially in the form set forth in Exhibit B to
---------
Amendment No. 2, duly adopted by the Board of Directors of such
Obligor.
ARTICLE III
CONDITIONS PRECEDENT
--------------------
Each of the amendments to the Credit Agreement set forth in Article II of
----------
this Agreement shall be effective and in full force and effect on and as of and
from and after the Effective Date, provided that each of the following
--------
conditions precedent shall first be satisfied:
SECTION 3.1. AGREEMENT. The Agent shall have received counterparts of
---------
this Agreement duly executed by each of the Borrower and the Parent Company and
also by each of the Banks.
SECTION 3.2. REPRESENTATIONS AND WARRANTIES. Each of the representations
------------------------------
and warranties made by the Borrower and the Parent Company pursuant to this
Agreement shall be true and correct in all material respects on and as of the
Effective Date with the same full force and effect as if made and repeated on
and as of such date.
SECTION 3.3. REIMBURSEMENT OF COSTS AND EXPENSE. The Borrower and the
----------------------------------
Parent Company shall have paid in full all of the reasonable
<PAGE>
-12-
out-of-pocket costs and expenses (including all of the reasonable fees and
disbursements of special counsel to the Agent incurred during the period from
November 22, 1997 through the Effective Date) payable by the Borrower and the
Parent Company pursuant to Section 13.3 of the Credit Agreement and for which
------------
invoices shall have been submitted to the Borrower and the Parent Company on or
prior to the Effective Date.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
------------------------------
Each of the Borrower and the Parent Company represents and warrants to the
Agent and the Banks as follows:
SECTION 4.1. REPRESENTATIONS IN LOAN DOCUMENTS. Each of the
---------------------------------
representations and warranties made by or on behalf of each of the Principal
Companies to the Agent and the Banks in the Loan Documents was true and correct
in all material respects when made and is true and correct in all material
respects on and as of the date hereof, except (a) as affected by the
consummation of the transactions contemplated by the Loan Documents (including
this Agreement), and (b) to the extent that any such representation or warranty
relates by its express terms solely to a prior date.
SECTION 4.2. CORPORATE AUTHORITY, ETC. The execution and delivery by each
-------------------------
of the Principal Companies of this Agreement and the performance by each of the
Principal Companies of their respective agreements and obligations under this
Agreement have been duly and properly authorized by all necessary corporate or
other action on the part of each of the Principal Companies, and do not and will
not conflict with, result in any violation of, or constitute any default under,
(a) any provision of any Governing Document of any Principal Company, (b) any
Contractual Obligation of any Principal Company, or (c) any Applicable Law.
SECTION 4.3. VALIDITY, ETC. This Agreement has been duly executed and
-------------
delivered by each of the Principal Companies and constitutes the legal, valid
and binding obligation of each of the Principal Companies, enforceable against
each of the Principal Companies in accordance with its terms, except as such
enforceability may be limited by bankruptcy, reorganization, insolvency,
moratorium or other similar laws at the time in effect affecting the
enforceability of the rights of creditors generally and to general equitable
principles. Each of the Principal Companies hereby ratifies and confirms in all
respects all of the Obligations as modified hereby.
SECTION 4.4. NO DEFAULTS. After giving effect to this Agreement, no
-----------
Defaults or Events of Default will be continuing under the Credit Agreement.
<PAGE>
-13-
SECTION 4.5. BANK ACCOUNTS. Exhibit A to this Agreement identifies each
------------- ---------
bank account of each Obligor which has been opened or established by such
Obligor with any financial institution (wherever located) at any time on or
prior to the date hereof and which remains open on or as of the date hereof.
ARTICLE V
PROVISIONS OF GENERAL APPLICATION
---------------------------------
SECTION 5.1. NO OTHER CHANGES. Except as otherwise expressly provided by
----------------
this Agreement, all of the terms, conditions and provisions of the Credit
Agreement, and all rights and remedies of the Agent and the Banks thereunder,
shall remain unaltered. In particular, and without limitation of the
understanding and agreement of the parties hereto contained in the immediately
preceding sentence, each of the Obligors expressly understands and agrees that
the mandatory prepayment provisions contained in Section 3.3.5 and the
-------------
requirement to furnish Borrowing Base Reports contained in Section 9.1.1(c)(iii)
---------------------
remain in full force and effect without waiver or alteration.
SECTION 5.2. OTHER PROVISIONS. This Agreement is a Loan Document for all
----------------
purposes of the Credit Agreement and each of the other Loan Documents. This
Agreement and the rights and obligations hereunder of each of the parties hereto
shall in all respects be construed in accordance with and governed by the laws
of the State of California. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, but all
of such counterparts shall together constitute but one and the same agreement.
In making proof of this Agreement, it shall not be necessary to produce or
account for more than one counterpart hereof signed by each of the parties
hereto.
[REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
<PAGE>
-14-
IN WITNESS WHEREOF, the parties hereto have caused this AMENDMENT NO.
2 TO THE CREDIT AGREEMENT to be executed and delivered by their respective
authorized officers as of the date first above written.
THE BORROWER:
------------
USTELECENTERS, INC.
By: /s/ Angelo P. Gentile
-----------------------------------------
Name: Angelo P. Gentile
Title: Vice President of Finance
THE PARENT COMPANY:
------------------
VIEW TECH, INC.
By: /s/ Angelo P. Gentile
-----------------------------------------
Name: Angelo P. Gentile
Title: Vice President of Finance
THE BANKS:
---------
IMPERIAL BANK, INDIVIDUALLY AS A BANK AND AS
AGENT
By: /s/ Paula J. Barysauskas
-----------------------------------------
Name: Paula J. Barysauskas
Title: Vice President
BANKBOSTON, N.A.
By: /s/ Frank Gianino
-----------------------------------------
Name: Frank Gianino
Title: Vice President
<PAGE>
EXHIBIT 2.2
[EXECUTION COPY]
--------------
AMENDMENT NO. 3 TO CREDIT AGREEMENT
-----------------------------------
AMENDMENT NO. 3, dated as of August 14, 1998, to the Credit Agreement,
dated as of November 21, 1997 (as amended from time to time, the "Credit
------
Agreement"), among (a) USTELECENTERS, INC., a Delaware corporation (the
- ---------
"Borrower"), (b) VIEW TECH, INC., a Delaware corporation (the "Parent Company"),
-------- --------------
(c) IMPERIAL BANK and BANKBOSTON, N.A. (the "Banks"), and (d) IMPERIAL BANK, in
-----
its capacity as Agent for the Banks and as Issuer with respect to Letters of
Credit.
RECITALS
--------
The Borrower, the Parent Company, the Banks and the Agent have agreed
to amend certain of the provisions contained in the Credit Agreement and in
certain of the other Loan Documents, all as set forth in or required by this
Amendment No. 3 ("this Agreement").
--------------
Accordingly, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
SECTION 1.1. DEFINITIONS IN CREDIT AGREEMENT. Unless otherwise defined
-------------------------------
herein, terms defined in the Credit Agreement (as amended hereby) are used
herein as therein defined. The term "AMENDMENT DOCUMENTS," as used in this
-------------------
Agreement, shall mean this Agreement and the 1998 Warrant Amendments.
ARTICLE II
AMENDMENTS
----------
Effective on and as of August 14, 1998 ("Effective Date"), and subject
--------------
always in any event to the provisions of Article III hereof, the Credit
-----------
Agreement is hereby amended in each of the following respects:
SECTION 2.1. AMENDMENT OF DEFINED TERMS. Section 1.1 of the Credit
-------------------------- -----------
Agreement is amended by amending and restating the following defined term to
read in its entirety as follows:
<PAGE>
-2-
"Permitted Acquisition" means any Acquisition by any Principal Company
---------------------
from time to time after the Amendment No. 3 Effective Date; provided, however,
-------- -------
that:
(a) the Borrower and the Parent Company shall have received, before
the implementation or completion of such Acquisition, the express prior
written consent and approval of each of the Agent and the Banks for such
Acquisition, such consent and approval not to be unreasonably withheld or
delayed by the Agent or the Banks;
(b) after giving effect to such Acquisition, all of the Property
acquired pursuant thereto shall be owned exclusively by such Principal
Company or one of its direct Subsidiaries that, immediately upon completion
of such Acquisition, shall have become party hereto as a Principal Company
and shall have complied with the covenants contained in Section 9.1.9
-------------
hereof;
(c) the Parent Company shall have demonstrated to the reasonable
satisfaction of the Agent and the Banks, based on historical financial
statements, projections and pro forma financial statements, in each case
--- -----
certified by an Authorized Officer of the Parent Company, that all
covenants, including all covenants contained in Article IX hereof,
----------
contained herein (A) would have been satisfied on a pro forma basis as at
--- -----
the end of or for the most recent Reference Period, and (B) will be
satisfied on a pro forma basis through the Final Maturity Date, based on
--- -----
operating and financial projections which are consistent with historical
results which conservatively can be expected for the future;
(d) the Acquisition is of a Person or business engaged in one of the
businesses of the Principal Companies as of the date hereof, or of a
business reasonably incidental or related thereto; and
(e) at any time any offer or commitment is made to engage in any such
Acquisition, at any time any agreement to engage in any such Acquisition is
entered into, and after giving effect to any such Acquisition, no Default
or Event of Default shall occur or be continuing.
Section 1.1 of the Credit Agreement is hereby further amended in each of the
-----------
following respects:
(a) The defined term "Consolidated EBITDA" is hereby amended by adding the
-------------------
following new paragraph to such defined term:
<PAGE>
-3-
For purposes of determining the "Consolidated EBITDA" of the
Parent Company and its Subsidiaries for any period which includes the
fiscal quarter of the Parent Company ended June 30, 1998, the
"Consolidated Net Operating Profit" of the Parent Company and its
Subsidiaries for such fiscal quarter shall be adjusted by adding back
to such Consolidated Net Operating Profit (but only to the extent
taken as a charge or otherwise deducted in arriving at the "Net
Operating Profit" of the Parent Company and its Subsidiaries for such
fiscal quarter) the restructuring charge of $4,201,013 taken by the
Parent Company for its fiscal quarter ended June 30, 1998.
(b) The defined term "Consolidated Net Worth" is hereby amended by
----------------------
adding the following new paragraph to such defined term:
For purposes of determining the "Consolidated Net Worth" of the
Parent Company and its Subsidiaries as at any date, the consolidated
shareholders' equity of the Parent Company and its Subsidiaries as at
such date shall be determined after giving effect to the consequences
of, and after making appropriate deduction for, the restructuring
charge of $4,201,013 taken by the Parent Company for its fiscal
quarter ended June 30, 1998.
(c) The defined term "Debt Service Coverage Ratio" is hereby amended
---------------------------
by adding the word "income" between the words "cash" and "taxes" appearing in
the fourth line of such defined term.
SECTION 2.2. NEW DEFINED TERMS. Section 1.1 of the Credit Agreement is
----------------- -----------
hereby further amended by adding thereto each of the following new defined
terms:
"Amendment No. 3" means Amendment No. 3 to Credit Agreement,
---------------
dated as of August 14, 1998, among the Borrower, the Parent Company,
the Banks and the Agent, and upon the terms of which each of the
parties hereto has agreed to amend this Agreement.
"Amendment No. 3 Effective Date" means August 14, 1998, the
------------------------------
so-called "Effective Date" of Amendment No. 3 to Credit Agreement.
"1998 Warrant Amendments" means, collectively, (a) Amendment
-----------------------
No. 1 ("1998 Imperial Bank Warrant Amendment") to the Common Stock
------------------------------------
Purchase Warrant, dated November 21, 1997, issued by the Parent
Company to Imperial Bank, and (b) Amendment No. 1 ("1998 BankBoston
---------------
Warrant Amendment") to the
-----------------
<PAGE>
-4-
Common Stock Purchase Warrant, dated November 21, 1997, issued by the
Parent Company to BankBoston.
SECTION 2.3. COLLATERAL AUDITS. Section 9.1.7 of the Credit Agreement is
----------------- -------------
hereby amended by deleting the word "twice" appearing in the last sentence of
Section 9.1.7 and by inserting "three (3) times" in place thereof.
- -------------
SECTION 2.4. LEVERAGE RATIO. Section 9.2.4(a) of the Credit Agreement is
-------------- ----------------
hereby amended and restated to read in its entirety as follows:
(a) Maximum Leverage Ratio. Permit the Leverage Ratio as of the
----------------------
last day of any Reference Period identified below to be greater than
the Leverage Ratio specified below:
<TABLE>
<CAPTION>
-----------------------------------------------------
REFERENCE MAXIMUM
PERIOD ENDING LEVERAGE RATIO
------------- --------------
-----------------------------------------------------
<S> <C>
June 30, 1998 9.00:1
-----------------------------------------------------
September 30, 1998 7.50:1
-----------------------------------------------------
December 31, 1998 6.00:1
-----------------------------------------------------
March 31, 1999 3.75:1
-----------------------------------------------------
Thereafter 3.00:1
-----------------------------------------------------
</TABLE>
SECTION 2.5. MINIMUM CONSOLIDATED NET WORTH. Section 9.2.4(b) of the
------------------------------ ----------------
Credit Agreement is hereby amended and restated to read in its entirety as
follows:
(b) Minimum Consolidated Net Worth.
------------------------------
(i) Permit the Consolidated Net Worth on or as of any date
identified in the table below to be less than the
Consolidated Net Worth specified below opposite such date:
<PAGE>
-5-
<TABLE>
<CAPTION>
--------------------------------------------------------------
MINIMUN CONSOLIDATED
DATE NET WORTH
---- ---------
--------------------------------------------------------------
<S> <C>
June 30, 1998 $4,000,000
--------------------------------------------------------------
September 30, 1998 $4,500,000
--------------------------------------------------------------
December 31, 1998 $5,250,000
--------------------------------------------------------------
</TABLE>
(ii) Permit the Consolidated Net Worth on or as of the last
day of any Reference Period ending after March 30, 1999 to
be less than the sum of (i) $5,250,000, plus (ii) one-half
----
of cumulative Consolidated Net Profit for the Parent Company
and its Subsidiaries for the most recently completed fiscal
quarter ending after December 31, 1998 for which the Banks
shall have received financial statements required by Section
-------
9.1.1(b), and for each, if any, prior fiscal quarter of the
--------
Parent Company ending after December 31, 1998 for which
Consolidated Net Profit shall be positive, plus (iii) the
----
aggregate amount of Net Equity Proceeds received by the
Parent Company after August 14, 1998.
SECTION 2.6. DEBT SERVICE COVERAGE RATIO. Section 9.2.4(c) of the Credit
--------------------------- ----------------
Agreement is hereby amended and restated to read in its entirety as follows:
(c) Minimum Debt Service Coverage Ratio. Permit the Debt
-----------------------------------
Service Coverage Ratio for the Reference Period ending June 30, 1998
to be less than .40:1.00, for the Reference Period ending September
30, 1998 to be less than .90:1.00, for the Reference Period ending
December 31, 1998 to be less than 1.50:1.00, and for any Reference
Period ending thereafter to be less than 1.50:1.00.
<PAGE>
-6-
ARTICLE III
CONDITIONS PRECEDENT
--------------------
Each of the amendments to the Credit Agreement set forth in Article II of
----------
this Agreement shall be effective and in full force and effect on and as of and
from and after the Effective Date, provided that each of the following
--------
conditions precedent shall first be satisfied:
SECTION 3.1. AMENDMENT DOCUMENT. The Agent shall have received
------------------
counterparts of this Agreement duly executed by each of the Borrower and the
Parent Company and also by each of the Banks.
SECTION 3.2. REPRESENTATIONS AND WARRANTIES. Each of the representations
------------------------------
and warranties made by the Borrower and the Parent Company pursuant to this
Agreement shall be true and correct in all material respects on and as of the
Effective Date with the same full force and effect as if made and repeated on
and as of such date.
SECTION 3.3. FEES, COSTS AND EXPENSES. The Borrower and the Parent
------------------------
Company shall have paid in full (a) to the Agent, for the account of the Banks,
an amendment fee in the total amount of $20,000, and (b) to special counsel for
the Agent, all of the reasonable out-of-pocket costs and expenses of special
counsel to the Agent incurred during the period from July 22, 1998 through the
Effective Date and that are payable by the Borrower and the Parent Company
pursuant to Section 13.3 of the Credit Agreement and for which an invoice shall
------------
have been submitted to the Borrower and the Parent Company on or prior to the
Effective Date.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS
-----------------------------------------
Each of the Borrower and the Parent Company represents and warrants to and
covenants with the Agent and the Banks as follows:
SECTION 4.1. REPRESENTATIONS IN LOAN DOCUMENTS. Each of the
---------------------------------
representations and warranties made by or on behalf of each of the Principal
Companies to the Agent and the Banks in the Loan Documents was true and correct
in all material respects when made and is true and correct in all material
respects on and as of the date hereof, EXCEPT (a) as affected by the
------
consummation of the transactions contemplated by the Loan Documents (including
this Agreement), and (b) to the extent that any such representation or warranty
relates by its express terms solely to a prior date.
<PAGE>
-7-
SECTION 4.2. CORPORATE AUTHORITY, ETC. The execution and delivery by each
-------------------------
Principal Company of this Agreement, and the performance by each Principal
Company of its agreements and obligations under this Agreement, have been duly
and properly authorized by all necessary corporate or other action on the part
of each of the Principal Companies, and do not and will not conflict with,
result in any violation of, or constitute any default under, (a) any provision
of any Governing Document of any Principal Company, (b) any Contractual
Obligation of any Principal Company, or (c) any Applicable Law.
SECTION 4.3. VALIDITY, ETC. This Agreement has been duly executed and
-------------
delivered by each Principal Company and constitutes the legal, valid and binding
obligation of each Principal Company, enforceable against it in accordance with
its terms, except as such enforceability may be limited by bankruptcy,
reorganization, insolvency, moratorium or other similar laws at the time in
effect affecting the enforceability of the rights of creditors generally and to
general equitable principles. Each of the Principal Companies hereby ratifies
and confirms in all respects all of the Obligations as modified hereby.
SECTION 4.4. NO DEFAULTS. After giving effect to this Agreement, no
-----------
Defaults or Events of Default are continuing under the Credit Agreement or any
of the other Loan Documents.
SECTION 4.5. COLLATERAL EXAMINATION AND AUDIT. Each of the Borrower and
--------------------------------
the Parent Company will permit representatives of the Agent and the Banks to
conduct and complete, during the period of sixty (60) days commencing on the
Effective Date, at the sole cost and expense of the Borrower and the Parent
Company, a Collateral examination and audit on all premises where Collateral or
other Property owned by the Borrower, the Parent Company or any of their
Subsidiaries is located.
SECTION 4.6. PROVISION OF COLLATERAL BY SUBSIDIARY, ETC. On and as of the
------------------------------------------
Effective Date, Vermont Network Telecommunications Services, Inc. ("VTNSI") is a
-----
Subsidiary of the Borrower and the Parent Company. The Borrower and the Parent
Company will, and will cause VTNSI to, comply in all material respects with the
provisions of Section 9.1.9(a) of the Credit Agreement applicable to VTNSI, its
----------------
Capital Stock and its Property, all of the Obligations of the Borrower and the
Parent Company under Section 9.1.9(a) applicable to VTNSI, its Capital Stock and
----------------
its Property to be performed and completed in a manner reasonably satisfactory
to the Agent and the Banks no later than October 15, 1998. The Agent and the
Banks hereby (a) agree that the provisions of this Section 4.6 shall control and
-----------
govern the time frame during which the Borrower and the Parent Company shall be
obligated to comply with Section 9.1.9(a) with respect to VTNSI, its Capital
----------------
Stock and its Property, and (b) waive any Defaults or Events of Default that may
have resulted or may result from the failure of the Borrower and the Parent
Company to comply with Section 9.1.9(a) of the Credit Agreement in relation to
----------------
VTNSI, its Capital Stock and its Property prior to October 15, 1998. Upon
compliance by the Borrower
<PAGE>
-8-
and the Parent Company with the foregoing provisions of this Section 4.6 and
-----------
completion of the Collateral examination and audit required by Section 4.5
-----------
hereof, and subject always to the reasonable satisfaction of the Agent and the
Banks with the information arising out of and the results of such Collateral
examination and audit pertaining to Accounts Receivable (and, if appropriate,
Inventory) of VTNSI, the Agent and the Banks will make a reasonable effort to
establish a basis on which Accounts Receivable (and, if appropriate, Inventory)
of VTNSI may be included in the determination of the Borrowing Base and the
Adjusted Borrowing Base. The Borrower and the Parent Company hereby acknowledge
and agree that the inclusion of Accounts Receivable and Inventory of VTNSI in
the determination of the Borrowing Base and the Adjusted Borrowing Base shall in
any event be subject to the approval of the Agent and the Banks.
SECTION 4.7. 1998 WARRANT AMENDMENTS. Not later than October 15, 1998:
-----------------------
(a) Imperial Bank shall receive from the Parent Company the 1998 Imperial
Bank Warrant Amendment, which shall have been duly executed and delivered by the
Parent Company, and be in or substantially in the form attached hereto as
Exhibit A.
- ---------
(b) BankBoston shall receive from the Parent Company the 1998 BankBoston
Warrant Amendment, which shall have been duly executed and delivered by the
Parent Company, and be in or substantially in the form attached hereto as
Exhibit B.
- ---------
ARTICLE V
PROVISIONS OF GENERAL APPLICATION
---------------------------------
SECTION 5.1. NO OTHER CHANGES. Except as otherwise expressly provided or
----------------
to be provided by the Amendment Documents, all of the terms, conditions and
provisions of the Credit Agreement and each of the other Loan Documents, and all
rights and remedies of the Agent and the Banks thereunder, shall remain
unaltered.
SECTION 5.2. OTHER PROVISIONS. This Agreement and the other Amendment
----------------
Documents are, or (as the case may be) shall when executed be, Loan Documents
for all purposes of the Credit Agreement and each of the other Loan Documents.
This Agreement and the rights and obligations hereunder of each of the parties
hereto shall in all respects be construed in accordance with and governed by the
laws of the State of California. This Agreement may be executed in any number
of counterparts and by different parties hereto in
<PAGE>
-9-
separate counterparts, but all of such counterparts shall together constitute
but one and the same agreement. In making proof of this Agreement, it shall not
be necessary to produce or account for more than one counterpart hereof signed
by each of the parties hereto.
[REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
<PAGE>
-10-
IN WITNESS WHEREOF, the parties hereto have caused this AMENDMENT NO.
3 TO CREDIT AGREEMENT to be executed and delivered by their respective
authorized officers as of the date first above written.
THE BORROWER:
------------
USTELECENTERS, INC.
By: /s/ David A. Kaplan
--------------------------------
Name: David A. Kaplan
Title: CFO & Treasurer
THE PARENT COMPANY:
------------------
VIEW TECH, INC.
By: /s/ David A. Kaplan
--------------------------------
Name: David A. Kaplan
Title: CFO & Treasurer
THE BANKS:
---------
IMPERIAL BANK, INDIVIDUALLY AS A BANK AND AS AGENT
By: /s/ Paula J. Barysauskas
--------------------------------
Name: Paula J. Barysauskas
Title: Vice President
BANKBOSTON, N.A.
By: /s/ Frank Gianino
--------------------------------
Name: Frank Gianino
Title: Vice President
<PAGE>
EXHIBIT 2.3
AMENDMENT NO. 4 TO CREDIT AGREEMENT
-----------------------------------
AMENDMENT NO. 4, dated as of October 27, 1998, to the Credit
Agreement, dated as of November 21, 1997 (as amended from time to time, the
"Credit Agreement"), among (a) USTELECENTERS, INC., a Delaware corporation (the
----------------
"Borrower"), (b) VIEW TECH, INC., a Delaware corporation (the "Parent Company"),
-------- --------------
(c) IMPERIAL BANK and BANKBOSTON, N.A. (the "Banks"), and (d) IMPERIAL BANK, in
-----
its capacity as Agent for the Banks and as Issuer with respect to Letters of
Credit.
RECITALS
--------
As required by Section 9.1.9 of the Credit Agreement, Vermont Network
-------------
Services Corporation, a Delaware corporation and a wholly-owned Subsidiary of
the Parent Company, has agreed to become a party to the Credit Agreement as a
"Principal Company" and as a "Guarantor" thereunder; and, in connection
therewith, the Principal Companies, the Banks and the Agent have agreed to amend
certain of the provisions contained in the Credit Agreement, all as set forth in
this Amendment No. 4 ("this Agreement").
--------------
Accordingly, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
SECTION 1.1. DEFINITIONS IN CREDIT AGREEMENT. Unless otherwise defined
-------------------------------
herein, terms defined in the Credit Agreement (as amended hereby) are used
herein as therein defined. The term "AMENDMENT DOCUMENTS," as used in this
-------------------
Agreement, shall mean this Agreement and the VNSC Security Agreement.
ARTICLE II
AMENDMENTS
----------
Effective on and as of October 27, 1998 ("Effective Date"), and subject
--------------
always in any event to the provisions of Article IV hereof, the Credit Agreement
----------
is hereby amended in each of the following respects:
<PAGE>
-2-
SECTION 2.1. NEW DEFINED TERMS. Section 1.1 of the Credit Agreement is
----------------- -----------
hereby amended by adding thereto each of the following new defined terms:
"Amendment No. 4" means Amendment No. 4 to Credit Agreement,
---------------
dated as of October 27, 1998, among VNSC, the Borrower, the Parent
Company, the Banks and the Agent, upon the terms of which VNSC has
agreed to become a party hereto as a Principal Company and as a
Guarantor hereunder, and upon the terms of which each of the parties
hereto has agreed to amend this Agreement.
"Amendment No. 4 Effective Date" means October 27, 1998, the so-
------------------------------
called "Effective Date" of Amendment No. 4 to Credit Agreement.
"VNSC" means Vermont Network Services Corporation, a Delaware
----
corporation and a wholly-owned Subsidiary of the Parent Company.
"VNSC Security Agreement" means the Security Agreement, dated as
-----------------------
of October 27, 1998, between VNSC and the Agent, executed and
delivered by VNSC in favor of the Agent, for the benefit of the
Secured Parties.
SECTION 2.2. WAIVERS BY GUARANTORS, ETC. Article VI of the Credit
-------------------------- ----------
Agreement is hereby amended by adding the following new Section 6.6 immediately
-----------
after Section 6.5 thereof:
-----------
SECTION 6.6. WAIVERS BY GUARANTORS, ETC. The Obligations of
--------------------------
each of the Guarantors under this Agreement and the other Loan
Documents shall not be to any extent or in any way or manner
whatsoever satisfied, discharged, diminished, impaired or otherwise
affected by any of the following, and each of the Guarantors hereby
absolutely and irrevocably waives any defenses that it may otherwise
have as a result of the occurrence of any of the following, whether or
not any of the Guarantors shall have had any notice or knowledge of
any thereof:
(a) the existence or creation at any time or times on or
after the date of this Agreement of any claim, defense, right of set-
off or counterclaim of any nature whatsoever of any Guarantor against
any of the Secured Parties;
(b) any incapacity or lack of authority of any Guarantor;
<PAGE>
-3-
(c) any of the Obligations or any of the Loan Documents or
any provision of any thereof or any of the Liens securing any
Obligations shall at any time or for any reason whatsoever cease to be
in full force or effect with respect to any one or more of the
Guarantors or shall be declared null and void or illegal, invalid,
unenforceable or inadmissible in evidence in relation to any one or
more of the Guarantors, or any of the Obligations of any one or more
of the Guarantors or any Liens securing any Obligations of any one or
more of the Guarantors shall be subject to avoidance, or shall be
avoided, as a fraudulent transfer or fraudulent conveyance, whether
prior to or after the commencement of any Bankruptcy or Insolvency
Proceedings; or
(d) the existence of any other condition or circumstance or
the occurrence of any other event or condition that might otherwise
constitute a legal or equitable discharge of or a suretyship defense
to performance by any Guarantor of any of its Obligations to any of
the Secured Parties.
Each Guarantor hereby absolutely, unconditionally and irrevocably
waives all suretyship and other similar defenses to performance by
such Guarantor of any of its Obligations, and each Guarantor further
assents to and waives notice of any and all matters hereinbefore
specified in clauses (a) through (d) of this Section 6.6.
----------- - -----------
SECTION 2.3. YEAR 2000 COMPLIANCE. Section 9.1 of the Credit Agreement is
-------------------- -----------
hereby amended by adding the following new Section 9.1.10 immediately after
--------------
Section 9.1.9 thereof:
- -------------
SECTION 9.1.10. YEAR 2000 COMPLIANCE. Perform all acts
--------------------
necessary to ensure that each of the Principal Companies becomes Year
2000 Compliant in a timely manner. Such acts will include, as and to
the extent determined by the Principal Companies on a reasonable basis
to be reasonably necessary and appropriate considering the nature of
the business and operations conducted by the Principal Companies and
their Subsidiaries, performing a comprehensive review and assessment
of all systems of the Principal Companies and their Subsidiaries and,
if and as reasonably necessary or appropriate, adopting a plan, with
itemized budget, if appropriate, for the remediation, monitoring and
testing of such systems. As used in this Section 9.1.10, the term
--------------
"YEAR 2000 COMPLIANT" means, with respect to any Person, that all
--------------------
software, hardware, firmware, equipment, goods or systems utilized by
or material to the business, operations or financial condition of such
Person will properly perform date sensitive functions before, during
and after the year 2000. The Principal Companies will,
<PAGE>
-4-
promptly upon request by the Agent or any of the Banks, provide to the
Agent and the Banks such evidence of compliance by the Principal
Companies and each of their Subsidiaries with the terms of this
Section 9.1.10 as the Agent or any of the Banks may from time to time
--------------
reasonably require.
ARTICLE III
ACCESSION AGREEMENT
-------------------
SECTION 3.1. OBLIGATIONS OF VNSC UNDER THE CREDIT AGREEMENT. VNSC hereby
----------------------------------------------
agrees to become a party to the Credit Agreement on and as of the Effective Date
as a Principal Company and as a Guarantor thereunder and to be bound at all
times from and after the Effective Date, as a Principal Company and as a
Guarantor, by all of the terms and provisions of the Credit Agreement applicable
to Principal Companies and Guarantors thereunder. VNSC further agrees that,
from and after the Effective Date, each reference in the Credit Agreement to a
"Principal Company" or to a "Guarantor" shall also mean and be a reference to
- ------------------ ---------
VNSC, and each reference in any of the other Loan Documents to a "Principal
---------
Company" or to a "Guarantor" shall also mean and be a reference to VNSC.
- ------- ---------
SECTION 3.2. OBLIGATIONS OF VNSC UNDER THE INTERCOMPANY SUBORDINATION
--------------------------------------------------------
AGREEMENT. VNSC hereby agrees to become a party to the Intercompany
- ---------
Subordination Agreement on and as of the Effective Date as an Affiliated Company
thereunder and to be bound at all times from and after the Effective Date, as an
Affiliated Company, by all of the terms and provisions of the Intercompany
Subordination Agreement applicable to Affiliated Companies thereunder. VNSC
further agrees that, from and after the Effective Date, each reference in the
Intercompany Subordination Agreement to an "Affiliated Company" shall also mean
------------------
and be a reference to VNSC.
SECTION 3.3. RATIFICATION OF OBLIGATIONS BY PRINCIPAL COMPANIES, ETC.
-------------------------------------------------------
(a) All of the Obligations of the Borrower to the Secured Parties under
the Credit Agreement, the Notes and the other Loan Documents are, by the
execution and delivery by the Borrower of this Agreement, ratified and confirmed
by the Borrower in all respects.
(b) All of the Obligations of each Guarantor to the Secured Parties under
the Guaranties and the Credit Agreement and under the other Loan Documents to
which it is a party are, by the execution and delivery by such Guarantor of this
Agreement, ratified and confirmed by such Guarantor in all respects.
<PAGE>
-5-
SECTION 3.4. WAIVER. Each of the Banks and the Agent hereby waives all
------
such Defaults and Events of Default that may have occurred or resulted as a
consequence of the failure by the Principal Companies to perform by October 15,
1998 all of their Obligations (a) with respect to VNSC under Section 9.1.9 of
-------------
the Credit Agreement and Section 4.6 of Amendment No. 3, and (b) with respect to
-----------
the 1998 Warrant Amendments under Section 4.7 of Amendment No 3. It is the
-----------
understanding of the parties hereto that the Obligations of the Principal
Companies (i) under Section 9.1.9 of the Credit Agreement and Section 4.6 of
------------- -----------
Amendment No. 3 with respect to VNSC, and (ii) under Section 4.7 of Amendment
-----------
No. 3 with respect to the 1998 Warrant Amendments, shall be satisfied when the
conditions precedent set forth in Article IV hereof are satisfied by the
----------
Principal Companies.
ARTICLE IV
CONDITIONS PRECEDENT
--------------------
This Agreement, including each of the amendments to the Credit Agreement
set forth in Article II of this Agreement and the waivers of the Banks and the
----------
Agent set forth in Section 3.4, shall be effective and in full force and effect
-----------
on and as of and from and after the Effective Date; provided, however, that each
-------- -------
of the following conditions precedent shall first be satisfied:
SECTION 4.1. AMENDMENT DOCUMENTS, ETC. The Agent and the Banks shall have
------------------------
received counterparts of this Agreement duly and properly authorized and
executed by each of VNSC, the Borrower and the Parent Company. The Agent and
the Banks shall have received counterparts of the VNSC Security Agreement duly
and properly authorized and executed by VNSC. Each of the 1998 Warrant
Amendments shall have been duly and properly authorized, executed and delivered
by the Parent Company.
SECTION 4.2. REPRESENTATIONS AND WARRANTIES. Each of the representations
------------------------------
and warranties made by the Principal Companies in this Agreement shall be true
and correct in all material respects on and as of the Effective Date with the
same full force and effect as if made and repeated on and as of such date.
SECTION 4.3. FEES, COSTS AND EXPENSES. The Borrower and the Parent
------------------------
Company shall have paid in full to special counsel for the Agent all of the
reasonable out-of-pocket costs and expenses of special counsel to the Agent
incurred during the period from August 14, 1998 through the Effective Date and
for which an invoice shall have been submitted to the Borrower and the Parent
Company.
<PAGE>
-6-
SECTION 4.4. UCC FILINGS, ETC. All action reasonably required by the
----------------
Agent to create in favor of the Agent and for the benefit of the Secured Parties
perfected first-priority Liens in the Collateral described in the VNSC Security
Agreement shall have been duly and properly taken by or on behalf of VNSC in
order to create such perfected first-priority Liens. The Agent shall have
received from the Parent Company in pledge, upon the terms contained in the
Pledge Agreement, a stock certificate evidencing all of the issued and
outstanding shares of Capital Stock of VNSC, together with an undated stock
power duly executed in blank.
SECTION 4.5. CERTIFICATES, ETC. The Agent shall have received:
-----------------
(a) from VNSC, a certificate, dated as of the Effective Date, of its
Secretary or Assistant Secretary as to:
(i) resolutions of its Board of Directors then in full force and
effect authorizing the execution, delivery and performance by VNSC of this
Agreement and the VNSC Security Agreement; and
(ii) the incumbency and signatures of the officers of VNSC
authorized to act with respect to this Agreement and the VNSC Security
Agreement (upon which certificate the Secured Parties may conclusively rely
until the Agent shall have received a further certificate of VNSC canceling
or amending such prior certificate, which further certificate shall be
reasonably satisfactory to the Agent);
(b) a certificate signed by the Secretary of State of the State of
organization or incorporation of VNSC, dated a date reasonably near (but prior
to) the Effective Date, stating that VNSC is a corporation duly organized,
validly existing and in good standing under the laws of such State; and
(c) such other documents as the Agent or any of the Banks may
reasonably request with respect to any matter relevant to VNSC, this Agreement,
the other Loan Documents or any of the transactions contemplated hereby or
thereby.
Each of such documents shall be in form and substance reasonably satisfactory to
the Agent and the Banks.
SECTION 4.6. NO MATERIALLY ADVERSE EFFECT. Except as shall have been
----------------------------
described by the Principal Companies to the Agent and the Banks in writing prior
to the date hereof, no events or developments shall have occurred since June 30,
1998 which, individually or in the aggregate, have had or could reasonably be
expected to have a Materially Adverse Effect.
SECTION 4.7. SATISFACTORY LEGAL FORM, ETC. All Instruments executed and
----------------------------
delivered or otherwise submitted pursuant hereto by or on behalf
<PAGE>
-7-
of VNSC or any of the other Principal Companies shall be reasonably satisfactory
in form and substance to each of the Banks, the Agent and its special counsel;
each of the Banks, the Agent and its special counsel shall have received all
such information, and such counterpart originals or such certified or other
copies of such materials, as any of the Banks, the Agent or its special counsel
may reasonably request; and all legal matters incident to the transactions
contemplated by this Agreement or the VNSC Security Agreement shall be
reasonably satisfactory to each of the Banks, the Agent and its special counsel.
ARTICLE V
REPRESENTATIONS, WARRANTIES AND COVENANTS
-----------------------------------------
Each of the Principal Companies represents and warrants to and covenants
with the Agent and the Banks as follows:
SECTION 5.1. REPRESENTATIONS IN LOAN DOCUMENTS. Each of the
---------------------------------
representations and warranties made by or on behalf of each of the Principal
Companies to the Agent and the Banks in the Loan Documents was true and correct
in all material respects when made and is true and correct in all material
respects on and as of the date hereof, EXCEPT (a) as affected by the
------
consummation of the transactions contemplated by the Loan Documents (including
this Agreement), and (b) to the extent that any such representation or warranty
relates by its express terms solely to a prior date.
SECTION 5.2. CORPORATE AUTHORITY, ETC. The execution and delivery by each
-------------------------
Principal Company of each Amendment Document to which it is a party, and the
performance by each Principal Company of its agreements and obligations under
each such Amendment Document, have been duly and properly authorized by all
necessary corporate or other action on the part of each of the Principal
Companies, and do not and will not conflict with, result in any violation of, or
constitute any default under, (a) any provision of any Governing Document of any
Principal Company, (b) any Contractual Obligation of any Principal Company, or
(c) any Applicable Law.
SECTION 5.3. VALIDITY, ETC. This Agreement has been duly executed and
-------------
delivered by each Principal Company and constitutes the legal, valid and binding
obligation of each Principal Company, enforceable against it in accordance with
its terms, and the VNSC Security Agreement has been duly executed and delivered
by VNSC and constitutes the legal, valid and binding obligation of VNSC,
enforceable against it in accordance with its terms, except (in each case) as
such enforceability may be limited by bankruptcy, reorganization, insolvency,
moratorium or other similar laws at the time in effect affecting the
enforceability of the rights of creditors generally and to
<PAGE>
-8-
general equitable principles. Each of the Principal Companies hereby ratifies
and confirms in all respects all of the Obligations as modified hereby.
SECTION 5.4. NO DEFAULTS. After giving effect to this Agreement, no
-----------
Defaults or Events of Default are continuing under the Credit Agreement or any
of the other Loan Documents.
SECTION 5.5. YEAR 2000 PROBLEM. Each of the Principal Companies has
-----------------
reviewed the areas within its operations and business which could be adversely
affected by, and has developed or is developing a program to address on a timely
basis, the Year 2000 Problem and has made related inquiry of material suppliers
and vendors. Based on such review and program, the Principal Companies
represent and warrant that the Year 2000 Problem will not have a Materially
Adverse Effect. As used herein, the term "Year 2000 Problem" means the
-----------------
possibility that any computer applications or equipment used by the Principal
Companies or any of their Subsidiaries may be unable to recognize and properly
perform date-sensitive functions
SECTION 5.6. EXISTING LIENS AND EXISTING INDEBTEDNESS FOR BORROWED MONEY.
-----------------------------------------------------------
None of the Property of VNSC is or will be subject to any Liens, except such
Liens as are permitted by Section 9.2.3. VNSC is not and will not become liable
-------------
or responsible for any Indebtedness for Borrowed Money, except such Indebtedness
for Borrowed Money as is permitted by Section 9.2.2.
-------------
SECTION 5.7. LITIGATION, ETC. There is no pending or, to the best
---------------
knowledge of VNSC or of any of the other Principal Companies (after due
inquiry), threatened litigation, arbitration or governmental investigation or
proceeding against VNSC or to which any of the Property of VNSC is subject.
SECTION 5.8. COMPLIANCE WITH APPLICABLE LAWS. VNSC is in substantial
-------------------------------
compliance in all material respects with all applicable laws, except to the
extent that any failure so to be in compliance has not had and could not
reasonably be expected to have a Materially Adverse Effect.
ARTICLE VI
PROVISIONS OF GENERAL APPLICATION
---------------------------------
SECTION 6.1. NO OTHER CHANGES. Except as otherwise expressly provided by
----------------
the Amendment Documents, all of the terms, conditions and provisions of the
Credit Agreement and each of the other Loan Documents, and all rights and
remedies of the Agent and the Banks thereunder, shall remain unaltered.
[REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
<PAGE>
-9-
SECTION 6.2. OTHER PROVISIONS. This Agreement and the VNSC Security
----------------
Agreement are Loan Documents for all purposes of the Credit Agreement and each
of the other Loan Documents. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, but all
of such counterparts shall together constitute but one and the same agreement.
In making proof of this Agreement, it shall not be necessary to produce or
account for more than one counterpart hereof signed by each of the parties
hereto.
[REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
<PAGE>
-10-
IN WITNESS WHEREOF, the parties hereto have caused this AMENDMENT NO.
4 TO CREDIT AGREEMENT to be executed and delivered by their respective
authorized officers as of the date first above written.
THE BORROWER: VNSC:
- ------------ ----
USTELECENTERS, INC. VERMONT NETWORK
SERVICES CORPORATION
By: /s/ Franklin A. Reece, III By: /s/ Franklin A. Reece, III
------------------------------ ------------------------------
Name: Franklin A. Reece, III Name: Franklin A. Reece, III
Title: President Title: President
THE PARENT COMPANY:
- ------------------
VIEW TECH, INC.
By: /s/ Ali Inanilan
------------------------------
Name: Ali Inanilan
Title: Chief Financial and
Administrative Officer
THE BANKS AND THE AGENT:
- -----------------------
IMPERIAL BANK, INDIVIDUALLY AS A BANK AND AS THE AGENT
By: /s/ Paula J. Barysauskas
------------------------------
Name: Paula J. Barysauskas
Title: Vice President
BANKBOSTON, N.A., INDIVIDUALLY AS A BANK
By: /s/ Frank Gianino
------------------------------
Name: Frank Gianino
Title: Vice President
<PAGE>
EXHIBIT 10.1
Exhibit A
---------
AMENDMENT NO. 1
---------------
to
COMMON STOCK PURCHASE WARRANT
for the purchase of
COMMON STOCK
of
VIEW TECH, INC.
(A DELAWARE CORPORATION)
ORIGINAL ISSUE DATE: NOVEMBER 21, 1997
AMENDMENT NO. 1, dated as of October 14, 1998, to the Common Stock
Purchase Warrant, dated as of November 21, 1997 (the "Warrant"), issued by VIEW
-------
TECH, INC., a Delaware corporation (the "Company"), to IMPERIAL BANK or
-------
registered assigns permitted thereunder (the "Holder").
------
The Company and Imperial Bank have agreed to amend the Warrant as
follows, such amendment to be effective on and as of the date hereof:
Section 1 of the Warrant is hereby amended by amending and restating the
---------
defined term "Purchase Price" to read in its entirety as follows:
--------------
"Purchase Price" means $4.50, subject to automatic adjustment
--------------
from time to time in accordance with Section 3.
---------
Except as otherwise expressly provided by this Agreement, all of the terms
of the Warrant shall remain unchanged.
THE VALIDITY, CONSTRUCTION AND PERFORMANCE OF THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
<PAGE>
2
STATE OF DELAWARE APPLICABLE TO CONTRACTS EXECUTED IN AND TO BE PERFORMED
ENTIRELY WITHIN SUCH STATE, WITHOUT REFERENCE TO ANY CHOICE OF LAW PRINCIPLES OF
SUCH STATE.
IN WITNESS WHEREOF, the parties hereto have caused this AMENDMENT NO. 1 TO
THE COMMON STOCK PURCHASE WARRANT identified above to be executed by their
respective authorized officers as of the date first above written.
THE COMPANY:
-----------
VIEW TECH, INC.
By: /s/ Ali Inanilan
-------------------------------
Name: Ali Inanilan
Title: Chief Financial and
Administrative Officer
THE HOLDER:
----------
IMPERIAL BANK
By: /s/ Paula J. Barysauskas
-------------------------------
Name: Paul J. Barysauskas
Title: Vice President
<PAGE>
EXHIBIT 10.2
Exhibit B
---------
AMENDMENT NO. 1
---------------
to
COMMON STOCK PURCHASE WARRANT
for the purchase of
COMMON STOCK
of
VIEW TECH, INC.
(A DELAWARE CORPORATION)
ORIGINAL ISSUE DATE: NOVEMBER 21, 1997
AMENDMENT NO. 1, dated as of October 14, 1998, to the Common Stock
Purchase Warrant, dated as of November 21, 1997 (the "Warrant"), issued by VIEW
-------
TECH, INC., a Delaware corporation (the "Company"), to BANKBOSTON, N.A. or
-------
registered assigns permitted thereunder (the "Holder").
------
The Company and BankBoston, N.A. have agreed to amend the Warrant as
follows, such amendment to be effective on and as of the date hereof:
Section 1 of the Warrant is hereby amended by amending and restating the
---------
defined term "Purchase Price" to read in its entirety as follows:
--------------
"Purchase Price" means $4.50, subject to automatic adjustment
--------------
from time to time in accordance with Section 3.
---------
Except as otherwise expressly provided by this Agreement, all of the terms
of the Warrant shall remain unchanged.
<PAGE>
2
THE VALIDITY, CONSTRUCTION AND PERFORMANCE OF THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE
APPLICABLE TO CONTRACTS EXECUTED IN AND TO BE PERFORMED ENTIRELY WITHIN SUCH
STATE, WITHOUT REFERENCE TO ANY CHOICE OF LAW PRINCIPLES OF SUCH STATE.
IN WITNESS WHEREOF, the parties hereto have caused this AMENDMENT NO. 1 TO
THE COMMON STOCK PURCHASE WARRANT identified above to be executed by their
respective authorized officers as of the date first above written.
THE COMPANY:
-----------
VIEW TECH, INC.
By: /s/ Ali Inanilan
-----------------------------------
Name: Ali Inanilan
Title: Chief Financial and
Administrative Officer
THE HOLDER:
----------
BANKBOSTON, N.A.
By: /s/ Frank Gianino
-----------------------------------
Name: Frank Gianino
Title: Vice President
<PAGE>
EXHIBIT 10.3
SEPARATION AGREEMENT
--------------------
This Separation Agreement (the "Agreement") is made effective as of the
31st day of August, 1998, by and between View Tech, Inc., a Delaware corporation
(the "Company"), and David A. Kaplan, an individual residing at 22 Jackson
Drive, Acton, MA 01720, (the "Executive").
A. The Executive is employed by the Company as its Chief Financial
Officer.
B. The Executive and the Company have determined that it is in their
mutual best interests for the Executive to resign from his position as an
employee and Chief Financial Officer of the Company, on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Executive
agree as follows:
1. Termination of Employment as Chief Financial Officer. The Executive
----------------------------------------------------
hereby resigns from his positions as an employee and Chief Financial Officer of
the Company and from any other position he may hold with the Company, its
subsidiaries or on behalf of the Company or its subsidiaries, effective as of
the date of this Agreement, and the Company hereby accepts such resignations.
The Executive acknowledges that no salary, deferred compensation,
business expenses or any other compensation or payments are or may be payable to
him on account of his employment with, service as Chief Financial Officer of, or
stock or other equity ownership or interests in, the Company, except as
specifically set forth herein.
2. Severance Payment. Subject to the terms and conditions of this
-----------------
Agreement, the Company shall continue to pay the Executive, as severance, the
Executive's salary as in effect immediately prior to the date of this Agreement,
until March 5, 1999, payable at such times and in such manner consistent with
the Company's payroll practices in effect from time to time, less any amounts
required to be withheld under applicable law.
3. Continuation of Benefits. Subject to the terms and conditions of this
------------------------
Agreement, the Company shall continue the Executive's current health insurance
coverage, until March 5, 1999, on the same terms and conditions (including any
co-pay requirements) as in effect immediately prior to the date of this
Agreement.
4. Release. Simultaneously with the execution of this Agreement, the
-------
Executive shall execute the General Release in the form annexed hereto.
5. Confidentiality of Agreement. The parties hereto agree to maintain the
----------------------------
confidentiality of this Agreement. The terms of this Agreement will not be
disclosed to any person, except to immediate family members, to legal or
financial advisors, to meet bona fide
<PAGE>
tax, financing or other business requirements of any party, or as may be
required by law or applicable rules and regulations of the Securities and
Exchange Commission and other regulatory or administrative bodies.
6. Nondisparagement. Each party agrees not to make any statements,
----------------
written or oral, which denigrate, disparage or otherwise criticize the other
party, their respective affiliates or subsidiaries or the officers, directors,
employees, agents or representatives of any of the foregoing.
7. Confidential Information. The Executive acknowledges and agrees that
------------------------
the confidential information of the Company is of vital importance to the
Company's competitive situation and its good will and that unauthorized use or
divulgence of such information would cause the Company substantial damage. The
Executive agrees that he shall not, at any time, use for his own purposes or
reveal to any person, firm, corporation or other organization any of the trade
secrets or confidential information concerning the operations, business or
finances of the Company, or any developments, inventions, processes,
improvements or methods of the Company, except as may be in the public domain
through no fault of the Executive. The Executive represents that he has
delivered to the Company any and all originals and all copies of notes,
memoranda, specifications, programs, data or other materials of the Company
embodying or containing any of the foregoing trade secrets or confidential
information, it being agreed that all of the foregoing shall be and remain the
sole and exclusive property of the Company.
8. Return of Documents. The Executive shall immediately deliver to the
-------------------
Company all tangible materials in his possession or control which relate in any
way to the business, operations or properties of the Company or any of its
subsidiaries or affiliates, including without limitation, all books, plans,
records, correspondence, notes, agreements, computer software, memoranda and
contracts, and all copies and reproductions thereof.
9. Cooperation. The Executive agrees, from time to time, at the Company's
-----------
request, to provide the Company with reasonable cooperation and assistance in
the defense or prosecution of any lawsuits heretofore or hereafter brought
against or by the Company arising out of or relating in any way to events,
actions, practices or policies of which the Executive is knowledgeable or has
any relevant information, such cooperation and assistance to include, but not be
limited to, attendance at and participation in meetings with legal counsel,
depositions, hearings and trials relating to such matters. The Company agrees
to reimburse the Executive for all out-of-pocket costs and expenses reasonably
incurred by the Executive in rendering the foregoing cooperation and assistance.
The Executive further agrees that he will never, individually or with
any person, commence, aid in any way (except as required by legal due process),
prosecute or cause to permit to be commenced or prosecuted against the Company,
its subsidiaries, affiliates, or any officer, director or employee of any of the
foregoing, any action or other proceeding based upon any claim which is the
subject of the Release referred to in Section 4.
10. Further Assurances. In addition to the actions, agreements and
------------------
documents specifically required to be taken or delivered pursuant to this
Agreement, the Executive shall
-2-
<PAGE>
execute such other agreements and documents and take such further actions as may
be required by the Company to carry out the provisions of this Agreement and the
transactions contemplated hereby.
11. Governing Law; Jurisdiction. This Agreement shall be governed by and
---------------------------
construed in accordance with the laws of the Commonwealth of Massachusetts,
without regard to its conflicts of law principles.
12. Entire Agreement. This Agreement embodies the entire agreement and
----------------
understanding between the parties with respect to the subject matter hereof and
supersedes all prior agreements and understandings (written or oral) with
respect to such subject matter, including without limitation any employment or
severance agreements between the parties.
13. Waiver. Unless specifically waived in writing, the failure of any
------
party at any time or times to require performance of any provision hereof shall
in no manner affect that party's right at a later time to enforce such
provision. No waiver by any party of the breach of any term or covenant
contained in this Agreement, whether by conduct or otherwise, in any one or more
instances shall be deemed to be, or construed as, a further or continuing waiver
of any such breach, or a waiver of the breach of any other term of covenant
contained in this Agreement.
14. Notices. All notices, requests, demands and any other communications
-------
hereunder shall be made in writing and shall be deemed to have been duly given
if delivered or sent by prepaid registered or certified mail, if to the Company
addressed to the Company at its principal executive office, and if to the
Executive addressed to him at the address shown in the first paragraph of this
Agreement. Any party may change its or his address for notice hereunder by
giving notice of change of address in the manner herein provided.
15. Binding Nature. This Agreement shall be binding upon and inure to the
--------------
benefit of the Executive and his heirs, executors, administrators and personal
representatives, and shall be binding upon and inure to the benefit of the
Company and its successors and assigns.
16. Amendment. This Agreement may be amended, modified, superseded,
---------
canceled, renewed or extended, and the terms or covenants hereof may be waived,
only by a written instrument signed by all the parties hereto, or the case of a
waiver, by the party waiving compliance.
17. Severability. If any of the provisions of this Agreement are held by
------------
a court of competent jurisdiction to be invalid, void, unenforceable or against
public policy for any reason, the remainder of the provisions shall remain in
full force and effect and shall in no way be affected, impaired or invalidated,
and such court shall be empowered to substitute, to the extent enforceable,
provisions similar thereto or other provisions so as to provide to the parties,
to the fullest extent permitted by applicable law, the benefits intended by such
provisions.
18. Headings. The paragraph headings contained herein are for convenience
--------
and reference only, and shall be given no effect in the interpretation of any
term or condition of this Agreement.
-3-
<PAGE>
IN WITNESS WHEREOF, the undersigned parties hereto have executed this
Agreement or caused this Agreement to be executed by a duly authorized officer
as of the date first written above.
VIEW TECH, INC.
/s/ David A. Kaplan /s/ Franklin A. Reece, III
- -------------------------- ------------------------------------
David A. Kaplan Franklin A. Reece III
Dated: October 5, 1998 Its: President and COO
-------------------- --------------------------------
Dated: September 18, 1998
------------------------------
-4-
<PAGE>
EXHIBIT 10.4
GENERAL RELEASE
Reference is hereby made to a certain Separation Agreement of even date
herewith (the "Agreement") between the undersigned and View Tech, Inc., a
Delaware corporation (the "Company").
In consideration of the Company's agreement to provide severance payments
and other benefits under the Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, I
hereby remise, release and forever discharge the Company and its affiliates and
subsidiaries, and all of the officers, directors, employees, legal
representatives, successors and assigns of each of the foregoing (both
individually and in their official capacities) from any and all debts, demands,
actions, causes of action (including but not limited to claims for attorneys'
fees and for punitive damages), suits, accounts, covenants, agreements, demands,
and any and all claims, demands and liabilities whatsoever of every name and
nature, specifically including claims under the Age Discrimination in Employment
Act, both in Law and in Equity, which against them or any of them, I now have or
ever had from the beginning of the world to this date and more especially on
account of or in connection with my employment and termination from employment
by the Company and any and all acts, incidents and/or occurrences which took
place during the term of my employment, including, without limitation, any and
all claims based on an alleged violation of any local, state or federal laws,
regulations or ordinances in connection with the termination of my employment
with the Company, and any and all claims for breach of any alleged contract,
agreement or understanding, whether oral or written, having any bearing
whatsoever on the terms and conditions of my employment with the Company.
However, I do not remise, release or discharge claims for the enforcement of the
Agreement.
I acknowledge that I have been advised by the Company that I should consult
an attorney concerning this Release.
I further agree and understand that I have been given a period of at least
21 days within which to consider the terms of this Release. I agree and
understand that if I sign this Release before 21 such days have elapsed, then my
signature will be treated as effective by the Company because I will have waived
the 21 day period. I agree and understand that for a period of 7 additional
days after signing this Release, I have the right to revoke it. I understand
that any revocation, to be effective, must be in writing and must be addressed
to Franklin A. Reece, President of the Company.
I HEREBY ACKNOWLEDGE THAT I HAVE TAKEN A SUFFICIENT AMOUNT OF TIME TO
CAREFULLY AND THOROUGHLY REVIEW THIS RELEASE, THAT I HAVE READ THIS RELEASE AND
UNDERSTAND ALL OF ITS TERMS AND CONDITIONS AND THAT I HAVE SIGNED THIS RELEASE
OF MY OWN FREE WILL AND NOT UNDER ANY DURESS FROM ANY REPRESENTATIVE OF THE
COMPANY OR ANY OTHER PERSON.
-1-
<PAGE>
I HEREBY WAIVE ANY CLAIM FOR REINSTATEMENT BY THE COMPANY TO MY FORMER
POSITION.
Signed in the Presence of: Witness my Hand and Seal:
October 5, 1998 /s/ David A. Kaplan
- --------------- -------------------
David A. Kaplan
Dated:
-2-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM
10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JUL-01-1998 JAN-01-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<CASH> 802,536 802,536
<SECURITIES> 0 0
<RECEIVABLES> 14,443,444 14,443,444
<ALLOWANCES> 724,637 724,637
<INVENTORY> 4,012,588 4,012,588
<CURRENT-ASSETS> 19,030,692 19,030,692
<PP&E> 8,793,863 8,793,863
<DEPRECIATION> 5,163,191 5,163,191
<TOTAL-ASSETS> 25,755,887 25,755,887
<CURRENT-LIABILITIES> 16,034,842 16,034,842
<BONDS> 0 0
0 0
0 0
<COMMON> 689 689
<OTHER-SE> 5,156,712 5,156,712
<TOTAL-LIABILITY-AND-EQUITY> 25,755,887 25,755,887
<SALES> 14,817,461 43,327,871
<TOTAL-REVENUES> 14,817,461 43,327,871
<CGS> 7,600,287 20,620,986
<TOTAL-COSTS> 14,196,497 46,433,305
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 123,465 417,676
<INCOME-PRETAX> 497,499 (3,523,110)
<INCOME-TAX> 0 3900
<INCOME-CONTINUING> 497,499 (3,527,010)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 497,499 (3,527,010)
<EPS-PRIMARY> 0.07 (0.52)
<EPS-DILUTED> 0.07 (0.52)
</TABLE>
